Canadian Q4 2009 Earnings Call Transcript

123jump.com Staff
28 Jan, 2010
New York City

Sales fell 14.5% to $1.88 billion and net income rose 1.6% to $582 million or $1.23 a share.Same-store price was in the range of 4% for the quarter. Full year free cash flow, an excellent performance in 2009 and generated $790 million of free cash flow which was essentially flat to perfomance.

Canadian National Railway Company ((CNI))
Q4 2009 Earnings Call Transcript
January 26, 2010 4:30 p.m. ET

Executive

Robert E. Noorigian - Vice President, Investor Relations
Claude Mongeau - President and Chief Executive Officer
Keith E. Creel - Executive Vice President
Luc Jobin - Executive Vice President and Chief Financial Officer
Jean-Jacques Ruest - Chief Marketing Officer

Analysts

Thomas Wadewitz - JP Morgan
Walter Spracklin - RBC Capital Markets
David Newman - National Bank Financial
Matthew Troy - Citigroup
Cherilyn Radbourne - Scotia Capital
William Greene - Morgan Stanley
Ken Hoexter - Banc of America/Merrill Lynch
Edward Wolfe - Wolfe Research
Jason Seidl - Dahlman Rose & Company
Randy Cousins - BMO Capital Markets

Presentation

Operator

Good afternoon, ladies and gentlemen. Welcome to the CN Fourth Quarter And Year End 2009 Financial Results Conference Call. I would now like to turn the meeting over to Mr. Robert Noorigian, Vice President, Investor Relations. Ladies and gentlemen, Mr. Noorigian.

Robert E. Noorigian

Thank you for joining us today for CN''s fourth quarter and year-end 2009 results. I''d like to remind you again of the comments that have already been made regarding the forward-looking statements.

And I''d also like to remind you that today we are going to have four speakers and I believe that we have at least 24 sell-side analysts that are following us. So after the presentation, we will take questions from those that are listening on the call. But in order to be fair and if you can be ladies and gentlemen, could you please limit the number of questions that you''re asking to two so that we can accommodate everybody that''s there.

With that, and to move things along, it''s my distinct pleasure to introduce Mr. Claude Mongeau, CN''s Chief Executive Officer and President of CN. Thank you, Claude.

Claude Mongeau

Thank you. Thank you, Bob. Thank you and good afternoon, everybody. We have an entirely new lineup today for this call, other than Bob actually. Maybe we should call him Mr. Bob because he''s the only one who has been there for three Presidents so far. We have Keith Creel, our newly minted Chief Operating Officer. Keith has been partnering with Hunter and running our operation for a couple of years now but it is his first call with analysts.

We have -- Keith will report to you on our Q4 railroad performance which was stellar and in spite of weather challenges and labor disruption in December you will see that we are making inroads on a continual basis to improve our key metrics. Our new chief marketing officer, Jean-Jacques Ruest, is the star rookie today. He''s fresh off the bench and he''s full of energy.

He also has a very positive story to tell with our volume finally turning the corner in Q4 and his outlook for solid growth and sustained pricing in 2010. Luc Jobin, our CFO, I guess he is the veteran today. It''s his second call. And Luc will give us a full account of our Q4 results and also talk about guidance for 2010.

And then finally, yours truly, you''ve heard my voice before over the last 10 years actually. But I''m wearing new shoes today, I have big shoes to fill. But I''m excited about the opportunity to lead CN. I have a great organization, a great team and I''m ready for the challenge.

Someone asked me recently and maybe he just wanted to put me at ease. But he said, ""Claude, how do you step in for a legend like Hunter Harrison?"" And I said to him, ""Well, it is tough but your try to keep your feet on the ground and you focus on protecting the legacy and you build from there.""

And that''s exactly what we''re going to do. We have Sean Finn, who today is here to keep us honest, but he''s a great member of our team. We have the leadership team of CN and we are ready for the challenge.

So let me just say a few words in terms of the highlights. We did have a strong fourth quarter finish. Solid EPS growth. If I look at it adjusted at $0.90. This is good performance in spite of the headwinds we faced.

We turned the corner of volume as I said earlier. And our revenue is down, but it''s down only because of fuel surcharge and because of the FX impact. Our volumes actually were essentially flat on a carload basis year-over-year. And we have strong free cash flow, a very good finish to the year with $790 million.

Luc will tell you a little bit about some of the details and what helped us to finish the year as strongly like this. But it is that kind of performance. Earnings, free cash flow and the confidence we have that we are turning the corner in the economy that gave our board of directors the confidence to increase our dividend 7%.

If you recall, that''s a promise I had made to Hunter and so we are delivering on it. And also to announce a share buyback program of 15 million shares which we will execute as we deliver our performance and as the economy recovers over the next 12 months. So, again, a solid finish and a confident team taking the helm going forward.

And with this, I will turn it to Keith.

Keith E. Creel

Thanks, Claude. Newly minted, I guess, that''s a good way of saying it. Sometimes though with the years of working here, I feel truly weathered. But certainly, I look forward to the challenge. I''m excited to be part of this operating team as well as this executive leadership team that you''ve put together. And I think -- I know I''m certain that given the legacy that Hunter has left us and trained us and taught us over the years he''s served us well. He''s always told me as a leader the true legacy is not how the railway runs when you''re there, it''s how it runs when you''re not there. And as you said, we''ve got a legacy to protect and we fully intend to do that.

Let me start by highlighting some of the operational highlights of fourth quarter. I''ll start by saying that proud is an understatement. These results that I''m going to talk about were produced facing some extremely significant headwinds that we dealt with, more specifically, the last six weeks of the quarter. The results are encouraging and I''ll say that. But they underestimate and they don''t truly reflect the true performance of this team and this operating model. And why do I say that? Let me quickly cap -- highlight the three issues that we faced.

We started off toward the end of November, the first part of December faced with a significant and unfortunate strike disruption with our engineers here on the Canadian side of the operations which lasted from the 28th of November through the 2nd of December. We engaged early in this process. We spent considerable effort, time and energy planning for this training, our officers who we deployed to go out and effectively run this railway at about 70% of our business during that transition time or during that time. And we were very successful. We did it safely.

But needless to say, when you take away 1,400 engineers and you''re doing the work with 250 trained officers, as efficient as we are, we''re not as efficient as those 1,400 and it did have an impact to some of the fluidity and velocity numbers.

