Canadian National Railway Co (CNI) 2008 Q4 法說會逐字稿

I would like to remind you that today's remarks contain forward-looking statements within the meaning of applicable securities laws. Such statements are based on assumptions that may not materialize and are subject to risks described in CN's fourth quarter 2008 financial results press release and analysts presentation documents that can be found on CN's website. As such actual results could differ materially. Reconciliations for any non-GAAP measures are also posted on CN's website at www.cn.ca.

(Operator Instructions). Welcome to the CN fourth quarter and year-end 2008 financial results conference call. I would now like to turn the meeting over to Mr. Robert Noorigan, Vice President Investor Relations. Ladies and gentlemen, Mr. Noorigan.

Thank you, Patrick.

Thank you for joining us for the conference call on CN's fourth quarter results. I would like to remind you today that comments that we have already made regarding forward-looking statements. With me today is Hunter Harrison, the President and Chief Executive Officer of CN; Claude Mongeau, the Executive Vice President and Chief Financial Officer, and James Foote, Executive Vice President of Sales and Marketing. After our presentation we'll take questions from those of you who are listening on the phone. Could you please identify yourself when asking a questions. And in order to be fair to your colleagues, could you limit your questions to two or three.

With that it is my pleasure to introduce CN's President and Chief Executive Officer, Hunter Harrison.

Thank you, Bob. And thanks, everyone, for joining.

These are clearly challenging times. I've been in the business 40 plus years and I don't know that I've faced the challenges or things that we're trying to deal with now. Before I call on Claude and Jim to get more on the level of detail on the results, let me just make a few observations. We saw our revenues up as reported 13%. Clearly we had a tail wind there from foreign exchange and from pricing. If you adjusted those for foreign exchange, revenues were actually up 1%.

Our operating ratio came in at 62.7, which is relatively flat year-over-year, with pretty outstanding performance in the face of the environment we were in. Our adjusted earnings came in at $1.21. That did include a 9% deferred income tax recovery. So they were up 24% on a comparable basis. With the benefit of about $0.15 from the fuel surcharge lag and the 10% benefit from foreign exchange.

Probably one of the most encouraging things, and what gives me the degree of confidence I have going forward, is some of the continual improvements in operating metrics. There's a page there in your presentation that you have, hopefully before you, that look at some of the key measurements and Creel & Company on the operating side of the house continue to break records every day. They're doing a wonderful job of controlling expenses relative to revenues. And they're going to have a continual challenge throughout the year of doing the same thing. I won't go through those in detail, but we've been through and talked about it before. So overall I thought the quarter was pretty outstanding operating performance.

We saw a significant reduction in dividends being paid for the hard work that we've done on the personal injury and accident side of the shop. In fact, we made substantial improvements in our expenses for train accidents. In the quarter we did - - in the fourth quarter we did make one strategic acquisition of Quebec Short Line (DFQ), which is kind of a niche acquisition for us that will be helpful. And we just received - - hot off the press - - from the courts in DC that the stay was denied for the EJ&E transaction, so we will be closing that transaction any day now.

And that overall performance that I've just described produced about 794 million of free cash flow. There's not many people reporting results now that can talk about cash flow like that. We also announced today, I guess the 13th consecutive dividend increase since the IPO in '95, increase it another 10%. So I was pleased about that, and that certainly gives some indication of Management's confidence going forward. After Jim reviews revenues and Claude some of the financials with you, I will have some wrap-up comments, then we'll be happy to address some of your questions.

Claude.

Thank you, Hunter.

As these were indeed solid fourth quarter results, we turned in reported earnings per share of $1.21, which is down 28% over last year because we had very significant deferred income tax recoveries in 2007. If I exclude these tax elements and also the sales gain in 2007, our adjusted EPS is $1.12, which is up 24% year-over-year, good finish to the year in terms of performance, clearly. That strong performance is given despite 10% volume decline.

As Jim will explain to you, basically all of our business unit, except coal, has seen a volume decline during the quarter. But we were able, nevertheless, to turn in these kinds of results because of basically two factors. The first is our focused management, we are protecting the top line with disciplined pricing. We are running a very fluid network, and we also had help from what I call the shock absorbers in terms of our performance, lower foreign exchange and the FSC, which was a head wind in the first half, turning into a tail wind in the back end of the year. During the fourth quarter those two elements helped us to the tune of about $0.10 in terms of foreign exchange, about $0.15 for the fuel surcharge lag.

We finished the year with a fourth quarter free cash flow performance of more than $300 million. That's despite having funded $50 million for the cost of the small acquisition of the CSQ in Eastern Canada. So very good fourth quarter performance. Let me turn to the expenses. Our reported expenses increased by 15%, but that's largely due to the impact of a lower Canadian dollar.

If I exclude FX, as you can see on your chart, expenses were well contained to only a 2% increase. Our labor and fringe benefit costs were up 7%, mostly due to higher stock-based compensation we marked to market. And last year, from September 30 to December 31st there was a larger decline in the stock price than what we saw in the 2008. So that's basically the reason for the increase in labor and fringe, because we were able to offset higher wages and also higher bonuses with lower headcount.

Our headcount came down by roughly a 1.5% during the quarter, and also very tight management of labor expenses across the board, but particularly in transportation. For instance, our road and yard starts during the fourth quarter were brought down by more than 10% in reaction to volume decline. Fuel expenses are down 19%. 60% of that is price and the other 40% is from lower volume and productivity gains. Our equipment rents are up 15%, or 9 million on an FX adjusted basis, largely as a result of receiving less car hire income.

Some of our cars, which go off-line, normally pick up income, and this line equipment rent is a net of income and expense. And when the volumes go down, we receive less income, and that's the reason for the increase on a year-over-year basis. Finally, casualty and other, this expense category is up 50%. About two-thirds of that is due to a higher legal claim credit in 2007. We had a small legal claim credit this year, but 2007 was larger, and so that's an increase on a year-over-year basis. The other third is because of bad debt which flows through in casualty in other.

If I turn to free cash flow for the full-year now, I'm particularly pleased with the performance. We delivered $794 million free cash flow. We were focusing on all levers, including, for instance, monetization of surplus assets. We had a joint theme this year, and I'm pleased to report we were able to monetize a lot of scrap rail, a lot of surplus equipment. And we did that earlier in the year before the scrap prices collapsed in the back part of 2007 - - 2008, sorry.

In total, our monetization activities are up 60 million on a year-over-year basis to give you an order of magnitude. We manage our CapEx envelopes very smartly. So overall our CapEx on a gross basis was around $1.5 billion, which with just over $100 million of capital leases. And you can see the net there on the statement of free cash flow of $1.424 million during the year. We used the free cash flow of 794 million to buy back shares.

