Union Pacific Corporation (UNP) Q4 2007 Earnings Report, Transcript and Summary

Greetings, ladies and gentlemen, and welcome to the Union Pacific Fourth Quarter 2007 Earnings Release Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal of presentation. Please note that slides for this presentation are user controlled. [Operator Instructions]. It is now my pleasure to introduce your host, Mr. Jim Young, Chairman and CEO for Union Pacific. Thank you. Mr. Young, you may begin.

Good Morning, everyone. Welcome to Union Pacific’s fourth-quarter earnings conference call. With me this morning are Rob Knight, our CFO; Jack Koraleski, Executive Vice President of Marketing and Sales; and Dennis Duffy, Executive Vice President of Operations. Today, we're reporting record quarterly results despite facing some challenges in the quarter. In the fourth quarter, Union Pacific earned $1.86 per share, a 4% increase over 2006. Rob will provide you with the details on how record highs fuel prices, the economy, and weather impacted earnings, but there were basically four major drivers to this quarter. Rapidly rising diesel fuel price was a major challenge, especially with the two-month lag in the majority of our fuel surcharge program. Fourth quarter carloadings were up nearly 2.5% coming into December, but we ended the quarter roughly flat after being impacted by winter weather in December and some economic softness. Operationally, we improved across-the-board. Our service metrics, productivity measures, and customer satisfaction surveys all showed progress, and consistent with prior quarters coal price increases remained strong. Looking at our full-year results, our progress can be summarized by looking at the gain and return on invested capital of 0.5 point to 8.7%. We achieved this milestone by focusing on the key areas of our business that drive our results. We operated in safer railroad in 2007, improving safety for our employees, customers, and the public. We set new financial records for our company including net income of $1.86 billion, up 16% versus 2006. And we delivered better service for customers, which they recognized by giving us our highest ratings ever on their satisfaction surveys in 2007. The progress we made in these areas enabled us to deliver a 38% total return to our shareholders through stock price appreciation, a 47% dividend increase, and $1.5 billion of share repurchases. So with that, let me turn it over to Jack to talk about our revenue performance and our 2008 outlook. Jack?

Thanks, Jim. Good morning. Despite continued softness in some markets and challenging weather in December, our fourth quarter volume edged past a year ago. Average revenue per car improved 6%, driving similar improvement in commodity revenue, which is up $4 billion. Although volume was down a little over 1% for the full year, revenue grew to a record $15.5 billion as our ongoing efforts to drive yield improvement resulted in average revenue per car of $1,594. Improving service in 2007 helped create pricing opportunity even with softer market conditions as customers recognized greater value for their price dollar. And while we are pleased with the record revenue that we posted in 2007, the best true statement of our success is the satisfaction scores we received from our customers. Our satisfaction index improved over 2006 every quarter, and for the full year came in at 79, which is a new post-merger record. Now, let me take you through each of our six business groups with a look at how the fourth quarter played out and what we see ahead for 2008. Let's start with our Ag products business. Ag products revenue grew 7% in the fourth quarter to $719 million, with a slight increase in volume combining with a 6% increase in average revenue per car. Wheat exports, especially to the PNW and the Gulf, and ethanol and DDGs led the increases. Largely offsetting that growth were declines in three markets, domestic feed grain moves to Texas was up because there was a strong local crop in the Texas area. The cottonseed crop was smaller than a year ago because acreage was shifted to corn. And we moved fewer cars of import beer due to higher inventories and the elimination of the transload from plane to insulated boxcars at Longview, Texas, which reduced carloads, but actually increased our efficiency and profitability. Looking ahead to 2008, we expect continued growth in ethanol and DDGs. Ethanol demand is also going to drive growth in corn volumes with increased shipments to our forward [inaudible] ethanol plants on the West Coast. We stayed strong in the startup of our second [inaudible] train in February along with increased meat and poultry exports should help drive growth in the food products line. Turning to Automotive, a 7% increase in average revenue per car allowed our autos team to post a 4% increase in revenue, even as volume declined 2%. Vehicle shipment fell 6% as sales continued to soften. That decline was partly offset by a 2% increase in parts, as we saw continued success with the intermodal train service between Detroit and Mexico that we started up in conjunction with CSX earlier in 2007. Both vehicles and parts volumes are expected to decline in 2008, as U.S. vehicle sales are predicted to fall somewhere in the range of 15.5 million to 15.8 million vehicles. Our Chemicals markets have been the bright spot throughout the year. In fact it was our only business to post volume growth in all four quarters. For the fourth quarter, revenue grew 12% with volume up 5% and a 7% improvement in average revenue per car. While we saw strength pretty much across the board in the fourth quarter, a 23% increase in fertilizer led the way driven by strength in the export potash markets. Plastics volume was up 6% with both line haul and storage and transit moves favorably impacted by contracts that we renegotiated in 2007. Liquid and dry volumes grew 4% aided by caustic soda production, which shifted to the Gulf Coast. We're looking for our Chemicals markets to remain stable throughout 2008. Turning now to our Energy business, 4% growth in the Southern Powder River Basin coal drove an overall 2% increase in volume, more than offsetting disappointing Colorado/Utah loadings. Revenue grew 8% as the volume growth combined with a 6% increase in average revenue per car. Strong demand, consistent production, few weather incidents, and fluid train operations all combined to produce the best-ever quarter for the SPRB train, ton, and carloads. Mine production and coal quality problems held Colorado/Utah volumes 12% below a year ago. We did however achieve record average tons per train out of that region for… at just over 11,000 tons. Looking ahead, our Energy business looks like it's got the best growth prospects here in 2008. Although Colorado/Utah volume is currently expected to be flat, we're beginning to see some activity in the international markets that could be favorable for this coal. Strong demand should produce growth of about 5% for the SPRB and that growth outlook could be even a little stronger if we had fewer weather incidents and mine production problems than we experienced in 2007. For the first time since third quarter 2006, our Industrial Products business posted revenue growth up 1%, having a 3% increment in average revenue per car offset a 2% volume decline. Weak demand in the housing market continues to impact our lumber business and other construction related businesses and the paper market continued to shrink with the conversion from print to digital media. The good news was a 7% growth in stone volumes driven by pent-up demand from projects delayed by customer production issues and bad weather that had occurred earlier in the year. This is a group where I think it's important to note that the mix shift associated with reduced high revenue per car lumber and increased lower revenue per car stone impacted the average revenue per car in the quarter. It’s really not seeing the true price improvements that the Industrial Products team has been enable to achieve in very difficult market conditions. This is a business that of course is most sensitive to the economy and all indications are that softness in these markets is going continue to be a challenge throughout 2008. With a 5% improvement in average revenue per unit, Intermodal revenues grew 4% even though volume ran about 1% below last year. Continued soft import market produced a 3% decline in international volume. Economic softness also impacted our premium and domestic business, but despite that softness domestic volume was up 3% driven by growth in our legacy contract business. Although we look to Intermodal to be one of the long-term drivers of future growth, the outlook for Intermodal in 2008 is somewhat modest. While we expect to see some strengthening of the international market, our domestic volume is expected to decline a little due to businesses losses that we incurred in our IMC and truckload segment. Let me wrap up. As we went through each of the business groups, I highlighted our expectations for 2008, and here is how that shapes up in terms of our volume outlook for the year. As I said, our growth looks strongest in Energy and Ag is also looking pretty good for us. Chemicals and Intermodal have some upside and Autos and Industrial Products will likely see some further softening. Of course, the wild card is the economy. Clearly, there is a lot of concern about whether we'll avoid a recessionary downturn. Overall, volume is expected to be up 1% to down 1%, with the low side driven by a longer or deeper economic softness. As in the past, we expect the diversity of our franchise will help us weather a slower economy. But continued focus on driving every piece of business to our reinvestability threshold including the opportunity to re-price legacy contracts for about 6% of our revenue, we expect to see revenue growth in all six of our business groups in 2008. With that, I am going to turn it over to Dennis.

