Union Pacific Corporation (UNP) Q4 2013 Earnings Report, Transcript and Summary

John J. Koraleski - Chief Executive Officer, President, Director, Chief Executive Officer of Union Pacific Railroad Company and President of Union Pacific Railroad Company Eric L. Butler - Executive Vice President of Marketing and Sales for Railroad Lance M. Fritz - Executive Vice President of Operations - Union Pacific Railroad Company Robert M. Knight - Chief Financial Officer and Executive Vice President of Finance

Thomas R. Wadewitz - JP Morgan Chase & Co, Research Division Justin B. Yagerman - Deutsche Bank AG, Research Division Allison M. Landry - Crédit Suisse AG, Research Division Scott H. Group - Wolfe Research, LLC Christian Wetherbee - Citigroup Inc, Research Division Brandon R. Oglenski - Barclays Capital, Research Division Ken Hoexter - BofA Merrill Lynch, Research Division William J. Greene - Morgan Stanley, Research Division David Vernon - Sanford C. Bernstein & Co., LLC., Research Division Walter Spracklin - RBC Capital Markets, LLC, Research Division Donald Broughton - Avondale Partners, LLC, Research Division Justin Long - Stephens Inc., Research Division Matthew Troy - Susquehanna Financial Group, LLLP, Research Division Thomas Kim - Goldman Sachs Group Inc., Research Division Cherilyn Radbourne - TD Securities Equity Research John G. Larkin - Stifel, Nicolaus & Co., Inc., Research Division Keith Schoonmaker - Morningstar Inc., Research Division Jeffrey Asher Kauffman - The Buckingham Research Group Incorporated Benjamin J. Hartford - Robert W. Baird & Co. Incorporated, Research Division

Greetings. Welcome to the Union Pacific Fourth Quarter 2013 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, and the slides for today's presentation are available on Union Pacific's website. It's now my pleasure to introduce your host, Mr. Jack Koraleski, CEO for Union Pacific. Thank you. Mr. Koraleski, you may begin.

Thanks, Rob, and good morning, everybody. Welcome to Union Pacific's Fourth Quarter Earnings Conference Call. With me today here in Omaha are Rob Knight, our Chief Financial Officer; Eric Butler, Executive Vice President of Marketing and Sales; and Lance Fritz, our Executive Vice President of Operations. Well, as you can see, we wrapped up 2013 with another all-time record quarter. Union Pacific achieved our best-ever quarterly earnings of $2.55 per share, an increase of 16% compared to 2012. For the first time in 6 quarters, we reported overall volume growth despite significantly weaker coal shipments. It highlights the strength of our diverse franchise, the extensive network reach we have to various markets and a strong grain harvest. When combined with solid core pricing gains and our continued focus on safety, service and efficiency, we achieved a record fourth quarter operating ratio of 65%, improving more than 2 points compared to 2012. During the quarter, we battled some extreme winter weather that challenged us on many fronts, but as we said before, running a railroad is an outdoor sport, and we successfully worked through the challenges, managing and realigning our network resources to deliver on our customer commitments. All in, 2013 was another terrific year for Union Pacific, with our financial performance exceeding all previous milestones. It demonstrates our commitment to delivering safe, efficient, high-quality service that creates value for our customers and increased financial returns for our shareholders. So to kick us off this morning, I'm going to turn it over to Eric Butler. Eric?

Thanks, Jack, and good morning. In the fourth quarter, volume was up 2% compared to 2012 as the diversity of our franchise provided enough growth opportunities to offset volume declines in 2 of the groups. We had strong gains in Ag, Automotive and Industrial Products, and Intermodal also saw modest volume growth. This good news offset continued weakness in Coal and a slight decline in Chemicals. Coal price improved 3.5%, which, combined with the benefit from positive mix, produced a 5.5% improvement in average revenue per car. Volume growth and the improved average revenue per car combined to drive freight revenue up nearly 7.5% to an all-time quarterly record of $5.3 billion. Let's take a closer look at each of the 6 business groups. Ag Products volume grew 13%, which, combined with 5% improvement in average revenue per car, drove revenue growth up 19%. A 41% increase in grain carloadings was driven by a strong harvest as improved yields increased crop production following last year's lower drought-impacted volumes. With more competitive crop prices and strong global demand, grain export volumes saw significant growth, up more than 90%. The strongest gains were in feed grain shipments to the PNW and Mexico and wheat exports to the Gulf. Also contributing to this growth was increased demand for domestic feed grains. Grain products volume was up 6%, driven by a 21% increase in ethanol shipments as lower corn prices and increased gasoline consumption led refineries to replenish low ethanol inventories. Shipments of DDGs also grew 19%, driven by stronger export demand, primarily by China. Food and refrigerated shipments were down 4%. Gains in import beer were offset by declines in sugar volumes, following an unusually strong fourth quarter last year and a continued sugar surplus that reduced imports from Mexico. Automotive volume grew 10%, which, combined with a 7% improvement in average revenue per car, produced a 17% increase in revenue. The same trends that supported growth throughout the year, replacement demand, low interest rates and favorable financing, continued through the fourth quarter. Aided by moderating fuel prices, demand for pickup trucks and sport utility vehicles gained momentum, and the growth rate of the automotive industry outpaced that of the overall economy. UP finished vehicle shipments grew 7% as sales continued to grow, with the seasonably adjusted annual sales rate reaching $15.9 million in the fourth quarter, the highest quarterly level in 6 years. Parts volume increased 13%, while pricing gains and the previously announced Pacer network logistics management arrangement increased average revenue per car. We now lapped that arrangement on a year-over-year basis, so we won't see its positive ARC contribution going forward. Chemicals revenue grew by 3% as a 3% increase in average revenue per car more than offset a 1% decline in volume. Industrial chemicals volume was up 6%, driven by strength in end user markets such as housing and automotive. Increased demand in new business led to a 7% increase in petroleum products and LPG shipments. Dampening the good news was a 22% decline in crude oil volume compared to the fourth quarter of last year. And increased supply of crude at the Gulf Coast reduced Gulf prices, which led to a decline in shipments from West Texas and Oklahoma. In addition, the discount of Louisiana Light Sweet to Brent displaced some of the Bakken crude shipments away from Texas and Louisiana. Coal revenue declined 1%. Fourth quarter volume was down 10%, which was mostly offset by a 10% improvement in average revenue per car. You can see from the chart of weekly carloadings that unseasonably early snow impacted shipments from the Southern Powder River Basin in October, with the tonnage down 12% for the fourth quarter. River infrastructure projects and low water levels on the Ohio River curtailed barge traffic at St. Louis, which also reduced shipments. Also contributing to the decline were inventory management initiatives by select utilities and the continued impact of a contract lost from the beginning of the year. Despite growth in West Coast exports, Colorado/Utah tonnage declined 10% based on soft domestic demand and mine production issues. Providing some good news, tonnage from other coal-producing regions increased 10% from a relatively small base, driven by gains from Southern Wyoming and other regions. In Industrial Products, a 9% increase in volume and a 5% increase in average revenue per car produced revenue growth of 14%. Nonmetallic minerals volume was up 28% as continued growth in shale-related drilling, mainly in the Eagle Ford and Permian Basins, increased frac sand shipments by 36%. Metals volume was up 11%, driven by China-bound iron ore shipments through ports in California and Mexico. We also saw growth in pipe shipments with increased pipeline and drilling activity related to shale energy. Growth in housing and home improvements continued to increase the demand for lumber, with shipments up 6%. Intermodal revenue was flat in the fourth quarter. Lower fuel surcharge revenue and unfavorable mix led to a 2% decline in average revenue per unit, which offset volume growth of 2%. Our International Intermodal volumes declined 1%, driven by continued market share shifts within the ocean carrier industry and increased port transloading activity. We also saw a greater flow of revenue empty move for international container repositioning, which impacted the overall traffic mix for the quarter. Volume fared better for Domestic Intermodal, where continued success converting highway business to rail drove volume up 5%. I'll close with a look at how we see our business shaping up for 2014. Our current outlook is for the economy to continue its slow improvement. A diverse franchise provides access to a number of markets with potential growth opportunities. The new crops should provide opportunity for Ag in the first half of the year, with anticipated growth in both domestic and export grain markets. Food and refrigerated is expected to see modest growth. Automotive manufacturers expect sales growth to continue, and Global Insight has raised its full year light vehicle sales estimate to 16 million vehicles. This should be good news for our finished vehicles and auto parts business. Crude oil spreads, a growing Gulf crude supply and increased pipeline activity are expected to have a continued impact on our crude-by-rail volumes. Most other chemicals markets should remain solid. Turning to Coal. The previously mentioned legacy contract loss will impact volumes, but low inventory levels and increased exports should help offset this. Volume growth for the year will depend on weather conditions, economic activity and natural gas prices. Industrial Products should continue to benefit from shale-related activity, with increased drilling supporting growth in frac sand and pipe shipments. Housing starts are projected to exceed 1 million units for the first time since 2007, which is expected to demand -- drive demand for lumber shipments. Increases in commercial construction are expected to support growth in rock, metals and other highway-related markets. Highway conversion should continue to drive growth in Domestic Intermodal. International Intermodal may be challenged in the first quarter by a difficult comparison to 2013, but an improving economy and strengthening housing market should keep International Intermodal ahead of last year. For the full year, our strong value proposition and diverse franchise will, again, support business development efforts across our broad portfolio of business. Across the groups, we'll continue to develop opportunities in Mexico, where our unparalleled ability to link Mexico's economic growth with U.S. origins and destinations is the strength of our franchise. Assuming the economy cooperates, we expect to deliver profitable revenue growth yet again in 2014, driven by modest volume and core pricing gains. And with that, I'll turn it over to Lance.