Our total program during the year was just under 20 million shares for about a billion dollars. At December 31st, we were also fortunate to have $400 million of cash on our balance sheet, and that $400 million will be used to fund the transaction any day now when we can do the closing. In 2009, our focus will continue to be on generating strong free cash flow, and also protecting the strength of our balance sheet. We expect our overall CapEx envelope to be about 1.5 billion, inclusive of the amounts we will spend on the J transaction which should be on the order of $100 million for infrastructure and also for mitigation.

If I exclude the J transaction and I look at it on an apples-to-apples basis, taking into account the impact of foreign exchange, this represents a reduction in our CapEx budget on the order of 13% to 15%. So we're clearly managing for our capital envelope to reflect the current business environment, but also protecting the integrity of our plant and continuing to fund the initiative that will propel earnings going forward. If I just say a few words on the full-year results. I think it's been a challenging year from the beginning to the end, particularly at the end, but we are very pleased with the overall performance.

If you look at for the full-year, it's basically the same story of focused management. 7% top-line growth, driven by yield improvement, solid cost performance with an operating ratio of 65.9%, and delivering adjusted EPS growth of 9% on a year-over-year basis, backed up with strong free cash flow. I think you can take comfort with this kind of performance as kind of background, looking forward into 2009. And if I can say, turning to my last slide, it's clear that 2009 will be an even more challenging year than 2008 was. There's a lot of uncertainty out there.

There's a lot of volatility. Clearly the economy at the moment is coming down at a fairly fast pace. If you just look at Q4, the run rate in terms of housing starts was in the range of 600,000 to 700,000 housing starts. Auto sales in North America around 10 million, and clearly a lot of inventory reduction to face up to the current environment. So it's tough to call exactly where the bottom of this economy will be. But we are bracing for a tough environment, an economy that will come down for sure at least 2%, if not 2.5% GDP into next year.

But we know we can, even in that kind of an environment, we know we can continue to deliver good results. We have shock absorber working for us. Current oil prices are below $50. Canadian dollar is at around $0.80. These will continue to act as cushion to our earnings going forward. But more importantly, we have a proven business model. We have a strong franchise, we're focused on structural growth opportunity. As Jim will tell you, we're disciplined in our pricing approach. We are managing the cost side of the equation, and managing our resources with a view to come out of this tough environment strong and protect earnings and continue to deliver strong free cash flow, superior value to our customers and to our shareholders even in tough times.

And with that, Jim.

Okay, thanks, Claude.

Total revenues in the fourth quarter grew 13%. On an exchange adjusted basis, the method I will use when we're discussing the numbers today, revenues increased 1%. As we went through the first three-quarters of this year, our car load volumes were basically flat and increased in the third quarter. This was despite significant declines in our forest products and automotive segments.

However, each successive month in the fourth quarter we saw larger volume declines; minus 5% in October, minus 13 in November, and minus 14 in December as customers reduced production and extended their shutdowns over the holiday period. Total fourth quarter RTM's declined 10%, and car loads were down 11%. Looking specifically at the rail freight revenues, we were flat. The negative drivers were the 10% decline in volumes and a CTA decision to retroactively apply a rate reduction for shipping regulated grain which reduced revenues by $26 million, or a little over 1%.

The largest offset to those declines was price. Our same-store price increases were approximately 5%. Fuel surcharge made up half the remaining of that, with (inaudible) representing the balance. Other revenues grew 12% in the quarter, reflecting an increase in our non rail transportation activities and driving total revenues up 1%. Let's take the various segments apart briefly starting with petroleum and chemicals, which was up 3%. The continued growth in the (inaudible) shipments into the oil sands region, longer haul shipments of fuel into Western Canada, were benefits in the quarter, but were offset by lower shipments of plastics, sulfur, and chemicals. Metals and minerals was up 5%. There we had strong shipments of pipe, large diameter pipe, good shipments of aluminum and zinc from the Canadian producers, although they were offset by an overall weakness in the steel industry. On the mineral side, we had good frac sand loading that we've had in the past because of the ongoing drilling activity in Canada. But iron ore shipments really slowed down as we progressed throughout the quarter. Forest products down 7%, and certainly well understood, well discussed difficulties that continue to persist with the lumber and panel customers. And while in the paper and pulp side, we had some benefits there from some log shipments and stronger wood pellet shipment. Those were offset as there was some curtailments and shutdowns by customers in the pulp and paper business.

Coal, really the bright star of the quarter, up 26%, that's associated with good business in our US coal franchise, the benefit of a new mine that's come on-line in the Illinois basin. As well as increased shipments of western coal that we get in Chicago and then delivered to their final destination that drove our US car loadings up actually almost 30% in the quarter. Canadian coal on the other hand down, mostly metallurgical coal in Western Canada. There were some production issues with some of the mines out there as well as some lower demand, and some slower pet coke shipments.

Grain and fertilizers in total are down 3%. Mostly due to lower fertilizer shipments in the quarter, especially potash, due to a strike by one of our customers. Lower US corn exports and some reduced barley shipments in Canada. On the intermodal side of the house in the overseas segment, the international side of the business. Again, the second vessel call at the Port of Prince Rupert is helping our numbers there in the quarter, giving us favorable comps, offset by reduced volumes through the Port of Vancouver and on the East Coast at the Port of Halifax.

The domestic intermodal business doing pretty good in the circumstances. New business opportunities there, as we continue to focus on providing a retail service product in the marketplace versus just playing the wholesaler role. Then automotive down 16%, really just showing the rationalization and production cut-back by manufacturers. If I go to the last page here, and just kind of summarize a little bit about the rest of the year, first, pricing. Our strategy of having reasonable sustainable pricing should continue throughout '09.

Our target continues to be the same for same-store price increases in the range of 4% to 5%. 65% of our business is already repriced in that range for this year, and I see no reason why that will not continue. I think it's important to remember that even with these price increases, with the decline in fuel surcharge, customers are going to be paying less in '09 to ship their products than they did last year.

On the growth side, not all is doom and gloom. As I talked about in this quarter about coal, the coal mine expansions in the Illinois basin continue. Williams Energy's Pond Creek Mine is producing very well. Their new mine there, the Sugar Camp Mine, should begin producing developmental coal late this year. The Canadian grain crop has again been revised upwards to 21% above the five-year average. So despite the very low carry in that we had from the previous year, available supplies are at their highest in 10 years.

As a result, wheat exports are expected to increase to 16 million tons. We continue on the other segments, in the metals area. We continue to serve some of the various highest technologically advanced and low-cost producers in steel mills, iron ore plants up in Minnesota, as well as some aluminum smelters. Whereas people look to downside and concentrate their operations, we are seeing some of our customers see some good volumes. Domestic intermodal will continue to focus on shifting from the wholesale to a retail product, and finally, a little color on the oil sands.