Thank you, Jack, and good morning. The operating team made significant improvements in 2007, concentrating on the core areas of safety, service, value, and leadership. Starting on slide 15 with an overview, employee, customer, and public safety programs made gains during 2007 with improvement in all three categories. Our employee incentive rate was in its lowest level ever. Focus around the prevention initiatives also paid dividends saving more than $11 million year-over-year, and despite increasing highway traffic and urban expansion, crossing incidents declined 9%. Public education programs and crossing closures during 2007 helped drive this improvement. Jack just talked to you about improved customer satisfaction ratings, which correlate directly with our service metrics. System velocity increased nearly 1.5 miles per hour, while terminal dwell time improved more than 2 hours to 25.1 hours. I'll talk later about capital. We are strengthening the infrastructure, debottlenecking key choke points, and positioning our railroad for resiliency and growth. In addition, we made strong productivity gains in all facets of our operations. As shown on slide 16, we improved freight car cycle time by 7% to best-ever levels. This is the result of our service initiatives such as improving our on-time spot and pull performance to our customers, lower car cycle time as reflected in our income statement in the form of lower rent expense, and it also helped our customers manage their freight car expenses. We've also increased train length in all of our networks. In the Powder River Basin, we moved 1 million more tons with 1.4% fewer trains per day. We added 10 intermodal boxes to every train allowing us to move about the same volumes, with 5% pure crew starts. And in total, first crew starts declined 4% on a 1% lower volume, better yet our rate of improvement accelerated throughout the year with more to come in 2008. And we adjusted the workforce to keep our cost more volume variable. We started the year with a train crew hiring plan of about 2300, but adjusted it down to less than 1400, letting attrition reduce our operating craft by about 475 people. Another key focus in our productivity efforts is fuel conservation, saving money as well as reducing emissions and then making it even more environmental and friendly relative to other transportation modes. Our 2007 consumption rate improved 2%, saving nearly 21 million gallons of fuel and $43 million. Key activities include Fuel Masters, which includes training, follow-up, and rewards the best engineers with personal fuel cards to fill their own vehicles, something very popular these days, technology improvements such as automated shutdown devices and our new hybrid switch locomotives that burn less fuel and reduce emissions. The fuel conservation speed initiative that analyzes specific corridors and finds opportunities to adjust these for the most efficient fuel consumption rates while protecting fluidity and [inaudible] management principles. Results so far are encouraging and should help us achieve another nice improvement in 2008. Moving now to capital on slide 18, we significantly strengthened our physical infrastructure during 2007. Through our maintenance programs, we reduced slow order delay of greater heavy haul corridors, rehab debilitated yards, and improve the overall maintainability of our network. Key capacity projects include [inaudible] clearances on the I-5 Corridor that were completed allowing us to run double stack trains between Los Angeles and Portland, 33 miles of double-track and various terminal enhancements on the Sunset Corridor, the third main line in the Powder River Basin joint co-line was finished and work started on a portion of the fourth main line. Although we acquired about 1000 new freight cars in 2007, our coal fleet declined nearly 12000 cars year-over-year as we scrapped older cars and terminated freight car leases. Finally, we acquired 300 new high horsepower units and 149 hybrid switch locomotives, all helping us to lower fuel consumption, reduce emissions, and improved reliability. We are offsetting this with retirements and lease turn backs with more to follow in 2008. Turning to 2008, despite the fact that Mother Nature has held us down just with mudslides in Oregon and severe winter weather in the Midwest to start the year, we are optimistic about the operational outlook. Our priorities remain straightforward, achieve unprecedented levels in all areas of safety, continue productivity trends, and whether volumes pick up or slowdown become more volume variable regardless of volumes, continue to provide a better service product to our customers, and make a strong investment in our network further improving our infrastructure. With that, I will pass it to Rob for the numbers.

