Canadian Pacific Kansas City Ltd (CP) 2009 Q4 法說會逐字稿

Good morning. My name is Michele and I will be your conference operator today. At this time, I would like to welcome everyone to the Canadian Pacific fourth-quarter 2009 conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions) Thank you. Ms. Weiss, you may begin your conference.

Thank you, Michele. Good morning and thank you for joining us. The presenters today will be Fred Green, our President and Chief Executive Officer; Kathryn McQuade, our Executive Vice President and Chief Financial Officer; Ray Foot, our Group VP of Sales; and Brock Winter, our Senior VP of Operations. Also joining us on the call today is Brian Grassby, our VP and Controller.

The slides accompanying today's teleconference are available on our website. Before we get started, let me remind you that this presentation contains forward-looking information; actual results may differ materially. The risks, uncertainties and other factors that could influence actual results are described on slide 1 in the press release and in the MD&A filed with Canadian and US securities regulators. Please read carefully as these assumptions could change throughout the year.

All dollars quoted in the presentation are Canadian unless otherwise stated. This presentation also contains non-GAAP measures; please read slide 2. Please feel free to queue up for questions at any time by pressing the star 1 on your phone. And in fairness to your peers and in order to allow everyone the opportunity to ask questions today, we will be asking you to limit your questions to two. If you have any additional questions, you may requeue and time permitting, we will circle back. Here then is our President and CEO, Mr. Fred Green.

Good morning, everyone. Canadian Pacific finished 2009 on a positive note, posting adjusted EPS of CAD0.94. A strong operating performance and our continued focus on cost management drove the result. Looking at the quarter, we sustained our improvements in train waits and lengths, we continued to realize fuel efficiency gains through our train design and technology initiatives and we posted another strong quarter in train safety performance. All of these actions contributed to our solid earnings results.

I'll let the team take you through the details, but all in, we continue to respond effectively to a difficult economic environment. Looking at the full year, 2009 was extraordinary in the volume reductions and volatility. In some months, our volumes were down as much as 25% to 30% and the team demonstrated the flexibility to manage our variable costs to these lower business levels.

Of particular satisfaction this year, we successfully strengthened our balance sheet by restructuring our debt maturity profile and created positive free cash by tightly managing working capital and opportunistically selling non-core assets. We seamlessly integrated the DM&E, and we made good progress on structural cost-reduction initiatives, including the consolidation of locomotive repair facilities.

Our 2009 agenda was to maintain a disciplined approach in the marketplace to enhance the financial and operating flexibility of the railway and to focus on sustainable improvements. I'm satisfied that we made meaningful progress, but we have more to do in 2010. And we are ready to meet any level of demand which may materialize. I will turn it over to Kathryn, Ray and Brock to supply some additional insights on our Q4 performance and our 2010 prospects and then I will come back and wrap up.

Thank you, Fred and good morning, everyone. Let me start with a reconciliation of our GAAP/non-GAAP earnings that we refer to as adjusted earnings. During the quarter, we terminated the lease agreement with RailAmerica on Ottawa Valley Railway, OVR. Improved train efficiencies now allow us to move this service over our mainline rather than using the OVR bypass. The net after-tax charge to terminate this lease was CAD38 million and we will now avoid approximately CAD15 million per year in haulage payment.

Next, the Ontario government passed tax legislation, which created a one-time reduction in our deferred income tax liability of CAD48 million. And finally, we resolved a prior-year income tax matter with a favorable outcome of CAD27 million. These items, net of FX on long-term debt, increased GAAP diluted earnings for the quarter by CAD0.21 per share.

Before I get into the line by line details, I would like to walk you through the impact of an accounting change made this year. Over time, we have modified the way we do locomotive overhauls from a major one-stop repair every seven to eight years to a more proactive process, which does major repairs in sections. This process has improved both our efficiency and locomotive reliability.

As a result, we believe these repairs are better classified as an expense rather than capital. Therefore, we have applied the accounting change as an accounting policy retroactively. The accounting change results in increases in purchased services, materials, compensation and benefits with a nearly offsetting reduction in depreciation expense. Slide seven shows the quarterly and full-year impact of this change. You should note that the policy change increased total operating expenses by CAD5 million in the fourth quarter. We have also restated 2008, which is included in the appendix.

From this point on, all of our presentations will refer to 2009 and 2008 adjusted earnings after the impact of the accounting change. Also, 2008 is a pro forma that has been adjusted to reflect a full-year consolidation of the DM&E to assist with comparability.

Turning now to slide 8 and the income statement. Q4 continued to show the cost-saving trends and efficiencies reported in the previous quarters and despite tougher weather conditions and higher fuel prices, our operating ratio matched Q3 at 76% and improved upon Q4 2008 by 120 basis points. Cost per GTM, excluding fuel, was an impressive [CAD1.26], improving by almost 6% versus last year. Productivity gains and aggressive cost management continue to be a priority as we bring resources back to meet demand level changes.

Looking at the top of the slide, I will focus my comments on the percentage variances. The far right column represents our FX adjusted performance based on a stronger Canadian dollar this year versus last year. Total revenues were down 16% while FX adjusted revenues were down 11%, reflecting lower volume and fuel surcharge revenues. Operating expenses were down 17% with foreign exchange adjusted expenses down 12%. And I will go through each of the line items in a moment.

Operating income was down 6% when you exclude the impact of FX. Interest expense and other was down CAD17 million primarily due to FX. And finally, the effective tax rate came in at 22%, which was well below our expected rate of 26%. The primary driver was the recording of the full-year impact of the Ontario rate change, which improved fourth-quarter earnings by approximately CAD0.05. Looking at 2010, we expect the tax rate to range from 25% to 27%. Adjusted EPS came in at CAD0.94, down 12% from 2008. This includes a CAD0.05 hit due to our foreign currency.

Now let's go through each of the expense line items starting with comp and benefits on slide 9. The average number of expense employees came in just under 13,500, slightly better than the expectations I projected on the last call. On a year-over-year basis, employee counts were down 10% versus a 6% decline in workload, a great example of the productivity improvements we are sustaining.

With gradually increasing demand and continuing winter conditions, I expect Q1 expense employees to be higher than the year-end number by about 300 to 400 employees. Lower volumes, less over time and improved productivity saved us CAD31 million while less training costs and managing vested vacation reduced expenses CAD16 million.

Pension expense was lower by CAD9 million. However, looking at 2010, full-year pension expenses will increase by approximately CAD50 million or CAD12.5 million per quarter as a result of lower discount rates and a phasing in of our 2008 equity losses. This will be a substantial headwind of over CAD0.20 a share for the year.