We came out of that effectively a day after those engineers came back to work. We had about 24 hours to run the railway full force and then we were faced with a very significant and challenging derailment that occurred on the second heaviest corridor we have in our system which is west of Winnipeg out on the river hub.

Pretty significant derailment. When I say significant about 30 cars, 22 of which were DCs and if any of you have ever worked a derailment on a main line that''s involving DCs it''s a complicated web that you have to manage. We ended up having 16 of those being LPGs. We had our main line out for five days which is unheard of on this railway.

Typically, an outage would be somewhere but significant outage would be qualified as 24 hours, a very significant 36. So five days, needless to say, was a big challenge for this team. We ended up having to blow up about 11 of those cars. You can just imagine trying to put that in context how tough that challenge was.

But we came out of that as well trying to finish the year out very strongly and lo and behold, the fifth day, when we''re about to open the main line, we had a deep freeze that set in for about 10 days straight that effectively covered Western Canada and across the NOD to Toronto and down to Chicago like a blanket.

In fact, we had one night in Edmonton at the airport, it actually made a world record, being the coldest city on the face of the planet, hitting about 51 degrees negative Fahrenheit. That''s ambient temperature, that''s not wind chill, that''s true temperature outside. So you can just imagine the challenge that had on this operating model as well in the face of coming off the work stoppage and then the derailment and then we had this cold.

So any one of these would be a challenge for any operating team, but it''s the compounding effect of all three of those that some might have thought was insurmountable. But we were able to overcome it, effectively executing this operating model that has been tried and true for this company. We have an intense focus on the precision operating model. We were able to effectively close out the year recovering much of what we lost the first half of December and had a very strong 10 days closing out 2009.

Let''s talk about some of the metrics that we produced. Trainload up 8%, 7,805 as you see on the chart there. Effectively, this says it''s a story of balance between your service, your velocity, your assets expense and your train mile expense.

A key enabler here, a performance enabler for us was this long, long -- this long neat fleet plan that we put in effect last year on the NOD that paid off in spades for us. And as we deployed our distributive power, we''re actually able to run those trains longer coupled with the strategic investments we made on long sidings on the NOD to drive a lot of these synergies on the trainload side.

DP plan, we continue to roll that out which is paying dividends for us in the fourth quarter as well as in 2010 allowing us to run longer, heavier trains in the winter effectively trying to run a more normalized operation in winter-like conditions. So that''s another key investment that''s been strategic in producing some of these trainload gains.

Cars handled per yard switching hour, up 21%. Once again, that''s simple focus, intense blocking and tackling. You manage the inventory, you manage your yard efficiencies, the switching strategy utilizing the investments we''ve made with Harrison Yard.

Symington, MacMillan being all those as key sort of satellite centers where we concentrate a lot of our blocking, our switching and it allows us to dry up some of those outlying terminals and save synergies and increase throughput and velocity and cost. Which, of course, that drives the terminal dwell results and as I said, 5% worse for the quarter. But if you think about the impact of those three items that I talked about, that deterioration for the quarter was focused in those last six weeks of the year, more specifically three very concentrated weeks effective with the strike through until the last 10 days of the year.

Locomotive productivity up 7%. Once again increased trainload. We''re matching our horsepower to available tonnage. We''re focusing on locomotive dwells. We''ve developed once again some best-in-class, I think, measurement systems that allow some visibility for our operating guys.

Effectively tracking our locomotive status, continually updated so we know where are locomotives are, the ones that are being utilized and the ones that are not being utilized across the system. And also we implemented and deployed our locomotive management system which is platform on SAP which is working extremely well for us.

Car velocity, up 1% for the quarter. Once again, that''s adversely impacted to a point by those operating challenges I talked about. But in comparison, 16% for the year, so certainly an outstanding performance on the car velocity as well.

Train velocity, similar story. Story of speed, story of moving the trains 5% for the quarter, 12% for year. That''s more the total quality approach we talked about with our QAT teams and it''s basic blocking and tackling, locomotive reliability, car failures, inter-train issues, drilling into signal problems, lineup accuracy, this is all just blocking and tackling. Roll your sleeves up and get at the noise that prevents you from running efficient railroad step. So it''s not rocket science, it''s just disciplined execution.

Moving to the operational overview. As we know, right now, we''re navigating and I think -- I say this with confidence, very successfully this important leadership transition here at CN. A lot of people on the outside and a lot of people on the inside internally, they are looking at us and want to know what''s going to change, what''s going to stay the same?

And as Claude articulated just a moment ago, we have a legacy to protect at this company and there''s one thing that will not change and that''s the focus on executional excellence at this company that we''ve been known by and we''ve produced results by based on the foundation of precision railroading.

This operating model has been the foundation of our success. I myself have been fortunate enough to past 13 years and become a disciple of this model working with Hunter. And I guarantee you the operating team that we have at this company is woven in our DNA. So that will not change as we go forward.

We''ll continue to measure, we''ll continue to execute, we''ll continue to improve and tweak on our execution, learn from our mistakes and develop and improve our weaknesses. Some of the concrete initiatives I''ll highlight quickly. Fuel productivity very exciting for this company. We''ve made some pretty significant improvement in our fuel productivity measures last year of about 4%.

We''re tracking and targeting additional improvements this year. Some of the key things that will help us get there above and beyond what we did in 2009, we have some very exciting technology that we''re out testing now in the field from GE trip optimizer to equipping locomotives.

We''ve got locomotives currently retrofitted now and as we go forward through 2010 and bring on locomotives fourth quarter of ''10 and into 2011 and on a go-forward basis. I fully anticipate and expect those new locomotives will be equipped with this trip plan optimizer which effectively a target about a 5% fuel improvement.

Train speed, continued focus. We''ll continue to work on our pinch points. I''ll say anecdotally, some of those encouraging metrics I talked about on that first quarter performance, we''re breaking records that we set in the past on train speed. Train speed effectively hits every operating metric we have. It allows us to turn those assets, run more tonnage, fewer locomotives, fewer cars and significant progress made last year has continued into 2010 and fully anticipate us to continue to gain momentum there.

Mechanical productivity, some exciting initiatives there. Work center consolidation. As we''ve grown the footprint of this company through our acquisitions. We''ll going to take the time in 2010 to create the right footprint in our shop utilization where we have our mechanical folks and we''re doing our work.