While clearly the current low prices of oil have resulted in delays and cancellations to virtually all of the planned upgrades out there, here, too, not all is lost. To date we have seen significant growth in our dilutent shipments to the oil sands. And these will continue. In fact, the upgraded delays will likely mean that we will see increased dilutent potential in the near term, and it may present new opportunities to move bitumen out of the oil sands by rail.

And we are going to continue to focus on extending our region, providing more services to the customers. You saw the results in the fourth quarter of our selling and non transportation services. It's producing good results. We will build upon the new 20 facilities that we added in 2008 with more trans load and reload facilities, and we're also focusing on making more truck pick-up deliveries at these facilities.

So that's a quick summary of the revenue outlook, and I'll turn it back to Hunter.

Thanks, Jim, for those presentations. Very informative. Let me just add a little more of the long-term focus here.

The one thing that I would emphasize in '09, that we're going to have an intense, even more intense than we've had in the past, towards this whole drive towards productivity. We can't do much about the economy. So if there's not freight there to move, there's not freight there to move until the economy gets stronger. But we can and are still turning over stones every day to improve our operating metrics and improve our productivity and cost control. And let me just give you a couple examples to mention to you.

We just completed this summer the new mini hub that we refer to at Memphis. We've already made some improvements to the physical plant in that yard, which has increased the throughput. And the rationalization that that allowed us to do, particularly throughout the US, is kicking in very strong. And if you looked at the first three or four week results, three weeks here, they're pretty amazing considering the weather that we're dealing with. Also, our plans are, as soon as the - - certainly as soon as the spring thaw, we will probably, all indications are, close our hub facility at Edmonton and it will become more of an industrial yard and complex within the classification facility. We're just leaving no stone unturned. I think we will continue to break records in '09 that we hadn't dreamed about before.

If you look at the locomotive fleet, if you look at the car fleet, they're both at all-time low levels. They're both at all-time highs productivity wise, throughput terminals, our overtime is down. Claude mentioned the headcount was down. We've had some lay offs, about 600, I think, 650 lay offs. The one thing that we have working for us there is that we have maintained a real tight control on our headcount and employees. And our attrition has been running, and we expect to the run this year right at 10%. So that in itself is about 2200 employees that will come out, that if the economy does not bounce back quickly, those positions will not be replaced.

The bottom line of this is this operating strategy, the most important thing about it is to have, not unlike a football team or hockey team, you start off with a strong defense. You've got to be able to have a strong defense and get by in these rough times to be able to do well in - - when times prosper. It's pretty easy when things are rosy and all to do well.

The real cream comes to the top when the going gets tough. And I think that this is an organization that can put those things together and produce some results that Claude described to you. Jim talked about our continual discipline towards pricing. I certainly agree with him there. The continuing focus on market share growth. And the bottom line of all this is we are - - we think we are very well positioned to weather this storm, and when there's a bounce-back, to take advantage of it.

And with that, we will be more than happy to answer any questions you might have.

Thank you. We'll now take questions from the telephone lines. (Operator Instructions). There will be a brief pause while the participants register for questions. Thank you for your patience.

The first question is from William Green from Morgan Stanley. Please go ahead.

Yes, Hunter, I'm wondering if you can talk a little bit about maybe lessons learned from EJ&E. Does this mean that maybe the big mergers are off for quite some time? How do you think about what that experience says about the merger environment?

Well, Bill, I wouldn't read too much into that. There's not but one Chicago that I know of in the US that's got the congestion, the rail congestion, that Chicago has, and we certainly learned a lesson there. I learned a lesson that I just did not recognize the opposition we were going to have and "not in my backyard" mentality of some of the communities. But we have worked very diligently with them. I think we signed agreements effective with 11 of the communities.

We continue to reach out, in spite of the fact that today we've got the final decision, the final stay will be through appeal processes, but that's behind us now. If we ever get into something like this again, have we learned something? Yes, we certainly have learned. We could have done some things probably up-front that we didn't do, not anticipating the opposition. But I don't think this is any signal that says as a result of the environmental issues that were so sensitive in Chicago, that this would necessarily throw cold water on a transaction. Although I don't think anything - - there's a transaction out there, but if and when that ever comes about, I think that people will learn from our experience and will deal with it better. This transaction was unprecedented in the environmental review, and if you look at the other transactions, it's very - - it's extremely different, so we certainly learned from it.

So you just think it was more a local issue than anything else?

Absolutely. If you look, I mean, effectively, the Chambers of Commerce, all the business associations, the - - everybody that was not in one of the western suburbs was in support of the transaction. There were very few that the tracks were going through their backyard that were in support of it. So it was clearly an issue that it was the local people that were going to be adversely affected in their view.

Okay. Jim, maybe I can ask you just a quick question on the Canadian grain rates for 2009. How should we think about where those are going? And in the US on the grain side, how much river competition are you facing? How big a deal would that be to your volume this year?

The grain rates to be established in August of '09 for the '09 -'10 crop year will be impacted, my guess at this point in time, as fuel prices have come down. So therefore we are not assuming any kind of a real uptick for that crop year. There are cost base - - set rate. In the US, clearly there is a capacity, not only on the bulk vessels, but the barges on the river. And so those rates are moving around, but we're always remaining - - we always remain competitive in that marketplace, because of the niches that we've carved out.

Just one last question for Hunter. If I'm not mistaken, your contract is up this year. How should we think about what your plans are going to be?

Well, you should think about, Bill, what you just said that my contract is up at the end of the year. I mean, that - - look, nothings never for sure, but all indications are that my contract will expire then, and I will move on to other things. And we've planned the succession and we've gone through that with you.

Thank you.

Thank you. The next question is from Chris Ceraso from Credit Suisse. Please go ahead.

Thanks. Good afternoon. A couple items. Claude, could you just give us your view on what was the primary factor behind the margin compression in 2008? Was it fuel? If not, was it something else? Then as we look at 2009, as fuel comes out of the top line, should that result in margin expansion, or is the volume going to be too weak to see that?

Well - - clearly, you are right to point out that when you have more than $1 billion of your revenues, which is effectively at 100% operating ratio under the fuel surcharge, that that - - the [amount] of it will compress the margins or the operating ratio. We also had larger legal claims credit in the prior years than we did in this year. And so that explains those two factors and a little bit of stock-based compensation and higher bonuses would explain the majority of the increase. Looking forward, I think we don't have these head winds necessarily in front of us. And we'll be looking at protecting margin, but the key is knowing where the volumes will be in 2009. And that's difficult to read at this juncture.

You should get some help by pulling some of that fuel out of top line, right?

For sure. And in fact you are seeing it to the some degree in Q4.