Finally, incentive compensation was up by CAD13 million due to a more normal bonus accrual in 2009 and increased gain share payments to union employees. Other items totaled CAD9 million with the principal driver being higher wage rate increases for our agreement workforce. Including a foreign exchange benefit of CAD11 million, comp and benefits declined by CAD45 million or 13%.

Moving now to slide 10 and fuel expense, which was down CAD87 million or 36%. Lower prices saved us CAD28 million as our all-in costs were $2.28 per gallon, down from the $2.84 a year ago. Lower volumes, coupled with continuing improvements in fuel efficiency, saved us CAD26 million. On a year-over-year basis, hedging provided a CAD9 million benefit. Looking at our hedging program, we covered approximately 7% of our fuel purchases in Q4 and expect to cover between 10% and 12% in 2010. We have provided some more details in the appendix. Foreign currency partially offset the gains from pricing and volumes by CAD25 million.

Turning to purchased services and other, Q4 was down CAD22 million or 11%. Less volumes accounted for CAD4 million and lower equipment maintenance CAD2 million. Within the other category, casualty expenses were down CAD14 million as we lapped some very expensive incidents in 2008 and our train incident frequency continues to improve.

Finally, on slide 12, materials were down CAD24 million with fewer locomotive overhauls and volume declines as the primary driver. Depreciation was up CAD3 million while equipment rents fell by CAD2 million.

Now summing up the full year on slide 13. Total revenues ended the year down CAD924 million or 18% with lower volumes and fuel prices being partially offset by gains in foreign currency. Operating expenses were down 17% with our productivity gains, cost management initiatives, improved fuel efficiency and lower fuel prices driving the reduction. Operating expenses(Sic-see press release) were down CAD228 million or 20% and our operating ratio ended the year at 79.1%, up only 70 basis points in a year with double-digit volume decline. Our ability to reduce both variable and structural cost allowed us to offset much of the impact from the depressed economy.

Finally, the effective tax rate came in at 23% leading to an adjusted EPS of CAD2.76. This is down 31% from the adjusted 2008 earnings of CAD3.99 due in part to the equity issue in January as well as the lower earnings.

Now turning to slide 14 and an update on our 2009 free cash flow and our planned capital spending for 2010. Excluding the CAD500 million pension prepayment and the early termination of the OVR lease, free cash flow ended the year at CAD483 million. Despite a tough economic climate that saw volumes fall by 17%, our core operations generated cash flow of CAD269 million after paying for capital expenditures and dividends of CAD163 million.

We supplemented our core operating results by monetizing non-core assets of CAD214 million. I am pleased with the focus on cash that the team accomplished in 2009. Our capital plan ended the year at CAD722 million, down from our previous guidance due to the accounting change for locomotive overhauls. In 2010, we expect our capital to range from CAD680 million to CAD730 million. Approximately CAD585 million is allocated for the renewal of our track infrastructure.

And finally, before I close on slide 15, I would like to remind everyone that, beginning with the first quarter of 2010, we will convert from Canadian GAAP to US GAAP. We will communicate with you in the first quarter to ensure all investors and analysts have a clear understanding of the changes that will take place. Overall, the net impact on earnings will be very small, but we will see some movement between line items on the various financial statements.

Summing up, we come out of 2009 running a more productive, efficient operation than we were a year ago. We strengthened our balance sheet despite the tough economic environment and we continue to execute on both structural and variable cost initiatives. In 2010, we entered the year prepared to respond to changes in the business demand and are committed to driving further efficiencies and cost savings across our network. However, we face continued uncertainty in the economy and considerable headwinds in pension expenses and foreign currency. With that, I will turn it over to Ray for the marketing section.

Thank you, Kathryn and good morning, everyone. We will start on slide 17. In the fourth quarter, volumes were up 3% over Q3. This builds on the sequential 7% increase we saw last quarter. While this is encouraging, we remain well off 2008 levels and there are still uncertainties in the marketplace. I will talk about the prospects shortly, but first I will summarize the numbers on the quarter. As reported, freight revenue was down 16% from last year. On a currency adjusted basis, this was 10%. Total carloads were down about 7%.

I will now take you through an overview by market area and for clarity, I will speak to currency-adjusted revenues from here on. Grain was a good story in 2009. Overall on the quarter, grain volumes were off 2% on some pretty tough comps. In the US, stronger soybean and wheat shipments drove volume growth of 2%. In Canada, volumes tailed off in the final weeks due to weather issues in the supply chain finishing just off the 2008 pace.

Moving to coal, carloads were up 16%. About half of that on export metallurgical volumes and half on the US short-haul thermal business. Lower Canadian rates and the short-haul Kamloops route offset volume gains.

In the sulfur and fertilizer segment, volumes were off 22%. We did see some increased spot activity on exports on the quarter that drove volumes higher than Q3, but we did not see a breakout in either the US or export markets.

Moving to slide 19, in our merchandise portfolio, volumes were down 5% while revenues declined 8%. Bright spots in merchandise on the quarter were the auto and energy sectors. Autos were up 8% year-over-year, but we didn't see the same lift on the revenue side due to mix. Our shorter haul traffic to the US markets grew rebuilding inventory from Cash for Clunker sales while the longer haul import volume softened.

Energy was strong on the quarter, primarily on better LPG and ethanol movements. Of note, all of the ethanol facilities on our US franchise are now in production. Forest products and our mines and metals portfolio however remain very soft and we did not see any positive signs in these areas.

On intermodal, units were down 14% and revenues were off 11%. Retail shipments continued to be sluggish. We saw modest growth in Q4 over Q3 driven by some restocking. This led to some positive comps on West Coast imports.

Turning to price, renewals on the quarter on the majority of the book came in at just under 4%, consistent with our price strategy. Adjustments on a few large contracts, particularly in coal, brought the overall quarter renewal increase to about 2%. I will remind you that the Teck coal decision and the regulated grain adjustment earlier this year impacted price lift on the quarter. In addition, some of our indices went negative on the quarter due to the drop in fuel price year-over-year.

So turning to slide 21, I will now give you some thoughts on 2010. Before we discuss the macro market trends, I will reiterate that my sales team continues to be active in the marketplace. Despite the weaker economy, they have uncovered and landed some good new business.

Moving to the market fundamentals, on grain, in Canada based on the carryover of a strong 2009 crop, we are modeling the first half to be a lot like last year and the second half at more normalized levels. In the US, corn quality is an issue and may impact first-half shipments. So overall, as I said in the third quarter, maintaining 2009 levels in grain may be difficult.

