Canadian Pacific Kansas City Ltd (CP) 2012 Q3 法說會逐字稿

Good morning. My name is Michelle and I will be your conference operator today. At this time, I would like to welcome everyone to Canadian Pacific's third-quarter 2012 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, Michelle. Good morning and thanks for joining us. Today's presenters will be Hunter Harrison, our President and CEO; Jane O'Hagan, our Executive Vice President and Chief Marketing Officer; and Kathryn McQuade, our Executive Vice President and Chief Financial Officer. Also joining us on the call today is Brian Grassby, our Senior VP of Finance, and Scott MacDonald, Senior VP Operations for System. The slides accompanying today's call are available on our website.

As always, 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 2 and 3 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 outlined on slide 4.

When we go to Q&A in the interest of time and in fairness to your peers, I would ask you to limit your questions to one primary question. I'd also like to remind you that we have an investor day scheduled for December 4-5, where we will be providing a significant amount of color on our longer-term plans. So we will try to keep this call tight and focused on our progress during the quarter. We will try to get to everybody's questions today if we can.

So here then is our President and CEO, Mr. Hunter Harrison.

Thank you, Janet, and good morning to everyone. Excuse me for my hoarseness. I have been doing -- I know you can't imagine -- but a lot of talking around here.

Before I trust you have seen our press release and the earnings and before I ask Jane and Kathryn to break that down in more detail, let me just highlight a few areas for you that resulted in the quarter.

One, I think probably two words or the key here is that progress and momentum are both building. We have -- effectively you have seen there have been a lot of management changes that have taken place for various reasons. The new team for lack of a better term is effectively in place probably with maybe the exception of one or possibly two other positions. Obviously this effort is keyed by the efforts toward service. You probably saw the announcements where we have effectively taken a day out of the transcontinental markets between Vancouver, Toronto, Montreal, and Chicago.

What you are showing real progress as far as our intermodal efforts there as well as having a big impact on the asset turns, significant changes -- and I would emphasize significant changes --operationally in particularly the yards and the terminals. We are streamlining a lot of the headquarters processes. My view was we were a little bit heavy at headquarters. Some might say more than a little. We were effectively about 28% of our employees were -- of our nonunion employees were headquartered here and we have gone to work on that area.

I would characterize this overall as we are clearly -- and I say this hesitantly -- but we are clearly ahead of the schedule if you're kind of watching overall the forward year plan.

The biggest I guess hindrance to us right now is we are going through clearly a learning curve going from for an example, from hump yards of pushing buttons to people having to flat switch cars and use their heads a little more.

From a labor front, a little bit of update there before the questions come up. I don't see -- I've spent some time myself with the Teamsters that represent our maintenance away people. I don't see a work stoppage coming. But having said that, we are prepared in case I'm wrong and prepared probably better than we have ever been.

I was very pleased that we signed a five-year agreement with the Steelworkers subject to ratification and so there has been some very nice progress taking place on the labor front.

I guess the biggest issue is with the running trades and that as a result of some scheduling was rescheduled by the arbitrator and we are expecting some results there in January, probably late January.

So overall I am very, very pleased with where we are. We continue to strive in all these areas that I've described and I will be happy later on to address more specific questions that you might have.

And with that little bit of commentary by me, let me turn it over to Jane to look at the revenues in more detail.

Okay. Thanks, Hunter. I would like to build on the themes that Hunter outlined on progress and momentum and marketing and sales. So with that, I'm going to turn it over to my formal remarks.

As Hunter has just said, system velocity is up, transit times are faster and our product delivery is more consistent. The marketing and sales teams have embraced the change and our customer response has been very positive.

I am pleased with the quarter as we came in with a solid 8% revenue growth. Our strategy for sustained profitable growth continues to deliver.

Before I get to specific results, let me note a couple of highlights from the quarter. As Hunter said, we have launched a better and a faster intermodal service in our key Toronto to Vancouver and our Vancouver to Chicago links. The improvements have been well received by our customers and position us for growth. In energy, our strategy has delivered our fifth consecutive quarter of double-digit revenue growth as our crude by rail program gains wider adoption by producers and marketers who are diversifying their supply chains by investing in a rail model.

Change is underway at CP and our focus on creating a better product for our customers and securing full value for our services.

Now I will give you a high-level review of CP's Q3 revenue performance. CP delivered 8% revenue growth on the quarter. Price and mix accounted for 3% of the revenue gain. Fuel and surcharge was 1%. The FX impact was 1% and volumes were 3%. In Q3 of 2012, we again delivered on our price renewal target of 3%-4%. I fully expect to deliver in this range for the upcoming quarters as our product offering continues to improve.

As I walk through our lines of business, I will speak to currency adjusted revenues, so let me start with bulk. Starting with grain, CP's revenues were flat and units were down 6%. Lower carryout stocks versus 2011 were largely responsible for this decline.

The Canadian grain crop expectations are above average at 49 million metric tons, though down from Agriculture Canada's estimates of the midsummer. With the excellent crop and strong commodity prices, we anticipate solid shipments in Q4.

As I've noted before, effective August 1, the maximum revenue entitlement for export grain for the 2012-2013 crop year increased by 9.5%. This increase affects about a third of our grain volumes. We use seasonal pricing throughout the year and thus you will see some variation in our reported price by quarter.

Building on the successful execution of our scheduled grain service in Canada, we rolled out the program on our US property this August. The response has been positive. Our US volume is expected to be stronger in Q4 based on good production in our [draw] territory compared to the other regions and reflecting a recovery from last year's flood impacts. For grain overall, we continue to expect mid single-digit year-over-year growth in Q4.

So let me turn to sulphur and fertilizers. In total, the sulfur and fertilizer portfolio was down 20% in revenues and 21% in volumes. A significant reduction in long-haul export potash traffic resulted in a 30% decline in RTMs.

In Q2, I cautioned that the second half international potash market would have some uncertainty. In an about-face from their strong Q2 participation, Chinese and Indian buyers of Canadian potash largely exited the market. The timing of their reentry continues to be uncertain and recent public comments suggest that purchases may be delayed to Q1 of 2013. The long-term fundamentals for fertilizer are strong and we are ready to respond when the demand returns.

Third-quarter domestic potash and fertilizer demand was somewhat tentative in reaction to the drought but overall our volume was up over Q3 2011 levels. We expect strong nutrient replenishment will occur through Q4 and into the 2013 spring season.

