Canadian Pacific Kansas City Ltd. (CP) Q4 2010 Earnings Report, Transcript and Summary

Scott, I think in context, first of all, there's a $5 million restructuring cost and then some relocations. So I doubt you'd see something even that big this year. I'm not aware of any substantial initiative that might cause something like that if there's anything. Hope that gives you a context.

Your next question comes from the line of Benoit Poirier from Desjardins Securities.

My question is for Kathryn. You provide some good color about the debt payment, obviously, the CapEx and pension stuff. But what kind of color can you give on the free cash flow expectation this year in 2011?

Well, Benoit, we're not going to give guidance on that, but we do see positive free cash flow even with a higher capital program.

And maybe for my second question, given the improved visibility with respect to the economy and your operating matrix. Obviously, PRB option, we've discussed that for a long time. But what about the likelihood of going ahead, any color about the timing, and what are the key elements you'll consider or you're looking at before making a decision?

So, Benoit, we constantly look at this. We have our four requirements, that included the access to the right of way, having coal contracts, having permits and mine access. It's constantly being looked at. The coal market is what's really been driving the overall business case, and that is still a work in progress, as we see coal now becoming more -- even being vocalized by Obama last night in terms of the clean coal initiatives. So it's one that we keep on the radar. It's one we're constantly working, and it's one that we have also said that would probably require us to be partnered with someone in order to move forward with it.

There are no further questions at this time. Mr. Greene, please continue.

Well, thank you, everybody. We've had a good quarter. Obviously, a little bit of rough weather, but we'll power through it. And we look forward to getting together with everybody at the end of the first quarter.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.

Good morning. My name is Steve, and I will be your conference operator today. At this time, I would like to welcome everyone to the Canadian Pacific's Fourth Quarter 2010 Conference Call. [Operator Instructions] Ms. Wiess, you may begin your conference.

Thank you, Steve. Good morning, and thanks for joining us. The presenters today will be Fred Green, our President and Chief Executive Officer; Kathryn McQuade, our Executive Vice President and Chief Financial Officer; Ed Harris, Executive Vice President and Chief Operations Officer; and Jane O'Hagan, Executive Vice President and Chief Marketing Officer. Also joining us on the call today is Brian Grassby, our Senior VP, Finance and Controller. The slides accompanying today's teleconference are on our website. Before we get started, let me remind you that this presentation contains forward-looking information. Actual results may differ materially. The risks, uncertainties and other factors that could influence actual results are described on Slide 2 and 3 in the press release and in the MD&A filed with the 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 4. Finally, when we do go to Q&A, in the interest of time and in fairness to your peers, I'd ask you to limit your questions to two. If we have time, we will allow requeueing, and time permitting, we'll circle back. Here then is our President and CEO, Fred Green.

Good morning, and thanks for joining us. This quarter, CP reported adjusted earnings per share of $1.12, a 51% increase over Q4 of last year, and our operating ratio improved by 360 basis points. The higher-than-projected volumes to the West Coast and the early November cold tested the capabilities of CP and the entire supply chain in Q4. Overall, we posted some solid results, with operating metrics in line with 2009 on a much busier network. As importantly, we continue to take steps targeted at delivering sustainable improvements in productivity and asset velocity. Before turning it over to the team, let me take a few minutes to reflect on 2010 and our progress. For the year, adjusted EPS came in at $3.87, up 54%; and our full year operating ratio came in at 77.6%, a 410 basis point improvement. In many ways, 2010 was as extraordinary as 2009, with volatility and limited market transparency creating a very difficult environment for resource planning, service execution and efficiency. We went from a market expecting moderate recovery to full year growth of almost 17% in terms of revenue ton-miles. From a Canadian grain production forecast that shifted from a 15% reduction in acres planted to Vancouver export volumes that were 13% above the five-year average for the new crop year, and from declines in port traffic of more than 10% last year to Vancouver volumes that suggest 2010 record years for coal, grain and containers. And while we're managing demand surges, we successfully recovered from the largest mainline outage in CP memory, with significant washouts in Southern Alberta just as the demand was taking another step up. Last January, I spoke to some key objectives that included staying nimble and adjusting quickly to volume shifts, whether they were up or down. We delivered on this objective, handling unexpected double-digit growth, albeit with some impact to our service metrics. Improving the consistency of our service offering is a key objective for 2011. The hard-fought productivity improvements we achieved in 2009 were not only sustained but in fact improved with average yard dwell, fuel efficiency, car velocity, train productivity, all better on a much busier network. For the fifth consecutive year, CP was the safest railroad in North America for train accidents, with a remarkable 10% improvement. Personal safety also improved 16%. We spoke about growth in pricing for value, and we delivered with positive price in excess of inflation. Growth in new energy markets and the new long-term agreement with Teck that sets the stage for volume growth over the next decade. Finally, we focused on the balance sheet to ensure we have the financial flexibility to exercise strategies at the time of our choosing. Our pension prepayments and debt efforts now allow us to move forward more aggressively with plans to pursue our service and productivity initiatives, and our recently announced capital plan speaks directly to that confidence. I'll turn it over to Kathryn, Ed and Jane to provide the details on the fourth quarter and our current thoughts on 2011. Then I'll come back and wrap up. Over to you, Kathryn.