That brings us to the fertilizers and coal segments. We expect growth in both areas. The question remains how much and when. On the domestic fertilizer front, farmers are starting to show more willingness to buy. We've seen some early signs of a stronger spring shipping season, but how it will play out over the rest of the year remains uncertain. Export fertilizer demand will continue to be weak until Canpotex secures a deal with China. We don't know when this will occur or the pace at which shipments will ramp up, but we continue to be ready to immediately resource to the volumes as they come online.

On metallurgical coal, Teck has indicated an expectation for higher sales levels in 2010. We are modeling within the tonnage range they have given. So we expect growth in the coal and fertilizer sector, but the level, timing and sustainability remain uncertain.

In the merchandise business, there does seem to be consensus forming around some big economic segments. US auto sales forecasts are settling at levels slightly higher than 2009. Our franchise is well-positioned with key manufacturers and on the import lanes and is poised for the recovery when it comes. While we don't see auto sales rebounding in a big way in 2010, stronger production will spur higher first-half shipments. Second-half shipments will depend on sales volumes.

With regards to forest products, US housing starts aren't expected to see any significant change over 2009 given unemployment stats and housing inventory levels.

On intermodal, there are some mixed signals. December sales were less than expected. We do think there will be some restocking activity through the first half of 2010, which should drive some improvements in domestic export and import shipments. Volumes after that will depend on sales activity. So overall, we are modeling slow growth, something in the GDP range in the intermodal and merchandise sectors.

On price, we have a reliable product and my team will remain disciplined in our approach to drive value from contract renewals. We continue to target 3% to 4%, looking to exceed inflation over the course of the year and the longer term. I will remind you that there are some headwinds on price lift in 2010, particularly in the first half. The Teck export rate outcome applies through the first quarter and we can't predict how price will move on this business beyond that.

The regulated grain adjustment is a 7.4% drag through to August. But remember, this is largely a fuel adjustment. And the fuel inclusive indices that apply on a small number of multiyear contracts will also have a downward impact on our 2010 price lift. But I should mention that these same fuel inclusive indices could provide some price upside as we enter 2011 if fuel price settled in at today's level.

In summary, there are still uncertainties as we head into 2010. We will see improvement over 2009, but we won't reach the volume levels of 2007 or '08. We are modeling modest growth in carloads in the first half of the year. The last half remains dependent on economic recovery and the results in some key export segments. And we will only gain clarity on this as the year progresses. Now I will turn it over to Brock for operations.

Thanks, Ray. Q4 was another very strong quarter for the team. You continue to see evidence of our flexibility to adapt quickly to changes in volumes. The productivity improvements we achieved during 2009 are sustainable. And when the volume recovers, we will be able to handle it without adding cost at the same rate, though the mix of intermodal and carload versus bulk shipments will be an important factor.

Looking more specifically at our results, let's start with safety on slide 23. Our FRA trained incident frequency improved by 24% on CP and 85% on the DM&E. For the core CP operation, we continue to be the industry leader in train operation safety with a year-over-year improvement of 23%, setting an all-time record. This is driving significant benefits and reduced casualty cost.

For the quarter, our FRA personal injury frequency on the DM&E improved by 30%. For the core CP operation, we were up by 22%. We're not happy with that result even though it is our best -- our second-best annual performance in our history and we will continue to be focused on improving it in 2010.

Turning to slide 24. We saw further improvements in key productivity metrics despite a few challenges, including a late Canadian and US grain harvest, which led to peaking and workload, a strike at a major interline connection which impacted interchanges and slowed rail operations, and choppy West Coast pipelines in all commodities due to weather creating late and bunched vessels. Add to this, record rainfalls caused slow loading operations for grain and coal at the Port of Vancouver.

This impacted our fluidity metrics, particularly in December. But even with that, we were able to match last year's train speed while increasing train waste by 10% through the execution of our long train strategy. With GTMs down by 6%, our focus on productivity enabled us to reduce both train starts and crew starts by 11%.

Fuel efficiency improved by 6% as we continued to drive improvements with our fuel trip optimizer investment and the distillate execution of our operating plan. We've established record performance this year with these actions. We continue to pilot our long train models and believe there is more to achieve in combination with some targeted investments. We've established good momentum and we will review what more can be achieved at our Investor Day. Please turn to slide 25.

With respect to our structural cost initiatives, we are on plan. As we've told you in the past, we have mothballed several yards and we are completing construction to expand our [ALEC] locomotive repair shop. This has allowed us to rationalize repair activity at Vancouver.

On the freight car side, we have completed our review of inspection frequencies and identified opportunities for consolidation. Over the coming months, we will be meeting with various stakeholders, including regulatory agencies, to review changes for increased yard efficiencies and repair staff utilization while continuing to maintain and improve safety.

Concurrently, we have been applying lean management techniques to our core operations processes. We have been experiencing early successes, which we will share at our investor conference in June. Between our structural cost initiatives, lean management implementation and our demonstrated ability to quickly size up or down with volumes, we've tightly managed our resources to improve productivity. Please turn to slide 26.

In summary, strong cost management actions implemented quickly are leading to improved efficiency. Additionally, a significant accomplishment for us in Q4 was the integration of the DM&E onto our operating systems platform. Our employees continue to get more comfortable and expert with the tool. We see opportunity for even more efficiency and new products to grow our business.

In 2010, we will leverage our ability to grow intermodal and carload business on existing train starts while at the same time delivering reliable service to our customers, including first and last mile delivery. We continue to demonstrate our ability to be flexible in implementing sustainable improvements that has lowered our variable and structural costs.

Safety, providing a reliable product and cost control will remain our key priorities. I look forward to reviewing our performance with you next quarter and I will now turn you over to Fred for the wrap-up.

Thanks, Brock. I will wrap up 2009 with a mixed message. I'm disappointed on the US regulatory front, but pleased with CP's progress. We need a US policy environment that continues to be supportive of investment. Despite the rocky start to this effort, we will continue to work with our industry counterparts to seek a fair and balanced regulatory environment.

With regard to our CP 2009 performance, our focus was on building more financial and operational flexibility into our railway. We proved CP can be nimble and are well-positioned to realize operating leverage as volumes recover, particularly on the intermodal and merchandise trains.

Looking forward, we are going to keep a tight rein on costs, but will be ready to respond to any sustained increase in demand. There's clearly some potential for volume growth, particularly in the bulk business, but the economic signals on the general economy remain weak and volatile.