Thanks, Dennis, and good morning. Fourth quarter earnings totaled $1.86 per share. That compares to 2006 earnings for $1.78 per share, which was slightly better than we were anticipating in mid-December. As I walk through the quarterly drivers, I'll point out a couple of good news items that drove the upside, but it primarily relates to better operating productivity with some additional benefit from other income and a small insurance settlement. Moving now to the top of the income statement, operating revenue grew 6% in the fourth quarter to nearly $4.2 billion. Quarterly operating expenses also increased 6%, primarily as a result of a 30% increase in fuel and utilities expense. Through our continued focus on efficiency and returns, we overcame both fuel and weather challenges in the fourth quarter to produce record operating income of $864 million, up 7%. Let’s turn to slide 23 and the drivers of the fourth quarter commodity revenue. Revenue grew 6% to just over $4 billion on flat volume. Revenue growth would have been even greater had it not been... had we not lost an estimated 30... excuse me, $20 million or so from the impact of the December storms on coal and grain loading. Average revenue per car increased 6% year-over-year, with improvements in each of our six business groups. Continued efforts to increase coal prices was the primary driver of the gain. Moving to expenses, fourth quarter salaries and benefit expense totaled $1.1 billion, a 3% decline. Our labor productivity continued to improve in the quarter. Although volume was roughly flat year-over-year, we reduced our workforce more than 3%. As you just heard from Dennis, in a lighter volume environment we drove productivity by significantly reducing train starts. Training costs were also lower year-over-year as aligned our workforce needs with business levels. In addition to training reductions, we reduced our non-operating workforce as we continued to improve our overall organizational effectiveness. Wage inflation did offset some of these productivity gains. Looking ahead, we will continue to increase productivity. Actual workforce levels in 2008 will depend upon volumes. These two variables will move together directionally, but it won't be a one-for-one. In other words, we'll achieve greater workforce productivity relative to the volume changes. On the next slide, we show our average monthly diesel fuel prices for the last seven months of 2006 and 2007. This illustrates the large year-over-year price spike we experienced in the fourth quarter. Unlike 2006 when prices began declining in the fall, diesel fuel prices increased dramatically in the last few months of 2007. Our average price per gallon started at $2.44 in October, rising to $2.66 in November, and ended the year at $2.68 in December. In fact, we paid an average of $2.59 per gallon for diesel fuel in the fourth quarter, a 34% increase from 2006. Because of the two-month lag in the majority of our fuel surcharge mechanism, the increased cost associated with these rising prices could not be recovered in the fourth quarter. Equipment and other rent was down $2 million in the fourth quarter. We reduced car hire expense as a result of faster asset turns and lower freight car inventories. Expenses for car and container leases were also lower in the quarter due to fewer leased unit. These gains were partially offset by higher locomotive lease expense. Moving now to slide 27, purchase services and other expense, this category declined 3% or $15 million to $431 million. Although we had initially expected cost to increase in this category, several different factors combined to drive the year-over-year change. Casualty expense was roughly $10 million lower in the quarter as a result of improved safety and lower freight claims. In addition, a small insurance settlement, increased productivity, lower volumes, and a couple of other items contributed to the decrease. For 2008, we will have an excess headwind in our casualty line. As you recall, in the first and third quarters of 2007, we recorded casualty expense reductions totaling $77 million as a result of semiannual actuarial studies. Although we expect some ongoing benefit from our improved safety performance, we won't be able to completely offset these headwinds. The net result of a 6% increase in both operating revenue and expense is our fourth quarter operating ratio of 79.4%. This slide illustrates the drivers of our operating ratio. Although coming into the quarter, we expected high fuel prices to be a challenge. The sharp spike in prices had a greater than anticipated impact. In total, higher fuel prices added 3.6 points to our fourth quarter operating ratio. The carloading impact of the December storms also pressured our operating ratio adding almost half a point. The good news is that we've more than offset the challenges of fuel and weather primarily through operating revenue growth and productivity gains. On the next slide, slide 29, we show our fourth quarter income statement. Fourth quarter other income totaled $40 million. Although this is slightly higher than expected due to some December real estate transaction, it is $17 million lower than last year's fourth quarter. Interest expense totaled $125 million, up 6% as a result of higher debt levels. Income taxes grew 4% to $779 million. Higher pretax income and a higher year-over-year effective income tax rate of 37% drove the increase. If you step back and look at our results on a full-year basis, 2007 marked another year of solid gains. Over the past two years, we've taken 7.5 points off of our operating ratio, more than 2 points in 2007. Everyone in Union Pacific is committed to continuing this improvement trend as we focus on profitable topline growth and ongoing productivity gains. Slide 31 shows our full-year income statement. Operating revenue grew 5% in the year to a best ever $16.3 billion. Operating expenses were up 2% with higher diesel fuel prices accounting for much of the year-over-year increase. Other income was down slightly in the year at $116 million. For 2008, our current thinking is that this number will be more in the range of $50 million to $75 million. Interest expense increased $5 million as we added $900 million of long-term debt to the book. Income taxes grew 26% to $1.2 billion as a result of a higher effective tax rate in 2007 and increased pretax earnings. And in 2008, we are expecting a tax rate of about 38%. 2007 net income was up 16% to a best ever $1.86 billion. Full-year earnings per share totaled $6.91 per share, a 17% increase. Turning now to cash, we've grown cash from operations nearly $700 million since 2005 to $3.3 billion. This includes the impact of slight… of significantly higher cash taxes. Between 2005 and 2007, our cash tax rate increased from about 2% to 28% as we used up our AMTs and NOL credits from prior years. We continue to take a balanced approach to the uses of our cash with a combination of capital investments, dividend increases, and share repurchases. In 2007, total capital came in around $3.1 billion, $2.5 billion of cash capital plus, another $600 million in non-cash capital, primarily for equipment leasing. We haven't finalized our 2008 capital plans yet, but our current thinking is that spending will be roughly equal to 2007 levels. Similar to prior levels… our prior years, the total investment will include some combination of cash capital and leasing. We will provide more details about our capital plans in the coming months. As we announced last November, we are also using our cash to pay higher dividends. We increased our quarterly dividend to $0.44 per share. This was our second dividend increase in 2007, resulting in a total increase for our shareholders of 47%. Another use of cash is our share repurchase program. We continued to purchase shares during the fourth quarter buying back 2.4 million shares of UP common at a total cost of about $305 million. Since instituting the program in January of 2007, we've repurchased 12.6 million shares. We are committed to rewarding our shareholders as illustrated by the nearly $1.5 billion of cash that we returned through repurchases in 2007. Turning to slide 34, we show our total debt levels. In 2007, our total debt related obligations increased about $1.2 billion. This drove our lease adjusted debt-to-cap ratio 2 points higher to 43.6%. For 2008, we see a number of variables that will drive our results. Jeff talked about our volume outlook. Of course with 11 month left in the year, any number of things could happen that would change our volume expectation. It really depends upon how long the economy stays off, how soft it gets, and the overall demand levels for less economically sensitive goods such as coal and grain. As Dennis discussed, we're trying to be more volume-variable as an organization. Volume growth not only drives revenue, but also productivity. We are confident in our ability to improve our operating ratio in 2008 through better returns on our business and increased productivity. The level of the improvement however is hardly gauged today, given the uncertainty with volumes and fuel prices. We are currently forecasting 2008 diesel fuel prices will average 15% to 20% above our 2007 price of $2.24 per gallon. But if prices differ from this estimate, it could impact our earnings for the year. Taken together, we believe our 2008 earnings should be in the range of $7.75 to $8.25 per share. This result would drive another year of strong ROIC growth in 2008. This slide reflects the financial strength and flexibility of Union Pacific. Coming off 2007 where we grew earnings 17%, we are forecasting another strong year of earnings growth in what may be a tougher economic environment. We believe we can achieve these results because of our focus on efficiency, our dedications to returns, and the diversity of our franchise. Looking at our first quarter outlook on slide 36, we would expect earnings in the range of $1.50 to $1.70 per share. The key drivers of this earnings range are volume and diesel fuel prices. To reach the high into range, we’d expect to see around 2% volume growth. We would also need fuel prices to stay around the current January average of $2.68 per gallon. Factors that could push us to the lower end of the range would be slower volume growth or rising fuel prices. If diesel fuel prices increase in February or March, we would not recover that incremental cost until the second quarter. As I mentioned earlier, we do have a challenge in the first quarter from last year's casualty expense reduction, which totaled $30 million. In addition, demand for coal and intermodal carloads, which have a lower average revenue per car, could impact our business mix and be a drive on earnings. This mix effect may be magnified by this less demand for higher average revenue per carload such as lumber and finished vehicles. Although, we clearly expect our strong trend of productivity improvements to continue, those gains were likely to be matched in the first quarter by increased casualty expense and higher fuel prices. Beyond the first quarter, we would expect the pace of operating ratio improvement to accelerate. So let me turn it back over to Jim for some closing comments.