Thanks, Eric, and good morning. I'll start with our safety results. The 2013 reportable personal injury rate was up slightly from our all-time record performance in 2012. Not shown is the number of severe injuries, which declined to a new record low. We focus our attention on risk and severity because these injuries have the greatest human and financial impact. Our goal is for every employee to return home safely after every shift, and we will get there using a robust safety strategy that includes the Courage to Care, Total Safety Culture and risk identification and mitigation. Moving to rail equipment incidents or derailments. Our full year reportable rate finished up 1% versus 2012. We continue to make progress on human factor incidents through enhanced skills training and root cause resolutions. In addition, we continue to invest in capital to harden our infrastructure and leveraging advanced technologies to find and fix track and equipment defects. In public safety, our grade-crossing incident rate improved 7% versus 2012, a result of our efforts to improve or close high-risk crossings and to reinforce public awareness. Most encouraging was the 17% improvement on our southern region, which has a higher grade-crossing density than our overall network. While our reportable rate in both employee and rail equipment safety increased slightly during 2013, the absolute number of incidents, which includes incidents that do not meet the regulatory reportable threshold, declined in both categories. Our safety strategy helps keep our network strong and resilient, particularly in the face of recent winter weather challenges. Recall that in October, a winter blizzard in Wyoming severely impacted shipments out of the Powder River Basin. In early December, we were hit with the most severe winter weather interruption in the past 7 years. The storm covered 2/3 of our network and generated a 33% increase in the number of days with major service interruptions during the quarter. As a result, average train speed declined 3% in the fourth quarter compared to 2012 but remained within a solid service range. These weather interruptions also drove a decline in our Service Delivery Index. The metric, which gauges how well we are meeting overall customer commitments, also reflects the tighter service commitments we introduced last year. We continued to provide outstanding local service to our customers with a fourth quarter record 95.5% Industry Spot & Pull, which measures the delivery or pulling of a car to or from a customer. Overall, our network remains well positioned to handle volume growth. Moving on to network productivity. We continue to leverage existing resources as grain train lengths set a new best-ever quarterly record, while automotive and manifest train lengths set new best-ever fourth quarter records. Intermodal train size dropped, reflecting an increase in new service offerings. We expect these new trains to grow as we convert business from the highway. Other efficiencies included a 2% improvement in locomotive productivity, as measured by gross ton miles per horsepower day, in spite of a 2 to 2.5 point headwind due to the mix shift from lower coal shipments to higher manifest shipments. The improvement reflects a long-term trend of increasing locomotive reliability, as well as effective utilization plans. We efficiently handled the volume growth across each region of our network, effectively utilizing our workforce. We leveraged growing manifest volumes within UP's existing terminal infrastructure, as reflected by an improvement in car switch per employee day. The improvement was particularly evident in our southern region, where car switch per employee day increased 5%. These productivity gains were generated by our men and women in the field as they leveraged their expertise to improve safety, service and efficiency using the UP Way. Moving on to our capital investments. We invested nearly $3.6 billion in our network during 2013, with more than $2.1 billion in replacement capital to harden our infrastructure and improve the safety and resiliency of the network. At the end of the year, over 99% of our network was free of slow orders. Spending for service growth and productivity totaled around $1 billion, driven by investments in capacity, commercial facilities and equipment. Major projects included are $400 million investment in our Santa Teresa, New Mexico facility and more than $200 million of capacity work in the South to support our diverse and growing book of business in that region. In addition, we invested another $420 million in Positive Train Control during the year, bringing our cumulative PTC investment to $1.2 billion of our estimated $2 billion projected spend. Although it's unlikely the industry will meet the 2015 deadline, we're making a good-faith effort to do so and are working closely with regulators as we implement this new technology. For 2014, our plan will likely exceed last year's spending. We'll continue to make capacity investments in our southern region while also advancing capacity projects across other parts of our network. Although some buckets will fluctuate year-over-year, our core investment thesis will not, which is to maintain a safe, strong and resilient network and invest in service growth and productivity projects that meet our aggressive return thresholds. So in summary, we finished 2013 on a solid note despite the winter weather challenges. As we move through 2014, our focus, above all, will be the safety of our employees and the communities in which we operate. We'll take advantage of growth opportunities by leveraging our network resources. We'll look to make productivity improvements in all areas, utilizing resources more efficiently and investing capital productively. As a result, we'll provide customers with a value proposition that supports growth with high levels of service. We call that moving our business up into the right. All combined, it translates into increased returns for our shareholders. With that, I'll turn it over to Rob.