Thank you, Fred, and good morning, everyone. 2010 was a strong year for CP. We made solid progress in strengthening the balance sheet, took meaningful steps in our structural cost reductions and ran a more efficient Railroad. In Q4, we sustained productivity and efficiency, moving 9% more carload volume and improved our operating ratio 360 basis points compared to Q4 last year. So let's get into the numbers and begin with our GAAP, non-GAAP conciliation to adjusted earnings. For the quarter, reported earnings per share were $1.09. When you exclude FX on long-term debt and other specified items, our adjusted earnings per share were $1.12. We had similar adjustments in 2009 and a large one-time loss from an early lease termination with a short line, offset by a tax rate gain, which decreased earnings per share by $0.13. For the full year 2010 reported and adjusted earnings per share were essentially the same at $3.85 and $3.87, respectively. We had larger adjustments in 2009, decreasing adjusted earnings by $0.79 from $3.30 to $2.51. The remainder of my presentation will speak to adjusted earnings for comparison purposes. And in 2011, you should no longer see the need for this reconciliation. Turning to Slide 9 and the FX adjusted column on the right side. Total revenues were up 15% due to higher volume, fuel surcharge revenues and price. Jane will give you the details on our freight revenues. Adjusted operating expense increased 10%, and operating income was up 37%. Our operating ratio improved by 360 basis points to 77%. Turning to Slide 10, below the line. Interest expense and other income was lower, and income tax expense was higher due to increased earnings. I'll provide more color on our tax rate later in the presentation. Adjusted earnings and adjusted diluted earnings per share were both up 51%. Now let's look at each expense line item in more detail. You will note the slides include fourth quarter year-over-year variances on the left and full year variances on the right. I will be speaking to both. Starting with compensation and benefits on Slide 11. In total, including an FX gain of $3 million, comp and benefits was up $45 million or 14% for the quarter and 9% for the year. On the quarter, volume-based expenses were up $13 million, with the average number of expense employees of 13,918, in line with the previous projections. With increasing demand and winter conditions, we are bringing on more resources, and I expect Q1 will be higher by 200 to 300 employees. Incentive compensation was up $9 million, mostly due to better corporate performance. But for the full year, incentive compensation was up $44 million. Wage and benefit inflation increased $9 million for the quarter and $38 million for the year. We saw a restructuring cost of $5 million for the quarter and $9 million for the year, as we proceeded with our structural cost initiatives. Related to restructuring, our relocation cost included in purchased services, which I will provide in a moment. Training costs this quarter were higher by $4 million. Pension expense was up $3 million on the quarter and $15 million for the full year. I will give you more details on pension later in the presentation. After a number of puts and takes, all other items added up to an increase of $5 million in the quarter, which largely reflects higher overtime. Looking at 2011, we see compensation and benefits higher, with training cost up about $25 million, our pension headwind and wage inflation all partially offset by lower incentive compensation. Turning to Slide 12. Fuel expense was up $44 million or 28% on the quarter and $148 million for the year. Q4 price increased fuel expense $29 million, as our all-in cost were USD $2.68 per gallon, up from $2.28 in Q4 2009, with much of the pricing increase late in the quarter. Higher business levels drove increased consumption and expense by $23 million for the quarter and $75 million for the year. This quarter, our fuel efficiency was 1.2 gallons per thousand GTMs, a solid result considering colder weather and a fully deployed fleet, which includes older, less efficient units. On the year, fuel efficiency improved 2%, ahead of our target of 1% improvement annually. Foreign exchange was a tailwind of $5 million for the quarter and $45 million for the year. Turning to purchased services and other. This line item was down $24 million or 10% including the FX tailwind. In 2009, we had a large adjustment for workers comp, which created a favorable year-over-year variance of $22 million. Higher volumes increased purchase services by $8 million, and this increase was tempered with good efficiency improvement seen in intermodal. As I mentioned earlier, we have begun to move forward with our structural cost initiatives. So in addition to the restructuring costs included in comp and benefits, we saw relocation expenses higher by $5 million. IT expenses were up $6 million, consistent with our intent to drive productivity through investment in technology in our 2011 capital plan. Track and locomotive maintenance expenses were lower by $3 million. Q4 land sales were on target at $22 million, finishing the year at $28 million. As I have previously mentioned, land sales can be lumpy by quarter, but we should see 2011 sales in the range of $20 million to $25 million, slightly lower than in 2010. Moving to the remaining operating expenses on Slide 14. You will note all had a slight FX tailwind. Materials were up by $14 million principally on higher traffic volumes and the early onset of winter, both of which led to seasonal increase in the consumption of wheels. Equipment rents were down $4 million, a great result with our higher volumes. Intermodal efficiencies increased car hire receipts and new lease agreements with lower rates all contributed. Depreciation was essentially flat. Taking a quick look at the full year for other operating expenses on Slide 15, again, each line was helped with a stronger FX. Despite higher business levels, in materials, we finished the year down $4 million and equipment rents were essentially flat on better car miles per car day, terminal dwell and lower freight car lease rates. Depreciation was slightly higher for the year. Turning now to Slide 16, I will speak to taxes. Q4 effective tax rate came in at 20.1%, a result of a lower-than-expected effective tax rate for the year. We had projected a tax rate in excess of 25% and ended the year at 24.4%. Looking at 2011, I expect the effective rate to be in the range of 24% to 26%. Now let's turn to pensions on Slide 17. Our defined benefit pension expense for 2010 was $36 million. We now know that pension expense for 2011 will be $46 million, up only $10 million from last year. There are always a lot of puts and takes, but the headwind from the lower discount rate was helped by our prepayment and favorable equity returns. We still see our pension expense increasing over the next several years, as large equity losses from 2008 are recognized. At Investor Day, we talked about pension expense increasing to approximately $150 million by 2013. Again, there are many unknowns that will ultimately determine this expense. However, if the pension assumption as outlined in our annual report materialize, we now see pension expense closer to $125 million by 2013. Now let's turn to contributions and our previous guidance. The prepayments have provided a tremendous amount of flexibility in this area. Previously, I indicated that we expect to maintain contributions in the range of $150 million to $200 million for the next three to five years. With better equity returns, we now expect to lower this estimate to $100 million to $125 million in 2011. For modeling purposes, I would use $125 million to $175 million for each of the following four years. Now let's turn to Slide 18 in cash. I'm pleased with how we have positioned the balance sheet and put our cash to work. During the year, we increased our dividends, reduced long-term debt, made a large pension prepayment, maintained an adequate capital program and began to invest in our structural cost initiatives. With stronger volumes and improved margins, when you look at our cash flow before the voluntary pension prepayment, cash from operations was $1.2 billion. After deductions for CapEx and dividends but before the prepayment, cash flow is positive by $325 million. When you include the voluntary prepayment of $615 million, free cash flow goes to a negative of $325 million. We are entering 2011 with a strong cash position and solid liquidity to execute our strategies. Looking at capital expenditures on Slide 19. Earlier this month, we announced our capital program for 2011 of $950 million to $1.05 billion. This includes $600 million to $700 million on basic track infrastructure renewal; $200 million for growth, productivity initiatives and network enhancements, including investments in terminals and sidings, as well as locomotives and rolling stock; $80 million to strengthen and upgrade IT systems to enhance shipment visibility and information needs; and $40 million for regulatory requirements including train control. The strong return of business creates opportunities to capture growth efficiently, and these investments will enable us to meet our customer needs and support our drive to a lower OR. So let's do a quick summary of 2010 on Slide 20. Total FX adjusted revenues ended the year up $775 million or 18%. Operating expenses were up only $420 million or 12%, and the annual operating ratio improved by 410 basis points to 77.6%. 2010 was a year of recovery and one which positions the franchise well for continuous improvement in asset velocity, which will drive service reliability and productivity. Our operational focus, coupled with our capital investments, position the franchise for top line growth and achieving an annual operating ratio in the low-70s in the next three to five years. With that, I will turn it over to Ed to speak to operations.