Thanks, Rob. What you've seen in our results and heard from the team today is that 2007 was a good year. We achieved a number of financial and operational milestones in a more difficult business environment. We expect 2008 will be another record year, even with some ongoing challenges. As Rob walked you through our outlook for the year, he talked about the expected headwinds of the economy and higher diesel fuel prices. Another issue in 2008 is the regulatory environment in Washington. The STB just issued another decision on Cap M last week and we expect Congress to refocus on the rails when they're back in session. No matter how you look at it though, rails must be part of the solution to addressing America's need for increased trans-station infrastructure. These challenges are largely external factors. Our opportunities, however, are within our control, and we have initiatives underway that will drive record performance in 2008 and beyond. So with that, we've got some time here to take a few questions. Question and Answer

Thank you. [Operator Instructions]. Our first question comes from the line of William Greene with Morgan Stanley. Please go ahead with your question.

Yes, good morning. I'm wondering if you can talk a little bit about the operating plan and what sort of metrics we can watch for as fluidity improves? How that sort of benefits itself from the financials? Whether you want to think about cost per carload or cost per GTM, how much improvement is there left to go?

Well, Bill, we’ve set a minimum goal here of offsetting inflation when you think about productivity. And again, as Rob had mentioned, Dennis walked through... this business is also a function of volume, and at the higher end of the volume you can see some pretty decent improvements in unit cost. If volume is soft, there will be a challenge, but overall a good planning tool for me is to offset inflation.

Okay. And then if we get the investment tax credit passed by Congress, how would that affect how you’d think about your CapEx spend?

Well, we've got a list of projects that clearly we would take a very hard look at accelerating and make the right decisions. We, as Rob mentioned, are... well, we don't have Board approval on our capital, we are looking about the same level this year. These are strategic investments when we look at it. We are going to take a hard look at some of the shorter-term areas like locomotives will be lower locomotive line next year, freight car rebuilds will be reduced… or this year, but we have some opportunities.

Just one last question, mixed price, how does it affect your average revenue per car in the fourth quarter?

I think overall when you look at the fourth quarter, our average revenue per car shows you about what our core price improvement was, and I think our negative mix effect offset some of the upset we took from fuel surcharge.

Okay. Thanks for your help.

Thanks, Bill.

Our next question comes from the line of Ed Wolfe with Bear Stearns. Please go ahead with your question.

Hi. Good morning, everybody.

Good morning, Ed.

Hey, Jim, with the guidance, it looks like for the first quarter you are giving volume guidance as 0 to 2 and then for the full year minus 1 to positive 1, a little less than that. What is it that you see that makes volume more challenging as you go throughout the year? I would think the comps get easier as maybe economy improves if anything.

Well, Ed, a year ago, we were battling some pretty major weather issues up in the coalmines. So your comps are a little bit easier so far in January. In fact, I think if you look our carloads that were produced yesterday shows up about 3% I think overall for the month, 2% or 3%, and we are being cautious on the rest year in terms of the economy that... and there is a lot of winter left here in February, March. So right now, in the surplus, volume looks a bit... it is little bit stronger than we have in the plan, but I will be careful about projecting that up for the full year.

Is there some makeup from the $20 million you lost in the coal and grain loadings?

Not in coal. We... the coal demand right now given… with the coal production mine, you’ve got plenty of demand there and we are handling every carload we can. There may be a little bit of carryover at Ag that's out there, but we're expecting a pretty strong… still a pretty strong year for Ag overall.

Okay. And on the... Jack talked about some business losses in truck and domestic intermodal. Is that in the thought process? And what were those losses, can you talk a little bit about that?

Well, I'll let Jack talk about this specifics here, but I will come back to... we're not going to chase business with price. And when you look at the domestic products out there, what's happening with truck capacity and recently in the trucking side we have lost some business out there. And again, that may continue the rest of the year, but we are staying very focused on our price and our return requirements. Jack, do you want to provide any--?

Ed, I think, Jim just sums it up. We did lose a piece of the business. We couldn't get to our reinvestability threshold on it, and so it is not going to be on the [inaudible] next year, but other than that we think the business environment is still very solid for intermodal. There is plenty of opportunity for us and there won't be an issue.

What kind of a business was it, IMC or truck, and when did you lose it?

It was truckload business.

When did you lose it?

We are losing it this year.

Okay. Separately, Rob, in one of your slides you talked about the OR impact from fuel in the fourth quarter of 3.6 points. If my math is correct, that's $151 million or $0.36. Was that really due to the impact at this timing of the fuel surcharges in the quarter?

It gives an easier comp, Ed, and then we look at it year-over-year. That's roughly the right math, but you got to look at what happened last year, which was basically just the opposite.

Okay. But I was thinking that you would see a large part of that invert as now you’ve… the surcharges charge catch up in the first quarter. That should a pretty good positive. Am I looking at that correctly?

Ed, the way it goes to work, we are getting a stronger level of fuel surcharge, but you don't see it at the bottom line and so actually fuel prices drop because as well fuel surcharge is higher as a result of that higher fourth quarter price. The fuel price itself is also higher because it needs to be high. So you don't see the net benefit flow to the bottom line until such time as fuel prices were to drop.

And Ed, keep in mind, we are not recovering 100%. With our legacy contracts and the things we have out here we make good progress, but we are still not at a 100% fuel recovery.

What percentages are you at?

We are running probably at that 85%, 90% range.