Strength in domestic volumes will not offset export weakness in Q4 and unless there's an earlier recovery in export volume, sulphur and fertilizers as a whole could be off close to 10% for Q4.

So moving to coal, coal revenues in units were up 9% and 5% respectively versus Q3 2011. Recall our coal portfolio has three distinct markets. About 80% of our revenue is export metallurgical coal while the balance is thermal coal sold in domestic and export markets. Our met coal volume has been steady on the strength of our shipments by our predominant coal customer, Teck.

Teck is a low-cost producer of high-quality coal with established market relationships making them highly competitive in the seaborne market. For this reason, Teck has been impacted less by declining markets than other North American coal producers. We remain attentive to developments in the export coal market and we are modeling volumes based on Teck's forecast.

We continue to work collaboratively to improve the export met coal supply chain. This quarter, Neptune Terminal completed its expansion allowing it to accept our 152-car train model and as we confirmed previously, we will have up to 80% of our trains moving at this length by the end of the year. The result will be a 14% reduction in train starts to move the same volume of coal.

The weakness in the North American domestic thermal coal markets continues to provide opportunities to move PRB coal into export markets off the West Coast. We are expecting these shipments to continue through the remainder of the year. Again, these volumes could vary given changing economic conditions as this is a developing market. Overall we expect Q4 of 2012 to deliver low single-digit growth over 2011.

So before turning to the intermodal details, I want to say that I'm excited by the renewed focus on service improvement under Hunter's leadership. The new intermodal service offering we launched in Q3 is taking a day off our advertised transit times between Vancouver and both Toronto and Chicago.

This quarter, intermodal revenue grew 7% on volume growth of 7% versus Q3 2011. Revenue per unit this quarter was flat due to mix. Growth was led by a recovery in the import/export sector with double-digit gains in both revenue and units that reflect strong Vancouver imports. In comparison, European weakness continued to impact our Port of Montreal demand, where we saw a year-over-year decline.

The domestic sector was relatively flat, though we saw strength in the cross-border market. The service improvements we are making will drive greater value for our customers.

As part of making improvements to our core service, we have made decisions to simplify our intermodal network and focus on offering a sustainable competitive service in profitable markets where we can grow. We closed our Milwaukee intermodal ramp, consolidated our Chicago service to Bensenville by closing Schiller Park and exited from some select low-volume lanes during the third quarter. The traffic we exited will impact about 4% of our total intermodal volume.

As you have heard, APL has not renewed a contract with us for its West Coast traffic. I mention this change simply to point out that this is a dynamic business sector that can trade volumes back and forth between railway companies.

Respecting the balance of Q4, given the economic uncertainty and the impacts I've highlighted, we are expecting intermodal revenues to be up slightly and volumes to decline slightly year-over-year for Q4.

Looking forward, our shippers are enthusiastic about taking advantage of CP's new schedules to enjoy more consistent and faster delivery to key North American markets. We are delivering on our strategic initiatives and making real progress in enhancing our service. We have a competitive product. We have customers who want to grow on CP and I expect to win my fair share of the business going forward.

So moving to merchandise, merchandise delivered a fifth consecutive quarter of double-digit revenue growth driven by energy and ongoing automotive recovery. Revenues are up 19% and units are up 9% versus Q3 2011.

In the energy and industrial products segment, revenues and units are up 21% and 10% respectively. I will note that cents per revenue ton mile in industrial consumer is down 8% but this is due to the fact that crude moves in shipper cars has a longer length of haul and is trainload in nature resulting in lower cents per revenue ton mile than other industrial consumer volumes.

We continue to execute our Bakken expansion strategy and gain traction in the implementation of our crude by rail model in both Alberta and Saskatchewan. This strategy will create a diversified mix of origination capability covering light, medium, and heavy grades of crude.

Crude volumes continue to trend upwards and we will hit the annualized 70,000 carload target in early 2013 more than a year sooner than expected. CP customer expansion plans are proceeding and we expect to sustain our growth momentum. But I will speak more about this market at our upcoming investor day.

Turning to the complementary frac sand and pipe markets, we have seen a tempering of volume growth primarily due to the drop-off in drilling activity in response to continued weak natural gas prices. The development of CP's frac sand networks mimics a measured approach we've taken in crude. The result is a business with strong customers and sound fundamentals for growth. Our customers have low-cost, high-quality production facilities with efficient rail access at source and multiple market outlets.

Similarly, CP's ethanol customers are well positioned in their industry. US ethanol production decreased in Q3 in reaction to drought-induced rise of corn prices. We saw a small decline in Q3 but I will note that our biofuel shippers are low-cost producers situated in areas with local corn feedstock.

While there is lots of talk about blend mandates, ethanol is a cost-effective blend for refiners today, so we expect ethanol volumes to be flat year-over-year in Q4.

Turning to our auto business, revenues were up 28% on unit growth of 18% relative to Q3 2011. Increased North American auto purchases and recovery by Japanese producers drove this increase. Our auto results include the movement of dimensional loads. There was significant several one-time dimensional moves during the summer that account for one-third of the RTM increase in autos and contributed the strong average revenue per car increase. We expect Q4 year-over-year volume growth to better align with auto sales now that the tsunami-related disruptions of 2011 are behind us.

In forest products, improvements in lumber driven by housing starts were more than offset by weakness in pulp.

So to recap on merchandise, we continue to expect double-digit growth in industrial products led by the disciplined extension of our crude by rail model. Growth is expected in related energy markets such as frac sand and steel pipe but will likely be more variable in response to North American drilling activity changes. Automotive growth will be consistent with North American auto sales and forest products will be flat.

So to summarize in the third quarter, we did deliver sustainable profitable growth. We are feeling very positive about the service improvements under way. We have the right team. We are visible in the marketplace and we are making our opportunities. We are delivering strong revenue growth both through core business growth and ongoing execution of our strategic initiatives.

I look forward to giving you more detail on our commercial activities at our investor day discussions in December and with that, I will turn it over to Kathryn.

Thank you, Jane, and good morning, everyone. Let's begin by summarizing the quarter on slide 18.

Revenues grew 8% primarily driven by solid volumes and core pricing gains. Additionally, we saw our fuel coverage improve on legacy contracts and increases in traffic with longer lengths of haul offsetting lower fuel prices. Jane provided you a good summary of all the areas of growth and while there continues to be some global economic uncertainty, the team is prepared to quickly response and align resources to demand.