Thanks, Kathryn. It was indeed a busy quarter for us as we maintained some high levels of productivity and efficiency while delivering 9% more volumes in the quarter, as measured by carloads. In fact, I'm pleased to report that we posted some year-over-year improvements in key metrics. This was accomplished even while dealing with a number of supply chain and weather-related issues, which created some service delays and short-term declines in locomotive and railcar utilization. These difficulties have continued through the start of the first quarter. However, we have seen a significant improvement in network fluidity over the last few days; and hopefully, the most challenging conditions are now behind us. Our positive results in quarter four, Q4, were achieved by staying focused on our core priorities of safety, asset velocity, reliability and productivity. Turning to Slide 22. This quarter, personal safety improved 14% and train operations improved 18% over last year. Excellent results. I'm pleased with the intense focus in this area and our industry leading train operation safety. This discipline continues to serve us well in all aspects of our operations. Now please turn to Slide 23. Demand increased in quarter four and in aggregate exceeded the forecast provided by our customers. As a result of this higher-than-planned demand, the capabilities of many supply chain were taxed. And from a CP perspective, our railcar and locomotive utilization were impacted in the short term. We responded by fully deploying our mainline locomotive fleet and supplementing it with some of our smaller, less-efficient units where it made sense and implementing train design changes specifically targeted at recovering and regaining network fluidity. As anticipated, our fuel efficiency was impacted in the quarter by 2%. However, our initiatives such as implementation of fuel trip optimizer technology and longer trains delivered a 2% improvement for the year. All in all, I would have to say a good result given the current locomotive fleet profile and traffic mix. To deal with the supply chain issues, particularly at the Port of Vancouver, we elected to forgo some minor train productivity opportunities to keep assets moving and terminals fluid. As a result, as indicated on the slide, train weights and lengths were off in the quarter 1% and 2%, respectively. However, for the year, were up 2% on both measures and will continue to drive our long train initiatives. On to Slide 24. We continue to make improvements in key efficiency metrics. As expected, network speed was lower, consistent with the increased volumes and the very early onset of winter conditions in congested supply chains. Other key metrics showed positive results, continuing our improvement trend. Our terminal dwell time improved 4%, which is a good result given the increase in work levels. Our labor productivity, as measured by GTMs per employee, was up 10% for the quarter and 14% for the full year. We set a Q4 record delivering 4.5 million GTMs per expense employee. And our car miles per car day improved 3% for the quarter and was 6% better for the full year. Car miles per car day is a critical metric because it reflects the productivity of our key assets, yards, networks and rolling stock. We'll continue to focus on driving this metric and have already begun a pilot program to schedule our grain bulk operations in partnership with our supply chain participants. I am pleased with our early results but know we can and have much more to do. Before I sum up on Slide 25, I'll give you a quick update on labor. Negotiations continue with the Canadian Auto Workers' union, which represents our mechanical services employees. We're optimistic that a settlement can be reached. However, we do have contingency plans in place and will continue to operate in the event of a work stoppage. To sum up, on Slide 25. Our main focus will continue to be taking actions that will deliver sustainable improvements in asset velocity, service reliability and safety. Our 2011 plans include: Completing a series of targeted capacity and long siding projects to meet demand and improve productivity even further; continuing to deploy fuel trip optimizer and other locomotive technologies that will bring further improvements in fuel efficiency; hiring and training a significant number of new Running Trades employees through the course of the year to support growth and address anticipated attrition and retirements; completing the roll out of our yard initiatives in order to improve local service, asset velocity and create low-cost capacity for growth; and building on our existing safety framework. These are just a few of the actions we have planned to drive sustainable improvements in safety, service reliability and productivity. I'll now turn you over to Jane to cover the markets. Jane O’Hagan: Thank you Ed, and good morning. Starting on Slide 27. This was our sixth quarter of sequential growth in revenue ton-mile, with RTMs increasing 3% over Q3 2010. On a year-over-year basis, Q4 carloads were