Looking at 2010, you can expect more of the same from CP, emphasis on cost management, productivity and the realization of longer-term structural savings, a focus on the balance sheet, continued pursuit of new growth opportunities and value pricing and delivery of increasingly reliable service with particular focus on the first and last mile. Thank you. And I look forward to updating you as the year progresses and I will turn it over now to Michele, our operator, for some questions.

(Operator Instructions) Walter Spracklin.

Good morning, everyone. My first question is going to be on operating leverage. This is obviously a very thematic focus on the whole railroad industry from an investor standpoint. So when I listened to Kathryn's presentation about some of the headwinds that we are going to see in 2010, CAD0.20 pension expense and so on, and then try to balance that with what Brock has been talking about in terms of his leaning initiatives, his structural cost savings, when we look at 2010, are these going to be offsets or are they going to be -- is Brock going to outweigh Kathryn here on his efforts? How do we look at this from a quantitative sort of measuring the impact in 2010? Perhaps if you can give some insight on that.

Walter, it's a tough question to answer because we are not going to give any EPS guidance. So I think the best I can offer for you is that you have seen frankly I think a remarkable fourth quarter with the work of Brock's team and the operating leverage that we are getting on train lengths and train waits. Clearly we would expect to see some volume recovery. I would again ask everybody to pay a lot of attention to the type of recovery.

So we believe and hope that we will see some domestic potash activity. We know over the course of time the export potash will go, metallurgical coal appears to be strong for now. I don't know about the sustainability. The client will have to advise on that in due course. Each of those of course starts trains though. These are -- as volumes increase in bulk, you get train starts.

On the general merchandise sector, you heard from Ray that the nature of that will probably be a lot more stop/start inventory, fill, check it out, see how the business gets consumed. So I really want to separate the two. And if it is merchandise, general intermodal business recover, there is great operating leverage available to us.

So we do have some headwinds, as Kathryn has stated. You will have to quantify those. We've done our best to give you the numbers against them. We are not giving guidance and I therefore can't do any better than just tell you that stick with us, we are going to do all the right things on cost management and we will just have to ride the wave of uncertainty with regard to volumes as we go forward.

Okay, fair enough. Thanks for that. My second question now, I know you are in negotiation with Teck, so I'm not going to ask anything about the Teck agreement. But on a longer-term basis, I mean this is your biggest customer, coal shipments are up, coal prices are up, this should be a good time for Teck, a good time for their suppliers like yourself. Regardless of what happens in this negotiation, what are you going to do to repair this obviously strained relationship with what is your biggest customer?

Well, again, you can't answer a question like that without talking about negotiating strategy, relationship management, so I'm not going to do that on the call, Walter. What I will say is that they are a very large customer. They are a client that we would like to have a better working relationship with. Culturally, the orientation is more tactical than strategic and partnership. That is life, we have to figure out how to accommodate that. And we will do our best to position ourselves as a long-term partner, be it tactical or be it a longer-term partner. I can't do anything to that other than enter into dialogue with our partner and see if we can't find a better outcome than the ones that we have all experienced in the last while. And we are going to do that.

Okay, thanks very much.

Tom Wadewitz, JPMorgan.

Good morning. Fred, I have got another one on the coal, broader coal topic for you. I think what we have seen from the Eastern US rails is that it's kind of weakness in coal was highlighted in the sense that coal is a very high-margin business for them, so it affects your margin outlook and so forth. Given that you have had the pretty sharp reduction from the [FOA] on your coal. Is coal very different from your average margin when you look at it? And is that -- coal coming back, is that something we should really think about in terms of your margin performance in 2010?

Well, Tom, as you guys know, we would never comment on the profitability of any sector or contract. I think you have properly characterized it, which is that as a result of the FOA, the value or the earnings leverage of that particular sector if it grows is not as great as it would have been in the prior world. So I can't really make any further comment. Obviously it is an important sector to us. It feels good at this point that the demand for metallurgical coal appears to be strong and I think all of our issues have to be to determine whether that is attainable and consistent demand or whether it is going to be a lot of surges based on activity that frankly at this point in time is largely driven by China's demand for steel, not for the rest of the world at this point.

Okay. Then with respect to overall pricing, I guess -- I know you can talk about certain pricing is around 4% and that is good to see. But if you look at -- you've got other areas where you don't get pricing or where pricing is down. What do you think overall base rate looks like in 2010? Is it 2%? Can you get up towards 4%? How would we want to look at that for 2010 across the whole book?

Tom, it's Ray. Just as in previous quarters, I don't think we can predict what the overall outcome is going to be. There is a lot of moving pieces there obviously and I talked about those in terms of the renewals we have secured with some of the headwinds that are there. I think that we just go back to the fact that, if you look at it through the course of the year, the majority of our renewals came close to the 4% and our target going forward will continue to be in that range and to cover inflation.

Okay, thanks for the time.

Randy Cousins, BMO.

Good morning. When we think about the coal business and I don't want to belabor this, but there is a lot of noise in your coal number, so you've got thermal coal, you've got this new contract, these switching issues. Our connect business was [1336] or the average revenue per carload was 1336 in the fourth quarter. Is that a good number to use when we think about 2010, absent some sort of change in the Teck contract?

Well, you know, it's Ray, Randy. So first off, you've got to look at the thermal coal that we have picked up in the US and that certainly has an impact on the revenue per ton situation there. We don't see a significant change on that. As we look into 2010, from the standpoint of Teck as Fred has already said, the negotiations coming up, it's going to be changing after the first quarter, as I said, and we can't give you a picture as to what that might be.

Just in terms of -- if we took status quo, is the 13 -- is the Q4 arc a good number to use kind of for 2010 given we don't know how that contract will resolve itself?

Randy, I hesitate to give any guidance on a specific -- you're asking me what is the pricing on the contract or the pieces of the contract with a particular client. It's a pretty focused question. I understand the question, but I just -- I'm really reluctant to get into that too much. There are multiple pieces of our relationship with both thermal coal and met coal game and obviously in certain circumstances, there are competitive pressures and in other circumstances, you try to work to the average of the market. And obviously in that sector, there is a lot of pricing pressure and we will have to figure out how to work with that.

Okay. My second question is on PTC. It's being mandated. I don't think your main line in the US has centralized track control. You do move chemicals, you move ethanol. What is PTC going to cost CP?

I will start and then Brock can tell you. For us and it is in our annual report and quarterly reports that we actually had in the third quarter, we are estimating right now that over the -- through 2015, it would cost us about CAD250 million.