Operating expenses increased 6% and I will review each line in detail. Operating income was CAD376 million, up 16% and the operating ratio came in at 74.1%, an improvement of 170 basis points.

Below the lines, interest expense was up CAD5 million and other charges were a more normal level of CAD2 million, down from CAD12 million last year. Last year this line included charges associated with the early redemption of our 2013 notes and we also saw volatility from foreign exchange.

Income tax expense increased by CAD22 million due to improved earnings and a higher effective tax rate. For the year, we expect the effective tax rate to be just slightly higher than 26%.

In summary, diluted earnings per share was CAD1.30 in the third quarter, up 18% versus 2011.

So let's start with compensation and benefits on slide 19, which was higher by CAD35 million or 10% versus third-quarter 2011. Incentive and stock-based compensation was up CAD33 million principally due to better financial performance this year versus last where we had a partial bonus reversal in the quarter and stronger stock price performance versus last year where the price actually declined.

The sensitivity for our stock-based compensation has changed. The revised sensitivity is now a CAD1 change in share price, increases or decreases compensation expense by approximately CAD700,000. Other variances include an increase of CAD3 million due to higher volumes, which was more than offset by efficiencies of CAD6 million from fewer crew starts in both road and yard service and lower overtime; wage and benefit inflation of CAD5 million; favorable training costs of CAD4 million. As planned, most of our training occurred in the first half following are 2011 hiring. Management changes cost CAD4 million and other items netted a favorable CAD3 million and FX was unfavorable by CAD3 million.

We ended the third quarter with about 14,500 employees, an increase of 2% over last year but a decrease of 4% sequentially. We expect productivity enhancements and attrition to continue to reduce the total number of employees. However, you will see a slight uptick in reported expense employees with the normal seasonal shift from capital to expense for some.

Turning to slide 20, fuel expense was down CAD6 million or 3% versus last year. I'm pleased to say we tied our best efficiency -- fuel efficiency quarter of 1.09 gallons per 1000 GTMs. Efficiency gave us a favorable CAD9 million on the quarter and lower fuel price provided a benefit of CAD8 million as our all-in cost was $3.35 per gallon, down from $3.44 a year ago.

Higher volumes increased fuel expenses CAD6 million and FX was unfavorable by CAD7 million. Year to date, we are tracking a 3% improvement on our fuel efficiency and we expect this to continue for the full year.

Turning now to equipment rents on slide 21, we saw improved asset utilization in both locomotive and freight cars, reducing both per diem and lease costs by CAD6 million.

Let me update you on our lease turn backs. Year to date, we have provided notification to return more than 5400 freight cars. This quarter we have recorded repair costs associated with our return -- lease returns which you will see in the purchase service line. We have another 3800 cars on lease coming due in 2013 and we will continue to look for opportunities to right size the fleet as operational changes are made.

Lease rates were higher by CAD2 million and other items, total and net unfavorable of CAD2 million and foreign exchange was unfavorable by CAD1 million.

Now let's turn to purchase services on slide 22. Purchase services and other was up CAD15 million or 7%. As I just mentioned, we accrued repair costs for the return of lease cars this quarter of CAD7 million. Technology and communication costs were unfavorable by CAD7 million as we continue our technology improvement programs to upgrade our applications. Locomotive overhauls and servicing of our new units increased this line by CAD5 million. This upgraded and more reliable fleet provides better locomotive reliability and cost savings in lines such as fuel and maintenance.

Volume variable expenses for the intermodal business were unfavorable by CAD2 million; however, our intermodal carloads were up 7%. And other consists of many puts and takes and was a net unfavorable of CAD6 million. FX was a headwind of CAD2 million.

Also third-quarter land sales were favorable by CAD12 million versus last year, principally on one sale. Year-to-date, land sales totaled CAD22 million and we do not expect any significant sales in the fourth quarter.

Turning to the remaining operating expenses on line -- on slide 23, materials were higher by only CAD1 million with efficiency gains essentially offsetting inflationary and volume increases.

Depreciation was up CAD14 million on the quarter due to capital additions and we completed a reserve study on our technology assets which I mentioned last quarter. With the replacement of our applications and the retirement of legacy systems, we are shortening the lives of these assets. We expect depreciation to remain at approximately CAD135 million to CAD140 million in the fourth quarter.

Turning to slide 24, revenues continued to hold strong as our improved service and train designs take hold. Operations focus on service reliability and the relentless drive for improved asset utilization is producing favorable financial results. With good liquidity and cash continuing to build, our balance sheet is strengthening while our capital plans for the year remain on track.

Finally this quarter, or I will report out -- this is my final report out for the financial community. I am grateful for my time at CP and I leave knowing that the management team here is committed to providing a quality service which will drive value to our customers and our shareholders.

Most of you already know Brian. He has a deep financial expertise and his tenure at CP will provide consistency to Hunter and the Company. I feel confident that I am leaving a leadership team in place that will serve him, CP, and the shareholders very well.

So I also appreciate the time I have spent with most of you on the telephone. It has been fun and I look forward to talking with you sometime in the future.

Now I will pass it on back to Hunter.

Thanks, Kathryn. Michelle, we would be happy to take questions from the participants.

(Operator Instructions). William Greene, Morgan Stanley.

Good morning. Hunter, I'm sure as you are aware, there's a lot of talk about structural differences and whatnot between networks. But one of the things that kind of strikes me about CP is the large bulk franchise at least relative to the network. I guess I often think about bulk as being a pretty good business for a rail to have. I know CP has some contracts in place that perhaps limit kind of what the upside could be from that but I'm curious if you think those impressions are right as it relates to the bulk business? Is it as good a business on all railroads as you've looked over the years? Can it really drive significant improvement above let's say what a merchandise or intermodal network could do? How do you think about that structural angle to CP?

Bill, there's several comments. Number one, we have a situation with bulk in Canada where it's regulated so that puts it in a little different ballpark. Bulk is governed more by outside agencies, the weather, regulatory issues, than for an example, our merchandise business. There's not a book of business that I've seen here at CP that I'm disappointed with. We have some long-term contracts in bulk. I think those are good for both of us. I think there's opportunities to drive more efficiencies on the bulk side.

I think our overall franchise if you look at it and if you take intermodal and put it in the unit train category, and I know that's not bulk, but 71% or 72% about of our business is handled in unit train. So you adjust your franchise to the business book you have and that's one of the reasons that we are doing a lot of things to downsize the terminal operations.