Today, that''s another exciting piece for us. We''ve implemented that well. From a safety standpoint, I can tell you that things are going extremely well specific to the J [ph]. Year-over-year, I looked at the numbers this morning, it''s about a 30% improvement from our FRA main track or all FRA accidents which is very significant progress. It''s very encouraging. Big year for us on the infrastructure side. Converting some of the connections that we''ve got to get converted to fully implement and utilize that railway. So that''s all looking very favorable for us as well.

And finally on the safety side. Overall for the system, once again, we at this railroad build our operating model on a foundation of a safe railway. Safety is a key performance enabler. If we don''t run a safe railway, we''re not going to run a fluid railway. We''re not going to have an ability to run a precision operating model.

In 2009, we produced some pretty significant gains, about a 30% year-over-year improvement on main track derailments. That''s not enough, though. We''re not satisfied. We finished the year out second among class ones with our FRA accident ratios.

It''s our challenge, it''s my challenge and this operating team and our objective to finish 2010 top of class in that regard. We''ll do that through our continued basic plant renewal. RFD, our rail flaw detection will continue to increase, track geometry, those metrics and based all of the foundation of the safety culture of this company.

So with that, I''ve probably gone a little bit over my allotted time. But as I know and I trust you can tell I''m very passionate about this business, this company, this team, this equipment, our plans and most importantly, the people that are going to make this thing happen as they have in the past and we produce in spades going forward. I''ll turn it over now to JJ.

Jean-Jacques Ruest

Excellent. Keith, thank you. And before I start the revenue review, there are three special people I''d like to thank here today. Claude for putting his confidence in me. Hunter Harrison for teaching me the intricacy of rail operation and especially namely, the seven months of my boots underground or Railroad MBA from coast-to-coast. And Jim -- Jim Foote who I worked for, worked with and worked with pride since 1997. So Jim and Hunter, if you are listening in I salute you both.

Okay. Let''s turn to the revenue results, the fourth quarter results of 2009. The revenue decreased 14% but 8% on an exchange adjusted basis. And I''d like to take the layer of the revenue on exchange adjusted basis.

First, the volume. We''ve seen improvement in our car loan volumes since the second quarter of 2009. The fourth quarter of 2009 was compared to 2008 was a flat quarter. But it was different kind of flat, meaning that in fourth quarter 2008, we were in a downward spiral. And as we got through Christmas, things were looking pretty bleak.

In the fourth quarter of 2009, we were in a steady -- mild but steady improvement and things were looking pretty good at the end of the year, especially after the labor disruption that Keith referred to and the cold snap, a very nice finish that we had.

Fuel surcharge, brought down the revenue by a significant 7% but our fuel surcharge coverage program is working very well and doing what it''s supposed to do when it comes to fluctuation in the price of oil.

Same-store price, very important for performance was in the range of 4% for the quarter. Kudos to our sales force for negotiating service for market price with our customers. One notable factor, I''d like to bring to your attention. As you would remember that the Canadian government actually adjusted down the Canadian grain cap last summer and we did take that price reduction as of October 1, of 2009 in our pricing program and that''ll be the case after July 2010 at which time the grain cap revenue will start to go back the other way on the positive side. The remaining is business mix and other revenue.

Let''s go to the segmentation of our book of business. Merchandise overall remains stable. We''ve seen improvement in petroleum-based carload, namely, heavy fuel oil. We''ve been moving quite a few jet fuel tank cars around.

We''ve seen continued shares pf market share gain in plastics, namely polyethylene which is a polyemic [ph] sensitive product which is nice to see coming back of that commodities. And those have offset lower operating rate in the industrial chemical plants during the fourth quarter. However, as some of you have seen the fourth quarter result for the chemical companies have shown that they''re having better days in their own business environment. So that bodes well.

The level of the steel production in North America has improved. It has now reached 65% operating level in the third week of January. And that drove our order of business in carloads in the fourth quarter.

The forest product was challenged by the economic condition. Lumber, panel and paper did suffer. However, our wood pulp business continued to show sequential volume improvement to both our North American and Chinese destinations.

Our bulk business is doing pretty good and I like the outlook of what I see entering into this year. Coal volume was higher on the volume year-over-year basis. During the quarter, the Chinese steel mills have increased our Canadian met coal export via West Coast whole terminal that we serve. And as a reminder, China was 44% of the world steel market in 2009.

Our coal mines in Canada are running strong and the new Obed Coal Mine opened last fall. This was offset by reduced steam coal volume in the U.S. Electricity production in the U.S. was reported down. Utilities had high stockpile on hand and natural gas was abundant and affordable.

Other bright spots are the strong Canadian export program for grain. We also had a strong internal carload growth and that was offset partly by the slow U.S. corn export program in the fourth quarter. Recent improvement in our potash carload to U.S. has partly recover, what would have been otherwise a very anemic fertilizer quarter for last year.

Internal volume, our story at Prince Rupert is alive and strong. The Port of Prince Rupert the volume is up. And the product continued to prove itself in the marketplace. This was offset in part by the year-over-year decline in and out of the Port of Vancouver, import and export. On the East Coast, it''s been good to see the container export growing out of Halifax especially on the back of export out of Halifax to overseas country. And that''s been driving their positive numbers. Domestic volume has remained stable.

Automotive has seen improvement in the fourth quarter. We''ve seen the Asian import over Vancouver, as well as the European import over our own facility in Halifax going up. We''ve also seen production level in 2008 versus 2008 in the North American assembly plant that we physically serve.

We go to next slide and look at our 2010 revenue outlook. What we see in general is a modest recovery in our volume and our carload. However, I like what I see looking the last three weeks and all of you look at our count on a weekly basis. Merchandise will improve.

What I fear when I see shows that there''s an improved sentiment in the manufacturing sector. We see a turnaround in the auto production which is helpful to our automotive carloads, steel carloads and chemical carloads. We foresee improvement in the housing starts which would bode well for lumber carload, panel, chemical and overseas.

And we also have seen already improvement in steel operating rate even though a small but steady which bodes well for iron ore production. All of that support our first mile and last mile initiative which is also related to support our growth on the merchandise sector. The ballast [ph] side looks pretty good and I like what I see for the first quarter. The Canadian volume for Canadian grain looks good and the Canadian Wheat Board has a record program for the season 2009-2010 of 18.7 million tons.

Mike Cory, Senior VP of Operations in Western Canada has also put in place a new grain schedule service program for Canadian export grain which are improving both the customer satisfaction and our ability to gain some more volume. In the U.S. in our draw territory, which is Illinois, Iowa and Wisconsin, the corn production is up 4% to 5% from last year. So that should be helpful.