Okay, thank you.

Ed Wolfe, Wolfe Research.

Good morning. Can you talk a little bit about yield? If we break out the minus 9.4 reported, you said 2 for pricing, can you break out the FX and the fuel impact and the mix impact?

It's Ray, Ed. We said 16% overall. Volume and FX were 7% and 6%. If we look at the price and mix combination, we are at about 2% there and that includes the negative impacts of the regulated grain and the Teck coal.

Okay. If I look at that pricing going forward, that 2%, how much -- I'm guessing the regulated grain goes away as we go into 2010. Does the noise around the coal go around and is that how you get to the 3% to 4% or does the 3% to 4% include your visibility of how contracts are coming in for this year or any kind of longer-term contracts that are coming up?

Okay, so let me just go through those in pieces. I will just restate some of what I said. The regulated grain pricing at negative 7.4 is in place till August 1. We said that Teck is in place through the first quarter. So when you look at 2010, what we said is the reliability of our product has allowed us to achieve 4% on the majority of the renewals through 2009.

Our focus and our discipline going into 2010 is we are going to look to that same kind of renewal increase and so you do the combination of those in terms of what your number might be. I've tried to give you some picture that there is going to be those headwinds that will continue through the first quarter and the first half. But we will be looking for 3% to 4% consistently in our renewals.

That is helpful.

And just one more piece. I did mention about the index component too. So keep that in mind as you go into 2010.

Okay, thank you. Just last one on the cost side. You haven't announced any specific cost-savings plan going forward. Other than the headwinds of the pension, are there any expenses that jump out at you that are right for either improvement or for inflation beyond normal that we should be thinking about as we look over the next 12 or 18 months?

I wouldn't jump to anything right now. What we did do, you will recall, I think we are back 12 or 18 months ago, we said we were going to target the 100 million and then we are going to go after the fixed structural cost side. So we have been progressing those matters and I think as you can see on the variable cost side, we have done an outstanding job. But on the structural side, there is equal amounts of energy and effort going into that, they just have longer time horizons.

So what we are really targeting is -- our June Investor Day will be a day where we can sit back and take stock and give you guys a much better understanding of the emerging success in some forward-looking belief of what impact that could have over multi-years. I don't have any new news in that other than to say that the patterns that you are seeing with train lengths, train waits, management of our variable costs are clearly there and you are seeing the beginning of some of the structural cost improvements, the diesel shop rationalization, Brock made reference to some of the inspection activities. And then the whole organization is going to a bit of a review to assess where we are at structurally, whether we have too much, too little of resources in different places.

So I would just ask you to bear with us until we get to our Investor Day and we will really be able to give you a better picture on the longer-term.

That is great. So the inference is there is more to do and you've done such a great job so far on the cost side and we will learn more in June, I take it. Thank you.

David Newman, National Bank.

Good morning. Fred, you've been somewhat more cautious I guess than some of the other CEOs from the other rails as to the outlook. And certainly things look they have flatlined a little bit here. Absent coal and potash, shippers and other rails have been calling for high single-digit volume growth and I know that inventory sales continues to decline. Absent those two commodities, would you feel more comfortable about providing guidance if it wasn't for coal and potash? Like how are you feeling about the other sectors and where are you a bit more leery and where do you feel a bit more comfortable that we are on track as far as the economy and volumes go?

Well, David, I think you are right. Last year at this time, I was probably the most negative and I think arguably the facts kind of came out consistent with that apprehension that we had at the time. Today, I would find myself -- I think you've done a good job. Let's fence those two big commodities because they are kind of unpredictable and when they happen they will happen.

But on the general merchandise and the intermodal side, which is driven by consumer activities almost in both cases, entirely both cases, I think you have to look at a 10% unemployment rate in the United States, and I think you have to look at 4 million or 5 million more houses to be foreclosed and I think you have to look at some discomfort in what is the largest trading partner that Canada has right adjacent to our borders.

So despite the fact that the Canadian economy is surprisingly strong, largely driven by the resource product side, which will address the coal and potash, you have to have some collateral damage in the Canadian economy in my view as a result of the biggest trading partner going through such a difficult and prolonged period.

So I think there is perhaps unsupported optimism for the levels of recovery that people are hoping for. And while we will people be ready for that should it materialize, we hope and be delighted if it does, I think those estimates are probably a little optimistic relative to my personal expectations.

Okay. And you have some other headwinds obviously that you are facing. Your free cash flow level that you are looking at for this year, would you -- certainly you haven't given guidance on that front, but assuming things remain somewhat soft, is there more asset sales and other things that you have to consider or what is out there? What do you need to do? And are you comfortable with the balance sheet going forward if the environment stays somewhat soft?

I am going to ask Kathryn to jump in in a second, David. But as an overall broad statement, I would say that it is not about having to or not having to monetize certain nonstrategic assets. Clearly last year, we made the decision to do that because there is nothing more important than a robust balance sheet and I think Kathryn's team did a great job in that regard.

We have a portfolio of assets. We will never willingly sell a strategic asset. But if we have nonstrategic assets and obviously within anyone's portfolio, you have some like that, and we think it is in our Company's best interest to strengthen the balance sheet, I would absolutely entertain the possibility of monetizing more of those. I will just flip it over and Kathryn can give you a broader comment.

David, just one thing, we have normalized asset sales every year of our non-core assets and we see us going back to our more normalized general trends in 2010.

In terms of the balance sheet, I'm very comfortable with the balance sheet. We still have more to do as we continue to focus on reducing overall indebtedness. And as I have said many times, we plan to pay down the CAD350 million in debt that is due in May of next year -- this year. I forget what year I am in. And so I am comfortable with the balance sheet. We have done a lot of good things this year. We extended maturities. We took a nice slug out of our pension obligations and so overall I think we did a lot. If the economy stays soft, I think we showed the core railroad can still make great cash flows as we did this year. And so I am not overall concerned with that.

Excellent. Great answer, thank you.

Matt Troy, Citigroup.

Thank you. Kathryn, just a couple questions following up on the cash flow theme. I think first on CapEx, the number came in, your outlook for 2010 closer to CAD700 million, a little bit lower than I would have thought. You guys were certainly conservative last year. Could you just help me with the breakout of what would be considered traditional maintenance CapEx in that number and what would be more incremental or growth CapEx and what the primary project might be that are driving that slice of the pie?

Okay. So one thing I will say is because we have the change in accounting for our locomotive overhaul that will no longer be in the capital. So that is one of the reasons that the CAD722 millions that we came in this year was down from what we had originally said. We did the same thing; it is just a reclassification to expense.