And just to be clear, if you keep efficiencies in the bulk business, there is nothing in your contracts that you would have the sort of share that back, right? That's something that CP retains?

No, that's something that we retain. With the customer base, you can argue about the regulators, but we have as much opportunity there as we do otherwise. It's more -- you have more opportunity on the cost take-out side and that's where the real opportunity with bulk is and that's just the whole story.

Okay, great. Thank you for the time.

Ken Hoexter, Bank of America Merrill Lynch.

Hunter, thanks for the time this afternoon. But when you look at -- you started off your call with -- talking about no strike from the Maintenance of Way operator and how you are in discussions with them. I thought that was an interesting way to start off because as you think about long-term and what you hope to achieve, can you kind of talk about what are you hoping to get out of some of these next agreements? Are you looking to switch things to your kind of per mile away from -- or per hour moves in terms of negotiations?

I am not asking specific negotiations with one union but you've made some quick moves on fuel efficiencies on locomotives. You've achieved some things quicker than you anticipated. I'm just trying to think of how quickly you can achieve some of these incremental opportunities to get that operating ratio down even further.

Again, that's a difficult question. Number one, I think it's important that we do all we can to have an appropriate relationship with our various collective-bargaining units. And there's opportunities there for both of us. For an example with that group, we have a substantial amount of work. It might be described as contract to gap.

I have had some dialogue with them and with others representatives here on the team about looking at the opportunities of giving them more work if they will turn around and throw something in it for us. I think it was very encouraging as I mentioned earlier, that five-year agreements in collective bargaining areas are pretty well unheard of. So if we can find those type of agreements which shows a better align with our people, I think that's opportunities.

I think we have some opportunities that are before us now in the US that we are going to explore some opportunities, a road that we've been down before. We will see if those things come together.

So I am pretty pleased overall from a labor standpoint that we have opened a dialogue. That is a little advantage I have as I understand that side of the business. I've been down that road before. I think I understand and recognize the position of those people, what they want, what their needs are and desires, and I just think it's an opportunity to pull those together, then it will work overall as a plus for us.

And just a follow-up, did you find it -- do you think they're moving ahead and willing to make some of the changes that you said some of them just won't make some of the changes because that's the way they have been doing it for 100 years or do you think they start to see where you are heading that quickly?

Look, I think one of the pleasant surprises here and shame on me for looking at it maybe negatively -- is I think they are responsive people here -- people I'm talking employees, I'm talking about the people on the ground doing the work -- want to be a part of a winning organization and they are tired of hearing about slippage at CP and so forth and they want an opportunity to -- they very much want to be a part of any success we have. They are willing and recognize that there are places that we need to change. I think their attitude is very favorable. It's contagious and I think that's another plus that I didn't have in my model.

I appreciate it. Thank you.

Walter Spracklin, RBC Capital Markets.

Thank you very much. Good morning, everyone. So when I look at some of the things you're talking about, Hunter, and you've talked about for some time, they are quite substantive in nature, getting your operating ratio down as much as it is. When I think of something as large-scale as that, I kind of think that there has to be -- someone has to feel it somewhere be it you touch on labor, capital spending, customer service, or something else.

You seemed confident that capital spending wouldn't go higher, that labor can be -- that you can achieve what you want to achieve without much labor disruption. Presumably customer service wont -- can you walk me through how you can do what you say -- what you want to do without affecting any of those major categories or maybe there is a category I'm missing that will be impacted by that quite a bit.

I haven't found any skeletons in the closet yet. I know a lot of you don't believe it, but if you had to pick out one area and say where could there be some adverse impacts and we are very fortunate there. The adverse impact is clearly at these type business levels it's not going to be as many employees as we have. But at the same time that I have talked about earlier, the high rate of attrition here of natural attrition will take care of most of that.

So the plan is, the model is, the service gets better, so the customer is not hurt. I don't see any bubble in capital spend. I am relatively new here but I see the capital spend kind of staying in the CAD1 billion, CAD1.1 billion range.

This thing fits. When you provide better service, you turn assets, you lower your cost, you treat your people right, it is a good story. So I don't know where, if I had to look for a negative, the only place I can find any negative is the pension fund. And I think there's some positive things that are going to happen there. If you look across Canada, a lot of people have got problems with pensions, so I think some things are going to happen there.

But I know one thing, if you operate more effectively and better, that's the right thing to do. Now, there's a lot of financial engineering. There's a lot of things that people that are much smarter than I am in finance are looking at as far as opportunity with the pension fund, but with that exception, this is all good.

So I might follow up on that service. The improvements that you are talking about would typically lead to, as you mentioned , improvement in efficiency, but could also be an argument for higher pricing as well.

Are you seeing yourself as being able to drive higher pricing that we have seen under CP recently because of the some of the service improvements that you are putting through?

Well, the marketplace will tell us that. The marketplace gives you the price. You decide whether you want to play. If we put a good service out there, a good service offering, it's competitive, we are going to get rewarded there. So I know that Jane has talked about inflation plus, and this a big diverse portfolio. But yes, where we provide the service and are better than the competition, I expect to be rewarded for it. I don't apologize for that.

Okay, that's great color. Much appreciated.

Chris Wetherbee, Citigroup.

Maybe thinking about a question on the intermodal side, obviously, you mentioned simplifying the network. How should we think about that relative to kind of the ability to price within those remaining? What is maybe the mix impact that would have to the pricing dynamic or the revenue dynamic within intermodal?

Then kind of a follow-on to that, maybe as, Hunter, you've taken a look at the network; any other areas we should be thinking about, whether it could be some nearer-term opportunities to maybe simplify business lines maybe outside of intermodal?

Let me catch my breath and let Jane address that, and then maybe I can add some color.

I think first off what I would say is that this new intermodal service is bringing new value to CP and our customers, and we fully expect that the improvement will give us gains in both volume and price. But because each customer is different, the mix of traffic, the segments that we are focusing on which we will tell you more about at our investor day, they are going to vary on a customer-by-customer basis.

But I think that if you had to look at this in aggregate what I would say is that obviously we are going to be pushing for both market share and for price.

And so far as Hunter indicated, as we look at the new intermodal service, this has really been a positive platform to position us with a faster train service for customers to get to a broader North American market and that we are starting to secure some new business.

So I think that the other side of this is the customers are also seeing value in it, so that's something that is top of mind for us. So Hunter, I will turn it back to you to talk a little bit more about the network.