Again, in the U.S. in our draw territory, the Soya crop is 4% ahead of last year.
Our terminal coal is expected to remain soft in the first half and maybe all of 2010 because of stockpile levels they already had a considerable level. Canadian coal which is all export will run at or near the limit of the capacity of the mine and that showed we are doing very well on that front.

Potash, which in the case of CN is a North American story, is improving and 2010 will definitely be a better year for our fertilizer business. External volume will be trending up. The Prince Rupert story remains strong and robust. And the proven product that we have in this marketplace for last two years is attracting the interest of the receiver, the people who buy the product, meaning the retailer.

We should show some sequential improvement in and out of the Port of Vancouver. And we''re looking to make good use of the new berth at the Deltaport which was opened this month. Our door-to-door domestic retail program is taking hold with the manufacturing sector as well as taking hold with the consumer retailer.

All in all, when you put all of this together, we''re looking for high single-digit volume growth in 2009 and sustained pricing discipline, Luc.

Luc Jobin

Thanks very much, JJ. Well, as Claude indicated earlier, we achieved some outstanding quarterly results all around and what was a very challenging environment in this last quarter. Financially this translated into reported EPS of $1.23, which was up 2% versus 2008. There were two noteworthy items. One was the sale of our new market sub to the transit rail agency in Toronto Metro links which contributed $0.12 to the EPS on a reported basis.

In addition to that, we had the benefit of a deferred income tax recovery coming from the Ontario Province adjusting the corporate tax rates going forward and that brought us $0.21 of favorable EPS.

On an adjusted basis, our EPS came in at $0.90 which was 20% lower than 2008. I need to point out as I did in our last conference call that we knew going into the fourth quarter that we had a couple of major headwinds that we were facing.

And looking at the quarter, 2008 fourth quarter to the fourth quarter of 2009, the two items were the foreign exchange which actually was a headwind of $0.07 for us. As the Canadian dollar averaged around $0.83 in 2008 versus $0.95 in the last quarter of 2009, the other and even more significant item was the fuel lag.

You may recall that in the fourth quarter of 2008, there was a very significant drop in the price of oil. And the WTI actually shot down from $118 all the way to $59. And that provided us back then with a favorable lag. Whereas this year obviously we were coping against that and the WTI was actually going up from $68 to $76 during the quarter.

So that combined, those two elements actually amounted to about $0.25 of EPS headwinds which excluding those items actually our adjusted EPS for the fourth quarter of 2009 would have been up a couple of percentage points.

Turning to expenses, we continued to see some very solid cost management in the fourth quarter. Our expenses came in at $1.2 billion, which was actually 5% lower than our 2008 exchange adjusted comparison. Our labor expense was impacted by a much higher stock-based compensation expense to the tune of about $50 million as our stock was down significantly in the fourth quarter of 2008 to about $6 a share. Whereas in the fourth quarter of 2009 it was actually up over $4, so a net change of over $10.

Excluding this item, our labor expense was actually lower than 2008 by about 3% as we reduced our work force by about 7% in the fourth quarter, excluding obviously, the acquisitions. Our T&E personnel was reduced in the fourth quarter by about 10%, or actually over 10%. And we were able to redeploy many of these people within the organization, thanks to our contract in-sourcing initiatives.

On the fuel category standpoint, we had much lower costs by about 18% on an FX adjusted basis. A good chunk of that was due to volume and price to the tune of about $30 million. But I think one noteworthy item was the fact that our fuel productivity was up a full 7% during the fourth quarter and that contributed around $20 million to our operating income performance, a very good performance obviously from Keith and his team on that front.

Casualty and other, our expenses came in some $20 million lower than last year, mostly due to lower legal claims and adjustment to our U.S. liabilities in this particular area.

I must point out that these achievements are quite exceptional and Keith and his entire operations team did a very impressive job. A very impressive performance as the cost management that we see in these results were achieved while we were dealing with labor and network disruption, Keith and JJ. were actually working hand-in-hand to maintain service level while this was going on.

Our carloads were growing by 4% sequentially. And at the same time, we were delivering continued improvement in our productivity in the fourth quarter. As Keith pointed out, our train miles were up 8%. Our yard productivity was up by a full 21%, while train velocity was also up 5%, very impressive indeed.

Turning over to our full year free cash flow, we had an excellent performance in 2009. We generated $790 million of free cash flow which was essentially flat to our performance in 2008. This obviously was helped by some $230 million of asset sales, relating to the new market and western subs that we sold during the course of the year.

We fulfilled our capital expenditure program which was nearly $1.5 billion. And the number that you''ll see on the slide is actually the cash portion. We also had some $75 million of capital leases.
One great performance was actually our DSO which came in at 21 days at the end of 2009 and that compared to about 27 days at the end of 2008, clearly an outstanding performance in terms of managing our receivables.

Our net debt position stood at $6.1 billion at the end of the year which was a full $1.4 billion lower than last year. This performance was due to some obviously repayment of some debt maturity during the course of the year. Very strong cash generation and a higher Canadian Dollar at the close of the year. We have obviously, as you can see from the slide excellent debt coverage ratios. In fact, better, much better than our targets. And so we start 2010 with a very strong balance sheet.

Turning to our 2010 financial outlook, a couple of comments of context. First, we continue to see a gradual economic recovery unfolding. Several of our market sectors appear to have bottomed out. And we have been witnessing some sequential growth over the last couple of quarters. As JJ also indicated, we continue to see some positive signs in 2010.

JJ also pointed out that we''re looking for high single-digit growth in our carloads in 2010 and a continuation of our solid pricing policy of around 4%. Now we''re still facing a few headwinds, one of which is the strength of the Canadian Dollar. Last year, you may recall, the average Canadian Dollar was around $0.88 but it did start as low as $0.80 in the beginning of the year in the first quarter of 2009, so something to keep an eye on.

Also, I need to bring your attention to the fact that we will be having some higher depreciation in casualty expenses in 2010, probably a number of around $100 million for those two items combined. In spite of that however, we''re pleased to provide guidance for 2010. We are aiming for double-digit EPS growth in 2010 from the adjusted EPS base of $3.24 which was achieved in 2009.

Now also just keeping in mind the foreign exchange headwind that I described, this guidance would be solid double-digit growth if it wasn''t for that headwind. We''re also targeting for free clash flow to be in the order of $700 million. Very solid, in fact if you exclude the asset sales that occurred in 2009, this is a full 25% increase.