Thanks, Lance, and good morning. Let's start with a recap of our fourth quarter results. Operating revenue grew 7% to an all-time quarterly record of more than $5.6 billion, driven mainly by solid core pricing gains and volume growth. Operating expense totaled nearly $3.7 billion, increasing 4%. Operating income grew 14% to nearly $2 billion, also hitting a best-ever quarterly mark. Below the line, other income totaled $37 million, down $6 million compared to 2012. Interest expense of $127 million was down slightly compared to the previous year. Income tax expense increased to $709 million, driven by higher pretax earnings and a higher effective tax rate. Net income grew 13% versus 2012, while the outstanding share balance declined 2% as a result of our continued share repurchase activity. These results combined to produce best-ever quarterly earnings of $2.55 per share, up 16% versus 2012. Turning to our top line. Freight revenue grew 7.5% to a quarterly record of $5.3 billion, driven by solid core pricing gains of about 3.5%, which included a little over 1 point of legacy repricing. Volume growth of 2% and favorable mix of a couple of points also contributed to the improvement. Growth in longer-haul grain moves and a 5% increase in higher average revenue per car manifest shipments drove the positive mix. These items were partially offset by growth in lower average revenue per unit Intermodal shipments. Slide 21 provides more detail on our core pricing trends in 2013. For the year, our core pricing gains ranged between 3.5% and 4%. Lost opportunity due to lower coal volumes totaled about 0.5 point for the full year. This slide also shows the quarterly rail inflation escalator, excluding fuel, on a year-over-year basis. As you can see, it drifted into negative territory in the second half of 2013, creating a slight pricing headwind on a portion of our business, which is tied to the escalator. Over the past 5 years, the cost escalator has averaged about 3%, but as we've discussed, we expect 2014 inflation to moderate, negatively impacting our pricing gains but also tempering operating expense increases. As we've said previously, the more significant impact on our 2014 pricing will be the lack of about 1.5 points of legacy pricing benefit that we saw last year. That said, we remain committed to our strategy of pricing for reinvestability. It's supported by the value we create for our customers and is required to generate the returns needed for continued investment in our franchise. Moving on to the expense side. Slide 22 provides a summary of our compensation and benefits expense, which increased 7% compared to 2012. Inflationary pressures, volume-related expenses and a mix shift to more manifest traffic drove the increase. In addition, higher overtime and re-crew expenses, driven by severe winter weather, masked overall productivity gains. You also need to take into account the $20 million payroll tax refund included in our 2012 fourth quarter results. Excluding this onetime item, our comp and benefit expense was up about 4.5%. Workforce levels were flat for the quarter as we leveraged a 2% volume increase with a 1% increase in TE&Y employees. Fewer capital employees offset the TE&Y workforce increase. As we look at 2014, we expect our comp and benefits expense to grow. However, the extent will be driven by volume levels and business mix. The good news story is our continued productivity initiatives that will help mitigate these increases. In addition, we'll continue to see labor inflation this year, but it will likely moderate to below the 2% mark. Turning to the next slide. Fuel expense totaled $905 million, decreasing 2% versus 2012, driven by a lower average diesel fuel price. On the flip side, gross ton miles increased 2% in the wake of strong grain shipments, while our fuel consumption rate increased 1% compared to 2012. Moving on to our other expense categories. Purchased services and materials expense increased 10% to $585 million due to higher locomotive and freight car repair expenses and an increase in joint facility maintenance expense. And we continued to incur management fees associated with the 2012 Pacer agreement, which are recouped in our Automotive freight revenue line. And as Eric mentioned, we've now lapped that contract on a year-over-year basis, so we won't see that variance going forward. Depreciation expense was $458 million, up 1% compared to 2012. The impact of increased capital spending in recent years was mostly offset by an equipment rate study that went into effect in 2013. For 2014, we expect depreciation expense to increase at a more normalized rate, likely in the 6% to 7% range. This range includes about $80 million of depreciation expense associated with Positive Train Control capital investments. I'll talk more about PTC in a minute. Slide 25 summarizes the remaining 2 expense categories. Equipment and other rents expense totaled $311 million, up 3% compared to 2012. Increased container expenses associated with the Pacer contract and growth in Agricultural and Automotive shipments mainly drove higher freight car rental expense. Other expenses came in at $188 million, up $6 million versus last year. Higher property taxes and freight and equipment damage costs drove expenses up compared to 2012. A reduction in personnel injury expense and effective cost control measures partially offset these increases. For 2014, we expect the Other expense line to increase between 5% and 10% for the full year, excluding any unusual items. Turning to our operating ratio performance. Our focus on pricing the business right and moving it efficiently continues to pay off. We achieved a record fourth quarter operating ratio of 65%, improving 2.1 points compared to 2012. On a full year basis, we also made tremendous strides by generating a best-ever operating ratio of 66.1%. It clearly illustrates the strength and value proposition of the Union Pacific franchise. We've talked about our focus on continued core pricing and productivity gains and leveraging what we see as modest volume growth over our planning horizon. On the cost side, it's a matter of effectively managing inflationary pressures in addition to other cost hurdles that we have every year. For example, operating taxes that we pay will continue to increase as our profitability grows. Depreciation expense is another item that will continue to increase, assuming a growing capital spend. And as we've discussed, depreciation and other operating expenses will be driven higher by shorter-life Positive Train Control assets and maintenance costs as we move further into that project. Despite these obstacles, we feel very good about our prospects of now achieving our sub-65% operating ratio before 2017. Exactly how much sooner before 2017 will depend on the usual drivers: economic growth, fuel prices, inflationary hurdles, just to name a few. That said, we're equally focused on cash generation and improving our overall financial returns. Slide 27 provides a summary of our 2013 earnings with a full year income statement. I'll walk through a few of the highlights from our record-setting year. Operating revenue grew more than $1 billion to an all-time record of nearly $22 billion. Operating income also set a new best-ever mark of $7.4 billion, topping 2012 's record by 10%. And net income of $4.4 billion and earnings of $9.42 per share also set new full year records. Overall, one of the key measures for our performance is the cash that we generate. In 2013, cash from operations increased to $6.8 billion, up 11% compared to 2012. After $3.5 billion in cash capital investments and $1.3 billion of dividend payments, our free cash flow totaled nearly $2.1 billion, being the first rail to surpass the $2 billion mark in our industry's history. Taking a closer look at 2014, we will not see the benefit of bonus depreciation. In fact, we'll see a headwind to free cash flow of about $400 million due to tax payments associated with prior year programs. However, we don't expect this to impact our cash allocation strategy or our ability to grow shareholder returns. Slide 29 shows our 2013 all-in capital investment of $3.6 billion. It's a bit higher than our cash capital due to capital leasing activity and other noncash capital items. In 2014, we expect to increase our capital spending from 2013's levels, pending final approval from our Board of Directors in February. The chart on the right reflects our achievements in generating returns on these investments. Return on invested capital was a record 14.7% in 2013, up 0.7 point from 2012. If you calculate it on a replacement basis, our return shrinks to about half that number. Returns must continue to improve to support asset replacement costs and investments required to achieve our safety, service and growth initiatives. Beyond funding our capital commitments, our record profitability and strong cash generation have enabled us to grow shareholder returns. After increasing our quarterly dividend per share 15% in 2012, we raised it an additional 14.5% last year. For 2013, we achieved a payout ratio of 31.5%, up from 30% in 2012. We're making good progress in moving up within our targeted payout range of 30% to 35%. In addition, we continue to make opportunistic share repurchases, which play an important role in our balanced approach in cash allocation. In the fourth quarter, we bought back more than 4.9 million shares totaling $786 million. Full year purchases topped more than 14.5 million shares totaling over $2.2 billion, up 50% from 2012. Our new repurchase authorization of up to 60 million shares over a 4-year time period went into effect January 1 of this year. Combining dividend payments and share repurchases, we returned over $3.5 billion to our shareholders in 2013. It represents a 36% increase over 2012, clearly demonstrating our commitment to increasing shareholder value. Our balance sheet remains strong, supporting our ongoing commitment to a solid investment-grade credit rating. Continued growth in earnings and cash flow has improved our 2013 year-end debt-to-cap ratio to roughly 38% and our debt-to-EBITDA to just under 1.4x, even with the addition of nearly $600 million of balance sheet debt since last year. As we've said, these metrics are a little lower than where we believe they need to be. We are targeting about 1.5x and around a 40% for year-end 2014, which is closer to the low 40s target range that we've previously discussed. Our $1 billion debt issuance earlier this month was a good step in that direction. So that's a recap of our fourth quarter and full year results. As we focus on 2014, we're projecting another record financial year if the economy cooperates. In addition to our pricing initiatives and ongoing productivity gains, volume leverage opportunities should also help drive continued margin improvement. And as Eric just highlighted, we have growth opportunities across a variety of market sectors that should drive modest volume growth for the full year. First quarter volumes also are expected to be on the positive side of the ledger, driven by continued strong growth in grain shipments, cross-border traffic with Mexico and various other industrial-related moves. Our Coal business is a little more difficult to predict. The lost legacy business creates about a 2% headwind on our Coal volumes in 2014. But as always, weather and the economy will be the driving factors for our Coal business this year. We feel very good about our outlook as we move forward. Our fundamentals are strong, supported by a diverse franchise that allows us to pursue new, attractive market opportunities. We'll continue to move the ball forward, focusing on improved returns to support capital investments that will strengthen and enhance our network, create value for our customers and drive increased returns for our shareholders. So with that, I'll turn it back to Jack.