Okay. We've heard on a couple of these calls mention of higher bad debt expense. That happens when economic times are tough, but was it notable? Is it something that you worry about going forward or just something that you need to kind of pay attention to?

We have to pay attention to but we're not worried. We're following every customer. We're working with our customers. We have very good collection performance in the fourth quarter, and that's helping explain how we finish the year at nearly $800 million of free cash flow. So having said all this, when a few companies, and you will see some of that for sure in 2009, file for bankruptcy or protection under the CCAA. You have the risks of having a few instances where you have to recognize the loss on that bad debt. That's just part of business. But we're on top of it.

So you are raising your reserve in anticipation of potential bankruptcies?

No, what we did in the fourth quarter is reflect the bankruptcies that we have seen. And we have our reserves on a go-forward basis are properly in, and we'll just adjust as things unfold.

Okay. Thank you very much.

Thank you. The next question is from Jacob Bout from CIBC World Markets. Please go ahead.

Good afternoon. Just a question for Jim here on contracts and pricing. You talked about 2009. For 2010, what is the percentage of contracts that have been renewed, and what is the average price increase there?

Well, we don't have very many long-term contracts. Our strategy clearly has been to have short duration contracts, so I have very little that will be - - that is already priced into 2010. I think that the range of pricing that we have outlined for '09, if the economic conditions stay kind of where they are today, is a range that I would be comfortable thinking about for 2010.

Then just to push-back on pricing, specifically on the automotive and the forest product side, what are you hearing from your customers out there? I think (inaudible) in particular, telling their suppliers there that they're looking for kind of a 10% to 15% decline.

I think that's something that I hear from a lot of customers. That's not something that we're interested in entertaining.

Okay. Just switching to what we've seen year-to-date here, if you take a look at the car load volumes are down roughly 20%. If you are to put things into buckets - - in regards to, let's say, plant shutdowns, versus de-stocking, versus freight, moving a truck, or a decline in underlying lying demand. How should we look at that 15% to 20% decline in car load?

Let me make this comment first, then I will let Jim give you some of the details. I don't know that it's good to look at the first three weeks and draw conclusions. If you look back last year at the calendar, last year the first three weeks of the year were pretty good weather conditions. And then about the fourth week, kicked in pretty horrible conditions like we face now.

So one of the things that we're trying to sort through is certainly the weather has some degree on the 18% or 20% number that you reference it to, and so it will be better than that. I can't tell you how much better, but we're trying to sort through that right now. But I think the comps will look much better and won't be maybe as alarming when people see the 20% over three weeks doesn't make a year.

Jim, you might want to get more of the specifics.

Just to follow up on your comments there, in terms of automotive and forest products, in particular. Clearly the automotive manufacturing facilities took extended down times over the holidays, really starting with the US Thanksgiving through Christmas and New Year's, and have extended them into January.

And so many of our - - many of the 16 served assembly plants that we have have been slow to come back on line. But they are coming back on line, more and more each week, and so that - - kind of 20% run rate just for automotive, as an example, is going to improve. I think that's kind of the case across the board, where everybody is very slow and very hesitant and very cautious about bringing facilities back on line that were shut down for the holidays. But we are seeing that activity pick up, unfortunately, slowly.

So your thoughts, if you look past the plant shutdowns, past the weather issues, underlying demand would be down, kind of order of magnitude, 15%?

You know, I can't - - that's really speculating. You can draw your own conclusion based upon what you see, kind-of ratcheting down of overall economic activity, and our volumes are really not that much different, excluding the bulk. The bulk segment, which is kind of, hopefully, on a life cycle of its own here.

Okay. Last question here for Hunter. With Obama getting in, what are your thoughts as far as his interaction with the rail industry? What does it mean out over the next four years, specifically for the top - - re-regulation and the potential for price caps?

Well - - I think that - - clearly, you could make a case that it's a breath of fresh air. A lot of people in Washington have been making efforts, that are making further efforts, to infuse cash into the system and do the appropriate things. Whether they are the right things or not, we could argue. But I think, my view is, that they will do some things short term that are certainly going to help.

I think they've got some longer term implications, but it's kind of one of these deals that we've got to deal with the short term first. I do think there's some encouraging things, talking about potential investment tax credits. That deal with infrastructure improvements that would we'd have certainly an interest in seeing given the J situation in our capital spend in the US. I don't - - I've been hearing about re-regulation ever since the Staggers Act.

I think, in this type of economy we're in, if somebody started tinkering with rail re-regulation, and I'm not talking about the antitrust exemptions issues. I'm talking about beyond that into rate re-regulation or whatever - - it would be the most fatal mistake that anybody could ever make. So I'm encouraged. I think he appointed a pretty strong cabinet. I think generally speaking people are pretty favorable to those choices. I think there's some optimism. So I'm looking forward to his leadership.

Thank you very much.

Thank you. The next question is from Jason Seidl of Dahlman Rose. Please go ahead.

Good afternoon, guys. Getting back to one of the last points, you mentioned that some of the activity is slowly coming back from some of the shutdowns of the plants. Where is it coming back? Are there any specific industries that are slowly coming back first?

Oh, I think the example that I used in terms of the auto facilities there, that is actually where we're seeing the facilities that had been shut completely for the holidays. They're starting to pick up activity, and that's happened over the last few weeks. We are seeing, on the lumber side of the business, returns from basically - - for our center beam activity, we're seeing that demand, orders coming back. Clearly not at spectacular rates, but from where they were during kind of the period from US Thanksgiving till the week after New Year's. So there was unprecedented low levels of demand for our equipment during that five or six-week period, which we are now seeing slowly - - but the trend in the upward direction in just about every commodity group.

Any trend up is a good trend I think these days. I think this is probably one more for Claude. Claude, the penalty of $4 million that's associated with the grain crop revenues that we saw in the quarter, should we expect any more than that, or does that cover 2008?

No, that's it, Jason. That's the full amount that we were over the grain cap, was 30 million, and 26 was booked in against revenue, and 4 as a penalty against expenses.

Okay. Fair enough. I guess, Hunter, this is probably one for you guys. Obviously, clearly you guys do a great job of generating free cash flow out there, and that's one of the reasons why you are able to raise the dividend. But talk me through the thought process of raising your dividend in a period where a lot of people are viewing sort of cash as king for companies right now.

Well - - I think that Claude has provided the leadership there. You look at our balance sheet. If you look at our anticipation of free cash flow into '09, although it is going to be hard to predict. We're very, very comfortable that the shareholder deserves something. And so if we can sit there, I'm not sure what we're going to do with the cash, if we just sit on it. I think - - and Claude can take you through this, but I think we're comfortable with an increase the dividend. I think we're going take a good look after we get the J transaction closed behind us. I think we anticipate hopefully getting back in the market with the repurchase program in the second quarter.

