Good morning ladies and gentlemen. Welcome to the Canadian Pacific Railway 2009 First Quarter Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session with instructions provided. (Operator Instructions). I would like to remind everyone that this conference is being recorded today, Thursday, April 23, 2009 at 11:00 AM Eastern Time. And I would now like to turn the conference over to Janet Weiss, Assistant Vice President, Investor Relations of Canadian Pacific Railway. Please go ahead.

Thank you, Luke. Good morning ladies and gentlemen, thanks for joining us for our 2009 first quarter teleconference. The presenters today will be Fred Green, our President and Chief Executive Officer; Kathryn McQuade, our Executive Vice President and Chief Financial Officer, Marcella Szel, our Senior VP of Sales and Marketing, and Brock Winter, our Senior VP of Operations. Also joining us on the call today is Brian Grassby, our VP and Comptroller. The slides accompanying today's teleconference are available on our website. Before we get started, let me remind you that this presentation contains forward-looking information. Actual results may differ materially. We make reference to assumptions used in our guidance and we provide sensitivity to these assumptions in the appendices which can be found in the last section of the presentation material. The risks, uncertainties and other factors that could influence actual results are described on slide one in the press release and in the MD&A filed with Canadian and U.S. securities regulators. Please read carefully as these assumptions could change throughout the year. All dollars quoted in the presentation are Canadian, unless otherwise stated. This presentation also contains non-GAAP measures. Please read slide two. Following the presentation, we will conduct a question-and-answer session. (Operator Instructions). Here then is our President and CEO, Mr. Fred Green.

Thanks, Janet. Good morning everyone. Today, CP reported adjusted Q1 EPS of $0.34, reflecting the impact of a very difficult environment for many of our customers and therefore CP. Volume decline and negative mix more than offset some very good cost control efforts. For clarity, our carloads were down about 19%, but in combination with some unprecedented decreases in long haul traffic, our revenue ton miles were down a remarkable 22% on the quarter. I'll note that until our long haul volumes return, you should expect the carload to RGM's negative differential of nearly 4% to continue. From an operation standpoint, after a difficult start to January, we moved into a positive operational rhythm which improved strongly through the quarter. Brock will speak to the performance trends which we're seeing. Kathryn will show you a breakdown of our financial performance, and you'll see that from a variable cost management perspective, we delivered a very strong quarter. Marcella will show you that our disciplined approach continues to drive price improvements. Back in the third quarter of 2008, I noted the emerging trend of economic contraction. As a result, we began preparing for tougher times. And we introduced our E3 program which accelerated efficiency and cost control efforts primarily on operations. We initiated a fixed cost program to lower our structural costs and committed to a path of cash preservation and balance sheet strength, issuing equity in January, monetizing assets in March and trimming back our capital program. These actions were put in motion to weather the economic storm. The assessment of our fixed cost structure is redefining our key business processes. This entails major change and the transformational impact will take longer to mature, but the change has started. Process is underway using various vehicles, including working notice to phase out approximately 300 supervisory positions. In addition, we are consolidating support yards and pursuing a smaller network of high productivity mechanical shops. Brock will supply more details of these opportunities. I'll now turn it over to Kathryn who'll walk you through the quarter and breaking out our financial performance and providing an update on the DM&E where I am unpleased with the progress. Kathryn?

Thank you, Fred and good morning everyone. This was a tough quarter for us financially as we were hit hard by unprecedented volume declines, which were magnified by the loss of our coal and potash business. We did an excellent job of managing costs and driving productivity gains by successfully removing train starts, mobile assets and employees at a pace similar to or greater than the volume decline. However, despite these actions, first quarter results were challenged as some of the benefits were not felt in the financial statements until February and March. Turning now to slide six, I'll take you through the income statement. Everything we speak to today is on a pro-forma basis with 2008 numbers inclusive of the DM&E as this -- it had been consolidated for the whole year. Revenues were down 13%, including a foreign exchange tailwind. Without FX, revenues were down 24%. Declines across the board in volume, negative mix impact and lower fuel surcharge revenues were partially offset by core pricing gains and FX. Operating expenses were down 8%, including a foreign exchange headwind. Without FX, expenses were down 18%. Fuel price declines and variable cost reductions in line with volume decreases were the primary drivers. Below the line, interest expense increased primarily due to foreign exchange of -- with three quarters of our debt denominated in U.S. dollars. Without the impact of FX, interest was slightly lower. Tax expenses fell dramatically on lower earnings. We also recorded an $11 million benefit from ABC tax credit which essentially matched the same reduction last year. Absent this one-time impact and other specified item, the effective tax rate for the quarter was 28%. With -- our estimate currently -- we estimate currently now that our effective tax rate for the year will be between 26…

Thank you, Kathryn and good morning. In the first quarter, we felt the continuing impact of declining volumes. Freight revenues were down by 24% before foreign exchange. These declines, as Kathryn mentioned, were unprecedented and extreme in many of our key business segments. Despite the impact of this recessionary environment, we are delivering steady price results and value through new and emerging opportunities. Turning to slide 16, total carloads were down 19%. Among the largest declines were metallurgical coal with carloads off at 30%, automotive decline at 43%, and potash especially export down by 70%. To put this in perspective, in March we moved 11 export potash trains to Vancouver. In normal times we run the same volume over the course of three to four days. These large scale volume declines along with uneven changes in our business group is the mix. RTMs fell by 22% largely reflecting a decline in average length of haul. With respect to our pricing strategy, our strategy was to deliver 4 to 5% and this is what we achieved. Negative mix of 3 to 4% given the volume declines and uneven changes in segments somewhat offset price. Fuel surcharge revenues were down by 6% due to fuel price changes. Turning now to an overview by market starting on slide 17, first grain, the bright spot in our portfolio. Canadian grain was strong with revenues up by 17% FX adjusted. The large crop of 54.5 million ton and export of 27 million ton supported a strong export program and resulted in several weeks of record deliveries. On the U.S. grain side, shifts between export and domestic movement combined with reduced commodity prices helped farmers to hold their product. Looking forward, we continue to model normal volumes for the 2009, 2010 grain shipping season. On slide…