Right. Can you give an update on the Sunset and the timing right now, where it looks like you'll be complete with the double track there?

Dennis, you want to take that one.

Yes. As I said, we’ve completed about 33 miles, but we made major improvements also on our terminal. And if you remember, part of the original plan was to balance the double tracking along with our terminal improvements in our infrastructure. So in '07, we make good improvement in West Colton, Yuma, Tucson, El Paso, along with the 33 miles. Now, we are still sticking to the time frame of 2010, 2011 first part. We are going to do a substantial piece of grading this year, so that we can look at the pace of construction and we will be responsive accordingly, but right now we are still sticking to our original plan.

All right. One last one and I'll let some one else have it. It looks like if your headcount is down. You guys had a much better year than most of the other rails. Everyone seem to not be getting bonuses. What was your bonus comp like? It seems like you have earned some this year relative to last year.

Well, we are still waiting for our Board to approve our performance next week. So we will just… we will wait to see how they see our results.

But in terms of what was accrued in the fourth quarter, the incentive comp or bonus comp, up, down, flat--.

It's up a little bit to a year ago.

Okay. Thanks a lot, guys.

Our next question comes from the line of Ken Hoexter with Merrill Lynch. Please go ahead with your question.

Great. Good morning. On your pre-announcement I guess just maybe a month ago on December 19, it looks like you’ve lowered the range to $1.70, $1.80, and here you are posting above it. I just want to understand what happened in the last couple of two weeks that surprised you on the upside, just given that volumes you booked continued to become weaker in those last two weeks? Thanks.

Well, Ken, Rob had mentioned our overall productivity and cost numbers came in a little bit better. We did a little bit better on other income, real estate. We had a small insurance settlement. But I will tell you, we were sitting, as I mentioned, at the end of November with our volume up 2.5%, and quite honestly we were feeling very good about our guidance. And within about a two-week timeline, I think it turned from volume up to just about flat. Now, we... and when you look at the numbers here, the real driver was fuel. We had enough I think potential to deal with winter weather, you have winter every year, and we had enough I think momentum to deal with the weather issues, but fuel really caught us. So I don't deny... I understand we're only two weeks out, but to just give you some perspective on the volatility in this business on a two or three-week timeline. Rob, I mean do you want to--?

Yes. In fact, you're right generated. Just a penny here and a penny there, but the big driven in terms of the delta that finished strong of course in the quarter was on the cost side. I mean productivity came in strong and as Jim mentioned there were one or two items that came in a little earlier than we anticipated, a minor insurance settlement, a minor real estate transaction came in a couple weeks earlier than planed, and you add it all up it pushed us above that revised guidance.

Great. And if I could just delve into, Rob, on some of the commodities, if we look at Auto, Chemicals, Intermodal, yields were stronger than some of the other commodity basis. Is there... were there more contract renewals or anything else we can highlight as to what would be driving that pricing a bit stronger than some of the others? And then while we are talking about that, can you just speak on the coal side, did I catch that you said you are going to either start exporting more PRB coal out of the West Coast or have you already started to see that demand hit? I'm just thinking that that's a newer potential growth area for you.

Jack, why don't you take that?

Ken, we did have a couple of legacy contracts in the Intermodal and Autos world that renewed last year that provided a little additional upside therefore for us and actually Chemicals as well. So I think some of the legacy stuff gave us a leg-up on some of those areas. We are looking at West Coast exports, we are looking at moving some coal right now out of Utah moving it over to Long Beach and testing that and see how it works out. Right now, it is not a big issue for it us. It's not huge opportunity, but we have to be very careful and watch how the international market play themselves out and how well that works for us.

Okay. Of the 6% that renews this year, is there any particular commodity group that you see?

We’ve got some Coal business, we’ve got some Autos business, we’ve got some Intermodal business, those are really kind of the top three. And I think if you’ll recall from some of our earlier presentations, those are places where we have the greatest opportunity in terms of legacy contracts.

One last I guess technical question for Rob. On the other income I think you threw out $50 million to $75 million number. I'm just wondering why you would look to that to be down from $100 plus million run rate you had I guess the last three, four years?

It is just our outlook, Ken, in terms of real estate transactions that we see in front of us as opportunities.

Okay. Thanks a lot. Thanks for the time.

Our next question comes from the line of Thomas Wadewitz with JPMorgan Chase. Please go ahead with your question.

Yes. Good morning.

Good morning Tom.

Let's see, I wanted to see if you could give a few thoughts on the kind of pure price or effective price that you'd expect to get in 2008? I think that comment implies you get about 6% that would have been effective price in the fourth quarter. And I'm wondering that kind of pace is reasonable to expect in '08, and also what kind visibility you have in terms of carry through from '07 or contract you have already signed up, how much visibility do you already have to pricing in '08?

When you look out next year, core price that excludes fuel we are looking in at 5% to 6% range. There is two primary drivers there; one, our legacy contracts as we’ve talked about; two, our service metrics continue to improve, which brings some value. We are seeing some direct connection there in terms of our ability to get some price for the value of the service, while perhaps it could be volume and the economy where you could see a little bit of softness in some areas. Overall, Jack, our… right now when you look at probably what’s locked in, I think we are in that probably little less than half, 40%, 50%, that's what we already really have in the book so far. Jack, do you want include anything here?

Sounds good to me.

Okay. And I guess the subtlety within the way you are looking at price, are you including... are you rebasing the fuel surcharge level moving that up in your contract that you resigned? And if you're doing that are you including that in the fuel price? It's kind of a technical thing, but I just wonder how… what you're doing with that and how you are doing that?

The rebasing of the fuel surcharge is not included in what we target ourselves for our core price improvement.

Are you doing that or you taking the base time level from 25 a barrels or 50 a barrel or something like that? I know you do it in probably diesel, but the equivalent?

It’s pretty a situational. For the most part that's the direction we are going from. But we work with customers and we look on each individual contract and the competitive situations to determine how we lay out the fuel surcharge.

Okay. On headcount, you’ve had some very good traction in the third quarter and fourth quarter in headcount reductions. And I am wondering how you look at that in '08? Should we expect another two quarters of probably 2.5%, 3% reduction in average headcount and then maybe that slows down into half, or... how do you look at the headcount in '08?

We expect increasing productivity per employee this year. Rob did mention our non-operating force levels were lower. We have underway an initiative called... looking at organizational effectiveness. We will continue to make some good progress this year, really working through really our overall cost base. Again, part of this will be a function of volume mix here. We should be able to absorb a volume with the current force count that's out here, but again you'll see increased productivity. I'm not going to give you a projection here right now, I... we’ve got a lot of opportunity and I think you will be pleased to see the results.