So we are keeping to our strong shareholder value focus. As you can see from this outlook, we''re confident in our business model and this team''s ability to leverage the gradual economic recovery. Our 2010 capital investment program will be $1.5 billion.

The dividend increase of 7%, the stock buyback program, all are consistent with this view. And with that, I will turn it back over to you, Claude.

Claude Mongeau

Thank you, Luc. Thank you, Keith and JJ. As you can see, the theme is clicking. I''m very, very pleased with the way we were able to finish the fourth quarter of 2009. We have turned the corner in the last part of that quarter in terms of year-over-year growth. And that''s continuing into January.

We have had sequential growth. We have had sequential improvements in operating metrics despite the sequential growth which bodes well to our ability to maintain velocity and fluidity into next year and accommodate the growth at low incremental cost. And we''ve also had improved earnings as Luc explained, if you exclude some of the headwinds and you focus on our core operating rhythm.

This positions us very, very well for 2010. If the economy stays on track, we should be able to grow earnings and deliver solid free cash flow. And our focus is going to be on doing exactly that. I feel pretty good about the team. We have a great franchise. I like the leadership team that I''ve just assembled. But more than anything, I like the 22,000 railroaders which are making this railroad click day in and day out. At the end of the day, it''s not the logo, which is a beautiful one. It''s not color of our locomotives. It''s the strength of this team and our ability to deliver results in good and bad times.

We are going to be focusing, as Keith mentioned, on our operational excellence. There is nothing that will change in that regard. Our focus, our foundation is on our ability to deliver but we also will be focusing on new growth opportunities. We are hopeful, as I said that this economy will gain traction.

And with that and our initiatives to improve service, the focus on first mile, the last mile that JJ talked about, our ability to monitor and act on the opportunities that are in front of us will give us opportunities in terms of volume growth. And we will do this going forward with a view to align ourselves with our customers and key stakeholders.

We are determined to take our game to the next level. I''m very confident. We have challenge but we are geared up to seize on opportunities. And with that, I will open for questions and answers.

Question-and-Answer Session

Operator

Thank you. We will now take questions from the telephone lines. If you have a question and you are using a speaker phone, please lift your handset while making a selection. If you have a question, please press star one on your telephone keypad. If you wish to cancel your question, you may press the pound sign. Please press star one at this time if you have a question.

There will be a brief pause while participants register. Thank you for your patience. The first question is from Tom Wadewitz from JP Morgan. Please go ahead.

Thomas Wadewitz - JP Morgan

Yeah. Good afternoon.

Claude Mongeau

Good afternoon, Tom.

Thomas Wadewitz - JP Morgan

Wanted to get a sense of, I think, your view on volumes and pricing with respect to that. I think JJ had mentioned kind of high single-digit volumes. And I''m not sure if he explicitly mentioned a kind of a target base rate increase in 2010. But wanted to get a sense of what you expect for base pricing? And given that pretty good volume growth that you''re seeing, is it possible that you do better on pricing than you would have done in 2009 and the market is a little tighter?

Luc Jobin

The market pricing that we forecast for 2010 is 4% range type price increase that on a same-store basis. And as I explained, we have one headwind, the Canadian wheat, the Canadian regulated grain which goes from October to August. And after that, we''ll see how that goes but we are running with a 4% range.

Thomas Wadewitz - JP Morgan

Does the 4% include the headwind from Canadian grain? Or is it 4% but then it''s going to be less because of the Canadian grain?

Luc Jobin

It includes the Canadian grain.

Thomas Wadewitz - JP Morgan

Okay. And then on your outlook for the double-digit earnings growth, what kind of headwinds do you except in terms of incentive comp and some other things? I guess, you mentioned of few of the expense side headwinds. So what kind of headwind do you have in terms of incentive comp or pension coming back? And is there some element of conservatism in the guidance that you''re giving?

Luc Jobin

In terms of finishing, we foresee pretty well the same level as we did last year. I mean again, it''s an area that is evolving and we''ll wait and see what the new rules are and where the discount rates are going to go. But generally speaking, it would be the same levels. On stock-based compensation, as a metric when you''ve got about 4 or $5 share of movement that translates roughly into about a penny or a penny and a half in terms of EPS impact. So obviously, there is some of that -- that is in the plan. And I think generally speaking, our plan is solid. It does look to the recovery and it does assume that obviously we''ll be maintaining our productivity and all of the great results that we have achieved on an operational dimension during the course of the year.

Claude Mongeau

Tom to be clear, as Luc said, those are some of the key headwinds but the two big ones are the casualty claims, which was a recovery in 2009 of 60 million and this $30 million of increased depreciation that we''ll face. Right there you have $100 million headwind, but we have enough momentum on the top line and enough momentum on the productivity to offset that and grow earnings in line with the guidance we just gave.

Thomas Wadewitz - JP Morgan

Okay. Great. Well, congratulations Claude, on the first call as the new CEO and thank you for the time. I appreciate it.

Claude Mongeau

Thank you, Tom.

Operator

Thank you. Once again, please press star one, do you have a question. The following question is from Walter Spracklin from RBC Capital Markets. Please go ahead.

Walter Spracklin - RBC Capital Markets

Thanks very much, good afternoon, everyone.

Keith Creel

Good afternoon.

Walter Spracklin - RBC Capital Markets

Just Keith, you did a great job of explaining those three issues and obviously they are very substantial. But I''m wondering if you might be able to give us a sense of or if you could quantify, what those issues were in the quarter and specifically around the strike, if there was any -- if there''s going to be any follow-on impact from perhaps any lost business to either CP or to the trucks?

Keith E. Creel

Well, let me say this. As far as quantifying the number, that''s a pretty slippery slope. I am not concerned that there''ll be any lost business to CP or to the trucks; I think we did a phenomenal job. If you talk to some of our key customers, we surpassed their expectations. We surpassed our own expectations to be quite frank. With the preparation with the execution of these officers, what they were able to do is second to none and I''m not concerned about that at all. As far as the financial impact, I''d lean to Luc to sort of frame that up and quantify that as much as he feels is appropriate. Suffice it to say in my mind given the potential that was there it was minimal.

Luc Jobin

Yeah. I just to add to Keith''s comment and I think the team did an outstanding job of containing the impact. Approximately, $10 million or so of hit on our operating income was essentially what we see as the impact of the strike, which is very commendable given the circumstances. So it''s great job.