Thank you, Marcella. This quarter the emphasis has been two fold: first, containing variable costs by adjusting quickly to changes in volume trends; and second, advancing our E3 initiatives and other new opportunities for efficiency and lower cost operation; three, we have had some dramatic, but temporary mix changes this quarter, that has impacted RTMs to a greater extent than carloads and GTMs. But we had good success in managing our costs, while accelerating performance throughout the quarter. Most specifically, let's start with safety on slide 24. Our safety results were mixed. Our FRA train incident frequency improved by 28% on CP and by 7% on the DM&E. For the core CP operation, we continue to be the industry leader in train operation safety. Our FRA personal injury frequency was up by 20% on CP, but improved on the DM&E by 43%. I am encouraged to see that our best-in-class safety approaches are driving some early benefits on the DM&E and to CP from significantly reduced casualty costs. Please turn to slide 25. We had a slow start in the first two weeks of January, from our decision to take extended shutdowns over the holidays. We made this decision given customer shutdown plans and the volume trends we were seeing. We had some bumps in the road from the usual winter challenges, but we've made the necessary adjustments and have now hit our strike. Train speed for the quarter improved by 7%, but disciplined execution reduced train starts and lower volumes all contributing to this. Our performance ramped up through Q1 and month to date April we are improved by 16%. Yard dwell also improved by 6%, a good result given the action we have taken to reduce road and local train starts. And we continue to demonstrate improved performance…

Thanks, Brock. Ladies and gentlemen, our efforts to manage variable costs and lower structural fixed costs are progressing. And they're consistent with my commitment to execution excellence and running a lower cost scheduled railway. Operationally, the railroad is running well. We are achieving price improvements consistent with the value that we're creating for our customers. We continue to take actions to strengthen our balance sheet and preserve cash. We're experiencing extraordinary volume volatility. This has clearly created some short-term challenges. Our actions are timely, decisive and balanced. Respectful of those affected both our people and our customers, they are oriented to positioning CP for the economic recovery. So, on that note operator, please open the lines and let's have some questions.

Thank you. Ladies and gentlemen we will now conduct the question and answer session. (Operator Instructions). Your first question today comes from Walter Spracklin of RBC Capital Markets. Please go ahead.

Thanks very much. Good morning guys.

Good morning, Walter.

Just on -- understanding the sensitivity around the coal, perhaps we could talk a little bit about the volume side. And Marcella, you can chime in as well in terms of what your expectations are -- expectations are for the balance of the year. We've heard from Teck, they are talking 18 to 20. Obviously there is probably some customer deferrals in the first quarter with the pricing rollover. How much of that do you expect was or -- in the first quarter, how much do you expect was in fact deferrals and how was actually lower demand? And should we see going into the second quarter and the balance of the year a little bit of a call it a seasonal pick up because of that rollover effect?

Walter, it's -- this is just quite frankly a mystery at this point. We do not know the answer to those questions. They are fair questions but those questions will be answered largely by our client. And our client is obviously working in the marketplace to establish what it is that they can do and when. For context though I will say to you that in the month of April, in the first 22 days, our coal -- metallurgical coal volumes are down about 55% versus of April of last year. So obviously there has been some modest decline relative to Q1 activity, but we just don't know how to calibrate the actions in the marketplaces that our clients is taking to try and secure committed volumes that prices that are good for them. And as a consequence we're pretty at the mercy of whatever it is they do we will ultimately move the coal. We hope that -- we can't predict it, there is no way to predict it.

And I guess the same thing applies to your pot, I know would have been my next question on potash, potash you're talking 6 million tons now for the rest of the year. Again I guess somewhat cloudy in terms of uncertainty around how that breaks up the remainder of the year?

Potash I think you've seen something as recently as this morning from PotashCorp with Bill Doyle's comments. I mean they clearly are very, very upbeat on the opportunity to return to a pretty rapid pace in the second half of the year. Again it's not for us to put the words into our clients now. So whatever they say we have reason to believe that there is emerging now a new base for the export price and that that's pretty attractive relative to history maybe not quite as high as last year. And I guess we, like you, are optimistic that this sector will lend sometime in the next who knows three, four or six weeks of the outside. And that we should be moving quite a bit of potash from now right through arguably the end of the year and maybe starting in four or five weeks so whenever they get all that sorted out.

And Fred, understanding that this is a sensitive time negotiation to call for that exposure, anything that you can give us, just in terms of, sort of color and maybe timing -- are things going a bit better on these negotiations with Teck or they are going worse? Are we looking at potential FOA anything you could give us, would be appreciated?

Walter, it's Marcella speaking. We are in negotiations and as I said I do have to respect the confidentiality of those negotiations. You asked about on FOA, let me say that FOA is obviously available to Teck at anytime. They have triggered it in the past, if they do trigger that is a matter that's confidential. We would not speak about that in any event. I will say that the party, both of us, both Teck and CP have expressed preference for negotiations and we are in active negotiation as we speak.

Okay. And last question here is just on price renewals Marcella, 5 to 6% or 4 to 5% that's great. I was just wondering on renewal business in the last say month or two, are you seeing renewals below that trend? Understanding that that's an average trend for the quarter, but on -- I'm just talking specifically on recent renewals. How is that going particularly given the current climate that's out there?

Walter on the quarter, we achieved renewals in that range of the 4 to 5% range as per our strategy.

Okay, okay that's great. Thanks very much for your answers.

Your next question comes from Jason Seidl of Dahlman Rose. Please go ahead. Jason Seidl - Dahlman Rose & Co.: Good morning everybody. How is it going?

It's great Jason. Jason Seidl - Dahlman Rose & Co.: Quick questions on -- just sticking on the coal topic. It sounds like obviously, some of the expectations so were below your internal plans. Can you give us a magnitude of how much low they were below your internal plans?

Jason, I think we gave you the numbers. As we know them Teck came out with an estimated sale. Jason Seidl - Dahlman Rose & Co.: All right.