How much was the non-operating exchange and when did that take place?

It was about 300--.

It was about 250 to 300 non-operating headcount. And as Jim mentioned, Tom, we are very focused on… as you’d expect we are focused on ensuring organizational efficiency and effectiveness and we touched about 250 to 300 non-operating jobs as part of that process and we will continue that effort.

Was that impact primarily starting in the third quarter or was it earlier than that?

It's the second half.

Second...

John, that's about 3% of our non-operating force. So I think that we’ve got to be careful on... we didn’t cut headcounts. In this business we know it’s just pretty easy to go out and and cut jobs. What we have got to do is make it certain we maintain enough surge capacity when business does come back strong that we can handle it efficiently and you take them out at right places. So we're working very hard at taking a look at really every position in the company and asking ourselves the question what is the value, can we do it better, can we basically eliminate the work in a lot cases. So it’s a... we've been working on this over a year on the organizational effectiveness piece, and I am really excited about some of the things that we see on the table for this year.

Okay, I got... just one last one and I'll turn it over to someone else. You talked about the IMC or I guess it was a profitable business in intermodal where there is a contract that you lost. It was unclear to me whether that was allotted to your primary rail competitor or whether it is just business that was converted back [inaudible]? And if it was a lost to a rail competitor, does that indicate any change in discipline on the margin or is that really just a small thing as always?

Overall, Tom, we lost the business. I'm not exactly sure where the customer will decide to put that business. Overall, it doesn't change my outlook on the opportunities that we have for pricing in the intermodal world or for any of my other businesses.

But it’s not an example of your competitor losing a little bit to--?

I have no idea. You’ll have to... I don't know how to answer that question. All I know is we lost it, I do know where--.

But you don't know if it is [inaudible]. Okay, that is great. I appreciate it. Thank you for the time.

Our next question comes from line of John Larkin with Stifel Nicolaus. Please go ahead with your question. John Larkin - Stifel Nicolaus & Company: Hi. Good morning, gentlemen, and thank you for taking my questions. The lag on the fuel surcharge, which you said in many cases is as much as two months, is there anything that can be done during contract renewals or perhaps outside the contract renewal cycle or perhaps shorten that up? It seems like an extraordinary long adjustment period, given the current volatility in fuel prices.

We work with our customers in terms of their ability to process changes in the rate structures. Some contracts do a little bit better job, others are longer that is not here. I keep in mind though it also works the same way when prices go down. And while we took the pressure in the fourth quarter and a hit in the fourth quarter, as prices move now, if you have... if prices are continually on an upward trend here for the foreseeable future then we're going to lay behind in the quarters. But we look at it both way and work with our customers and do our what is best for both parties. John Larkin - Stifel Nicolaus & Company: Thank you. One question on the construction up in the PRB. You indicated… I think Dennis did, that the fourth mainline is now underway now that this third mainline is completed. Could you give us a little indication as to how long that project will take and the impact that it might have on operational efficiency up in the PRB?

Dennis, do you want to take that?

Yes. John, well principally what we are addressing is the great territory with loads of… I can just say you this that the Powder River Basin… the efficiencies up there will not be impaired over our loading capabilities as a result of construction. And it's going to be phased approach that we are working with the DNSF on to time out, but rest assured, it will not. And we seen at this year even with construction of the third mainline already impact our ability to load out the trains on a data basis. John Larkin - Stifel Nicolaus & Company: Is that likely to extend the entire length of the mainline?

Well, hopefully the demand will take it to that point where we will need to be that, but right now we are just addressing the first areas of critical need. It will probably follow the path of what we did with the third mainline coming up over hill with loads to accommodate to the great territories to make sure that we have adequate ingress and egress capabilities to the south end of the mines there. So that we are starting first and we’ll go from there. John Larkin - Stifel Nicolaus & Company: Okay. Thank you. And then just one final question before I turn it over to somebody else, regarding the labor contracts. Are there any that are under negotiation or that expire here in near-term that we need to be at all concerned about?

Well, the major that contract is yet to be finalized is the UTU, which are about a third of the employees in the industry. Negotiations are currently underway. I’m hopeful that we can get a deal done pretty quickly. John Larkin - Stifel Nicolaus & Company: So, sometime in the next quarter or two, you hope to cover that up?

We will see, they were taking right now. John Larkin - Stifel Nicolaus & Company: Okay. Thank you very much.

Our next question comes from the line of David Feinberg with Goldman Sachs. Please go ahead with your question.

Good morning.

Good morning, David.

One housekeep question, in the first quarter you talked that the causalities [inaudible] leading to a $30 million headwind. Can you just remind the third quarter number as we model on out ’08?

Rob?

Third quarter was 47.

Thank you very much. And then with regards to your '08 volume outlook of plus 1% to the negative 1% range that you have outlined, I want to understand what the sensitivity is there? You talked about the six businesses that you serve and two of being challenging, Autos and Industrial, I just can't understand if the difference between negative 1% and plus 1%, is that just the difference of those challenging business being more or less challenging or is it across the whole broad specturm? Maybe a little bit more color about where the sensitivities are to the economy or to your outlook by business.

As Jack had in his one slide, we... Energy and Ag are not highly impacted by the economy here. So we think the demand there will be pretty strong going forward. In the middle where it’s a little more of a toss-up, we had Chemicals and Intermodal, and that one clearly worked. We are not assuming a significant fall-off in the economy. We’re assuming in the bottom end a pretty slow economy, but not a major fall-off there. And than on the other side it's a real question mark is the timing of the Industrial Products and Autos. It's not as much times as it might appear to be where we obviously can do better with a little bit strong economy. Obviously, if this economy really turns down it’s going to be worse than the minus 1%.

Okay, thank you.

Okay, Dave.

Our next question comes from the line of John Kartsonas with Citigroup. Please go ahead with your question.

Yes, good morning.

Good morning, John.

I want to talk a little bit about Intermodal, and obviously your international customers and line of companies are also feeling the highs of the fuel prices on the cost side. Do you get the feeling that there is… is it getting tougher and tougher to renegotiate this contract? Do you think there is more [inaudible]?

Well, John, there is… no customer is ever going to thank you for a price increase and they are tough, tough negotiators, particularly the Intermodal guys who can offer pretty big book of business out here. My view of those, when you look at the returns in that business we've got to make significant progress and we… as Jack mentioned, we've lost a business in Intermodal. If I can’t get the returns we are going to have some challenges, but I think when you really look if the service is there it's the best guy, you have the best option to have long-term.