Thanks, Rob. So as we look at 2014, we see the economy is slowly strengthening. We're well positioned for economic growth and are confident in our ability to deliver on our customers' growing transportation needs. Excellent service is key to our future success. It supports our pricing initiatives and improves network and asset utilization. It also demonstrates the power of our value proposition to new customers that are looking for viable transportation alternatives. Our capital investment strategy will be another key part of UP's success going forward. We are making investments today, building the capacity that we need for tomorrow. Longer term, we remain bullish on our future prospects. We'll continue our unrelenting focus on both safety and service to our customers. We strongly believe in the power and the potential of the Union Pacific franchise to drive even greater financial performance and shareholder returns in the years to come. So with that, let's open it up to your questions.

[Operator Instructions] Our first question is from Tom Wadewitz with JPMorgan. Thomas R. Wadewitz - JP Morgan Chase & Co, Research Division: I wanted to see if you could give a little more flavor on the Coal outlook. I know you've got this 2 percentage point headwind from the lost contract, but it just seems like we're having pretty favorable weather impact in terms of the cold winter. You said some of your customers had already taken actions to reduce inventories. So maybe if you can give us a comment on where inventories are and whether you've seen some signs that maybe customers are looking to take more coal, given what appears to be a little better weather pattern.

Sure. Eric?

Tom, as you know, our Coal volumes are really driven by economic activity, both on the industrial side and the consumer side. Certainly, weather patterns, particularly Coal, particularly hot weather, will drive that. Natural gas prices will drive that. If you look at the last 30 days, certainly, those items seem to suggest a stronger coal outlook. But as you know, all of those items could move around month to month, quarter to quarter. And overall, coal market share still is hanging in there, around 39%. It's been pretty, pretty static. So the outlook drivers will be exactly what we said: economic activity, weather patterns, natural gas prices. And we -- I'm not sure we have any special ability to predict that better than anybody else.

And the latest numbers, the 10 days is from, what, November? Down 10 days, Southern Powder River Basin. So it'll be interesting to see how the December numbers play out. Thomas R. Wadewitz - JP Morgan Chase & Co, Research Division: So where do you -- Jack, where do you think stockpiles are right now? Are they below...

Tom, the last report we saw was November data that said Southern Powder River Basin stockpiles were down about 10 days. So it's somewhere around -- so that would put it somewhere around 60 days. Thomas R. Wadewitz - JP Morgan Chase & Co, Research Division: And that's pretty close to target?

It's actually a little bit below target for this time of the year. Thomas R. Wadewitz - JP Morgan Chase & Co, Research Division: A little bit below target, okay. And then the follow-up question, it seems like you've had some recent favorable data points from a couple of truckload carriers. It feels like that market is improving and maybe tightening a little bit. If you look at the velocity numbers for your primary rail competitor for Burlington Northern, it seems like they've had some challenges maybe with capacity, that their velocity has been down. And it feels like you're maybe shaping up to have a cyclical or capacity-driven improvement in pricing as you look into 2014. I guess that assumes the economy improves. I was wondering if you could offer a thought if that's a reasonable way to look at it, that pricing might improve if you see the economy develops a momentum.

Eric?

Tom, as you said, it feels like the economy is slowly strengthening. And our competitor that you made reference to, they're a good company. Certainly, we all have had challenges in the past, and we assume they'll work through those. Our focus is really on driving our business development opportunities. We have a great service value proposition. We're growing our business development, as we said. Our Domestic Intermodal, I think this is the fifth record year for Domestic Intermodal. So we feel -- we continue to feel pretty good about our outlook and our opportunities in that space.

Our next question is from the line of Justin Yagerman with Deutsche Bank.