In the 18 to 20 range. We told you that in April we saw a further volume decline over Q1. And that's probably just about as good as we could do to give you a sense of what the volumes might look like.

It might be worth while, Jason, just for a little color to say that -- and we've said this in past years, that it's important to refresh people's memory. That you have to calibrate their sales numbers. It's conceivably, you could have almost a million or 1.5 million tons of coal that are sold and moved through inventory or sold from inventory, or get moved but don't get sold. So there is at least 1.5 million incremental or differential, but possible, not necessarily it will happen but possible between what we could move and what gets sold. Second thing to remember is when they give, the Teck Coal Group gives their broader scope of what they're going to do. It also would include some amount. It could be modest at a million tons or whatever, out of Northern mine. So it's important that whatever they say, take into consideration both alternate modest but alternate sources of coal as well as the inventory issues. Jason Seidl - Dahlman Rose & Co.: Okay that, that's good enough. And turning to the fuel impacts on the revenue side; you kind of called it out in the slides on the cost side and I think you said, and if I'm correct that excluding foreign exchange, revenues would have been down 24%, so it looks like it gave you what about 140 million in revenues?

I think the fuel revenue decline based on the prices of fuel obviously brought our revenues down by about 6%, Jason. Jason Seidl - Dahlman Rose & Co.: By about 6%, okay. That's perfect for me. I appreciate the time as always.

Thank you.

Your next question comes from Bill Mackenzie of TD Newcrest. Please go ahead.

Thanks. First question on fuel. Just wondering if you could talk a little bit more about the cost per gallon. I guess two things; can you just elaborate a little bit more on the winter fuel program and what exactly that is? And secondly, $1.86 after the fuel program and after the hedges, just seems a little bit high to me, I mean the other rails have been coming in around $1.40, $1.50 gallon. And I am just wondering if there's anything difference in terms of the way you guys buy fuel, if there is sort of more of a time lag in terms of when we see fuel prices, versus one that hits your expense line?

Okay. First of all, this is Kathryn. I'll talk to the winter fuel. Because, winter requires a different blending of your fuel, we actually kind of pre-buy and position this fuel across our system to ensure adequate supply and this is something that happens every year. But, because of the way the fuel price has moved rather dramatically from when we make the purchases which are in the fall versus when we use them in the winter time, it actually impacted our average price more than what you have seen in the past. In terms of our $1.86, I think one of the things that you have to keep in mind is that, we buy a good portion of our fuel in Canada and the taxes in Canada are higher than the taxes in the U.S. So, that does add to the overall price per gallon for CP.

Are there any... I mean, you talked about the forward buy on the winter fuel program, is there any forward buying that goes on in the balance of your business that would explain some of the difference or is that not done this year though?

No, no. No.

Okay. The other question I had has to do with the initiatives to attack the fixed cost structure and I just wondered if you guys could elaborate a little bit more on the timing in terms of how long fuel take to get through the initiatives that you have in the drawing board? And secondly, if there is any either dollar targets that you could provide in terms of how much savings you'd expect to see over time?

Hi Bill, it's Fred. I hesitate to try and be too specific and this is consistent with exactly what I told everybody at the Investor Day and again on Q1; that we have undertaken the work and we're quite pleased with the work that's been progressed at this point. We believe that there are substantive opportunities. I did say in my comments that the first phase of the benefits of that will be reflected in 300 supervisory FTEs being phased out. And remember that when you are changing business process, it's very important that you don't take the people out and then have the thing fall apart. Our challenge is, we need to fix the processes. We've identified the opportunities. We've got the beginning of the work undertaken right now. So what we've done is advise the people that at the end of that work period, those positions will be eliminated and there'll be no severance cost of course because they've been given working notice of that. And so, I would suggest to you that with regard to the 300 FTEs that we're speaking about at least this portion of the restructuring efforts, you should expect to see those starting to kick in largely in Q3, arguably right through Q2, maybe even Q3 of next year and some could drag out depending on the seniority or how long the people have been with the company out into Q4 of next year. But that fits perfectly with the length of time it will take us to make these changes, these process improvements and the IT supports systems that will go with them. So, really what you are thinking about is probably between four and 20 months. Most those changes will be nicely implemented and the jobs will be phased that was in that period of time with no severance payments.

Okay, great, and also some of the other initiatives on the fixed cost side, I mean, is the timing for some of these initiatives similar to what's happening with phasing out of some of these people or are the -- you had a boarder of fixed initiative that can take longer than that?

So Bill may be I -- it's Brock. Maybe I can give me just a little color on the two examples or actually three examples that I provided. And one of the things that we're doing as Fred mentioned is we're taking a very deep dive and I talked about this in November and all of our locomotive repair facility. With that work still underway, we continue to look at the analysis, but we have decided that we can move a number of locomotives that we currently repair today at our equipment facility in Vancouver, and we are going to move that approximately 175 locomotives that are assigned to that facility to another location. Now that allows us to shrink the operation in our equipment facility, expand a more efficient operation at our Ela (ph) facility here in Calgary, and that will be implemented over the course over the next 120 days. We will maintain a very small facility in Vancouver to repair locomotives, for example for axel units, but the big success of the units there are repaired -- will be moved to another location. Similarly we've taken the opportunity with the downturn in automotive in Southern Ontario, we've been able to restructure our PowerCare repair scenarios in Southern Ontario. We think the action that we've we taken there and I think it is a permanent and we will be implementing that fully with permanent layoffs over the course of the summer. The other thing that we've seen with some of the reduced volume in our IOP redesigns is we've been able to push a lot more volumes into our highly productive hump locations for example, allowing us to shut satellite yards in certain locations and there is a couple in Manitoba and again we've been able push that volume into our Winnipeg yard, close our hump operation in Winnipeg and shut some satellite yards that are outside of the Winnipeg yard area. And that process is ongoing as we speak. So, that maybe gives you a flavor Bill of some of the actions we're taking in the medium term.