up 9%, and volumes in many commodities are recovering to normal levels. In fact, Q4 revenue was our second highest reported for the quarter in our history. Revenue ton-miles or RTMs were up more than carloads, primarily due to the significant year-over-year increases in potash and new long-haul ethanol volumes. On a currency adjusted basis, revenues increased 15%. In addition to volumes of 9%, fuel surcharge revenues generated 2% of the gain, and price and mix contributed 4%. Renewals in the quarter came in just over 3% excluding Teck, and same-store price was just over 2%. Now I'll walk through the markets, giving comments on the quarter and some perspective on 2011. For clarity, I'll speak to currency adjusted revenues. Grain revenues were up 4%, and units were down 3%. In the U.S., our shipments increased, driven by record crops in our territory and strong demand for wheat, corn and soybeans. On the Canadian side, grain quality and international production issues created a strong West Coast demand pull. Vancouver shipments this crop year are up 13% higher than the five-year average, while sales to other markets were weaker than in 2009. As we look forward, we still expect first half grain volumes to be weaker than 2010. In Canada, we face difficult compares. The impacts of a 13% lower Western Canadian crop will only be partially offset by strong production and shipments on our U.S. franchise. Moving to coal, revenues were up 13% year-over-year, with volumes at similar levels to 2007. Met coal export demand to the West Coast remained strong. For 2011, the fundamentals behind Asian demand for metallurgical coal continue to support Canadian export volumes, and the Queensland flooding further supports a strong demand picture. Our new agreement with Teck comes into effect on April 1. We expect to see strong revenue growth in this portion of our coal portfolio for Q2 forward. On the U.S. front, I will remind you that we will see phased-in reduction on thermal coal volumes of approximately 40,000 carloads annually. This will have a limited revenue impact as it is short-haul, lower revenue per car traffic. It will impact revenue per car and coal, which should be up somewhere around 10%. Turning to sulphur and fertilizers on Slide 30. Revenues were up 58% on the quarter. And while volumes have recovered, they're still not at 2007 levels. International demand for potash was up versus easy compares. Rising commodity prices helped contribute to robust domestic movements, and we saw a strong fall application. As we look at 2011, the signs are there for solid demand. Grain prices are strong and fertilizer pricing has been rising. We expect that the more normal Q4 shipping levels will continue through 2011. In our merchandise portfolio, revenues were up 19%. Energy demand continues to be robust, supported by high places and opportunities on our network. Mines, metals and aggregates benefited from rising commodity prices, energy sector demand and easy compares. Automotive revenues were up 13%, as we saw production increases supported by a recovery in sales. In forest products, we saw a steady volume improvement, particularly in pulp. Pulp volume was aided by the reopening of a mill on our line in Q4. For 2011, energy-related demand will remain strong, as we develop opportunities in the Bakken, Marcellus and Oil Sands areas. As we move through the year, we will be lapping tougher compares, particularly in ethanol. In forest products and auto that are more directly linked to the North American consumer economy, there are some positive trends. Growth will be in line with underlying demand and is dependent on the sustainability of the economic recovery. Turning to intermodal, revenues were up 11%. A key growth driver was the strong recovery of imports, exports and revenue empties through the West Coast. You can see the revenue empties impact on our intermodal growth numbers with carloads up more than RTMs and revenue per unit. This growth was partially offset by some short-haul, Eastern and inter-West business where we chose to price up. We have seen encouraging signs in the last couple of quarters in retail sales and in employment numbers. These bode well for 2011. We should see continuing year-over-year improvement in intermodal volume. To summarize, Q4 saw solid year-over-year growth and capped off the year of 19% revenue growth. 2010 renewals came in, in the 3% to 4% range, as we had expected. Looking to 2011, we are optimistic that the economic recovery will sustain itself. You heard Ed talk to our capabilities, and through Q1, we will be working to recover from the recent weather and avalanche challenges through the Rockies. As we progress through the year, we lapped tougher compares, so the rate of growth will naturally slow. And in looking at RTMs versus carloads, they will track roughly in line with each other over the year. My team continues to target above-inflation price increases and is pursuing the growth opportunities we outlined to you at Investor Day. Now I'll turn it over to Fred to wrap up.