Overall, what we are seeing is essentially a similar program to what we had last year. Our maintenance, which is also in the press release, is about CAD585 million for the renewal of our track structure and that is pretty in line with what our base maintenance has been and what we see to be a reasonable level in the foreseeable future. Again, that's going to be dependent upon what GTMs go across your railroad. You are not wearing your railroad out as much as you were before. You can -- your maintenance is not as high. We are still committed on our DM&E and so this does include the upgrades on our DM&E property as well.

So overall, the other projects -- what we have had in the past were a lot around our Westcap projects and needed for capacity. As we indicated, our volumes are such that we don't see any need to add capacity to our railroad. We have good leveraging upside and so most of the other projects can be around some opportunity in areas of developing some of our growth opportunities. We are continuing to keep our options open. And Fred has mentioned those from time to time, so we continue in that area, as well as information-technology projects that we will continue to move forward with. So all in all, it's a very similar program to what we had in 2009.

So, Matt, it's Fred. I will just complement that with a very short statement. If you think about -- when you are trying to do opportunity projects, it often involves a front end and then you go through a period. So the front end was the acquisitions of rights of way, the acquisitions of blocks of land, we have done all of that. And whether that is in Montreal, Regina, Edmonton, there are places where we have done that as you have heard over the last two or three years.

We are now in a period where we are doing things like environmental permitting getting ready so that when the day comes that the economy has recovered and our clients want to grow, we are able to move very quickly. And then when that occurs, there will be that surge of capital required to actually make some of those developmental benefits. So we are in a period of time, and we don't know if it will be one or three years, four years before that is required. But, yes, you are right. There is not a lot of quote development capital because we don't need it right now.

Got it, understand. Second question related to cash flow. Just be on the pension side. I was wondering if you could help us in terms of the funded status as of year-end versus the year-ago period. I think you said you had an actuarial evaluation to file recently. Was wondering if you would just help us, what the funded status was. And given the takedown, the CAD500 million payment, I am just trying to get a sense of what run rate funding and expense might be in 2011, 2012 now that you have taken a pretty big dent out of that pension number?

Okay, so we have taken a good dent out of it. It is kind of flows through on a more smooth method in our expense line item, but it will have a direct impact on our contribution. I do encourage you to look at our very full disclosure that we have in our annual reports and in our quarterly filings, which we are giving guidance to that regard. But our cash contributions for next year are CAD150 million to CAD200 million. And for 2011, we haven't said because there are so many variables that happen in 2011.

The one thing that you have to keep in mind and what we did with the flexibility of our CAD500 million contribution prepayment of our pension contribution, it allows us to apply that prepayment on a year-by-year basis. So we actually will try to utilize that in the most efficient way to smooth our overall pension contribution. So as we get the next actuarial valuation, we see what our asset returns are, we understand what our 2011, which are all those variables, then we will decide how much of that prepayment we will want to apply in 2011. There is a lot of moving pieces that you really can't go far out, but the purpose of the CAD500 million was that we would not have the big huge peaks that would have happened without the CAD500 million.

Thank you. And just the funded status as of year-end, was that in the release or has that not been filed yet?

We do not do our solvency. We will have our accounting deficit that is disclosed and I am not sure if I have that on the tip of my fingers.

Matt, this is Brian, we will be releasing that with our annual report in early March. But just the deficit last year was just under CAD1 billion. And just to remind you, it's very sensitive to discount rates and we predict the year-end discount rate for 2009 will be about 100 basis points lower than where it was last year. So that -- the sensitivity on that is it drives up the deficit by about CAD400 million, CAD450 million. On the other hand, there are good healthy returns this year and so -- but we will be releasing that in March.

Thank you very much.

Avi Dalfen, Macquarie Capital.

-- that there wouldn't be a significant upturn in volumes for potash until Canpotex has a deal on pricing. How quickly would we see a deal translate into significantly higher volumes for you?

So, Avi, we missed just the first little bit of the question. But let me repeat it and see if I got it right. I think what you were asking was, if -- how quickly the decision between Canpotex and China would manifest itself in rail volumes?

Yes.

Did I capture it correctly?

That is right.

Okay. So, Avi, we have made some commitments to our clients, both domestic potash and export potash, that we will be ready. There is a little bit of a price to pay for that in that we are bringing people back, we are readying our organization, we have got a few more locomotives than we probably have to have. That is because we have got some deep partnerships with these folks and it's important for us to be there when they are there.

So I would suggest to you, based on our dialogue, that the domestic market be slightly different. The domestic market, when the sales take off, and they are starting to pick up, I think they are going to go reasonably quickly.

In the export side, I think you would more likely see I'll call it a month of ramp up. Even though we are ready to go and I think the capacity is there, I think there is realism that has to go on that they've got to get vessels lined up and they've got to do other parts of the supply chain. So we are ready to go and we could take a surge immediately, but my guess is you should not look at a normalized run rate in the first month after an announcement just because of what it takes to ramp up the whole supply chain.

That said, we literally have got people back and we've got locomotives on standby ready to go and that is a good thing to keep those clients satisfied that we are able to meet their supply chain needs.

Okay. Now on coal, just in a worst case scenario here, if there is no negotiated deal with Teck, at what point in time would it go back to arbitration and then how long would it take for the arbitrator to arrive at the terms of the new contract?

Avi, you have got me. I haven't been thinking about arbitration; I've been thinking about trying to settle a deal directly with the client. Ray might be able to help me out a little bit here.

As we've said, the situation that we are in today lasts through the first quarter so use that as the timeframe. And arbitration changes. Timeframes are dependent upon when the shipper chooses to move forward if they choose to do it. And then there are timeframes within the framework of the legislation as it relates to selection of an arbitrator, a decision and all of that. But end of first quarter is kind of the component that I would be looking at.

Thank you.

Cherilyn Radbourne, Scotia Capital.

Thanks very much and good morning. Just wanted to ask a question on some of your efficiency initiatives. You had outlined five basic operational initiatives that were associated with that CAD100 million of cost savings. And in listening to your calls year-to-date, it sounds like you have made quite a bit of progress in terms of running longer trains, improving some of your maintenance activities. To what extent have you also made progress around eliminating specialty train services and standardizing the product offering?

Cherilyn, it is Brock. We've made great progress and let me give you an example there. One of the things that we have done and it does tie into the bulk business as well, there was some bulk business that we were moving in unit train or solid train business that clearly -- quite frankly, the cycle times we were seeing were quite lengthy. Working with our clients, we worked with them and we were able to integrate those shipments into our merchandise trains.