If things go as we anticipate, so - - we're pretty optimistic - - are times tough? Yes. But we're pretty good at dealing with tough times. So I'm pretty proud of the '08 performance with free cash flow, with the earnings increase with the environment we had. Not a lot of companies can say that and I would say this. The reports I've seen so far, the other rails did pretty well, a pretty good job.

And if we can do what we hope to do in '09, and that's hard to describe, right now, because we cannot see through the economy yet, okay. And it's - - I think it's inappropriate for us to give any more specific guidance and we really don't know because we're just shooting in the dark. I don't think three weeks is a good indicator. I'm not going to put a number where I think it's going to be. But the one thing I feel good about is I know what Keith can do controlling expenses. And we've got opportunities there, and so that's why we're in the position we are with the dividend and to be able to do - - we've got plans for our capital spend.

I think our plan today, if the year plays out like it, the capital spend will be down considering the J, about 15%. I can't imagine, but if things got worse, do we have a Plan B to look at that further, absolutely. But at the same time, would we ever see a situation where free cash flow third quarter is going better than we thought in anticipation? Would we be opportunistic about the cash? Absolutely. If there's a better call for cash and use of it then, then the typical uses, we'd certainly take a look at that.

Okay. Fair enough. Thank you for the time as always.

Thank you.

Thank you. The next question is from Tom Wadewitz from JPMorgan. Please go ahead.

Yes, thanks. Good afternoon. Jim, you talked a fair bit about when demand might improve a little bit. I might have missed this, but on grain, it sounds like you got a whole lot of grain that potentially could move, but I don't have a good sense for the catalyst to get the grain numbers improving. Do you have any sense of - - timing, where some of that might start to move and the volumes would look better? And perhaps level of conviction that that will improve?

On the Canadian side, we're actually seeing some improvement in the demand for car loadings into the future now. So kind of closer, I got the demand will be kind of closer to around 85% or so of what we normally run, kind of in the wintertime. So - - I think there were issues associated with people wanting to adjust the delivery times of their grain that they were buying from Canada because vessel rates were dropping so dramatically.

I certainly think there were some issues with the question of liquidity. There were certainly some issues with the question of the grain itself and the times when they were buying it. And all of that is just starting to get some normalcy to it. So our grain loadings are kind of getting back to a more normal level. In the US, on the corn side, that crop had just come in very late.

We're just starting to get an assessment there of how that product is going to move and what the export business there is going to be like. Still there's a significant demand for ethanol. Our ethanol continues to grow, and so that's going to be a factor in our numbers going forward. So I think both of this, we're starting to see some stability, obviously at a slightly lower rate than what we'd like to normally see at this time of the year. But stability has returned.

Okay. All right. So it sounds like we should see that pretty quickly in the weekly numbers. On the - - you are pretty firm in the view on pricing, which is always good to see. I wonder if you could give us a sense of whether customers that are probably in a more difficult environment than in a long time are pushing back through the arbitration process and kind of the regulatory levers they have. Is that a mechanism that could - - harm you on the pricing, or is it kind of a small component of the customer segment that can use it or would use it that it's not really a factor to consider?

Well, in Canada, we have the FOA process, which is baseball arbitration, which is a pretty easy process for the customers to use. And to date, I have seen no more - - no higher activity levels from customer complaints than we've had in the past. And then most importantly, the arbitration process is about the fairness of our rate, our transportation rate.

It is not a vehicle whereby the customer can go in and arbitrate that his cost structure has changed or there's some undue hardship on him that whereby we should lower our transportation rate to subsidize him. That is not the vehicle for that use. And so based upon the overall stability and the overall increase in rail transportation rates, and the fact that I believe that we lead the industry in terms of a long-term view with reasonable rates, I'm very confident of my ability to support that position in arbitration.

Okay. One last one, and I'll pass it along. On the headcount side, Hunter, you made some pretty - - I don't know if strong comments or how to characterize it, but pretty good level of conviction on the ability to reduce headcount. You talked about 10% attrition rate. If it looks like volumes might be down 10% for awhile, is it reasonable to think you get close to headcount reduction matching up with volume reduction?

I think we'll get close. I think everybody would agree if we're talking today that worse case we've seen down 20%, so they're going to get better than 20. If you say we're at 10, we're starting to get close. If you look at our train starts today, both yard and road, they're down in the 15% - 16% range. And some of that is hurt by volume.

So could you bring more volume on without any more train starts. So I feel pretty comfortable that - - to give you a rule of thumb, I think we can adjust expenses off the top line, if business is down 15% we can reduce business 15%. Now the math cautions you that's not as good, some say doesn't convert to the same earnings. But we've got the ability and the wherewithal and we've proved it over and over and over again. So I feel pretty good about that.

Okay, great. Appreciate the time. Thank you.

Thank you. The next question is from Edward Wolfe from Wolfe Research. Please go ahead.

Thanks. Just a follow-up to that, Hunter. Is there show number or field directionally where the volumes down x number, I can't get back to you to break even EBITDA year-over-year? Is that number down 7% or 10%, or what's kind of a feel where you're taking out expenses and you're chasing them down as quickly as you can, but at some point you can't grow the EBITDA? Is it - - if pricing is four or five? Because - -

It it is more related to destiny. I tell you the worst nightmare. If you've got one train a day going to a market, just pick it - - Memphis to Baton Rouge, you've got one train a day. And the capacity is 100 cars and business is down 10%. It's - - to cut the 10% and still run the one train. Where you've got multiple starts and the opportunities to do some things that we're doing with DP with longer trains, with air repeater cars. There's certainly a point where - - if you are starting to get in a high range of business being off, we're not going to touch that range, I think. In fact, I think that we can even - - this year I think we can even exceed what we've done in the past on a relative basis with expenses relative to the top line.

So you expect to grow your EBIT on a same currency basis this year over last year, '09 over '08?

I think there's many other factors, Ed, that I wish there was a simple rule of thumb that you're asking. But you have to look at all the factors, and we've said that we would not provide guidance for the full-year at this point.

Claude, I missed it. You talked about the breakdown of price, fuel, and mix in the yield. Could you do that again this.

Oh well, I think when I described it I said of the gain, we were down 10% on freight revenues, and we came in basically flat. In order to carve back the 10%, we had 5% price increases, so roughly half of that coming back was price. Half of the remaining half then was from the fuel surcharge, and the remainder was mix.

So 5, 2.5, and 2.5?

Yes. Slightly more on fuel surcharge.

Close enough, your model, Ed.

Okay. What percentage of the revenue at this point is priced in for '09?

65%.

And I'm guessing virtually nothing for 10 at this point?