Bill, and I just maybe put have bit more color on it and think if you're trying to think of a structural way to think of what we're doing, my earlier comments were kind of on the, I'll call the supervisory the management infrastructure and that gave you a little bit longer time horizon. Brock is providing what I would call the shorter-term of the fixed cost adjustment. So, he's gone out and began a process where we are consolidating whether shops, car shops, locomotive shops or ever yard activities. When you deal with those types of vehicles or those types of facilities, you are dealing of course with your contracted employees. And we have to work with the bargaining agents to do the appropriate things to make sure a proper notice is given. So, Brock referred to 120 days. What you will see when we make those kinds of major structural changes is there will always be about a 120 day notice necessary to the effected employees. And that leads to at the end of that notice is when we can begin the actual implementation of what we have proposed to implement. So, you're going to see variable cost activities moving literally day-to-day and Brock talked about the fact that we have 2400 employees affected right now with short-term lay offs. Then you're going to see these 120 day notices as the kind of short medium term activities. And you will then see the more structural changes that I am describing, which will take anywhere from four months to maybe a year, year and half to fully implement in the fashion that we think it will probably unfold.

Okay. That's great. And just one just little follow-up to that. For the 120 day initiatives, are there any kind of preliminary head count estimates in terms of what those initiatives could save?

I think at this point in time, we've given notices of that nature. I'm going to say about 120 people. About 120 of those positions are permanent lay-offs that will occur in the places that Brock has described. And the 2400 that we mentioned are temporary lay-offs that we believe a good portion of those are clearly related to volume. Obviously there may be efficiencies we can discover through doing things wiser, but may not have a 100% of those people come back, but with the attrition that we have, that shoot our purposes just fine.

That's great. Thank you very much.

You're welcome.

Your next question comes from Cherilyn Radbourne of Scotia Capital. Please go ahead.

Thanks very much and good morning.

Good morning, Cherilyn.

Just wanted to ask a question. In respect of the way that you've now resized your car fleet locomotives, the unionized workforce, are you now sized appropriately for retreat carloads kind of in the range of 40 to 44,000 which seems to be where we've settled out in the last five or six weeks?

Cherilyn, it's -- I like to separate the two subjects. On the locomotive side, I'm really, really pleased with the work that Brock and his team have done. We've done a very good job of taking locomotives out. And I think, the number today is approximately 30%. So our RTMs are down 30% in the first 22 days of April. And our locomotives are down 30%. That means they're parked or turned back or whatever the case may be, means we're not maintaining them. On the car side, I'm pleased but not as pleased, and the reason saying that is that, it's a pretty precipitous decline that we've experienced particularly in the last three or four weeks. And the ability to get the cars out fast enough has been a bit frustrating for me. So, we're back in that. I think today it was about 42,000, you're correct. And I'd sure like to believe that we're going to need to take more cars out to drive the miles per day up, because it's all about asset efficiency. So on the locomotive side, our miles per day are actually up relative to last year, despite the fact that our business is so far down. That's attributed to getting assets out fast enough. On the car side, we haven't been able to take as many orders I would like to take out. And we need to spin these assets more quickly. So, I'm not satisfied at 42,000 and I can assure that people in car management and operations know that I'm not satisfied. So, my expectation is we'll find the way to get more cars out. We need to do it reasonably quickly.

Okay. And then, are you still struggling to the same extent with kind of a lack of visibility from your customers, not a lot of lead time from them? And sort of the week-to-week directions in carloads, or has that sold out a little bit better as for the year has progressed.

Well, I think Cherilyn, the key thing here is that -- your early assessment is correct. On our clients and there is no disrespect to them, they just simply don't know. Their markets aren't clear to them, so they can't be clear to us. So it is somewhat volatile by sector. On the other hand, I would suggest to you, if you look, for instance, at our seven day average -- we monitor daily seven days a months-to-date, and we're pretty unhappy with the numbers. But I'm satisfied that our GTMs basically on a monthly number is very similar to our seven day average. So it appears as though -- when I say appears, I really don't know, it appears as though we've kind of flattened out on the decline and granted that huge numbers. And my expectation is that we -- absent any huge surprises on a particular sector that we hopefully will start now to see some step function improvements, as some of the items like potash, again met coal picks back-up, and that we should see some step function improvements.

Okay. And last one for me, just where is the CapEx cut coming from?

CapEx, we have been very, very disciplined in trying to stick to the core engineering dollars. So, when we first took our original tranches out, we trimmed back some of our IT spend, some of our discretionary spends on lands and facilities. And so anything to do with cars as basically, we trimmed a lot of that stuff out. We also kind of avoid a lot of overhauls on locomotives of course, because they're parked, we don't need them right now. We'll protect their ability to come back into the business. So, we've trimmed out a little bit further on the overhaul side based on a number of parked locomotives. And we've trimmed very, very gently on a handful of the engineering programs where we had, for instance, double track, we might have left the track at somewhat slower speed given that we're running so much less on tonnage. And we'll be running somewhat less tonnage, I hope nowhere near these numbers. So we are very comfortable that we've protected it because the most important thing we can do is keep that engineering backbone safe, keep it at a reasonably high speed as in what it is today. And that ensures we have a great quality of product for our clients.

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

Your next question comes from Matt Choi (ph) of Citigroup. Please go ahead.

Thanks. Just wondering on the cash flow side if you could just give us an update on your pension outlook and any finding requirements you might have this year?

Sure, and I will refer you to our MD&A because I think we have some pretty good disclosures there as well. But what we're saying in terms of our cash contributions for 2009 is actually lower than where we were at the end of the year. We're seeing that 2009 would be in the 100 to 150 million range, and just to put that in perspective, we were 95 million last year. So not a significant impact at this point. Of course, and we have not made a determination on whether we're going to do an updated valuation. And we will really decide that once we see what's happening on the legislative front in terms of permanent reform. And as you probably know we've been very active in that. And we should have more clarity as to whether there is any legislative change for permanent reform by the end of the year.

I asked the question in the context of the capital budget reduction. If the pension funding requirement is down versus initial expectations, earlier expectation CapEx is down, you should have some more cash to deploy. I was just wondering what your strategy in general with capital will be over the next 12 to 18 months in light of these changes both on pension and CapEx?