So I'm just thinking about the long-term guidance and the sub-65% OR by 2017. And we had a pretty good year this year with the economy. You guys had a record year in terms of your earnings and results. And we improved our operating ratio by 170 basis points or so. I mean, just extrapolating, you had Coal down 9% this year. If Coal is slightly better than that, besides the fact that you've got this headwind from the legacy side, what else makes you hesitant to say, yes, we can probably, at least, hit that 65% target next year? I mean, from my standpoint, that guidance feels wildly conservative, and I'm trying to figure out what the X factor is. I mean, to me, it's Coal because you've got that double-levered impact from a pricing standpoint. But if I have to think about the bias, it feels like it's still a positive there. So when you're sitting down and putting pen to paper on that, how are you guys thinking about that?

Okay. Rob, why don't you take a shot at that?

Yes. So as you've heard me say many, many times, we're not going to slow down to get to the target at a later date and time. And I hope you're right with everything you've said, that we're going to get there as efficiently and aggressively as we can, as we have over the last milestones that we've set. And as I cautioned, things that we are mindful of are mix impacts driven by the economy, weather, fuel. Those are all factors that go into it, so we'll see how it all plays out. And I hope you're right, and we're certainly going to take advantage and leverage every opportunity we have to get there as efficiently and as soon as we can.

Fair enough. When it comes to the share buybacks and the pace, I mean, obviously, 60 million shares, nice amount of capital to potentially deploy there. I think you guys laid out some slightly more aggressive balance sheet goals for this year. How confident do you feel around getting to those balance sheet targets? And when I think about the potential for going past those, are those hard stops? Or is that kind of fungible based on what you're seeing from the environment, and obviously those ratios move with what your capital looks like? So I'm trying to get a sense of that.

Go ahead, Rob.

Yes. Justin, I mean, also as you've heard us say many times, I mean, we are going to continue to be opportunistic in our share buybacks. I think you saw that in the fourth quarter, where the pace was quite strong. I think our 60 million over a 4-year period new program shows our confidence over the long term. It all starts with generating the cash on the front end. And that's -- our primary focus is to do that to enable us to continue to have the opportunities to invest in the business where it makes sense, where the returns are there, continue to raise the dividend and continue to have an aggressive buyback program. In terms of the targets, I've said many times, it's not how we initially build it, but we're kind of looking at that low 40s debt-to-cap range. And there's no hard number there, but that low 40s feels good to us and we plan on moving in that direction.

Our next question is from the line of Allison Landry of Crédit Suisse Group. Allison M. Landry - Crédit Suisse AG, Research Division: With respect to Crude-by-Rail, obviously, we've seen Bakken and West Texas move falling off here. But as we think about 2014 and volume growth in crude, are you expecting some year-over-year growth, given that you do have exposure to areas like the Niobrara and the Uinta, and that in addition to some origination and destination facilities coming online to use -- support some of the heavy Canadian crude moving down to the Gulf. So I was wondering if you could opine on that.

Sure. Eric?

So Allison, as we've said before, the core part of our strategy is, as you suggest, strengthening destination facilities, identifying places where crude can land, identifying places where we could strengthen originations, whether with rail partners or on our own accord. So that's a core part of our strategy. We're going to continue to do that. In some parts of the country, there are clearly lots of environmental and other processes that you have to go through to get new facilities up and running. And so there probably are not a significant number of new facilities that will physically be coming online in 2014, but that is a core part of our strategy to basically strengthen facilities. Having said that, we acknowledge and recognize that, really, where and when and how crude flows between the various shale plays and the various destination regions really are fundamentally going to be driven by the market and spreads. And we have probably no greater ability to predict that than anyone else. Allison M. Landry - Crédit Suisse AG, Research Division: Okay. So it's a little bit unclear at this point whether or not you'll see volume growth this year? Is that fair?

We're going to have to just wait and see as we look at what happens to the spreads in the market. We're excited. There's a couple of California destinations that are supposed to come online. We have to wait and see how that is going to play out in terms of the permitting process, as Eric said. There's a lot of moving parts to this one so... Allison M. Landry - Crédit Suisse AG, Research Division: Got it. On the Intermodal side, can you give us a sense of how much of a volume uplift that you might see on the domestic side from the opening of the Santa Teresa facility and some of the new services that you recently announced with Ferromex going to Chicago and then the service from Laredo to Memphis? How much do you think that this could add to volume growth?

Well, Allison, we're probably not going to give you the number you're looking for. We're not going to give guidance specifically on it, but we're pretty excited about opening the facility. The Intermodal piece will open around April 1. So we'll transfer our current El Paso book of business over. And we've already started the marketing and the development efforts, the business development efforts in Northern Mexico, the maquiladoras regions of Mexico and those places to start bringing product online. We're seeing nice growth in our Eagle Premium Service and our service from Laredo into the Southeast. And we think that's going to continue to help us develop and fill out our Intermodal franchise in 2014. Eric, do have anything else to add to that?

No, that's it. As you said, we're excited about it. We think we got a great franchise and we're excited about the opportunities.

Our next question is from the line of Scott Group with Wolfe Research.

So for you, Rob, I just want to make sure, did I hear you right that, excluding legacy, the core price got a little bit better in fourth quarter? I just wasn't sure I heard that right. And then when I think about mix, so a real nice mix helped in the fourth quarter, how much of that do you think is grain? And if a lot of it is grain, should we think about that mix health continuing for the first, I'd say, 2 or 3 quarters of '14?

Yes. Scott, just I think the way to look at the legacy, I wouldn't read too much into that. I think there was about 1.5 point impact throughout the year of 2013. So that's probably a safe number to continue to think about. In terms of mix, Scott, as you know, it's difficult, and we don't give guidance on mix. But if strong long-haul grain shipments are stronger this year, which -- certainly, that'd be a plus. That in and of itself will have a positive impact on mix. There are other moving parts, as you know. But it's why we shy away from giving mix guidance because there are so many moving parts, but that would be a net positive.

Okay. And then I want to take Justin's question and focus it maybe a little bit more on 2014 and, Rob, your margin view. So I think we all get less legacy this year but to Justin's point, kind of Coal should be certainly not down 9% and hopefully positive. You talked about less cost inflation. Just directionally, are there other things we should be thinking about why margins improvement in '14 can't be similar to what we saw in '13? Or do you think the lack of legacy is just so powerful that, that affects an unreasonable expectation?

No. Scott, actually, we're not -- what I'm just saying is that there's a lot -- the same moving parts that we've had for the last 10 years, we're going to have those same moving parts as we look forward. And that's going to be the economy, the impact of fuel, the impact of mix on our business, so the higher depreciation rates that I guided you. Those are all factors. But don't read that to think that we kind of lost our enthusiasm to continue to move the ball forward on being aggressive in improving our margins, and we hope stars are aligned and we hope to be able to leverage each of those opportunities as we continue to make progress.