I guess the only other comment I would have is you really have to be careful in defining what is good service quote and what is service. There is -- there's been a lot of press recently about the [Deming] report and about service improvements. I know this. I know a little bit about those the other side, our competitors on the other side of Canada. I've read some of their statistics and they're doing a hell of a job. We're doing a much better job than we have ever done.

I don't see where the problems are with service. But having said that, let's just take an example of an intermodal train. You've gotten intermodal train, you've got one customer on there that's concerned about speed and overnight, next day. And you've got another customer on there that doesn't pick up at the intermodal facility for three or four days so to some degree, we are more of a warehouse there and we've got all these various customer types on the same vehicle, which is a train which to some degree causes some of the difficulty in trying to, quote, design service.

But if you talk about service in its true sense, then I think of it in terms of velocity and consistency of delivering to the customer. I just think that Canada is blessed with a pretty good system and I would be careful with playing with -- messing with a winning combination.

That's very helpful. I appreciate it. Maybe one quick follow-up just on the crude by rail kind of opportunity as you see about accelerating some of that growth there, can you just give us a sense of -- or maybe an update on how things look from an East Coast perspective? That seems like that's an opportunity going forward for 2013. Just wanted to get a sense of how you think about penetration into that market as it stands right now given your franchise that can kind of hit that area?

Let me just make one comment and I will let Jane do --. I hear so many stories about the opportunities it scares me. I don't want to comment about it too much. It's -- if you put it all together, it will make people forget the gold rush in '49. But having said that, let me let Jane address it.

Yes, I think what I would say at the outside here is that we have seen this volume in our crude by rail portfolio ramp up rather quickly. We have been talking before around 13,000 car loads last year and we've moved ahead our target on those -- the 70,000 car loads by just about a year. Clearly we do have franchise capabilities and we look at that certainly marketplace in the Eastern part of the United States is a very, very positive market.

We started with certainly with ethanol moving it into that market. We basically built out our crude by rail model starting -- looking at select locations on the light sweet crude side out of the Bakken. And now we are seeing volumes of this traffic starting to make an (technical difficulty) out of Saskatchewan and possibly I know we have plans targeted for Alberta as well. So clearly this is a place where you take your franchise opportunities. You basically focus on running the best network and supply chain that you possibly can because that's how you earn that place.

So we look at that market as one of the areas for growth but again, we also look at the Gulf. We look at the West Coast and we look at other locations as well because we think there's an opportunity to make our markets and we feel confident that the product that we are putting there is putting value in the market. And I think the real test that we are seeing is not only are we providing it, to Hunter's point where you are seeing this volume increase, but we are seeing real investments by the customers in crude by rail, in cars, and in facilities, and in terminals. And that is where we really see the upside in this market.

That's great, thank you.

Brandon Oglenski, Barclays Capital.

Hunter, I wanted to see if we could ask you about headcount levels because it sounds like you are discussing attrition taking some folks out of the network here over time. Do you feel like you are comfortable with where employees levels are today and you can handle growth from there incrementally?

Yes, but it's not going to be this many handling it. There is going to be -- there has been change in the headcount. You heard some of Kathryn's numbers she was talking about this morning. There's a lag that follows with headcount. And there will be -- and we are going to talk about this more in December -- but there will be a significant number of -- I think you would characterize employees that will come out of the network at all levels from bottom to top. And on a relative basis, more at the top than the bottom.

But we at the same time are going to be very cognizant that we have to have enough people to haul the business. This is not just all about headcount and cutting costs. There is a delicate balance here that you've got to address and there's -- you could call it a premium. There's a premium you pay for what if? What if business is better than we thought? What if we had bad weather? And there is a fine line there of where you choose that premium of having X number of employees plus.

But we've got plenty of people now to take care of the business we have and more, so this will kind of be a moving target because as we are continuing to right size, we will at the same time get a feel for how successful some of the marketing and sales efforts will be. And this is not a decision that's got to be made overnight but we are headed in the right direction, certainly.

Thank you and I'll keep that going.

Chris Ceraso, Credit Suisse.

Thanks, good morning. I wanted to come back to the service discussion for a minute. You mentioned a couple of times that that's important. You didn't spend too much time on it in the prepared remarks. I'm guessing there will be more of that in December.

But can you give us just some metrics that you are watching and managing and maybe give us a feel for what the progress has been just within the last quarter and where you see these metrics going over the next couple of years?

Well, it's one of the things I was alluding to in my opening remarks is that progress has been made and we are building momentum. If you look at -- if you would happen to -- if you could see them, I know you can't, but if you could see September numbers, September numbers were much better than July and August numbers. I expect October's numbers to be better than September's.

So if you look at locomotives, they are going to be down considerably and there will be significant productivity made there. The car fleet is down and prior to my arrival, they had made a lot of headway in miles per day with cars. That's going better. We have talked about the intermodal service offering. We have been setting close if not new records at Vancouver for the amount of grain being delivered. We're doing everything the coal market is asking. We're doing everything the potash market is asking. They're not asking for much right now. But whatever they are asking for, we are doing.

We just don't have to my knowledge and I consider myself hopefully pretty knowledgeable about this business, we don't have service issues. One of the things that we need to determine is once again what the people mean by good service, what is the market willing to pay for and where is the sweet spots we can hit?

But if you want to look at some of the service metrics, all of those continue to improve and we are going to move to a system where we have a better reflection of each individual car of what we are doing.

But I can tell you that the thing that people miss to some degree is I believe considerably there is a compatibility between low-cost and good service. If you give the customer good service and that's got anything to do with velocity and you are turning assets, and it takes fewer people, it's all good. If you looked at just the intermodal efforts, with what Jane described there and what we've taken out of those markets, besides offering a better service to the customer of a day less in the market, it reduced about 40, 45 locomotives if I remember correctly.

So those things work together and so that's a little anecdotal evidence of my comments about service.

Okay, thank you.

Jason Seidel, Dahlman Rose.

Good morning, guys. Just sticking on service for a minute, Hunter, when you look at the network, where are the areas where you guys think you can pick up the most business? Is it mainly in intermodal and merchandise as service improves?

Well, that's obviously one. That is clearly the most competitive business we have with our competition here. We effectively served the same markets. They are certainly lanes that we have advantages in. They are certain lanes they have advantages in, but intermodal is certainly an area. I think that some of the investment the Company has made in the US and on the (inaudible) territory of the DM&E, the Kansas City corridor, I think offers a lot of opportunity that has not been fully taken advantage of.