Yes, virtually. There's some out there but safe to say, nothing.

The EJ&E, I heard you say 400 million for closing costs. I thought the price was 300. What else is the cash going to in the close?

300 million US, but at today's exchange rate, that means 375 million for the acquisition. And then we will be investing for mitigation and for infrastructure in the range of a little bit under $100 million next year.

100 million Canadian?

Correct.

Okay. I didn't hear a whole lot about Prince Rupert. Is it possible to get an update of kind of - - in '08 I think the goal was 100 million of incremental revenue. Whether you hit that going into '09, given how bad the world is, what we should expect from Prince Rupert.

In '08, I think that we achieved our expectations with the - - when the second vessel came on. In terms of the guidance, the number that Bob - - the $100 million that Mr. Noorigan had been so generous in providing to you. The unfortunate thing was that we didn't give more. So that's at about 60%, 65% or so in the capacity at that facility is today sold, and we had hoped to pick up more.

At this point in time, and again, without providing any kind of guidance, we're just assuming that kind of level is going to be there throughout this year. I would like to think that we could still get another customer or more volumes to come there. But until the import activity ramps up, we're just assuming that the volume that we have there today continues. And we'll be the happy recipients of that through the first half of the year, because that second vessel wasn't there the first half of the year.

So easy comps and hope to keep you where it is and maybe the world gets better by the second half.

Easy comps in the first half, and hopefully, something turns around in the second half.

Sounds like as good a plan as I hear. Thanks, guys. Appreciate the time.

Thank you. The next question is from David Newman from National Bank Financial. Please go ahead.

Good afternoon, gentlemen.

Hey, Dave.

Just on shock absorbers, if you look into this quarter - - obviously oil is still continuing to come down. Any early sense of what the benefit might be in Q1? And I would assume that's pretty much all you'll get for the year on the oil side? Any thoughts, Claude?

Actual fact if you look at it, we finished, and it's always a two-month lag. So the last two months of 2008 is what you have to look into, to fold into the first part of this year. And the price is about the same level that the spot rate is today. So 45 bucks or in that range. So we don't see a big lag benefit in the early part of the year. Unless - -

Okay. Go ahead.

Unless the fuel price was to come down on a spot basis for our expenses.

Then on pricing, obviously you have the spread with the truck. Are you finding that customers at all are realigning supply chains to use the rail versus truck? Obviously, given the lower cost and maybe less pressure on the supply chain for manufactures. Are you seeing any of that at all?

I think that clearly has been our strategy all along, is to sell that - - as we certainly continue to focus on the schedule of precision railroading which provide the better quality product to the customers. That's something that we have been selling, and in this environment, when there is less pressure to get the product - - less pressure to get the product to the end market and more pressure to save costs in doing it, I think - - we continue to have a product that is saleable.

Okay. Last one for me. Just on the infrastructure spend, obviously it's going to take some time for the economics stimulus package to really hit the railroad. But if there is an area that you thought that might benefit from many stimulus packages that were to come down. Where do you think you have the most gain?

Well, clearly the infrastructure in Chicago with the EJ&E, and with the spend there, and then when potential growth in Chicago, further expansion of that franchise would be probably the first call on capital spend for us. We're in pretty good shape in our terminals and our [intermodem] facilities. Hopefully, in the out years here, two or three years away, we'll be looking at an expansion of Prince Rupert and a couple other things like that, but in the US clearly it would be the Chicago.

Hunter, I meant more sort of any economic stimulus package that might come down from the government. What that might touch on and any sense of when the timing of that might be. Would it be aggregates, forest products, when do you think that might hit the railroad in terms of any benefit from the government spending? I know it's pretty early days and hard to tell, but - -

I would think it's at least, at least a year, year and a half away from us seeing direct impact of that if we do see direct impact. I mean, there's going to be a lot to be debated in congress about where it goes and is there fork in there and what is it really. And everybody's going to be calling for the cash. And so that's not really in my plan about when things come back. I don't know that all of that is going to take place, because I think a lot of it's going to go to other places. It might not be a direct benefit to us.

Congratulations on the J, gentlemen.

Thanks a lot.

Thank you. The next question is from Walter Spraklin from RBC Capital Markets. Please go ahead.

Thanks very much. Good afternoon, guys.

Hi, Walt.

Just coming back on Prince Rupert, Jim, obviously one of the key selling points on Prince Rupert was it's ability to divert some of the congestion that was happening at the LA/Long Beach. Is there any risk, or in your discussions, with the Costco's and the users of that line right now. Have they talked to you about potentially moving any of that down, and are we - - and if you look at your risk profile in Prince Rupert, what do you say - - how would you consider the likelihood that we might lose that second ship again? The one that we picked up in 2008?

I would have no reason to believe that we would lose the business that we have today. They're very, very, very happy with the service. We have not only met their expectations for traffic into Chicago. The biggest destination for that traffic today is Memphis. And we continue to grow more and more business moving east of Chicago into the Ohio River Valley. As well as - - some of the Eastern Canadian destinations. So at this point in time I don't - - I don't feel that nervous about losing that business. I just feel it is more difficult to try and grow the business. So that's why we're very cautious about saying we're probably pretty happy to have what we have right now for the - - for this year.

Okay. Just a little bit of housekeeping on the percentage in terms of your book of business for next year - - you said 65% of '09. Is that of your total revenue or is that just contracted revenue? In other words, is your tariff business included in that number.

Total revenue.

Then on the 5% pricing that you are looking at for next year, is that after any non fuel surcharge related fuel impacts on your RCAF or any other cost adjustments?

Four to five, and that's just on the base price. The base price doesn't include fuel.

Perfect. And Hunter, just one question on your experience going back on customer contracts and those that you have negotiated in the past. You mentioned this is one of the worst times in 40 years. Based on a previous recessions and tough times, how have customers who have already contracted reacted. And have you had a sense that people have come back and asked you to reopen contracts that you may have already thought were in the books, and signed on the dotted line kind of thing? And how would you - - how would you react to that customer and asking you to renegotiate an existing contract?

I think we'd say nothing. We think that our service - - we earn and merit that 4% or 5% increase. And I think something that kind of opposes conventional wisdom, to some degree with my experience is this. Chances of picking up market shares are better, in my view, in tough times sometimes times than they are in good times. Some people you'd be surprised.

You know what transportation is 5% - 6% - 7% of my spend, I don't really watch it real closely. But when times get extremely tough and they've got to watch every dollar then they're willing to make change that before they just don't like change. And they've got to make change to go out there to survive. So that's when the strong, and that's when the people that are providing the service for them, have a chance of making in roads there. The likelihood of us reopening a contract or doing something different, unless there was some compelling reason that I don't visualize, 4% or 5% is 4% or 5%. It that was football, don't blink.