I would also just call to everybody's attention that we've just proven in the last 2 years the impact weather can have on the grain harvest. And it can be pretty dramatic from year to year. So again, all of those things kind of enter the picture.

Our next question is from the line of Chris Wetherbee of Citigroup.

Maybe just picking up on thoughts around the buyback. When you think about 2014 or I guess the next couple of quarters, is there any sort of major puts or takes we should be thinking about that would potentially lead to an acceleration or a deceleration on the pace of purchases versus where you were in the fourth quarter, I guess, with some of your targets about '14? I just want to get a rough sense if that's where the right run rate to be thinking about over the course of the next year or so.

Rob?

Chris, no. I mean, as you've heard me say many times, we've been reluctant to give any kind of a run rate or guidance on that. We'll -- the common theme will be we will continue to generate a strong cash position as we can and we will continue to be opportunistic in our share buybacks.

Okay. But no real sort of thinking dynamic, it's just going to be an opportunistic type of decision on that?

Yes.

Okay. And then Eric, a quick question for you. Just when you think about the International Intermodal, I know there's been some sort of -- there's been port changes among some of your customers. And so when I think about that in '14, do you have a point in sort of the second quarter or so when you begin to lap some of those differences, where you start to see some of that international volume pick back up just on the back of easier comps?

Yes. As we said we're going to have some difficult comps in the first quarter, just because first quarter '13 was so strong for us. As you know, steamship carriers are constantly looking at ports, and the ports that we have access to are still a strong part of their portfolio. There will be economic drivers, but we don't think that there's any particular specific port-driven drivers that you'll see that will change the volume outlook in the latter half of the year.

Our next question is from the line of Brandon Oglenski with Barclays.

Lance, I want to ask you a question. With expectations for volume growth here for the first time in about 2.5 years, does that make the efficiency opportunity that more easy to capture? Or does it drive some complications with adding capacity and adding workforce to handle the new volume?

Well, thanks for the question. We love volume growth. It does present opportunities for generating productivity, both in network yards and on line road and train size, many other areas. We are well prepared for it. I wouldn't categorize capital investment as a challenge. I'd categorize that as another opportunity and one that we love to embrace. Because right now, we're generating pretty attractive returns on those investments. So we're in pretty good shape for the growth that we see coming forward.

So is it possible that with the expansion this year, the efficiencies are even more visible?

I wouldn't say that. I don't think we can commit to that. I think we can commit to what Rob has said, which is we pursue productivity regardless of the environment. And our track record is such that we generate productivity.

And Rob, I want to follow up on that, too. With compensation and benefits, you did say you're going to have lower inflation hurdles this year. Can we talk about some of the drivers from a headcount perspective and then inflation perspective for that line?

Yes. Let me start with the expected employment numbers. I mean, that, as we've always said, will depend on what volume is. We would expect that if volume increases, our overall headcount will increase but not 1:1 because, obviously, there is productivity that we're able to achieve. And that excludes any capital headcount as sort of our -- to run our railroad. On the inflation side, yes, as I pointed out in my comments, we do expect 2014 inflationary pressures to moderate. We see that on the labor line at around 2% or so, all in, driven by some health and welfare positive news in our overall inflation expectations. And pension is part of that.

The next question comes from the line of Ken Hoexter with Bank of America.

Jack, maybe just your thoughts on returns and the Surface Transportation Board, particularly with 2 relatively new commissioners, your thoughts on being the top rail returns, generating the highest returns relative to their cost formula. Your needs on replacement rate returns now given Moby's [ph] retirement. Maybe you can just kind of give some thoughts on that.

Sure, Ken. You know what, we're looking at this as an opportunity. We'll certainly do everything we can to help educate the new members and make sure that they understand the dynamics. It has taken us a long time for not only Union Pacific but other railroads to get to a revenue adequacy point of view. And when you get there, that's not the end of the game, that's not the goal, because the whole issue of replacement cost still has to be dealt with. It still has to be brought into the picture. And so, therefore, as we look at it, we're not afraid of it. We're ready to engage and we don't see at this point in time any negative consequences of changing out the STB members.

Okay. And then just similarly, maybe it's more for Eric, but on all the comments on the -- noting the economy is accelerating, I guess, where do you see it hitting in terms of volumes and relative, I guess, specifically, or maybe it's a Lance question, on how much capacity you see in the network right now?

I think we're going to just leave it, Ken, with Rob's comment, which was we expect volumes to be positive this year. And how positive is really going to depend -- we're sitting here on January 23. There's a lot of year to play out. So we'll see. We are optimistic at this point in time that the economy does appear to be strengthening as we go forward. We like the prospects of having a strong grain harvest to kick the year off for us and hope that the second half is just as good. We're watching the coal burn just like you guys all are in terms of what's happening on the weather conditions and the economy activity to drive further consumption and the natural gas prices. So there's a lot of things right now. And if we can go through the year without a lot of government interference from debt ceilings and budget bills and those kinds of things, we could have a fairly decent year. But we're certainly not afraid of the volume in any shape or form.

Just a technical question, if I can. When does the Coal contract comp against itself, the lost contract? Is that the end of 1Q?

Start of the year, Ken.

The next question is from the line of William Greene of Morgan Stanley.

I'm curious on pricing, if we can come back to that. And if we look at your outlook for the economy, how long in your experience in the past has it been before strong volume, strong economy, tighter markets start to allow the rail market to price up? We've obviously had all that legacy business. But just more from an underlying organic pricing standpoint, how long does that take typically?

Overall, Bill, we're not going to get much into a discussion on pricing here. I will just tell you that as we look across our markets, at all times, every market is different. So the pricing opportunities ebb and flow with each individual markets. And I don't know. Eric, do you have any other insight?

No. I would just say what Rob is continually said in the past. As we reported price, the majority of our price has been on legacy pricing. So I don't think it's an assumption that [indiscernible]

We'll watch each market carefully. And our goal is always to price to market.

Can you remind us the percent of business that's tied to RCAF?

Rob?

Bill, for competitive reasons, we don't share that number. It's a fraction of our business. It's certainly not the majority, but that's a piece of information that we have not publicly shared.

Okay, fair enough. And then just one last detail question on weather in the first quarter. I know we don't typically sort of break it out. You operate outdoors, obviously. But given what you've seen so far, is it going to be a material impact in the first quarter based on what you know today?

Not the first 23 days. It depends on what happens tomorrow.

Okay. So 24 days and we got it. That's it.

24 days, and we'll see what happens on day 25.

Our next question is from David Vernon, Bernstein Research. David Vernon - Sanford C. Bernstein & Co., LLC., Research Division: Eric, a question for you on safety regulations with respect to crude. Obviously, if you get more stringent tank car standards, you might see a volume impact. But I was wondering how you might think that would impact your ability to price. Because presumably, oil spreads have widened a little bit and some capacity was taken out of the system, and maybe you could get a little opportunity to price that business a little more. Is that the right way to think about it? Or how have you guys been thinking about it?