Do you think you’ve to [inaudible] because of that, I mean do you think that's a longer term issue of just because fuel prices are higher today?

I think overall, John, when you look at the East Coast situation, it just kind of sets back when you look at 2007. The West Coast imports were down about 3.5%, the East Coast imports were up about 7%. That was a very unusual occurrence for us. I think part of that might be attributable and this is speculation to some extent on my part but also some indications from customers is 2008 is an ILWU negotiation year, and remember the last time 2002 I think it was that a contract got negotiated, there is a lot of port disruption on the West Coast and a lot of customers were very concerned. So I think they took 2007 as an opportunity to redistribute some of their business overall and prepare themselves, so they’ve not got all their eggs in one basket if they are looking to 2008. I do think the overall the market International in 2007 was only up about 2%. Our forecast for 2008 seems to be overall market is probably going to be more like 4% to 5% this year. So we will see a little bit of the stronger market. And hopefully if the ILWU contract negotiations go a lot smoother than the last time, we will see some strength in that business this year.

Okay. That's all I have. Thanks.

Thank you.

Our next question comes from the line of Randy Cousins with BMO Capital Markets. Please go ahead with your question.

Good morning.

Good morning, Randy.

Jack, I wonder if could talk about Blue Streak, how it is developing up with the prospect car for ’08? And then as well, one of the big issues for the container probably is repositioning empties. I saw the LA statistics, export numbers are going up quite dramatically. What opportunity is that creating for you and how do you see a better balance in terms of in versus out evolving and affecting your business?

First of all, Randy, Blue Streaks and in particular our [inaudible] with the NS is doing quite well, customer receptivity is good, operations has done an outstanding job of keeping that train on time and running. And so we think there is some really nice growth opportunity for us in that market segment. In terms of the positioning and the empty containers and those kinds of things, actually as we have renegotiated our legacy contracts on the international side we have put provisions in there that require balance and that has helped a lot in terms of the operating department, train operations, and how we move equipment back and forth across the network. So we are seeing our balance improve considerably. Certainly, the fact that the import dollar that the U.S. dollar is low right at the moment is kind of inspiring more… or facilitating a lot more export business forth that improves that balance as well. It gives us greater efficiency and greater profitability. So it’s a kind of a win-win all the way around.

Okay. The second question has to do with your Chemicals business. I think you guys mentioned that it was the one franchise that has had volume growth all through the year. And obviously you’ve got it in your sort of neutral category. It would seem to me that that fertilizers and potash and that kind of stuff would still be an area of fairly significant growth. Any reasons for your cautiousness that are sort of company-specific or facility specific or is it just the economy that you worry about in terms of that Chemical business?

It's entirely economy, in fact we have a couple of new facilities coming online that should provide us some growth if the economy stays with it. The anomaly for us has been that our plastics business and liquid and dry have stayed relatively strong and they have tended to follow historically more the pattern of the Automobile business and the construction and they are bucking that trend. And again, part of that I think is the lower dollar, part of it is that our chemical industry is more dependent up on natural gas and their competition in the world markets are depended on oil and you have seen the humongous run-up in the oil prices, but natural gas prices have stayed relatively stable. So it has given them somewhat of a competitive advantage, but it is hard to guess if that's going to turn and particularly if the economy were to nosedive from where it is today. So that's really my caution there, it is entirely on the economics.

Okay. And then last question, just a reference to productivity, if we use GTM per employee as the metric, I guess, Jim, you kind of indicated that productivity would sort of match with unit cost growth. So does that imply sort of a 3% increase in GTMs per employee? And then I guess I want to get some sense of leverage, so if the volume starts to come back does that mean we’re looking at sort of 5% GTMs per employees, how should we think about this?

Well, Randy, I think... I hope we do see good volumes coming back here and we will see very nice leverage on the business. There is two ways to look at, the simple measure is gross ton-miles per employee, the other measure we look at is… would be our operating ratio improvement and also overall unit cost that we can drive. So it…Dennis had mentioned earlier that we have put a strong focus, and you mentioned ongoing train size, that not only improves your productivity of coal a bit, it significantly improves the productivity of the assets in terms of locomotives. So we’ve got upside on productively is the volume moves up.

But in terms of GTMs per employee, obviously you have got flat volumes and you got unit cars up. Should we be still thinking about sort of 2% to 3% GTM per employee growth, and then if the volumes come back even more leverage?

I don't think that's unreasonable.

Okay, great. Thank you.

Our next question comes from the line of Jason Seidl with Credit Suisse. Please go ahead with your question.

Couple of quick questions. First, you mentioned a small insurance settlement, how much did you benefit from that in the quarter?

Jason, that was a couple of cents, like $7 million to $8 million.

$7 million to $8 million, okay, thank you. As we’re in 2008 here what percentage of your businesses already have pricing locked in?

I said little bit earlier, Jason, that right now the… we have got a little less than half, 45%, something like that.

Okay. 40% to 45%, and then you have an additional 6% rolling over from legacy.

Well, that would include the legacy... some of the legacy contracts that we have already negotiated.

Okay. And if I ask… going back to your carloading fuel consumption amount, obviously for the first quarter you explained yourself a little bit, but I would assume based on one of the other analyst questions that 4Q should actually be easier comps, what weather did toward the end, is your outlook for the full-year just conservative based on the economy?

It is. The economy and… you’d mentioned first quarter I think also, keep in mind, February… you get the most snow in February in the US, but we think cautiously of the economy. It's hard to see this ability right now. We have got a heck of a sling even from four, five weeks ago until today and while some of it was weather we did see production shut down. We saw plants that extended their holidays and we are being cautious there.

Okay. And in relation to Washington, any chance that the stimulus package could have a real tax credit moved into it?

Well, we are working on the proposal as you know and we will have to see how it works. My biggest concern though is when you think about investment as we need long-term solutions and… but we’ll see. I think the discussion is good. It's pretty… we have not seen really any disagreement from any member when it comes to the need for expanded investment and transition infrastructure. And we can have either good jobs, they are local communities and so we’ll see what happens.

Okay. Sounds good. I appreciate it.

Okay.

Our next question comes from the line of John Barnes with BB&T Capital Markets. Please go ahead with your question. John Barnes - BB&T Capital Markets: Hi, good morning.

Good morning, John. John Barnes - BB&T Capital Markets: Jim, you talked about your investment tax credit and some bonus appreciation and something like that. Given that your outlook for capital spending this year is flat with '07, if some of that legislation got past what kind of magnitude of change would you be look at in your CapEx budget?