Thanks, Jane. I'll wrap up with a simple message. I'm pleased with CP's progress, but there's more to do. We delivered operating leverage as demand recovered, volumes significantly exceeded our customers' expectations and their own, and our emphasis on staying nimble payed off. Looking forward, there's clearly demand growth, particularly in the bulk business. Overall, we are expecting continued but more modest recovery, and we are ramping up our resources accordingly. In the near term, we expect volumes will remain somewhat constrained with difficult winter conditions and the timing of our resource deployment somewhat flattening the Q1 performance. You should expect asset velocity and service reliability will be the key areas of focus in 2011 as we work towards a sustainable low-70s operating ratio. I'll now turn it over to our operator, Steve, for the questions.

[Operator Instructions] And your first question comes from the line of Scott Malat with Goldman Sachs.

My question is on -- I'll start with potash. You kind of said there was an easier comps there, and 4Q was a good run rate. You're seeing some big growth there. I know Canpotex have been signing some big international contracts. We just saw another one I think last week. Can you talk about the 4Q run rate and maybe the opportunity from there? Maybe are there increases from the 4Q run rate as we go through to 2011? Jane O’Hagan: Scott, it's Jane. I think that what the important point to note is that at our peak, we are at about 9 million metric tons. And then as you know, we dropped to 4 million. And 2010, we should finish off at around the 8 million metric ton level. What we're seeing is that we believe that there's still some room to move up as we're not at that peak level. And again, while we need to be nimble and we need to be in a space where we can respond quickly to changes in demand, we feel that, that Q4 run rate is a good way to model 2011.