David, I'm going to let Lance talk about kind of the safety-related issues. But as we say, we really don't talk publicly about pricing strategies. We would assume that if there's a safety mandate that has a higher cost or price car associated with it that would be reflected in the supply chain, associated with moving crude by rail.

And I'm not sure that there was a question in there on safety and crude-by-rail. David Vernon - Sanford C. Bernstein & Co., LLC., Research Division: Well, I mean, I guess, would you think that some of the regulations would pull some capacity out of the crude-by-rail marketplace?

I don't think we can comment on that. The things that are being discussed are the tank car standards that's really driven by the DOT and PHMSA. We already treat crude oil trains in a fashion that's over and above what's required by regs in terms of keeping our communities safe. So I don't think I'd comment on that. David Vernon - Sanford C. Bernstein & Co., LLC., Research Division: And then, Eric, maybe just a quick follow-up on Automotive. Given the sourcing shift towards Mexico and your greater share of that market, is it right to think that the volume could be a little bit better than light vehicle sales on an ongoing basis? Or how long do you think you might be able to keep that better than light vehicle sale growth in volumes for Automotive going?

So in terms of the Mexican automotive -- the Mexico manufacturing automotive market, there are a lot of new facilities coming online in the next several years, which will grow the production in Mexico from roughly 3 million vehicles a year today to 4 million vehicles a year, if you go out several years from now. We, with our franchise, continue to expect to get our fair share of that in terms of shipping those vehicles to market. But those -- whatever vehicles are manufactured in Mexico will, of necessity, have to displace vehicles manufactured elsewhere, unless the total sales number is going up. David Vernon - Sanford C. Bernstein & Co., LLC., Research Division: All right. And do you think you guys might get a little bit better share of that if it was like an Eastern facility moving down South or Canadian facility moving south?

I'm not quite sure of the question. But clearly, as sales increase for the industry, given our strong Mexico franchise, we expect to get our fair share of that growth.

Our next question is from Walter Spracklin of RBC Capital Markets.

I'm just going to follow up here on price. I just wanted to check if my math is right here. If I just average out your core pricing or the -- over the year, you're about 3.75%. You said about 1.5 of that is due to legacy. So if we strip that out, you're down to about 2.25. You indicated that lower inflation would pressure the average price down. So if I exclude fuel surcharge and exclude mix, are we looking at below 2% core price for next year? Is my math correct there in interpreting what you said? Is there something I'm missing there?

Rob?

Yes. Walter, as you know, we don't give pricing guidance. So we're not getting -- other than that we're focused on it. We price per value. We're confident in our ability to get reinvestable pricing and above inflation. We also commented that we don't -- won't get the turbocharge, if you will, over 1.5 on legacy and that we will feel a little bit of pressure on the moderating inflationary pressures for those contracts that are -- have that index. Beyond that, we haven't given commentary on our pricing, other than to say that we're going to continue to provide a good safe service to our customers and continue to look for opportunities to price to value and then continue to achieve core pricing in our business.

Okay. Just sticking on pricing here on the yields side with Ag. Obviously, as the volume is coming back, it is affecting your average yield. Is the fourth quarter rate, whether we use it on a per carload basis or -- should it continue to move? Or is that fourth quarter rate a fairly decent rate to use for -- as we look at 2014?

Eric?

No. Certainly, as we are continuing out the crop year, which kind of goes through the mid part of the second quarter, you would probably see similar trends as what we've seen in the fourth quarter. The further out that should look, it certainly depends on the crop year for next year. The weather and the size of the crop that should get beyond that.

Yes, got it. Okay. And just a technical question perhaps for Lance. Headcount, how do you see that evolving? Is that something that changes directly with volume? Or do you see some synergy opportunities here that you can maybe move headcount a little less than volume this year?

Yes. Our intent is to always move headcount less than the growth rates and volume, and that's what we'd anticipate doing.

Is flat a good number to put in for now? Or...

We won't make any...

I hope not. I hope we grow more than that.

Our next question is coming from the line of Justin Long of Stephens.

When you gave your long-term OR guidance, you talked about averaging about 50% incremental margins along the way. The last 2 years, we've been well above that level. Clearly, a big piece of this is due to the top line growth being more driven -- or driven more by RPU, as volumes have been slightly down. But headed into the next couple of years, if we see volumes start to drive a larger percentage of your top line growth, is it fair to say we see incremental margins trend closer to that 50% or maybe even a little bit below?

Justin, all those are factors -- this is Rob. All of those are factors that go into what it ultimately would be. But I haven't changed our view in terms of needing to achieve as this kind of a rough target, that 50% incremental margin on our growth as we look forward. So how we get there will depend on mix, will depend on fuel prices, will depend on a lot of things. But that's still our focus.

Okay, that's helpful. And then as a follow-up, I wanted to ask about Intermodal pricing and your expectations to -- in 2014. Do you think we could see an acceleration versus the trends we've seen in the last year? Or is your expectation that it continues to be a pretty competitive pricing environment?

No. So from an industry standpoint, I'm not making any reference to UP, but from an industry standpoint, it's still a competitive industry. The international intermodal industry has surplus capacity with all the steamship carriers coming on. The domestic intermodal industry, it's a huge opportunity but you've got a lot of effective competitors. It is a competitive environment.

And do you think that XPO's acquisition of Pacer will have any impact on your business? And overall, as you look at your IMC partners, is there a possibility we'll see any changes or shifts in the next year or 2?

XPO's acquisition of Pacer, from our perspective, we think is a good deal for XPO and Pacer and our business relationships with them. And we expect that to be positive for us. In terms of the other IMCs in the industry, there's always a lot of moving parts. Our approach is to have business relationships with the wide swath of the IMCs, and we'll continue to do that.

[Operator Instructions] The next question comes from the line of Matt Troy with Susquehanna Financial.

A question for Rob, just one, specifically as it relates to Mexico. I know the focus historically has been on Intermodal and Automotive, when we go to the talking points on growth. But you obviously have a movement afoot down there legislatively to open up natural resource extraction opportunities to foreign investment. You're on the board of the venture down there. I was wondering, Rob, if you could just give us an update on the legislative pathway down there, perhaps the commercial opportunity in energy transporter with Mexico. And realistically, what kind of time frame we might start to think about as that develops into a real viable commercial opportunity for UP?

Matt, Jack and I are both on the FXE board in it for those of you who may not be as close to it, we have -- we own 26% of interest. I think everybody's excited about what's happening down in Mexico on multiple fronts but specifically to the energy reform. I think there probably are a lot of bases yet to be tagged and a lot of progress yet to be made. So I don't think it's necessarily a this-year kind of activity. But it's probably several years out yet before you actually see it start to take hold. But nonetheless, it's a great opportunity for us and our partner.