And there have been no cases where people have asked you to do that?

They haven't asked me.

We keep them away from Hunter.

Thanks very much. That's all my questions.

Thank you. The next question is from Cherilyn Radbourne from Scotia Capital. Please go ahead.

Thanks very much. Good afternoon. First question I wanted to ask was just related to the EJ&E. Just curious how soon after closing that transaction you can actually start to begin using those tracks and adjusting your routings and achieving some of those synergies.

First of all, regulatory wise, it's 30 days before we can do it. But there are other limitations given that we have some of the infrastructure projects, some of the connection projects and so forth that are key that we have to get done before we can reroute all the traffic. So - - I think our estimates are that it would be from the time of closing, probably at least three years, and that maybe is a little aggressive to get the whole thing done where the master plan is.

Okay. In terms of the operational changes that you made in Q4 and response to a very rapid decline in volumes. Can you just speak about whether there were either particular corridors or particular areas of the business where those adjustments more and more difficult. And can you give us a sense as to how much equipment you would have taken out of the business in Q4, locomotive cars and other equipment?

Well, we take the expense out when the business is down. So we're very, very sensitive to where we've had reductions in business levels. And that kind of model is changing. Eastern Canada has been hurt so much over the last three or four years. That business is actually - - better and flatter from a comp standpoint than some of the places that we've had the real growths in Western Canada. So we've been able to adjust expenses pretty well across the board where the business has been down, without impacting, and one of the rules we have, without impacting the service level.

We have reduced the car fleet in the 15%, 16% range. I'm talking about active cars. We were down as low as 91,000 cars. I can remember when I got to the Company, it was about 150,000 cars that we would have in inventory at any given time. Our locomotive count is in the same kind of level. We have about 12% or so stored and/or leased, besides ones that are off on foreign lines paying horsepower hours. So the one thing that we do, and one thing we try to even change our managers on, they do this on a daily basis.

If they look and see their train load down, they've got to figure out a way to get it up. If the gross tons are down, they've got to reduce the train starts. They've got reduce the yardage. And so their chore and their job is to keep expenses in line with revenues. And they do an awful good job of it, and they're going to do even better.

Thank you. That's my two.

Thank you. The next question is from Bill Mackenzie from TD Newcrest. Please go ahead.

Thank you. Just on the EJ&E acquisition. When you guys announced it originally you provided some target in terms of the run rate, EBITDA, the synergies that you would realize on the EJ&E line as well as synergies that would be realized on your own network. Just wondering, given how long it took to get the regulatory approval. If you've had any additional sort of thoughts on those numbers. And I guess I'm most interested on the benefits to kind of the CN line, and the traffic that goes through Chicago. Any update on - - I think it was $20 million that you said that would be beneficial to you. Any update on that?

I would say no update other than we feel very, very comfortable about the opportunity to deliver on those numbers going forward. The base profitability of the J may get a little bit in the first year, just because of the economy and the shipment from the customers on that line. But the synergies of integrations, we've had more time to plan while we were doing the regulatory process. The synergies on the network we are confident will be achieved or exceeded going forward.

I think when we see some bounce-back for the economy, I think that what we've learned about the J is this process has taken much longer than we thought. It was even in better physical condition than we originally thought. We are going to put most of our operations from a classification standpoint at Kirk Yard. Their smaller hump yard, which frees up Markum for industrial development in home expansions, it positions us strategically so - - we just need to get a little more experience about it before we can get real definitive about what the overall impact on (inaudible) will be.

Okay, thanks. And then, Claude, just a clarification on the CapEx guidance of 1.5 billion. Does that include or exclude leases?

When I talk about CapEx, it's always growth CapEx. So some of that amount might be capital leases next year, although we don't have any locomotive on the books for 2009.

And roughly 100 million of that? Would that sound about reasonable?

That's what it was in 2008, so that's a good number.

Okay. And then one final question on the succession issue. Just wondering if there's any color on timing on announcements, in terms of who is going to sort of fill your shoes, Hunter, as you retire.

I think I'll just repeat what I've said, abbreviated before. I think the thought is that - - I mean, we've been going through this process and preparing for it for over three years. My prediction is with some 90-degree level of assurance, that the candidate will probably come from within, and we've made all the preparations you could make. So I don't know what else I can add.

In terms of timing of the announcement though, could we expect something mid-year? Is that reasonable?

No, I think that might be a little early. I think that maybe that there will be some indications in September, October that you could read into what - - who might be the successor.

Thank you very much.

Thank you. The next question is from Ken Hoextler from Merrill Lynch.

Good afternoon. Jim, I know you gave the breakdown in (inaudible) after adjusting for currency exchange. But of the 25%, I guess total rail, can you look at each of the - - seven commodity groups and give kind of a non currency increase as you've done, I believe in past years on slides?

I think it's in the presentation that it's both there as reported and then the adjusted number. So the spread right there is on - - I'm sorry, whatever the slide is, the first slide of my presentation, right after Claude wrapped up the slides. If you don't have it we can get it to you, if you don't have access to it.

Okay. No, I thought you just had the total. I know you did it by commodity on the side. Each of the commodity groups.

Yes.

What percent are your revenues are in US dollars and what percent of expenses?

50% of the revenues. And it's the structure is slightly different with the operating expenses - -

Overall, 50%, 55% of the revenues in operating expense terms really depends what you consider US dollar. But we have close to a third, which is operating expenses in the US, then you take fuel, which is really a US denominated expense. You get to - - and you add in interest below, and you get to the point where we have a natural edge. As you know for every cent of appreciation in the Canadian dollar there's a two-cent impact on EPS, because effectively the revenue and expenses offset.

Okay. And then, Jim, when you went over some of the things coming back on line - - like the auto and grain being down, some exaggerated volumes now, but some of the other commodities as well are running in the mid teens to 25%, like chemicals and metals minerals. Just looking at that, is that more what Hunter was talking about, just simply the good weather this year relative to last year. Or, I'm sorry, harsh weather, relative to good weather comp. Or is there even those products seeing the exaggerated level of economic downturn? Just wondering what the confidence was that we're going to see that level improving going forward.

Well, I think Hunter was right on in terms of across the board. Obviously, we had much better operating conditions last year than we do now. So I think that had an impact clearly on all of our results. There are certainly areas right now where I could tell you, despite what I said about some of the segments starting to see some rebound, there's certainly some segments where we're not.

Iron ore is an example. Iron ore is not going to pick up and that is not going to pick up until the steel making facilities in North America begin to ramp up their production rates. So it is not across the board. I was just trying to provide some anecdotal evidence in some of the key areas, like automotive and our - - center beam lumber loadings and some of the certain areas, not, I would say, across the board.