John, overall the industry is… it could be maybe 15% plus, but again you have to look at the location of the products, your ability to get the projects mobilized better out here, and the returns. When you sit down and look at it, I have got a long list to cover, projects that exceed what we said, but what we will do is work backwards to make certain what is it to do the return and our assessment on the performance. So overall it could be up to 15%. John Barnes - BB&T Capital Markets: Okay. And a lot of discussion about the headcount, but if I go back and look at the downturn in '00 and '01, the whole rail sector got a little overzealous in terms of headcount reduction and a lot of rails came that of that downturn. And when volumes spiked they really didn't have the manpower for at least a couple of quarters. How are you guarding against getting too aggressive on the headcount review? I can’t remember… you guys actually in '00 and '01 quit hiring people completely and this time it’s a matter of continuing to train people, but will attrition kind of works it way out of little bit more, just how are you balancing that to make sure you don’t get [inaudible] shorthanded, should volumes kind of materialize?

John, we not only didn't hire many at that time, we are [inaudible] and those days are over because as you know with UP we learned a pretty hard lesson and we remind ourselves of that every time we start talking about resources here. I think the problem is even potentially greater because of the acceleration and attrition in our industry. We lost last year through attrition almost 4000 employees. We’ve put back again this another 4000 employees that will be leading the industry. We are being very disciplined in terms of how we look at our search capacity. And quite obviously, as I said earlier, you’ve done a lot of jobs in the industry and are famous for it over the years, but we have clear guidelines analysis where we are keeping that search capacity. John Barnes - BB&T Capital Markets: Okay. And if I look at the headcount and with the assumption that volumes are pretty flat in '08 with '07 levels and therefore headcount is... headcount on the operations side let’s assume is flat or maybe slightly down, even if it is flat are we still going to see labor savings as a result of 4000 employees going through the attrition process? I would assume or longer standing more extensive employees being back filled with… I guess what I am asking is could you see the required headcount and still see labor savings without necessary big jump in volumes and the productivity gains? Can it just be pure cost reduction as a result of lower cost labor and those type of things?

Well, you need to factor inflation into your numbers in terms of what you look at on here, but we will see… again I think we’ve very good opportunity in terms of continuing to show productivity beyond the operating areas, but again we want to be smart about it and you will see good productivity. John Barnes - BB&T Capital Markets: Okay and then lastly, just as you look at… you made some comments on the regulatory and legislative agenda that’s out there and talking about when they may get back to focusing on the rails. Are you concerned at all about '08 as being the big year for rail re-regulation or legislation, or is the likelihood of the election taking that off the table in '08 and makes it more of an '09, 2010 issue?

John, I’m going to take it very seriously whether there is an election or not going on. We are going to basically be in Washington telling our story about the need. I think the [inaudible] is a good example where the STB listen to both parties and quite honestly they listen to the railroad industry in terms of some of the calculations. So we are going to continue to be active. We can't take our eye of this thing because of the potential. When you get to the second half of the year and people are looking at the elections, you may see a little bit less focus, but we are going to continue to be [inaudible] for a long time. John Barnes - BB&T Capital Markets: And how quickly do you think the rail industry makes a proposal on the replacement, a value discussion? I think they’ve put that on hold until you guys came back with a firmer kind of proposal. How quickly do you think you present… the industry presented something to the STP on that?

I think my... right now, maybe first half sometime of '08 we want to... It’s very complicated. There are a lot of different approaches out there. We want to make certain we understand the long and short-term applications. But it clearly is, you know this industry, you do the math, replacement costs on our capital investments are significant. So we are going to make sure we think through it in detail. John Barnes - BB&T Capital Markets: Very good. Thanks for your time. Nice year.

Okay. Thanks.

Our last question comes from the line of Gary Chase with Lehman Brothers. Please go ahead with your questions.

Good morning, everybody.

Good morning, Gary.

Just a couple quick ones for Rob, and then one for Jack. The first one is, I presume that the $20 million in lost… or revenue the $20 million of weather impact of fourth quarter is predominantly lost revenue. Is there an assumption that you will be able to recapture some of that moving into the first quarter?

You are right. The bulk of that is lost revenue, and as Jim indicated earlier, maybe a little that in gain business, but not a significant portion of that was in our Energy business, Coal.

Okay. And then if our calculations are accurate, it looks like based on where we are right now in the energy markets you'd have a modest amount of tailwind from the timing lag on the surcharges in the first quarter. Is that… are we looking at that the right way, about $0.10 versus $0.25 headwind in the fourth quarter?

Right now, I would say no. I mean we are paying about… paying as far as about 268-ish level still. So we’ve that kind of price. There is no tailwind. We have to see prices moderate here and rather quickly because of the benefit in the first quarter.

Okay.

Surcharges are pretty close in those areas to recovering the cost, although keep in mind again we don't recover 100% of fuel.

Right. And then for Jack actually, on that profit, of the 6% of these contracts, the legacy contracts that are rolling during the course of ' 08, can you give us a little bit of flavor for how many of those have fuel recovery mechanisms embedded within them? In other words, on the 6% how much of that do we need to bring up not just for core pricing, which has obviously changed a lot, but also for fuel recovery versus just core pricing?

Okay, Garry, that is real tough. One for sure had a fuel surcharge mechanism, and I'm just trying to think, the other ones I don't… there is another one that did have some fuel recovery. Some of them had some kinds of increases, which really is in the full-fuel surcharge recovery. But I think you’re probably looking at… 30% or 40% of that had some form of fuel surcharge in them already and 60% of them did not. That's just kind of off the top of my head.

Okay, I think it is going to make a big difference. And then, just lastly for Jack, you said there was a lot of mix impact in the Industrial business and that masked some of the true pricing progress that you’d made, just curious question, put some flavor on what that true progress actually was?

I think the Industrial Products world came a lot closer to my average price increase for the business than what their actual results would reflect because of the mixed impact.

Lumber versus stone.

Yes, lumber versus stone. The average revenue per unit on a lumber move is much higher, again length of haul can be part of the issue, and stone move is much lower.

And we should think of that as core, right, I mean not… in other words, you said six was about your core price change.

That's right.

Okay. Thank you very much, guys.

Okay, great.

I would like to hand it back over to management for some closing comments.

Well, thank you everyone for attending our call this morning. We, as I said, had some challenges this year, but we're feeling confident about our ability to continue to make progress and record another record year for Union Pacific. So thank you, and we'll see you in three months.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.