And there's individuals. We don't right now handle a lot of forest products business but I would hope that would change and I hope if we see positive moves in the housing markets in the US, we will have some opportunities there. Clearly the big one that Jane just talked about is the energy side, energy-related. We've got some clear advantages there both at origin and destinations and we expect to take care of those.

There's a lot of operating initiatives as we speak that are going to be continuing improvements. This is not the deck we're going to be paying with. If you look out next year and next year and the next year, we are going to be in a more, much more competitive position than we are today.

If our costs continues to come down and I am convinced it well, I think we are ahead of a schedule on the four-year plan. If you bring your costs down, you pick the number, 10% or 15%, wherever you figure the starting point, it just opens up opportunities for Jane and her staff to say, look, we couldn't afford to go after that business at this level but at this cost level we can. So I think this will eventually hopefully this will turn into a growth story.

Hunter, thank you for the commentary and Kathryn, best of luck going forward.

Turan Quettawala, Scotia Bank.

Good morning. I actually just had a quick question on the modeling front. Kathryn, you talked about the lease car returns. Just wondering how -- I know you have said 3800 for next year. Just wondering how much of that will come through in Q4 of this year? It seems like you guys were a little bit less than that -- less than what we were expecting on Q3, so I am just wondering how much of that moves into Q4 of 2012?

It will be a moving target. On the cars next year we haven't made a determination whether to return them yet or not. Of course that will be a function of business level and asset velocity that the ops team is realizing. So what I would do is kind of wait for investor day as we get a little bit more information out in terms of where we are seeing the volume levels and look at kind of an average cost that you see in terms of the division of the CAD7 million and what we have done presently and that will give you some good guidance for modeling.

Let me add to that -- let me add this. I hope going forward maybe what you see there, maybe you see -- if you see it will be in a different line item because I think we're going to review about whether we should be fixing those cars ourself before we return them. Because when you return it in that case effectively what you are doing is sending a blank check with the car.

So I think we are looking once again this is another opportunity and rather than us quote downsizing further to take an opportunity to take our people, fix the cars, put them like in the condition they are supposed to be and we can do it more effectively hopefully and so you won't see this item. Will it be in other expense? Yes, it will be in another expense line item but hopefully with better returns.

So that's a lot of the dynamics that you have to understand that are going to be shaken out here.

Great. Thank you very much for the color.

Scott Group, Wolfe Trahan.

Hunter, at a high level you talked last quarter that after your initial thought was you felt even more confident about the OR targets you set out during the proxy fight. It has been another three months. You've been able to close some terminals but on the other hand, you lost a large intermodal customer. Maybe the economy doesn't feel as good.

I'm wondering three months later how you feel about those OR targets you set out? I am sure you want to give more color in December but just some thoughts now would be helpful.

Then if we could just get a bit more specific if you feel comfortable on the headcount side, are you -- is there a chance that there's 10% too much capacity on the headcount side and we could be thinking about material headcount reductions here? Or is there a better way to think about it -- headcount should grow X% less than volume growth? What is a good way to think about the headcount going forward?

Well, I feel good about the OR, number one. In spite of the fact that a lot of people don't believe me and they keep saying I don't see it, I don't understand it, I feel good about it. I felt good about it last quarter. I feel good about it this quarter. Every time I get more knowledgeable about the organization, I feel better about the OR.

Now if you feel better about the OR, it has got to relate to some degree to headcount. You can't -- if you look at an organization, a sector that has a high percentage of its costs is labor, it's damn hard to keep the same amount of labor and reduce the cost that much.

Now is the headcount going to be material? You've got to define material. It's going to be pretty significant once again. It's -- let me just put it this way. Our attrition is running round numbers about 10%. Let's just say that, okay? It's not quite at that rate. So it will be under that level but it's more than 5%. I will maybe give you some -- if that's enough to entice you, maybe you will see us in December.

That's perfect. Thanks a lot, Hunter. I appreciate it.

David Newman, Cormark Securities.

Good morning, just recognizing your longer-term game plan in December, just trying to get a sense once again like all of the other analysts on the call, some granularity around I guess the OR deltas where you might be so far in the transcon service, three intermodal yards gone, 5400 cars laid up, maybe 3000 next year as locomotives ultimately, headcount reduction, some in the head office. Any sense on where your run rate might be based on what you have given us today and certainly what you have sort of announced so far absent the December initiatives you'll announce?

Well, there's a lot of moving parts there, David, as you well know. Let me put it this way. I've told you I am comfortable with the numbers that we have talked about in the forward-year timeframe. You saw where we are today. I know there's some seasonality and there can be some bumps along the way in the forward years. I don't see that as just some simple stair step of 2 points each year or whatever the number is.

I think you will see maybe a big step on an annual basis and then you will see a little leveling and then you'll see another larger step and then some of the dynamics of what's happened in the market and what's happening in the economy and a lot of those things start to dictate.

Look, I think I'm a pretty bright guy when it comes to railroading but there's a lot of things I just can't see of what's going happen out there in the future. Look, bottom line the first order of business here, this is a cost take-out story to get our costs in line and it's good for all of us to do that. And then we build business on that -- from that base.

And I'd just tell you this. We are at 74.1, whatever it was this quarter, we are going to mid 60s. The stair step between -- in the four years, you pick it.

Do you think, Hunter, that the timeline given that right out of the blocks here you have been able to improve the operations and take out some costs -- does your timeline in your head, does it change in terms of the four years? Does it become three years? What's your view on the timeline now to achieve it?

You know, it's a moving target. Look, if the economy hits and comes back and is strong, will this speed the game up? Yes. If the economy gets softer and we have some dip, is it going to make it a little tougher? Yes. We will still get there. But I think I have almost -- I've written the book. You all have just got to get the right chapter here. We have said before we're going to 64.56, it's a three or four year deal. We've got a pretty good running start. You look at how the stars align and you can probably do it as well as I can.

David, this is Kathryn. I just want to remind everybody out there that when we start talking about the sequential and the improvements is to please look at our guidance around pension expense. Hunter mentioned that even earlier in his opening remarks and so we still have some pretty big stair steps associated with the pension expense line item. So I am not putting anything aside in terms of the improvements that we are seeing but that should be factored into your models.

Regardless, great results.

Cherilyn Radbourne, TD Securities.