Jean-Jacques Ruest

Yeah. As it relates to trucks, what we lost to trucks was just temporary, it was just for a period of time and in fact we did some recovery trucking ourselves to make sure that we were doing a good service for our customers.

Claude Mongeau

In actual fact, we lost very, very little business in the end and we recovered most of it and at the end of the day, the 10 million is five days and it''s quite remarkable that we were able to keep it at that.

Keith E. Creel

And I''ll say this Walter, as well it''s like any other unfortunate work stoppage we''ve had in this company or any company has. When you have to go out and do these things yourself day in and day out. You identify opportunities, so it may be some short-term pain, but from a long-term standpoint certainly develop new and improved ways to be more efficient and more productive on a go-forward basis.

Walter Spracklin - RBC Capital Markets

Those were some pretty big issues. Congratulations on dealing with those. The second question, I have now is on the guidance of double digits, I guess. Double-digit is quite a large range when you think about it. Now, you mentioned there are some headwinds that stop you from solid double-digits. So I''m trying to get a sense, are we talking 10 to 15% growth? Is that where you want us to get our heads around here for your earnings growth for 2010 or are we somewhere higher than that?

Claude Mongeau

I think Walter, you have to listen to Luc carefully. He said that he''s aiming for double-digits and I support that. That''s what we have to face with the exchange that we face and with some of the headwinds we talked about. Aiming for double-digit EPS growth with the assumptions we''ve communicated is the right one. Now, if you exclude the FX headwinds, then we would be solidly double-digit and that''s consistent with the gradual recovery that we see in front of us and our abilities to accommodate that business at low incremental cost.

Walter Spracklin - RBC Capital Markets

Okay. Those are my two questions. Thanks, guys.

Operator

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

David Newman - National Bank Financial

Good afternoon, gentlemen.

Claude Mongeau

Good afternoon.

David Newman - National Bank Financial

Just on the fuel, at current levels you have, you''re calling for a high single-digit carload growth and pricing of around 4%, so somewhere in the range of 10 to 12% on that alone. If fuel stayed at current levels, what do you think the fuel surcharge mechanism could throw on the top line on top of that?

Luc Jobin

I mean, our fuel surcharge program is basically recover in CP and track costs of revenue over time, they kind of match one another. I don''t really have specific numbers to tie in on the dollarwise WTI. I think the key to monitor is really the lag effect them. And from where we are at the moment, the fuel prices have been hovering around $75, we see it in WTI terms in the range of 75 to 80 bucks. If that''s the case, then we''ll have a very minimal headwind from a fuel lag standpoint. But it''s kind of a crapshoot to monitor because that lag goes up and down from quarter-to-quarter.

Luc Jobin

Yeah. It''s difficult to track, that''s for sure.

Claude Mongeau

Exactly, but big picture, it''s not a big factor if it stays within the band that we''re assuming.

David Newman - National Bank Financial

And just remind me, how much of the fuel surcharge covers the on-highway diesel versus WTI? Are you pretty much covered there?

Luc Jobin

It''s a little bit more on the highway diesel side than WTI. Over time, we''ve migrated and shifted from WTI to highway diesel. So it''s probably 60% highway diesel, 40% WTI that type of range.

David Newman - National Bank Financial

Is there an ongoing effort to get it trued up?

Luc Jobin

Yes. But I think we''re probably in the range right now that we would like to be. That was a big effort last year and the year before. That the range we have right now is probably in the range that we''re comfortable with.

David Newman - National Bank Financial

Okay. And my last question, just on the utilization, Claude, where do you think you are in the utilization level? And I guess to -- a previous questions, a couple of things is if the utilization starts to tighten up, I mean can you get more than the 4%? And similarly on the cost side, at what point do you have to start layering costs back on? I''m not looking for specific numbers but just conceptually.

Claude Mongeau

We''re ready to accommodate the business that''s in front of us. We obviously have a lot of locomotive power that''s available to us. We have a lot of cars, fleet available. You might have a few car types to deal with as the business comes back. But really in terms of our ability to accommodate growth we have a lot of capacity. And we''re preparing ourselves to accommodate the business and hopefully gain some market share as our customers ramp up. In terms of pricing, a lot of the pricing that J.J. is targeting is already kind of baked in. Those are the agreements that we have been negotiating throughout the year. And we''ve kept a consistent approach to manage our pricing year-over-year in that 4% range, a little bit more in the recent years and more like 4% this year and that includes the impact of the grain, regulated grain -- escalation down this year. So we have that consistent approach. It''s been tried and true and that''s what we''re going to continue to price our services with a view to getting the value that we offer to our customers.

David Newman - National Bank Financial

And your book of business? How much is covered by the 4% for 2010?

Luc Jobin

We have about 80% of our pricing if you wish, which is already done for the year. So there''s a good part which is done already. Obviously, a very high percent for the first quarter and declining towards the fourth quarter. Typically, our agreement are either tariff like would be in six months or contract of one year, contract of two years. So they give you a band of how far out we price. We tend to go for a shorter agreement as it rose to what we did in the past. And right now, we''re about 80% done for this year.

David Newman - National Bank Financial

Excellent, gentlemen and congratulations one and all.

Claude Mongeau

Thank you.

Luc Jobin

Thank you.

Operator

Thank you. The following question is from Matt Troy from Citigroup. Please go ahead.

Matthew Troy - Citigroup

Thanks. Claude, question for you as it relates to the U.S. regulatory environment. I was wondering if you could just give us a refresher in terms of how much of your business would be covered by changes in the U.S. regulatory environment? And I thought it was, if memory serves me correctly, something closer to a third. Certainly the minority, but if you could give us a directional bogey there? And then just give us a sense in terms of your reaction in terms of what you''ve seen with what''s been proposed? Is it relatively benign? Do you need to see more? What are the areas of sensitivity you have or in interest in as that legislation progresses?

Claude Mongeau

Well, Matt, to your first question our overall business in the U.S. that is domestic U.S. would be closer to 20% overall and a lot of that is really not impacted by the new regulations because we do have a network that is in many respects highly competitive. We have the Mississippi River. We have -- we''re right there in the middle of mid-America. So we don''t have some of the concentration of shippers that are so called captive on our U.S. franchise. More broadly, if you ask me about what we''re seeing, I would react in the following way and I have the same view whether it''s Canada or U.S. We have been going through a tough time with this recent downturn. And in tough times, it''s expected that customers and shippers will going to be looking for every angle they can find to improve their leverage in negotiations. And some of it is fair game. Some of it though, you have to step back and ask yourself is it good public policy for the long-term?