Well I think we're trying to be flexible and again kind of determining what's going to happen in terms of our pension reform. But I know that Fred and I are looking at reducing the capital, but we're also looking opportunistically. If we have some immediate paybacks in some capital programs, we will actually add back into the capital. So, we're trying to plan for the worse and be flexible for the upside.

Matt, I want to reinforce that, literally within the last 48 hours, I've been sitting right at this table with people who are bringing forward programs and we are not in the capital program. But I can tell we've got a one year payback. We will spend the capital and just to reinforce Kathryn's comments that in times like this having a good strong balance sheet is very, very important. So we are trying to be prudent, trying to be very methodical. The market will turn up. We don't know when. So as a consequence we will preserve our strength until such time as we see the evidence of the sustained pattern moving up. And then we can of course always ramp up capital spending reasonably quickly if it's suitable.

Got it. Next question would on the Teck, Teck issue and I certainly respect the confidentiality. I just want to make I understand the framework correctly. As I understand it, now that you've gone past the 331 contract, essentially two routes. You can continue to negotiate if tariff rate would apply or you could go into some kind of FOA with the 60 day process at the end of which we could have a resolution. Is that the two options -- to understand it correctly what's the framework and timeline we should be looking at for this process?

Matt I think the way you describe the options is correct. In terms of the timelines really depends on the negotiations.

So that 60 day clock would only start ticking if they were to file or moved towards FOA option?

That's correct.

And last question from me, just a quick refresh, you talked about the negative mix impact of shorter-haul domestic U.S coal. Could you just refresh on the coal side how much of your business is export versus domestic in terms of whole (ph) value of coal book?

What we have in the U.S. the U.S. between U.S. and Canadian side, obviously U.S. side is growing with the addition of the new business that we have there, still it breaks up about 85, 15%.

Okay. Thank you very much.

Thank you.

Your next question comes from Chris Ceraso of Credit Suisse. Please go ahead

Hey thanks. It's Chris Ceraso. Fred, I think one time you mentioned to me that you thought that the increased discipline among the management teams to the railroads and the resistance of fighting with each other over price was really the key to the industry's pricing renaissance. With that as backdrop, have you seen any kind of changes in behavior over the last few months, given some of these volume declines that would suggest that, that discipline is starting to shake a little bit?

Well Chris, I would characterize it slightly differently. I would just---the way I would characterize it is that the improvement in the quality of the product today versus what it was five, six, seven, 10 years ago, has afforded us the ability to go back in the marketplace and repatriate business from trucks, repatriate business in a fashion that -- when you go to sale, you sale on the quality of the car, the quality of the service offering, the relationship that you have. You're not limited. You're still price competitive, but you're not limited to being price oriented. And so, that's a slightly different characterization but I think it's an important one as we all have improved the product offering of the sector to enable us to be a much more affective. Now, with regard to your comment, I would say that everybody is working hard to make sure that railways are busy, but I -- we will always have, as we always have had, skirmishes on the border with somebody who is interested in the business we have or we have that we want from them. But I haven't seen any silly deterioration into forgetting the fact that we are offering great products that allow us to command good value.

Okay. Can you give us an update on the activity in the oil sands?

The -- well, as you're probably aware, in the oil sands, there has been a lot of stopping of the upgraded activity, particularly because of the price of oil that's gone in there. However, the part of our business that continues to grow as I mentioned is condensates that go in, the bitumen is being produced. The bitumen moves by pipeline and it needs condensates to dilute it to move it out of the pipeline. So that business is really growing for us and we're really pleased with that type of business.

So Chris, just for clarity, in case that wasn't clear that the construction materials on the inbound side have obviously slowed down as some of these major companies have either deferred or slowed down their construction. The facilities that were already under construction are largely being completed. And as Marcella says the volumes of bitumen coming out and therefore the needs for condensate to dilute that product, continue to be strong. And it's been a big growth area there that Marcella and Ray's (ph) teams have successfully participated in.

On a net basis though, is the level activity for your railroad of the net region higher or lower?

On a net basis its lower because of the product that was going in because of all the construction activities no longer going in and the condensate side is growing.

Okay. Last question. We've gotten some mixed signals from different carriers and different industries on the level of retails, and you -- I'm sorry, the level of inventories. You mentioned in your comments that you're seeing high retail inventories. Can you give us any color on which types of retailers or in which regions you're seeing inventory pressures?

I think, the retail inventory issue is that across the board with our retailers that we serve and it's not so much that it's an absolute high number it's a high number because the sales have dropped. So against that is they reduced their inventories. With sales going down, the inventory still has not settled out to the level of sales. And it is across essentially most of the regions with all of our retailers.

Chris we said, I think and Marcella probably mentioned I apologize for that. My recollection was that, and I know this that the domestic activities within are MO (ph) business are actually, they are not good, but they are not anyway near as that as the international side. Keeping in mind that a lot of the international movement that we experienced, particularly off the West Coast, is largely that general merchandise, stuff that you would find in those retailers, whether it's Canadian Tire or the Wal-Mart's are targets in the states. And so what we are seeing is that the domestic activity is okay relative to the other. But the retail re-stocking of inventories, clearly seems to be slowing down.

Okay. Thank you very much.

You are welcome.

Your next question comes from Ken Hoexter of Merrill Lynch. Please go ahead.

Great. Good morning. Earlier, you had mentioned the DM&E, you thought that some of the farmers were holding some of the crops. I'm just wondering; any impact from the floods and what percent of the volumes are now coming from DM&E on the grain side as that grows into your business? Thanks.

Well, Ken, its Brock. And maybe I'll just give you a brief update. From the DM&E perspective, I think we are seeing the grain held on the farms. The grain isn't moving. From a flood perspective on the DM&E, we're not being impacted on the DM&E from the flood perspective. We are seeing some minor impacts in our North Dakota franchise but we're moving product and it is tenuous now. But we continue to move fairly, currently on all of our products through North Dakota, but we're watching it very, very closely. We do have contingency plans in place as that water continues to rise. And I can tell you that they are expecting some correcting in the next two to three days on our mainlines through North Dakota. But as I said, we've got great contingency plans for rerouting traffic and/or detouring traffic over other carriers. It's had no material impact on moving our product.