It's interesting that you bring up pension there, Kathryn, because that's what I wanted to ask about. You have guided to -- you have been guiding to a pretty big step up and so I guess it's a bit of a two-part question. So the first part of it is what is your thinking around potentially making another special contribution this fall to sort of moderate that step up?

And B, is there anything in the arbitration decision that you are expecting early next year that could have an immediate impact on pension expense or would those concessions be something that sort of feeds in on a long-term basis in terms of how fast it grows?

So the first question on pre-payments, we of course always look at whether something makes sense or not. Right now we feel pretty good about the contributions that have been made and the amount of prepayment that will still remain over the time period that we believe interest rates will remain low and be affecting the volatility in our pension plan payments. So don't see any kind of prepayment that makes sense right now but the economy keeps changing and as I keep reminding everybody, it doesn't really matter what's happening all during the year. It's what happens on December 31 that we will mark to market what our requirements are.

So Brian and the team, we've got a great team on the pension side and they have their arms all around that and we will constantly look at what's the best balance for us in terms of that.

But the last thing you want is trapped capital in your pension plan, so interest rates are low. They're not going to stay like this forever, I don't think, but they've definitely stayed longer than we ever thought, so it's one of those things that we will constantly monitor.

In terms of the negotiations and the arbitration, yes, as everyone knows, pension is on the table associated with those negotiations. I don't know where the arbitrator will come out. I think we have a compelling argument in terms of there has to be pension changes for not just CP but as Hunter pointed out, for the whole world out there. People cannot keep retiring at 55 years old even though I'm planning on doing it and living till 95. So those just don't work.

So I think we've got some very reasonable competitive negotiations on the table and something that we have to move forward, and it would have an immediate impact on our pension expense if we are successful with it.

Thanks, that's all for me and best of luck to you, Kathryn.

Tom Wadewitz, JPMorgan.

Yes, thanks. And, Kathryn, I wish you well in your retirement or whatever you end up doing.

Let's see, Hunter, you mentioned that you think things are progressing a bit more quickly than expected. I think you have also mentioned that the rail yard rationalization, there is a lot of opportunity there. And so I was wondering if you could maybe take a look at -- is it cost side primarily when you say things are happening quicker than expected that we would really see maybe even in 2013 there could be a cost impact? And how big of a component of cost side is rail yard rationalization? I guess on that broader topic, I appreciate some insights.

Tom, I have spent most of my efforts on the cost control side. Jane keeps updating me and teaching me about the revenues here, although I can say relative to the other carriers, I'm very pleasantly surprised of our results. But I think the area that you start to hone in on with the terminals, particularly as it relates to future improvements and opportunities is big. We have closed -- I have to count here while I'm talking -- four hump yards eventually this quarter. That's unheard of, number one, to have that many hump yards but to close them within a quarter and make that transition.

But I think you have to kind of visualize maybe my vision or dream. We took a place like Montreal where we have an intermodal facility, we have an expressway operation. We have a freight operation and we have two auto compounds that are all separate entities operationally.

Well, by -- I wish you could see Montreal today by some of the changes that have been made by the operating team. The yard is 60% or 70% clear and what that affords us opportunity wise just as an example of what you can do with a footprint, is to give us enough space to consolidate all those operations together. Then at the same time, one of those areas that we would vacate real estate wise has a tremendous value associated with it of millions of dollars.

Then you've got the operating expenses that are lowered annually by having everything in one locale and not having to transfer cars back and forth from the other locations. Now that's one place and just talk about order of magnitude and we are talking about potentially doing that at five -- four or five places.

We have already -- and I'm talking from memory here -- but we have already gotten out of one facility in Toronto. We've got out of Schiller Park in Chicago. There's others I'm overlooking as we speak we've already done.

So this opportunity to streamline terminals to create more value there an opportunity from a real estate side and at the same time lower operating costs and improve service is a big underlying key to this that some people have really missed in their analysis.

It sounds like the pace of activity that you are realizing here, you could have a pretty big impact in 2013 from that vision for a rationalized system of rail yards. Is that a fair way to look at it or is that too aggressive?

No, I think that's fair. I think given this, we can't do -- some of this requires construction, for an example, to redo -- reconfigure the existing freight yard to fit the others in so there's some time constraints there and all of this has kind of a trickle-down effect. Depending on the labor agreement, depending on the contract with the employees, you eliminate someone or some function today -- until you get the full value of it, it might be two, three, four, five months but I certainly think that some of these things will kick in in 2013, more so than they are today, which is one of the reasons for me talking about being a little ahead of schedule.

No look, sometimes you get behind schedule. Now we are ahead of it. We've gotten some breaks. We have been blessed. It looks like -- I'm knocking on wood as I say this -- we might have a decent winter from what I read in the Farmer's Almanac. I've done a lot of research and so yes, I think you will see that in 2013 and that's why we are ahead of the game here.

Okay, real short follow-up for Jane. What's the split of that 70,000 crude oil cars in early 2013 between Bakken and Canadian crude?

At this point, I really don't want to comment on the specific breakdown. I think what we will do is we are going to spend a lot more time talking about the markets, talking about the marketplace when we get together in December, and I think that's the place for us to do it.

Fair enough. Thank you for the time.

Matt Troy, Susquehanna.

Thanks. A question for you, Hunter, given the recent sea change or vacation at the COO level. Obviously that is an incremental pivotal role at a railroad. Just curious your appointment of three kind of co-COOs, their certain legacy -- their resumes warrants their position. But I was just wondering if you would walk us through the thought processes as to not having a dedicated or point person on COO? I think your answers today show that you obviously have a command of the railroad and what can be done, so is it just that you would like to almost have a co-CEO/COO role in the near term and envision filling it later or what are the benefits of having three more locally focused people if you can just walk me through your thoughts on that, that would be helpful. Thank you.

Well, from a starting point, let me say this. I am wearing two hats now, that's obvious, CEO and COO. I think that it's good for me for a while because I get contrary to maybe some of the operating people that gives me a little better feel and hands-on for learning the operation, what the opportunities are and quickly cut through and get to the chase of what needs to be done. So that's one advantage there.

The CEO -- the COO position as we have talked about it in the past, I don't think anything has changed -- is a huge decision. It's not something that I or the Board is going to rush into. I think we have recognized the three individuals' capabilities by the promotions they received, which -- and also we will talk about more in December but it's a little bit of an indication of an overall reorganization and a little bit of a move towards decentralization. But I think that we still when the right person appears, whether it's internal or external, whether it's next week or whether it's next year third quarter, then we will be ready to make that move and not before.