It''s not so much the details of the new regulation. It''s more the risk of mindset and not going in the right direction. I have a firm view that the railroad industry in North America is on a solid footing. It is a highly capital intensive business. It is fully 100% privately funded and there''s just no other way about it. A market based system that allows the railroads to earn a decent return is the key to what got us here. It is even more the key to what will we need going forward. Railroads are sustainable, from an environmental standpoint, they are far superior to other modes. We have an ability to grow and serve our customers on both sides of the border. And that''s -- the investment that''s required to do so is dependent on our ability to earn a decent return.

And so I''m hopeful that policymakers will focus on the big picture and if there are tweaks that are required to improve the safeguards in the U.S. for instance, in terms of regulatory measures, that''s fine. But let''s make sure that we don''t go overboard and start to cloud the picture and move away from the market based system that got us to where we are.

Matthew Troy - Citigroup

Understand. Thank you for that. My second and last question is, if I could perhaps ask of Luc. Luc, if I think about your guidance, carloads and volumes are up, high single-digit pricing 4% that alone would get you to the target range of double-digits. You articulated quite clearly some of the headwinds you face with FX. I was wondering if you could help us, that carloading or that volume figure from a mix perspective might RTMs come in at half that level? Will RTMs come in at a comparable level? Has always done a great job of articulating the difference between relying too heavily on carloads and focusing more on economic activity and RTMs. I was wondering if you could just help me reconcile your volume guidance to what RTMs might look like? Thank you.

Luc Jobin

Well, I''m not going to comment specifically on RTMs. But maybe I can speak a little bit to some of the assumptions that underpin our guidance in terms of economic recovery. I mean for instance, one of the things that we''re looking at is that North American progress in terms of industrial production, somewhere in the 3% to 4% range. We are looking at things that influence our business such as U.S. housing starts where we''re looking at somewhere around 750,000 units in 2010. Another metric that we look at and we base our plans on are U.S. motor vehicle sales. And that we see at roughly 11.5 million units. We''re also thinking that the grain crop for the Canadian side will be pretty well in line with the last five year average. And we look at the good carryover from 2009 into this year. So those are more specifically linked to the businesses and to the areas that drive our carloads and our RTMs. So I mean, for us at this point, these are the underpinnings and I don''t really have more to say in terms of specifically RTMs versus carloads at this point.

Operator

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

Cherilyn Radbourne - Scotia Capital

Thanks very much and good afternoon. Wondered, if I could just ask a question on your deployment of distributed power. If you could just give us a sense of where you ended the year in terms of the percentage of your fleet that''s DPU and where you hope to be by the end of 2010?

Keith E. Creel

Currently, now about 25, 26% end of the year, DP equipped. We''re moving -- that''s 270 total locomotives. By the end of 2010, we''ll be just over 400. And then on a go-forward basis everything that we effectively transition out and bring in online as well as anything where it''s economically feasible to convert locomotives. We''ll continue to do that with an eye to work towards, I would say an operating model, if we could get about 75% of our locomotives, mainline locomotives, equipped DP we would not have a challenge matching up to make it a consist to effectively utilize that technology. To get that all done, I think we''re looking at into 2012.

Cherilyn Radbourne - Scotia Capital

Okay. My second and last question, just on EJ&E. I guess the STD has announced that they''re going to investigate some of the community concerns. Just wondering to what extent that''s a nuisance in terms of your ability to operate that line? And beyond that, just what you think you can do with that property in 2010? What further integration process can we make?

Keith E. Creel

Quite frankly, I don''t see it as a nuisance. I think if anything, it''s going to be something that will help us as the audit effectively they''re just checking to see if we''re doing what we said we would do with the transaction, which is fair game in my mind. And certainly, we have a vigilance operating that railroad. We clearly understand that we''re under a microscope. We''re people of our words. We intend fulfill every commitment that we''ve made and in fact we are exceeding on those commitments. So that''s not of concern. We''re going to work closely with the communities as we have. We''re up to 21 effective volunteer mitigation agreements of the 31 or 32, that''s a very substantial portion. We''re very pleased there, so not too concerned about that piece. As we go forward, what we''re going to do in 2010 converting, we''ve got effectively now the first big piece of interchange in the Chicago corridor converted. We did effectively deliver all CSX traffic to the belt. We''re still delivering CSX traffic to the belt, but not at CN''s expense. And CSX effectively is delivering all of our interchange to Kirk Yard where we''re switching that traffic and effectively putting it into our system.

So already developing some operating synergies and savings associated with that transaction. As we continue the investments, putting these connections on, we certainly have some boundaries of what we can move around the line, in line with our environmental assessment. We do not anticipate violating that at all. The business level''s nowhere close to where we''ve got any concern with that. We''ll continue to March through our plan to shut down eventually or rationalize Markham and put the switching into Kirk. So we''re going to invest in dollars as we go forward building a physical plant in Kirk to handle that. And this year specifically in 2010, we''re working with those other foreign line carriers in the Chicago market to shift interchange from inside the arc, so to speak, to some connecting carriers on the outside, which will drive some additional operating synergies and speed up a lot throughput to the Chicago corridor. We''re not just CN, but also for those other foreign lines.

Cherilyn Radbourne - Scotia Capital

A very full answer, thanks. That''s all for me.

Operator

Thank you. The following question is from Bill Greene from Morgan Stanley. Please go ahead.

William Greene - Morgan Stanley

Yeah. Good afternoon. Claude, I''m wondering if you can outline for us a little bit some of the targets that the board has set for the management incentive comp this year?

Claude Mongeau

Our targets are in line with the guidance that we''re providing you. As you know, we have five core metrics, first and foremost revenues, then operating income, EPS, free cash flow and ROI. And our target, if we don''t deliver on this guidance we don''t get paid a big bonus and we have every intention hopefully to have a first a good year and pay a bonus to management employees who have done the great work.

William Greene - Morgan Stanley

Claude, I think I remember that last year you mentioned to me that you were going to need to find to get your cash flow targets for ''09 you were going to need to find some things to do on the non-operating side and you did, is that still the case this year because just the headline cash flow number as a target that you gave us would be below, so do you have more assets to sell to hit that? How will that work?

Claude Mongeau

Well, you know what the 700 million is an aggressive target. If you take into account and Luc gave you the details we did make basically C$200 million worth of sales here per quarter during the year. And we are also looking to monetize underutilize assets, but you cannot necessarily count on them ahead of time, we''re dependent on other parties to step up to the plate. And so if we can deliver $700 million following a year where we had these line sales that would be strong performance.