As you look through the results, take me through it, but I would think that the mix was a significant positive for this quarter. Is that not the way to think of it? Jane O’Hagan: Yes. Scott, I would say that mix in this quarter, although our RTMs outpaced our carloads, it's really a good story for us. I mean we've seen the return of the export potash market. But most importantly, we're seeing the results of our long-haul ethanol initiative, which really involve extending our lengths of haul over Chicago into those markets into the U.S. Northeast.

And the last, just maybe for Ed, as I just think about the disruptions and different things that go on through the year in the railroad. First, is it more difficult to get around some of those disruptions just given CP's network, there's less rerouting options versus other railroads? And what can you do in future years to kind of lessen the impacts of disruptions like these or at least cut down the timing where you get the -- the length of time where you have some of the disruption problems from them?

If you can help me predict where the next natural disaster is going to come from, I'll be all in to that. Listen, this railroad has a very solid winter operating plan. We have positioned equipment and people in place, and positioned the deal even with the recent avalanches on a normal operating day, winter operating day, through the mountains, we would anticipate handling 32 to 34 trains through Revelstoke. And even losing the capacity with the avalanches, we still manage to get 10 to 12 trains a day through that corridor. That is an exceptional, exceptional level of performance based upon what we were dealt with. I'm extremely proud of our operating team, our engineering group, Running Trades employees and certainly our mechanical group to stay focused, work long hours and keep the railroad fluid and open as much as possible. In line with the other portion of your question, if there is an opportunity to detour, naturally, we will take advantage of that, but you're right, we are kind of through that gateway. We are kind of on our own a little bit there, but the team is ready, the equipment is in place. And quite frankly, I couldn't be more pleased with the performance that we were able to deliver here the last few weeks.

Your next question comes from the line of Cherilyn Radbourne from TD Newcrest.

I wanted to ask a broad question to start. And that is, as you look back at 2010, could you give us a sense of where were the areas where you feel like you need the most significant progress in terms of your structural cost?

Well, Cherilyn, it's Fred. I think there was a total of 150 different initiatives, so it's pretty hard to kind of narrow it down and say that any one was most significant. I would maybe offer a couple of things. The rationalization of our facilities, particularly our mechanical facilities, has really progressed well during 2010. I think the work that Brock has led in that regard will really position us nicely. We're about three quarters away through that, and I think probably by midyear, maybe third quarter of this year, we'll have another big chunk done. That's going to be a big, big piece of accomplishment, which will leverage for a long time to come. The whole organization went through an exercise in our code language, ANA, which was basically a restructuring, where there was the elimination of layers, clarity of roles, metrics by which people would be measured, and a restaffing, Kathryn referred to some of the restructuring and the relocation costs. So it's been a year of pretty substantive transition for many people. And most of those people are now in place, there's probably a handful to take place in Q1. So those are examples of big, big initiatives that have each of them anywhere between $10 million and $25 million worth of benefit in the fairly short term. And I would probably add on another $15 million or 20 medium-sized ones that are all well executed. So that's maybe a sampling of what we've been doing.

Just wondered if you could provide some commentary on to the extent which the demand exceeded your expectations in Q4, can you just kind of point us to areas in the book of business where demand did come on stronger than you expected?

Cherilyn, I think the greatest swing, and I mentioned it in my early comments, is that when you plant 15% less acres of grain and the demand -- because of global circumstances, high prices and issues in other countries from the supply, the demand for grain through the Port of Vancouver was substantially higher than anything. I mean we clearly did well relative to the five-year average, but we did not meet the expectations the customers have, because they want to be opportunistic and seize market opportunities. I would have loved to enable their incremental demand, and we were unable to do that partially because of our capabilities, but partially because of decisions made within other members of the supply chain and some issues they had operationally. I think the potash demand is really ramping up nicely. And certainly, there's good demand for that. As Jane said, we'll have a stronger year, I would think. It's for them to say, not us. But I think as one of the earlier comments has illustrated, there is increasing numbers of contracts being signed globally by Canpotex. So those are kind of the two big ones, and then we've really had a great run in some of our merchandise and energy businesses. And a lot of that is self-initiated through Jane's team having really worked hard during the 2009 year to create opportunities for ourselves.