What that allowed us to do was to get again productivity in our trains, as well as get our clients' business to market faster and we were also able to do that with less assets in terms of cars and locomotives. That is one example where, again, our product design team has worked very hard looking at opportunities like that to remove what I would call boutique or specialty services, working with a client, not doing it independently again and we've had great success in a number of cases just like I have shared with you.

Okay. And then my second question, I believe there was a mention made during the pricing section of some one-time coal contract adjustments. Is there any further clarification you can provide in terms of why those adjustments were made and whether they did or did not relate to the Teck coal contract?

So, Cherilyn, it's Ray. The comment that we made was that if you looked at the fourth-quarter renewals, while the majority of the increases were at four, there were a few contracts that brought it down to two in total on the quarter. As we have said in the past, when we negotiate any contract, all contracts are different. We are looking for what is the value equation that we can bring through the settlement that we arrive at. I'm not going to be any more specific in terms of what they were or who they were for. I think that -- as I said, we are looking for value and those particular contracts were the ones that we felt we got value on at the numbers that we negotiated.

Cherilyn, I will just add a little more color and say that you need to think about the vast majority of the efforts that we were successful, they fell within kind of the bell curve. And then occasionally you get a few on either tail, extraordinary opportunities to get better than that target number. And occasionally you will end up with one of two situations on the other end, the negative tail. And those would either be situations where you've got a long-term strategic client with a great long-term asset who is going through a real tough time and we have to make a call about whether we can contribute to their I'll call it survival or their ability to go forward. And we would generally do that if we thought that, A, they were a strategic client and they behaved that way and that they had a great asset, and that this would benefit us for many years to come if we helped them in their tough times. So that is a consensual effort to give a bit of relief in certain cases for people in really tough shape.

Then there is the second part of that and that would be that there will be circumstances where competitive forces have come to bear that did not exist in the past, be they regulatory or be they commercial forces and you have got a choice. You can either deal with them or not deal with them. And obviously over time you deal with them.

So it is important to understand that while critical mass is still moving to those targets, there will always be exceptions in I think any industry and any company that doesn't match the perfect profile of the average that we provide.

Okay, thanks very much. That's all my questions.

Chris Ceraso, Credit Suisse.

Thanks, good afternoon. Just a couple of quick ones. Can you tell us what you think the increase in compensation expense will be in 2010 versus 2009 outside of what you have already given us, vis-a-vis pension?

Well, I think -- I mean we do have unionized wage rate increases of about 3%. But other than that, we have some exposure on stock-based compensation. So as the stock price goes up and down, we will have some exposure there. And I think I provided an insight into a more normalized bonus that we had this year.

So the 3% is the wage, does that include health and welfare, is there any increase on that side?

Not significant. In Canada, most of our workforce is covered by the healthcare system up here. So we will have some exposure in the US, but it is not what I would call material.

Okay. And then actually speaking about US exposure, Fred, you mentioned in your closing remarks your concern about the US regulatory changes. Can you quantify for us your exposure there and what specifically about proposed legislation you are most wary of?

Well, you could probably repeat what you have heard from every other railroad CEO in the last week that the frustration is that it's such a capital intensive business and you need a stable regulatory environment that has the ability to warrant taking the shareholders' capital and keep reinvesting it. The language that has been provided, as I would argue two or three things that worry us, but the first of which is that it is not clear. And what I mean by that is that it could be interpreted very differently and that is a very scary and uncertain period for us to be in.

And then the second thing that we worry about is a big shift. A lot of that vague language then has a second risk that it could subsequently be interpreted by another regulatory body, the [FCB] in this case, and it kind of depends on what attitude exists in that body.

So I think what you have got here is an industry that has finally started to earn its cost of capital until this deep recession and we all worry that some knee-jerk reaction will cause a radical change of that regulatory climate.

You all know that everything from paper barriers to just work your way through the three or four major items. What we are looking for, as everybody is, is just clarity. If somebody is going to change something, we sure would like it to be locked in so you know what it means and you can quantify the impact. Right now it is vague, number one. And second, it's got a second level of interpretation to that vagueness, which could be a double whammy. And that is just -- it's uncomfortable and we would like to see that move towards clarity and obviously clarity that is not harmful to the industry.

Thanks, that is helpful. And then just lastly, you mentioned the change to US GAAP. Will you still be reporting in Canadian dollars?

Yes, we will.

Okay. Thank you.

Ken Hoexter, Bank of America.

It is actually [Scott Weber] sitting in for Ken. Just following up on the last question on potash. I think someone mentioned the word surge. And just wanted to try and get your macro view on -- should that stalemate or when that stalemate with China ends as far as potash is concerned, do you see that as something that would end abruptly or something that would happen more slowly over time? So would you expect the flood gates to open or would it be slowly normalizing into a consistent stream of potash being exported?

You know, Scott, I don't know that I can't intelligently answer the question because had I tried to answer that same question for the last seven months, I probably would have just kept giving you an evolving answer. It appears to me from a distance, and I say from a distance even though we are close to the customers, they obviously have their confidentiality. My belief is that there is a lot of buying going on on the spot market. And as a consequence, that may cause -- the new normal may not be the relationship that we historically -- that the shippers had with, in this case, the Chinese.

So we don't know what it is likely to look like in the future. Therefore, we can't say it will repeat what it used to be and all of a sudden, we are going to go back to 9 million tons of potash. I would anticipate over the course of time that there would be a demand for this product and what I can't predict is will it be a 30-day ramp-up or a nine-month ramp-up or a 90-day ramp-up, we just don't know. What I do know is we are ready. So if they want it, we have made the commitment to put the resources at the ready and we will be there to come as fast as our customers want to go.

Okay, that is helpful. And then just following up on some earlier comments about some of the costs that have been taken out and while it seems like the suggestion is that they have mainly been variable cost thus far and you are moving into some of the more permanent type cost-cutting measures, can you comment at all on what kind of excess capacity you have on the railroad right now? And to what extent you could add volume today without adding back any of the costs that have already come out?

I think, Scott, probably the best way -- maybe clarity on the quote term permanent. The variable cost reductions is a combination of the absolute volume not being there. But it is also the productivity against some variable costs. So Brock and his team have done a great job on train lengths and train waits. Those are permanent benefits that we will enjoy as long as the volumes or we can reconfigure the trains to reflect the change in volumes.