William Greene - Morgan Stanley

Yeah. What is your view on acquisitions? We know what Hunter was sort of saying, I''m curious what your thoughts are?

Claude Mongeau

Well, Hunter and I were working together for the last 10 years on acquisitions. So whatever you heard from Hunter I share his view. I believe that our focus is on driving organic growth leveraging the franchise that we''ve built. And we are always looking for tuck-in niche acquisitions, if they become available. But that''s not the way we plan on our earnings, we drive the business that we have and we are disciplined in monitoring the opportunities and if they come about the one thing you can count is we know how to integrate them and get the value for our customers and for our shareholders. But we don''t put ourselves on a clock.

William Greene - Morgan Stanley

All right. Thanks for the time.

Claude Mongeau

Thank you.

Operator

Thank you. The following question is from Ken Hoexter from Merrill Lynch. Please go ahead.

Ken Hoexter - Merrill Lynch

Great. Good afternoon. I just wanted to clarify a couple of things on the casualty side. Claude, I want to make sure what you''re saying is that there was a $60 million impact that you''re fighting against in 2009 or are you saying that, suggesting that the costs themselves are going up in 2010?

Claude Mongeau

Well, Ken, as Luc explained during the year, we have had recovery on our asbestos and occupational disease claim to the tune during the year of 60 million. This is a fairly large recovery, most of it in Q3 and then some of it in Q4 and we are continuing to make good progress our safety statistics are improving. We are planning to continue to reduce casualty claims. But the probability of having another $60 million recovery is not there.

Ken Hoexter - Bank of America/Merrill Lynch

So should we look at that as being kind of a $90 million run rate for next year?

Luc Jobin

It''s probably more in the neighborhood of $100 million run rate, really.

Ken Hoexter - Bank of America/Merrill Lynch

Okay, thanks, Luc. And then my last question, just on the yield. I just want to understand the mix. You ran through a bunch of numbers there. If we get pure pricing of 4%, your fuel surcharge was down 7%. The currency was 6%, the overall average revenue per carload was down 15%. That leaves a large negative impact for mix. Am I reading that right, kind of in the mid-teens, a negative impact from mix? Am I reading that right kind of in the mid teens, a negative impact per mix?

Luc Jobin

It''s mix and under revenue but we have a couple of other business, for example, we''re moving iron ore at the dock and vessel and the like. So a combination of mix, a combination of the other line of business that we have which are under real activitiy, serving a first mile, last mile.

Ken Hoexter - Bank of America/Merrill Lynch

So is this largely impacted by things like short-haul coal coming online from the new contract and mix issues like that? Are there any large impact issues like that that you can highlight?

Luc Jobin

Nothing to do with the coal itself. If you look at our book of business in the fourth quarter 2008 we had a drastic move in some business going down like (inaudible) and iron ore which went down the tube very quickly while some other segments held up. And the book of business in the fourth quarter 2009 was quite different because you had some industries recovering and some industries going down. So when you look in a book of business for these two quarters because one was spiraling down and one was recovering, there''s a lot of the so-called non-same-store business that you can otherwise in a normal steady economy, you''d have more of it. The mix is a bigger factor when you compare these two quarters because things were evolving very, very fast, both the downside and the recovery on the other way.

Claude Mongeau

The important point for you to remember, Ken, is that our pricing if we exclude grain was around 4% during the quarter.

Ken Hoexter - Bank of America/Merrill Lynch

Understood. Thanks for clarification. I appreciate it.

Claude Mongeau

Thank you, Ken.

Operator

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

Edward Wolfe - Wolfe Research LLC

Good afternoon. You quantified the impact of the strike at 10 million. Can you talk about the operating impact from the derailment and from the weather that you talked about as well in the quarter?

Claude Mongeau

I don''t think they were, as Keith mentioned, I don''t think they were material in the end because we were able to recover in the last two weeks of the year. So I think 10 million for the strike. We did struggle with weather disruption and the derailment, but we caught up at year end and so I think on a go-forward basis, we''re focused on running the railway.

Edward Wolfe - Wolfe Research LLC

Thanks, Claude. J.J. mentioned something that sounded fairly bullish about potash. Can you talk a little more about potash and if all that''s domestic or if there''s some export that you''re seeing improvement in and what your expectations are for the ramp throughout the year?

Jean-Jacques Ruest

Thank you, Ed. Our products business at CN is all within North America. It''s not overseas export business. We do some out of the New Brunswick Mine. But that''s a significant carload that''s a very short-haul business. And our products business last year was very, very weak. When you look at the comp, I mean the comp for the products last year as much as in the spring as in the fall was very weak. And what we''ve seen since beginning of the year is a nice recovery for the United States. So compared to the comp it''s hard to get any worse. We''ve seen the bottom and so far, so good this year these early, early month.

Claude Mongeau

I would add to J.J.''s comment the way it is at the moment, the Canadian mines don''t seem to have huge inroads into the Asian market, China in particular. So it''s possible that in 2010 we''ll have more of it moving towards North America.

Edward Wolfe - Wolfe Research LLC

If you look at volumes overall that are supposed to be up high single digits, is potash higher than that or in line with that or below that?

Jean-Jacques Ruest

When you look at something like, the commodities that we have which were probably the most under the gun during the recession like potash and iron ore, obviously, these will come out strong. And those held up the better like (inaudible) and chemical segment held up better, you won''t see as much of a carload growth. So there were two commodities, the one that really went down and the one that are going to come back bigger for us.

Claude Mongeau

And that''s…

Edward Wolfe - Wolfe Research LLC

And in the double-digit EPS guidance, what''s your expectations for FX and for fuel that you''re using in your own internal projections?

Luc Jobin

Yes. In terms of FX, we''re looking at somewhere in the range of $0.95 to parity. As it relates to WTI, we''re in the $75 to C$80 range as Claude pointed out. That''s kind of what we have in our assumptions.

Edward Wolfe - Wolfe Research LLC

Thank you. And, Claude, last one -- maybe it''s a coincidence, maybe it''s not. But I mean your first quarter, in your new position to come out with a big dividend and a decent-sized share repurchase. Is that a tone that you want to set going forward or is it just that it was the right time and it''s year end and it would have happened no matter what? How should we look at that?

Claude Mongeau

Let me say a couple of things. The first is we are very