Your next question comes from the line of Tom Wadewitz with JPMorgan. Thomas Wadewitz - JP Morgan Chase & Co: I wanted to ask, I guess Ed or Fred, what your view is of capacity of the railroad right now? And if you have some upside surprise, I mean, it seems like you have pretty constructive outlook in a number of your customer segments. If you have upside surprise on the demand, how well can you respond to that? And is that a matter of crews or locomotives, or how would you look at capacity of the railroad?

Well, let me tell you, their capacity remains. We've delivered on an increase of 17% RTMs, as Kathryn pointed out, on a projection of only about 3% increase. I think if we weren't able to adapt to that, then I would tell you we had issues. We did a very, very good job now. We have now, and are in the process of hiring and training, approximately 1000 Running Trades employees. The additional train starts that were handled over the fourth quarter were done so in order to get our ports fluid, and we gave up some efficiency metrics in line to do that to keep up with the traffic flow. We also were extremely focused on our growth initiatives, in line with our IMS product, which was extremely strong in the fourth quarter. And as Fred mentioned earlier, the bulk franchise. So I think we're very well positioned, in line with our capital programs going into this year, and certainly see no surprises on the horizon to be able to adapt to any capacity issues, whatsoever.

Tom, I would just compliment that and say that you probably should look at it a little bit through the eyes of seasonality, and that we began a fairly substantial hiring program back August, September of last year and everybody knows the lead time on Running Trades employees. So we'll be nip and tuck in the first quarter, but we would anticipate that as we move into Q2 and certainly by Q3 and Q4, we'll have plenty of resources. So look at it a little bit light in this first quarter and then ramping up. To Ed's point, we've got lots of capacity on trains, and we've chose to forgo that for other reasons, but we can move back to the longer trains and other metrics that will enable us to capture new volumes. Thomas Wadewitz - JP Morgan Chase & Co: And then as a follow-up to that. I guess, Ed, you had mentioned the train side. I don't know if I missed this in the presentation, but how much were the train starts up in the quarter? And then on the kind of headcount comment, adding and then you get to more of a I guess run rate. What is the sequential change in headcount will look like in the next couple of quarters?

Well, I would say that we certainly are planning on protecting our attrition as it goes into 2011. We have personnel scheduled to come on board beginning the end of first quarter into second quarter. You'll see the biggest push of personnel completing their training, lined up for the fourth quarter, and certainly be done during December months of this year.

So, Tom, I did in my representation, I gave that we do expect Q1 as we're ramping up to be up on our expense employees, about 200 to 300 employees from where we were at the end of the year. And as Ed brings his 1,000 plus Running Trades on, you'll see, I think, an increase on our active employees, maybe 100 each quarter for the rest of the year. Again, that's going to be dependent on how strong the volumes are, and we'll manage through that. Thomas Wadewitz - JP Morgan Chase & Co: So 100 sequentially if you look at second versus first and third versus second and so forth?

Yes.

Your next question comes from the line of Matt Troy from Susquehanna.

A question about CapEx. I noticed that your guidance, that the $1 billion mark was up nearly 40%. Even if I stripped out PTC, it was up about 30%, all in about $100 million more than you've ever spent. So I'm just wondering, how much of this is catch-up? Obviously, everyone underspend during the downturn understandably. So how much is cash-up versus you're just investing for anticipated volumes going forward? And if you could remind us what your hurdle rate is for capital deployment, that will be helpful.

So, Matt, first of all, we have no catch-up. We had a capital program last year where we maintained and sustained our infrastructure, and what you did not see was discretionary capital. So what we -- and that was as a result of lower business levels. So what we are doing now is moving forward with many of our structural initiatives, particularly around our fluidity initiatives as volumes are coming back, as well as our long train strategy, which will add sidings to it. So this has been a long-term plan. We gave a lot of detail on the Investor Day on this, and that's just getting back in line as the volumes are here and putting our initiatives going forward. So, yes, it's up, but that's because business levels are up, and we're back on track with our multiyear plan around our productivity initiatives.

And the hurdle rate for growth capital, can you share that.

No, we don't give that information, but I would say our discretionary capital has very high hurdle rates.

The second question will be just again, and thank you for that color, on the capital structure, I believe you guys have done a great job both with the pension and the debt getting the house in order. I was just wondering, you've got I think about $300 million in debt coming due this year. In terms of capital deployment, do you expect to pay off more than that, or does dividend become a priority? When does share repurchase re-enter the equation? Just trying to think outside the CapEx where the capital goes this year.