Ken, I just like to add to what Brock has just said that because there was lot revamps warning of the flood, a lot of the grain was moved out of the region before the waters hit. That was a very purposeful action on the part of sellers and the railroad.

Great, and then I think -- I think earlier you -- I think it was Kathryn was talking about the average number of employees. And you went through a bunch of numbers about what had been -- or maybe it was Brock, taken out since the quarter ended. I just want to understand the average during quarter was only down about 1% or less than that. Just want to understand I think you said that there were employees that were taken out but are they kind of in furloughs? So they are not kind counted in the actual reduction number and when do those I guess, kind of follow up, and actually become off the books?

Ken, I think there is a lot of puts and takes here. So I think maybe the simplest way for those who try to model what's going to happen going forward is just to give you an absolute number. Obviously, we don't know what's going to happen with regard to volume. But remember two things, the first of which is the numbers that tend to be there are mid months numbers. Sometimes we provide the end of month number as well. There has been a big difference between the first quarter RTM reduction which was 22%. And the numbers that I mentioned earlier where we're running at 31% RTM reductions in the first 22 days of the April. As a consequence between mid March and today which is kind of five weeks, we have, in fact, have another substantial series of lay-offs. So, that's why we're up at 2400. Now, if you just park all that for a moment and say if you go to the absolute number of 'expense employees' probably not a bad number to model all subject of course to major, major volume increase or decrease. If you model a number around 13,750 that would be a ballpark number we think absent any new news that you could probably count on certainly through Q2. And that may well be number for the balance of the year unless we see the recovery that we hope and expect that we will see. Don't forget that in addition to that as we move into Q2, our capital employees start to come on and that number probably would be around 2000, 2100 little less than last year, because our capital programs are little bit less. But the addition of those two numbers for the total of all our railway, including the DM&E, right?

Yeah.

Would give us that number. Does that work for you?

It does, it's helpful. Thank you, Fred. Just take a step back I guess if I look at the carloads relative to the earnings decline and relative to some of the others that have reported CSX volumes are down 17%, earnings down 22, CN, your peer down 16% of volumes, EPS down 15%. Fred, where is the disconnect? Is it in the profitability of losing some of those longer-hauls, the biggest profitable stuff being the coal and fertilizer commodities that were lost and so therefore it's impacting revenues more? Or is it the lack of the ability to add that cost because you were focused on the DM&E acquisition. Where is the bigger differential?

I think, the thing that somehow didn't translate for everybody --the publicly available information is carload. So you quote those correctly. The important information is the revenue ton miles because it is the revenue ton miles that generate your revenue. So the fact that carloads are down every other railroad that's reported to my knowledge which show that their carloads are down X%, but their revenue ton miles are down less than that, right, anywhere from 3 to 5% less, based on the fact that in their particular circumstances, the average length of haul increased. In our situation, we were down 18 or 19% on carloads but down 22% on RTMs which basically implies of course that the length of haul in our case got shortened. Now it got shortened partially because we had the pretty extra short-haul coal. But that's pretty insignificant in the big picture, it got shortened because a lot of our long-haul business was what got contracted, the potash business which was down what was 70% in the quarter is down 85% in April is to create long-haul 1200, 1300 mile business. So we have somewhat of a unique situation in that our length of haul translating into RTMs is substantially different than what has occurred elsewhere. It will also rebound equally, quickly when those long-haul corridors come back. So is that helpful, Ken, to understand why those numbers...

Yeah, that's exactly what I was asking, I appreciate that. Thanks Fred.

Your next question comes from Tom Wadewitz of JP Morgan. Please go ahead.

Hi, yes, good morning.

Good morning, Tom.

Fred, I have a follow-up I guess, to the framework that Ken was asking about in terms of understanding, I guess the drivers of the bigger difference in the -- the greater pressures on your business. Is your bulk export business which really is seeing a tremendous weakness, which you obviously don't control -- is that just so much higher margin than the other part of the book that also is big affect on the way your profitability shows up?

It's not high enough margin in my opinion.

Clearly, I mean would it be fair to say that if you look at profitability of a bulk export potash, export coal, there'd be a pretty significant differential in the profitability on that business, say versus your forest products or industrial, or I don't know, whatever other items are perhaps not down as sharply?

Tom, I can't go there, but I think the key thing is just get that RTM message clear in everybody's minds that when you lose 22% of your revenue generating workload, clearly there is going to be an impact and tribute to everybody else has done a good job taking out there, 10 and 15, 12, 13, 14%, RTM impact. But there is a big difference between 13 and 22. So from our perspective, we think we are doing the right things. We are also at the same time lowering the fixed cost side of the business on a more long-term sustained basis which will lower our overall cost base, make us more competitive in the long term. But when you have these kinds of dramatic swings, you really do have to stay focused on taking out the costs that you can control and not moving into panic mode and doing silly things that can hurt your franchise in the long term. And we think we are doing those.

And Tom...

Right. Okay. When we look at the second quarter and you are talking about first three weeks of April which, obviously that's just not necessarily four quarters going to look like. But are you thinking that earnings which are typically up pretty meaningfully, sequentially are going to be down meaningfully, because the comments in RTMs in April versus first quarter are pretty negative?

Well I would -- first of all, we're not giving guidance, Tom. So I won't talk about earnings. But let me put in perspective for you, that the two busiest months of 2008 for the Canadian Pacific Railway were April and May. And of course today we're in the depth of arguably both of some combination of the global recession in the North American recession and some unique situations like potash. So as a consequence you have got this kind of extreme situation where you are taking your, literally your busiest month, April and you are comparing it against the depths of what's occurring in the global marketplace. So that's why I believe, we are seeing the increment from the Q1 average RTM reduction to the 31%, I referred to. Now, I can't predict with certainty, obviously what's going to happen through the quarter. What I can say to you is, everybody following the company should believe that April, we are already well through it. There is not evidence of an immediate turn even on some of these big bulk commodities. So May will probably be a little bit of a challenge as well with regard to the spread that I just described. But I would also ask people to pay attention to the fact that we have had a substantial improvement if you look at Brock's slides with regard to the April performance, we are matching train mile to GTMs reductions, we are matching. If you look at locomotives part, locomotive miles per day up. So Brock and his team have put an awful lot of cost reduction acceleration initiatives in place. And obviously our challenges in April and May maybe the trade water and those things will benefit us in the bigger way coming through that. Is that helpful, Tom?