Okay. Great. Thanks for the time.

Sure.

Thank you. The next question is from David Fineberg from Goldman Sachs. Please go ahead.

Good afternoon. Just two points of clarification. In terms of the 65% of contracts that you have in place for this year, and I think this question was asked. I just want to make sure I heard it correctly. Does that imply then that 35% is tariff based, or do you expect to put some other contracted revenues in place for the year.

No, that's right. 65% of the contracts are there. There is a larger percentage of business, that I would say is already priced because of the tariffs. There are certain grain tariffs and other tariffs that were adjusted up in, say, October that would carry through into October of 2009. So there's a larger percentage of business that is priced.

Understood. And then in terms of - - I'm just trying to reconcile your comments earlier on grain to what we've heard out of some of the western rails over the last few days about - - on a relative basis, you had a bullish outlook for grain. Whereas particularly as it relates to the export markets, where as we had heard expectations for export grain in the coming year were lower or going back to '07 levels from both Burlington and Union Pacific. Am I missing something in terms of the translation or is it a matter of timing about talking about the harvest? Maybe you can help me think through that.

I think you're thinking about two different countries. I think the Canadian export wheat program is much more bullish right now than the - - or the US export corn business. Which is exactly why I said I felt much more optimistic about our Canadian wheat business than I did about the US corn. So we would be in - - we would certainly be in the same camp with our views as would BN and UP about the US export program.

Is the bullish outlook on Canadian grain related to foreign exchange benefits or that the fact due to the regulation in terms of pricing or a combination thereof?

I think the bullish outlook on Canadian grain is the fact that it is the largest available stockpiles of Canadian grain in ten years. And usually it is the availability of the commodity that drives the export program, not the price or anything else.

Great. One last question as it relates to long term. I think about a year ago when we were talking about the EJ&E and the new terminals in Memphis the focus was on eliminating bottlenecks.

Obvious, with volumes down not as much in terms of the forefront. But as you look at your network, if and when volumes came back on. What regions, which businesses would be capacity constrained first and how would you think about alleviating those? Is it continued M&A? Is it investment? How should we think about it?

We don't have any bottlenecks. Right now, and we've always said, that the only bottlenecks on the CN was Chicago. The EJ&E solved the Chicago issue. Toronto, Matt Yards, which is one of our largest classification facilities, is probably at 70% of capacity. Our Winnipeg hump facility is probably at 50%, 60% of capacity.

As I said, we're going to eliminate Edmonton. One of our issues is eliminate. We had a place like Battle Creek, used to work 12 or 14 engine assignments a day, now works one. So we are blessed with a franchise that does not have capacity constraints. And if we saw business booming back all of a sudden at rates like we have never seen before, we've got the capacity easily to add a side in here or there, a little bit of double track if we got into that after 30% growth. That's just not an that issue we have to deal with.

Thank you very much.

Thank you.

Thank you. The next question is from Randy Cousins from BMO Capital Markets. Please go ahead.

Good afternoon. Claude, just want to get some clarification. I think you went past it rather quickly. I didn't get it down. In terms of the per share contribution from the fuel lag, did you say that was $0.15 in the quarter?

Order of magnitude about $0.15, and FX would have been about $0.10.

Looking to the first quarter did you say there won't be a lag benefit in Q1? Did I catch that?

That's correct, because really when you look at it, it's always a difference between what we charge on the FSC and what we pay on the spot market. Today's prices are in the low 40's. The last two months of the year were in the same range. So I don't see a big lag unless fuel prices, on the spot expense basis would come down from where they are now.

Okay. And on the comp line, which - - with fuel was catching up to it at one point but comp is now once again the largest single expense category that you have. I wonder if you could talk to us about the put and takes in 2008, versus what you see as put and takes in 2010. For example, this year, or in 2009 you had the win on pension accruals, it was a reduced number. Can you give us some sense of what the swing in bonus accrual was or equity linked comp? Is there anything looking to 2010 that can stand out or sort of opportunity or point of variability for us?

That's a mouthful, Randy. But I think, fortunately, the key elements tend to balance out. We did have a $75 million benefit on pension in 2008. But if you recall in 2007, we had no bonus, and this year we will have a bonus, which will likely be in the same range as - - or a little bit less than what the pension benefit was. So those two offset.

What we're doing in terms of managing our headcount and managing the productivity helps us offset whatever wage increases we have with our scheduled employees. That leaves you with the effectively stock-based compensation, and this one is tough to call. But as we've provided before, give or take, a dollar on our stock price has an impact in the range of about $5 million to our expenses. The part, though, that's tricky is to call it because it's marked to market from quarter to quarter. So this one is very volatile.

So in the fourth quarter it would have been a win then, right, in terms of sort of the comp line.

Yes, in fact, as I said, no, it would have been an increase on a year-over-year basis. Because the year before, the difference between September 30 and December 31st was a bigger decline than what we had this past fall.

But quarter to quarter, so Q3 to Q4 it would have been a positive. Like if we're trying to figure out a run rate.

Oh, yes. Q3 to Q4 would have been a benefit - -Q4 to Q4 it was a head wind.

Just on housekeeping, tax rate that we should use for 2009?

I think our tax rate, if you take out the deferred income tax and the recovery that we had in 2008, our tax rate effective was about 30%, 30.1, I think is what we'll report when we file our MD&A and statements, and I think that's a good number to use.

Last question for Jim, is that coal. In the United States a number of coal companies announced production cut-backs. The outlook for export coal has deteriorated quite dramatically. The new mines that have kicked into operation that are on your lines or the new mines that you expect to come on-line, are they selling utility coal? Are they selling export coal? Do you have commitments - - are there commitments to move that coal to a customer who is going to use it?

It is steam coal, very good quality steam coal, slightly higher in sulfur than PRB coal. And they are selling it to utilities in the Northeast as well as the Southeast as well as the export markets. And are very optimistic about the prospects and that's why they're developing the second line. The Illinois basin coal outlook if you look at any kind of projections has much greater opportunities that PRB.

But in terms of like for 2009, given how sloppy the demand conditions are, and this is a new facility, it is going to take market share from some other coal mine then?

It is basically taking market share from the northern coal, which those mines are just shutting down.

Okay. Thank you.

Thanks, Jim.

Thank you. This concludes today's question and answer session. I would like to turn the meeting back over to Mr. Harrison.

Well, thanks very much for joining us. We wish we could have given you maybe more direction. But maybe the next time we talk and meet there will be - - the smoke may have cleared a little bit and we can see some light at the end of the tunnel and see how well we've dealt with some of the challenges and the optimism that we expressed today. So thanks again for joining us and we'll see you next time.

Thank you. The conference is now ended. Please disconnect your lines at this time. Thank you for your participation.