With regard to excess capacity, I want to again stress that it depends on the type. So Brock has got the next 10 tons of coal -- sorry -- 10,000 tons of coal needs a new [pull] train. The next 50 cars of merchandise can probably be carried on the merchandise trains or the intermodal trains. So it is very important to separate the bulk from the general merchandise. In some cases, Brock may even be able to, as he described in one of his answers to Cherilyn, he may very well be able to take some of that bulk commodity on merchandise trains benefiting both parties.

So we have an abundance of capacity obviously like everybody does, whether it's locomotive, people, cars, track capacity. We are going to leverage to the extent we can any of the IOP, that is our trains that are scheduled first and then to the extent that there is a business case, we will put on a train start as soon as that business materializes.

Great, thanks.

Jeff Kauffman, Sterne, Agee.

Hi, (inaudible) sitting in for Jeff Kauffman. I have a question about the weather impact in the quarter. In its fourth-quarter earnings report, your Canadian competitor alluded to the impact of the deep freeze in Western Canada on its results. Can you provide any color on what the impact was on your results in terms of higher labor, fuel and operational efficiencies?

We had about a 10 or 20-day period where Brock and his team were working at minus 22 to minus 35 and it was tough. But I don't know that I would consider -- it's not a material item. It's just kind of what we do. So to me, it is just winter railroading and we got through it and I don't know how to quantify it.

Okay. And then just a few quick clarifications if you don't mind. So my understanding is what you said earlier is that the pure price for 4Q was 2% overall but 4% when you exclude the impact of some of the coal contracts, is that correct?

Well, it's Ray. What I said was the combination of price and mix on the quarter was 2%. What I talked about was that if we looked at our renewal increases on the quarter, it was 4% before the few contracts that we talked about that brought it down to 2%. And as we looked into 2010, we were targeting that same 3% to 4% on our renewals going into 2010.

Okay, so the 4% is on the renewals, 2% is the price and mix on the overall book of business, correct?

That is correct, on the fourth --

(inaudible question - microphone inaccessible)

That is right. And we also talked about the index applications that came into play in the fourth quarter that would carry over into 2010.

Okay, now that 2% is in the fourth quarter. That 2% is price and mix combined?

That is correct.

Is that about a point of price, a point of mix?

It is 2% price and mix combined.

Okay. And then regarding the outlook for the 2010 prize, that 3% to 4%, which you said is on the renewals, correct?

That is correct.

Does that exclude the three headwinds you mentioned -- the regulated -- the Teck contract, the regulated grain and the fuel inclusive indices, does that exclude those headwinds?

Yes, it did. What I was trying to give you color on is that the team that is negotiating on an ongoing basis is going to continue to sell the value of that product and seek those 3% to 4% increases on renewals. But the headwinds going into 2010 are the Teck coal for the first quarter, the regulated drain through to August 1 and the indices carried over into 2010 from the reduced fuel component.

Okay, so I guess it's fair to say that we will see some yield number or some pure price number south of 3% to 4% for 2010?

Well, if you look at the -- what we've said is we are going to get 4% on the majority, but you have those headwinds against that. So you need to look at that, yes.

Okay. And then just on the fuel surcharge, did you mentioned earlier in your comments what the change was year-on-year?

It's Janet. We've got quite a few people to work through. And you have got some pretty detailed questions and it sounds like you might have missed the beginning of the call. So why don't you -- why don't we take this offline and we will take care of it.

Thank you very much.

Anja Soderstrom, Maxim Group.

Hi, this is Anja, I'm filling in for (inaudible) today. I have a follow up on the potash. You said there has been a lot of productivity in the pricing there. Is that correct?

I'm not sure I understood the question.

The potash negotiations --

Yes.

I heard you saying there were a lot of productivity in the pricing negotiations there, is that correct?

No, I don't think you heard that correctly. The potash business is under contract and volumes will be what the volumes will be both domestically and export.

Okay. (inaudible) misheard you.

Okay, sorry.

Benoit Poirier, Desjardins Securities.

Sorry, this is Benoit Poirier from Desjardins Securities, good morning. First question, Kathryn, you were talking about the last termination of the lease that will provide about CAD50 million of savings per year going forward. Where should we see the impact on the income statement?

That would have been in the revenue.

Okay.

Yes, a reduction to revenue.

Okay, okay, reduction to revenue, okay, excellent. And with respect to free cash flow, could you maybe provide more color about your forecast for 2010? And when you talk about the normalized level of asset sales going through 2010, what would it be?

So we are not going to give any guidance on our 2010 earnings or cash flow. But we have had, on an annual basis, I believe it's about CAD35 million a year on normalized asset sales.

Okay, excellent. And maybe just a quick one if I can. How much of the price base increase is already booked right now for 2010?

So, Benoit, it's Ray. If we look at the carry-in number, we are probably in the 50% range. What I would reiterate to you is the comments that I've made before, which we have tailwinds in terms of the 3% to 4% that we have negotiated and we have those headwinds that carry into 2010 as well.

Clear enough. Thank you for the time.

Jacob Bout, CIBC.

Hi, this is actually Kevin calling for Jacob. Can you discuss what kind of rebounds in export volumes you are seeing out of Vancouver and Montreal?

On the container side, Kevin?

Yes, correct.

Frankly, it is pretty flat. What I would relate that to is that the general consumer confidence levels, while you hear stories about it, it is not apparent to me that the retail sales -- I think there was US facts that came out that were not very supportive of the December numbers. I am going to ask Ray to give you just a bit more color.

Kevin, it's Ray. So it is a bit of a tale of two ports and a tale of quarters. So if you look at Q4 over Q3 relative to Vancouver, the volumes were up there about 15% sequentially quarter-over-quarter, but they were down a little bit compared to 2008. If you look at the Port of Montreal, you haven't seen the same kind of improved activity there. Montreal has been harder hit, particularly across the course of the year, but if you looked at the activity levels in the fourth quarter.

Okay, that is helpful. And on the DM&E, what type of impact will the weaker US thermal coal volumes have on that network?

So if we look at it -- that is not a very significant component of the DM&E's business and it is not really long-haul traffic that they handle there. I would tell you that, in the fourth quarter on the business that they were doing, they had that same gas versus thermal coal replacement issue and we would expect some of that to continue into 2010, but not a very big impact.

Perfect, thank you. That is all for me.

Thank you very much.

That is all the questions we have at this time. I turn the call back over to you.

Okay, well, thank you, everybody, thank you, operator and look forward to talking to everybody next quarter. Bye now.

This concludes today's conference call. You may now disconnect.