Yeah, that's helpful. I guess, I still don't have a sense of whether it's reasonable to think that there is any sequential improvement, let's say margin instead of earnings, or whether that would just be a pretty tough thing to do, given that your comments on RTMs in April.

I don't -- I'm not going to do earnings outlook. So, but let me maybe add one more dimension that might be a little bit helpful for you. And that is simply that the earnings if one was to break them down by month as opposed to the quarter in a whole, did improve as we progressed through the month, as a lot of our cost savings initiatives started to kick in. So, I guess, I'm hopeful that the run rate coming out of the quarter will be better going forward, but you have to take into account that the deterioration in the month of April, from a volume perspective has been substantial. So, that may or may now manifest itself in earnings warnings -- earnings improvement.

Right. Okay, great. Fred, I appreciate the comment that's helpful.

Hey Tom.

Your next question comes from Randy Cousins. Please go ahead

Good afternoon.

Hey Randy.

May be if you guys could talk about the relationship between fuel and revenues? Last year you got crushed by the increase in the price of fuel because your surcharge systems weren't working as efficiently. Here we've got a massive reduction in the price of diesel and the price of oil. And here I look at the change in your fuel as a percentage of revenues, so in the last year it was 20%, this year it's 16.2. I mean if you compare your own results with the Canadian National which again has the some FX stuff rolling through their numbers. Their numbers went from sort of 20% of theirs revenues down to 16.2%, an important effect on their cost of fuel basis, you paid as much for fuel, all of paid for fuel as they did with $800 million less in revenues. And I guess I am trying to understand, I would have thought there'll be a bigger reduction in your relative fuel cost versus revenues given the pain that you took last year. And could you comment it on a go forward basis?

Randy I think the easiest way to deal with that is to think about a kind of a stacked bar. On the bottom end we said we have the winter program. We have a place in Northern Ontario and we used, unfortunately we had to use the expensive fuel that we bought during the fall. That's just how it happened. It was inventoried in the fall to protect our needs and that was expensive. That was nearly $10 million. Second; we had a hedge program in place that has of course expired but I think that was about $9 million.

20 million.

About $20 million worth of the fuel increase was due to those two items. So, if that helps to reconcile the numbers, than that's probably a starting point for you.

Again its like minor thing, last year you guys said basically its sort of writing as a $0.01 change in -- a $1 change in oil was had a -- $2 change in oil to had a $0.01 change to earnings sensitivity and I think it was a $1 frac spread had a $0.02 change too. So those numbers don't apply?

Well I think that the model is changing and the third thing I should add to what we described as on January 1, in an effort to be aligned with the immediacy of the responsiveness to fuel changes, we altered our program from a 30-day lag to a 15-day lag. So obviously, when the price goes down, we will give that back more quickly and when the price goes up we will get it more quickly. In this particular period, the price went down a little more quickly and so, there is probably another $5 million there. So, I think probably what we should do is just take it offline and we'll revise the sensitivity if you're having of trouble tracking it.

Yes, Randy. This is Kathryn. I think, if you give Janet a call, we can kind of walk you through it. But there are a couple of puts and takes. We did have some tailwinds from, I thought, if you look at the price lift first is what Marcella had in terms of lower revenues. There was a price lift. But the hedge when fuel aid into that as along with some other items as well as our consumption which was down 17% versus GTM is being down a little higher than that.

Okay. And then the other thing to it, I guess it was Brock I think mentioned or may be it was Marcella. You guys talked about the Kansas City Gateway. I wonder if you give us some sense as to sort of what's happening there right now and what do you see the opportunity over the balance of the year? Is it just the economic conditions are just so weak there is no opportunity to take advantage of right now?

No. Randy, the better way to look at that is you recall what we said we want to do with DM&E was the first thing we would is go in and getting in place the systems necessary to make that a very, very successful integration. So a lot of those are the safety systems followed by the IT systems, SAP, the Payroll system all which happen by the way as of January and now the operating systems are being ruled out. At the same time we are doing that, we've had handful of operational synergies, in the sense we found some fleets, locomotive end-cars that we could work together very easily and get some fairly cost or expense synergies out of that but they weren't targeted because we didn't pursue those immediately until the opportunities arose. And then the third thing we looked at was; at what point in time can we start the process of extending our hauls to reflect the new franchise that we have. And those discussions are underway with the various connecting carriers. We've already migrated some and we will migrate more. But they come due when the contracts come due. You can't just walk in and break a contract. You have to walk, you have to fulfill your commitments to them and as those pieces of business become available, to the extent that there is a longer haul available to us, that's a better position for our shareholders, we will clearly see those. The discussions are underway. We are progressing each of those as they materialize.

Okay. And then last question for Kathryn. I think you said that tax rate for the full year would be 28%, or given that it was so low in the first quarter, does that mean we should be modeling a 37% tax rate for the subsequent quarter. How should we think about this?

Well, what I did say is that it will be for the year, 26 to 28. That is on earnings without the DC tax one-time credit and the FX -- the effects of FX on our long term debt. So take out those other specified items and you will see Randy that actually for this quarter, our effective rate was 28%. So, for the year, there's no big anomalies that would happen for the rest of the year.

Okay, great. Thank you.

Thank you, Randy.

Your next question comes from Umair Alam (ph) of National Bank Financial, please go ahead.

Good morning I just have a few questions on behalf of David Newman. One thing; just on the receivables, you had about 569 million at the end of the quarter and I just wanted to get sense if there was any risk to receivables or lengthening of the cycle or anything like that?