I think we can carry on if my energy level can stay up, we can carry on like this and we are doing fine. I do think at a point we've got to recognize that as I said, this is not a long journey for me. This is three- to five-year story. Obviously the selection of the COO would be some indication that here's the next successor if they don't blow it, and it's not going to be part of the contract obviously.

So -- but I think that we are blessed to be in a position that we don't have to rush into that that we can take time, that we can sort things out, that I can learn even more about these three from an operating side of the house, the three operating chiefs and then at the appropriate time, we will be ready to make the decision and we don't -- we are not pressured into doing something we're not ready to do.

Makes sense, thank you.

Keith Schoonmaker, Morningstar.

Hunter, it sounds like you've already made significant changes in terminals and yards, an area you called on your first call. Other than the mentioned rationalizations of intermodal terminals, are there still major improvements to be made on yards like rolling out smart yard type software or other IT tools or some sort of stepwise change in operations?

Yes, I wouldn't necessarily put it in the category of smart yard. Some of the things that we are doing like that we're just not -- doesn't necessarily have to have a name. I do think there is some places that we haven't talked about that happened -- just to tell you how things happen around here -- that cropped up last night in the terminal network that could be big opportunities. In fact as soon as I get off the call, I'm excited about getting that [debt] and looking at it.

This has not all been figured out yet. There's still rocks to look under. There's still opportunities to put together and it's exciting to be able to be a part of it. A lot of this -- I would characterize more rather than smart yard, I would characterize more as training and development of people. What we're asking people to do is to go from an environment for an example in all these hump yards where they have effectively have relied on the computer and push buttons and became just kind of almost robots which is not really a lot of fun to do. If you have ever walked up and sat down a cut for eight hours a day and just lift pins on cars to separate them, it's not the most rewarding position in the world.

So what we are doing is moving into a world of giving them a lift and asking them to flat switch as I characterize it cars in a smart effective way and some of them are enjoying that challenge.

So I think that at the same time this is going on, I have talked about that we have made some significant changes in our IT staffing and there's a big review going on there but I am not ready to roll anything out. I think what we want to do is be sure that we have got a good foundation and platform to build upon and this is not something that we are going to roll out something from IT that is going to be 2 or 3 points on the operating ratio. I can tell you that. If it is, it will be a learning curve for me because I just hadn't found it there before. But we hadn't found all the opportunities here.

Understood. With the incomplete information at this point, I recognizing you are still looking under every rock as you say, is there a couple of obvious -- are there a couple of obvious powerful levers that the firm can pull on the velocity front?

Yes, the big emphasis next year from my standpoint on capital will be on further improving the length of our sidings which will allow us the ability to run even larger trains.

Now, what some people miss here is this. If you improve the length of your trains 10%, it saves you zero. Until you move to a point depending on that line segment and the density on that segment and the number of train starts, until you move to X%, let's just pick a number and say 17% or 18%, when you do that, it's big. Now you've eliminated two starts all the way across maybe from Calgary all the way to Montreal and that's huge. So it comes in big steps.

So that's why I look at people in the print data and they say, well, we're going to improve the training weight 5%. Well who cares? What does it save you? It doesn't save you any fuel. It doesn't save you any labor. It doesn't save train starts but when we hit that point and we are developing that point -- that sensitivity point on every line segment, then it becomes big. Boom, and when you eliminate a train start, a pair of train starts because we do it in balance across the country, you are talking real money.

So that will come quick next year in step with the completion of the additional -- and look, this is not -- this is within the envelope of the CAD1 billion, CAD1.1 billion I've talked about, because we are doing some things a little bit differently in that we are taking up obsolete sidings and using those to extend other sidings rather than going out with a greenfield approach and buying all new rail and all new ties to put a siding in which might cost you CAD3 million, maybe we can do it for CAD1 million.

It's Janet. I'm going to jump in. We've got time for one more question and then we will wrap it all up and certainly look forward to speaking with you at investor day.

Benoit Poirier, Desjardins Capital Markets.

Thank you very much and good morning, everyone. It has been very nice working with you, Kathryn, and I just want to wish, Brian, all the best in his new role.

So just related to my question, it's more related to Jane. When you talk about the intermodal volume to be down in Q4, could you provide more color about how much is driven by APL and how much is related to the softness at the Port of Montreal?

I really don't want to get into kind of the breakdown but what I would like to say about APL first of all is that that's the kind of volume and it's a type of business that does trade kind of back and forth and so in our particular case, while we didn't renew the APL business this year -- last year, we saw a similar shift with a line that was in our favor. So I think that that's an important thing to put out there that this volume does move back and forth.

I think what we need to do is as we think about our intermodal volume and as we think about the message that I delivered to you, our key focus here is on number one, intermodal renewal, looking at the sustainability and the profitability of the lanes we need to serve and to really tighten up those areas where we were doing things that from an operations perspective were just costing us a lot of money and there was not a lot of upside.

So I think that we are going to see a lot of moving pieces over the next several months, but I think the good news is that as we think about volume and as we think about how volume trades is that we're looking at making this a much more profitable business and we are also looking at using this new service to improve our market share.

As we get out to you at investor day, we are going to give you a more in-depth review of where we are with the intermodal business, what we are doing to renew that, and what our area of focus is going to be on a go forward basis.

So I think I will leave it at that and turn it back over to Janet.

Okay, thanks for the time.

Well, thanks all of you, for joining us. If you will, let me do two things and we will wrap things up here.

First of all, I want to personally congratulate Kathryn. Much to my dismay, I tried to entice her to stay and I was -- that's my biggest failure so far at CP but Kathryn has, as most of you know and you have seen the various press releases spent I think about 25 or 26 years at Norfolk Southern prior to her arrival here at CP in 2005 or so.

2007.

2007 as Chief Operating Officer and she has had a distinguished career and has made a great deal of contributions to both organizations as well as the industry. So I want to personally congratulate her for that and wish her the best going forward. And wish Brian the best in doing without her.

One other thing -- let me do this. I learned I guess yesterday or the day before that one of my former colleagues and a good friend at the competition back in Montreal, Bob Noorigian, who I know most of you know, who was a class act in the field of investor relations, is retiring from CN after a real distinguished career. Myself and all the team here at CP would like to wish Bob the best in his future after a well-deserved retirement. So good luck, Bob, and good luck, Kathryn, and thanks for everything. Thank you for joining us.

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