Our next question is from the line of Thomas Kim, Goldman Sachs.

How much did your cross-border traffic grow last year?

Eric?

I don't have the exact number off the top of my head, but I believe it was about 10%.

10% first year, over $2 billion of revenue.

Okay, great. And then as that traffic grows, what impact is it going to have on length of haul and to average intermodal ARPUs?

We measure length of haul from the border. So I don't think it will have a material impact in terms of on length of haul metrics.

Matt, that 10% growth, by the way, was in the fourth quarter, just to be clear.

And then just the last follow-up on that. Can you give us a sense of the incremental margin from cross-border versus the overall franchise?

Matt, this is Rob. Yes, we don't break that out that way. I mean, it's good business for us, and I wouldn't look at it as materially different from our base business, but that's something we don't break it out that way.

Our next question is from the line of Cherilyn Radbourne of TD Securities.

I wanted to ask one on the International Intermodal business. It looks like we'll get some carrier consolidation this year with the new alliance, potentially a big merger. What, if anything, do you think that means for the business in general and your franchise specifically?

As I was saying, our assessment is that there's a significant overcapacity in the steamship industry today and short of worldwide improvement in industrial production that consumes that capacity they'll need to have something done to absorb that capacity. So there are a lot of conversations going on, as you mentioned. I'm not sure we have any particular insight or perspective beyond what's out there in the marketplace.

Okay. And then one question on operations. For most of 2013, your growth was very biased towards your Southern region and to manifest traffic in particular. So that was a challenge that you were dealing with. Does that trend persist in 2014? Or is that dynamic starting to level out a little bit?

I don't think we comment on where exactly volume's going. But I will say that the South has done a stellar job stepping up to that volume increase. And actually, I would welcome continuing to see that trend. It would leverage the capital investment we've been putting down there and leverage the process improvements that our team has put in place. I'm really pretty excited about that.

The next question is from the line of John Larkin with Stifel. John G. Larkin - Stifel, Nicolaus & Co., Inc., Research Division: Question for Rob. We were wondering if you had a message embedded in your use of the phrase "pricing for reinvestability" instead of the phrase that perhaps has been used more historically, "inflation plus pricing." Is there a nuanced meaning to that?

No, John. In fact, I've used that terminology actually for several years. Basically, what we're saying is at a minimum, something has to be able to be priced at a reinvestable level. We price to market, and we're confident we add it all up if that's above inflation.

Yes. Our long-term goal, John, we started this a long time ago, is to say that every carload of freight that moves on the Union Pacific meets our reinvestability threshold. So that's kind of like an entry-level as we look at pricing opportunities. And that's why in some cases, our volume growth hasn't been quite as strong because we're being relatively selective in terms of what business does move on our franchise. John G. Larkin - Stifel, Nicolaus & Co., Inc., Research Division: And then just as a follow-on perhaps for Lance. As you've gotten deeper into the PTC project, I know initially there were thoughts that there weren't a lot of economic benefits associated with it. But as you've gotten deeper into it, do you think there are some operational improvements that could be driven out of the data and capabilities that will be embedded in the PTC system once it's fully operational?

So John, this is how we think about PTC: The first is I'm very proud of our team and our industry for driving that project to a point where now I can see, I believe, it's going to be successful and we're going to have put in place a significant -- maybe the industry's most significant technological advancement in a very short -- relatively short period of time. All PTC does is overlay on your existing system and stop trains for 4 reasons. So PTC on its own and the technology that we're investing right now on its own does not enhance operations. It is a safety enhancement, and I applaud that. Having said that also, the technology that's embedded in PTC might form a foundation for future investments that could be helpful, but that's over and above the investments that we're making right now, and they'll have to be justified by that return.

The next question is from the line of Keith Schoonmaker with Morningstar.

Rob mentioned fuel as a potential speed bump on the path to the OR target. But are there still any major fuel efficiency levers and reserve, like broader distributed power or more full implementation of throttle technology?

Lance?

Sure. Could you repeat that question please for me?

Sure, Lance. I guess, I'm asking, given the importance of fuel, are there still major levers to pull, like broader implementation of throttle technology or more use of distributed power?

Yes, absolutely, there are. We're pretty deeply penetrated on DPU. But every unit that we buy is DPU-equipped. And so we'll continue to be able to penetrate parts of our network and train service that aren't currently DPU-ed. So that's always a benefit and a plus. And in terms of other technologies, we are actually deploying 2 different types of technology that will benefit in fuel consumption rate across the network. We're doing that in a measured fashion, testing it and highlighting it in certain areas first, but I see that we've got a lot of leverage we can continue to pull on fuel -- fuel consumption rate.

And following up on that. If you do improve fuel economy, do you have to in effect give some of this back via, say, reduced fuel surcharges?

If you look at what we're going to do, Keith, we're going to invest in the economics. And we need to have a return on that in order to justify and pay for the investment that we're making in that. So at this point in time, we're not looking at changing any of our fuel. Basically, our fuel surcharge situation is designed to recover changes in fuel cost, and it will continue to be that way.

The next question is from the line of Jeff Kauffman of Buckingham Research.

My questions have been answered, but let me just ask one quick one. Pension expense, if you hit this, I know it will be lower, but can you just discuss what's changed and how much lower?

Rob?

Yes. Higher returns and higher interest rates are driving a lower expected expense is what -- are the big drivers this year.

Right, but did you identify how much lower?

I did not.

Are you willing to?

Maybe in the neighborhood of $30-plus million delta.

Okay. So helpful, not material.

Our final question is from the line of Ben Hartford of Robert W. Baird. Benjamin J. Hartford - Robert W. Baird & Co. Incorporated, Research Division: I wondered, could you provide some context to what the volume growth looked like for the UPDS and streamline products in the fourth quarter and possibly provide some perspective as to what that volume comprises in the Intermodal segment in 2013?

Yes. I don't think we historically break that out, but those are good vehicles for us to grow our business. We have a great business development focus, and both of those are and continue to grow nicely for our business. Benjamin J. Hartford - Robert W. Baird & Co. Incorporated, Research Division: And then maybe as we a look into 2014 and think about container growth of your controlled fleet, can you provide a number for where we are in -- or we ended 2013 from a controlled container fleet perspective and what the growth expectation for 2014 will be?

Are you talking about the size of the fleet? Benjamin J. Hartford - Robert W. Baird & Co. Incorporated, Research Division: Yes, the [indiscernible] and new [ph] mix.

We historically have not discussed publicly the total size of our fleet. We do think that those strategies of an owned fleet are the right strategy. So we will be maintaining -- you could assume we will be maintaining or growing the size of our fleet.

Thank you. I'll turn this call back over to Mr. Jack Koraleski for closing comments.

Okay. Thank you so much for joining us this morning. We're looking forward to speaking with you again at the end of April and in between as we have various meetings. So take care and thanks again.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.