This is Kathryn. In terms of our accounts receivable, in fact our DSOs fell approximately two days from the end of the year. So we are actively managing our accounts receivable and do not have any higher risk in this environment in fact, are improving upon it because we have some very active management. So what you see in terms of the drop itself is really hand-in-hand with the volume reductions that are happening.

Okay. And another thing; on trucks, have you seen any, in terms of competition, than being able to get some share back with the lower fuel, I mean we've seen things in terms of excess supply with trucks?

No we are not seeing it. I just remind you that our business is largely a long-haul business.

Okay.

Differences on an end mobile (ph) side, we average about 1900 miles and of course over 45% of our business is in the bulk side which is not really truck competitive. So, we are really not seeing any changes. We also have some truck competitive lanes for instance Toronto to Montreal, where in fact our volumes are stable. They are not declining at all.

Okay its good thanks. And finally, just on the fuel surcharge, any changes anything changes in terms of how much you have on highway diesel?

What -- yes we're converting, I think we've told you before that we've been moving and migrating our portfolio on to a combination of highway diesel and one that has some form of margin in it. So that we are managing the two things and we had well over 50% at this point and by the end of the year we expect to be over 75%. So we are very successful in migrating to this improved program.

Okay, thanks a lot.

Thank you, Umair.

Your next question comes from Edward Wolfe of Wolfe Research. Please go ahead.

Hey, thanks. Good afternoon.

Hey, Ed.

Talk a little bit about the drop in coal met, the export volume is down 50%, how much of this is pure demand, and how much of this is contractual driven as you look at it?

Ed I can tell you this that typical we see met coal volumes match the changes in the global steel production. That is typically the connection. As to whether or not there is any connection on our negotiations, I can't obviously comment on that. We're in our negotiations currently and those will unfold as they will.

And I guess Ed the answer is, we wouldn't know. We don't know. They are not -- there been we're trying to move the coal as efficiently as possible and we have and will move everything that's presented to us.

Well I guess do you get a sense that there is some inventory at the ports they might have stacked up and maybe that's why it's slowed down since the contracts come up?

No.

I don't believe that to be the case.

No.

Okay. Fred, you mentioned down on the potash side that you were hopeful that in two to six weeks we should see something start to ship hopefully. What gives you that sense? Is it coming from Canpotex (ph) or somewhere else or...

Well again, Ed I want to be cautious. The worst thing that a railroad can do is put words in the mouth of the shippers. So Potash today came out with some pretty upbeat perspectives on kind of emerging through June and into the second half, an expectation that their volumes will start to move. And they are major a contributor to the Canpotex consortium. So, I think rather than me speculate, I would just say to you that I am trying to interpret the statements that I hear either publicly or privately from those who are trying to market that stuff on a global basis. And certainly our perspective at this point, with the combination of those sources would be that, we are all optimistic that we'll start to see a pickup in June and a good strong second half.

Okay. Last question, Kathryn, can you talk a little bit about whether you've begun the fuel hedging program and kind of what's in place so far if you have?

Sure. Yes, Randy we did, April 1 began, our mechanistic program. And there is an illustrative -- I am sorry -- there is an illustration in the back of our slides that shows kind of what it will build through the year. But what we'll be doing, is buying strips. So this is really an averaging of our prices over a very long period of time, and we will build in this very gradually month-by-month. Until January 1, 2010, we should have 10% covered by the strips of hedges.

Okay. So like a percent a month kind of thing.

Yeah, it's a very small strip each time. So it's truly about taking volatility out, not about taking a price point of view.

Thanks for the time. I appreciate it.

You bet.

Your next question comes from David Feinberg of Goldman Sachs. Please go ahead.

Hi, most of my questions have been answered. Just a quick one and I apologize if you touched on this in the beginning. I missed the first part of the call. The regulatory environment in the U.S. seems to be heating up a bit. Now, I know most of your network is located in Canada, but wanted to find out if any of residual impacts if you were at all involved in any of these discussions that may or may not be going on Washington right now. And what your senses is -- what a possible outcome would be, particularly given the recent acquisition of the DM&E?

David, the subject hasn't come up on our call. But I think in very broad terms, I would characterize it as -- first of all keep in mind that two-thirds of our businesses in Canada where we've worked hard to establish, and I think we do have quite a stable regulatory climate. On the one third that is in the Unites States, of course we are subject to whatever may happen in the United States. And the parties that are involved are -- we're working through the American Association of Railways and those folks are representing us in any discussions that go on. We are clearly very aware, and we are optimistic that a fair and reasonable balance will be found in whatever legislative or regulatory outcomes are in the near future. And I don't really think it's of much value for me to speculate other than to say that, it's clear I think to everybody and in these volatile times with substantial volume reductions, it becomes increasingly clear to people that it's important for the rail industry to have a good strong financial stable base and to earn their cost of capital. And that I sincerely hope and believe that that will be taken into consideration in any kind of regulatory or legislative change coming forward so that we can continue to reinvest in this business for the long term.

And just one follow-up. You talked about fair and balanced regulation. Any sense in terms of what that fair and balanced regulation looks like or maybe another way to think about it, which issues are most important to you, Canadian Pacific and the AAR, the group that's representing you, as opposed to the shippers and how that might shake out?

Right. I think again, it's all very broad David, but the shipper community seems to be interested in switching and bottleneck and things like that. And I think our industry is very interested in making sure that the uniform costing program reflects the long-term costs and that any regulatory change that comes forward does not impede our ability to earn our cost of capital. And that's a pretty macro perspective, but I think those are kind of the big issues.

Great. Thank you.

You're welcome.

Mr. Green, there are no further questions at this time. Please continue.

Well, very good, thank you everybody for taking the time to join us. A bit of a tough quarter on volume but I hope that the answers you received and the game plan we've put in place with regard to managing those variable costs, while driving down our long-term fixed costs is something that makes sense to everybody. Thanks very much and we look forward to talking to you again.

Ladies and gentlemen, this concludes the conference call for today. Thank you for your participation. You may now disconnect your lines.