Yes, sure. I'm probably not finished with the balance sheet yet. I still would like to see our overall debt rates come down, but I don't see it coming down greater than the amount of maturity that's coming due. So we will manage through that as best as it is. What we do want is the flexibility to maintain the lowest cost, cost of capital, and we will also keep track of what's going on the debt markets because, as you know, interest rates are exceedingly low and still low. They're not as low as they were last year. So it's a constant work in progress, but I think, generally, we still have the focus on reducing overall indebtedness in the longer term. Secondly, dividends. We have always said we are committed to a competitive dividend policy. That of course is the discretion of the board, but we will focus on dividends growing in line with what we see our earnings growing with. And so overall, we will monitor that and look to see what the board wants to do later this year. And when share repurchases come into play, that's yet to be seen. We still have some aggressive capital programs and we have some great projects, which have very high returns on them and I think are the highest and best use of capital at this point.

Your next question comes from the line of Chris Wetherbee with Citigroup.

I was wondering if maybe we could touch a bit on the network again. I guess when we think about kind of the balance of your network and we look at the growth opportunities, whether they'd be on the bulks, particularly on the bulk side, whether it's potash or coal. I guess how do you think about the balance of your network, East, West, and maybe what challenges does that present to you, Ed, from an operating perspective, as you look forward? And how do you deploy capital to maybe address some of that?

Well, certainly, as we mentioned earlier, our long siding initiative is still intact and still in place. As far as the Trans-Con goes, we see our efficiencies across the network focusing on a reliability function. And as Fred mentioned and as I've mentioned, as we continue to mention across this network, car miles per car day will be a major focus, so we can get a better control of our assets, get more miles per day and turn the equipment much easier, which, again, are much quicker. That creates capacity. And what we look for, of course, is the balance, whether it be bulk, longer intermodal trains or certainly the service reliability and our focus in our yards and terminals, we see tremendous opportunity in not only proving our service level but generating capital through smarter and better operating conditions.

Chris, it's Fred. If I can just provide a little more color looking back a bit earlier in time. Prior to the deep recession we all experienced, we had made several stages. I think we got up to our third stage expansion of Western capacity. Obviously, the Western Lane is a great business for us and a great opportunity for us. And we have made commitments to Teck and others that we will continue to expand as needed, but remember that we expanded and then we went through the recession. So the physical plant today and for the foreseeable future, as in next year at least and maybe beyond that, already exist for us to do more. Ed touches on a very important point. The long train investments, our long sidings investments to allow the long trains is a productivity initiative, the collateral benefit of the productivity initiative is it also creates capacity for us. So the combination of what we did prior to recession and what we are doing with our long exciting extensions is going to suit us very, very well going forward.

I apologize if I missed it when we went through the discussion on CapEx earlier, but I guess when you think about opportunities for potential investment to ease potential bottleneck, particularly around Vancouver, what kind of specifically have you highlighted as opportunity there? And I think probably some of that goes hand in hand with your Teck opportunity going forward. I was just curious, and again, I apologize if I missed it in the prepared remarks.

Well Chris, if you look at the last three to four years in the greater Vancouver area, the dialogue between ourselves and our primary competitor/partner from an operational perspective in the Lower Mainland CN and the efforts of the terminals and the government have put nearly $4.5 billion into the lower mainland, between all of those different parties. All of those have been oriented to ensuring or improving the fluidity of the terminal operations and the railways and/or the highways in some cases to enable those terminals to get the products in and out. So I would frankly portray the greater Vancouver area has probably been an area that's had the most emphasis, and I think we already are in very good shape. But I will tell you, we met within the last two weeks, we've met again with the minister and the associated parties asking ourselves have we got our eyes far enough to the horizon to make sure that we don't get caught without the next tranche of capability, be that physical capacity or process change in place. So I don't see that as an area of concern. I see it as an area of opportunity. And obviously, we're right in the middle of the fray debating and discussing with all the parties.

Your next question comes from the line of Bill Greene with Morgan Stanley.

This is actually John Godyn, filling in for Bill Greene. I have two questions. First, Jane, given the bullishness you and other rails noted on met coal trends, and I know you can't offer specifics but in broad strokes, can you help us understand what type of sensitivity your coal business has to a bullish global met coal outlook. Is there any opportunity for you to realize any sort of cyclical yield improvement as met coal markets tighten? Jane O’Hagan: First off, I'll start off by saying that we take our guidance from Teck and from Teck's forecast. And last week, they had indicated their sales forecast being about 24.5 million to 25.5 million metric tons. So I think the short and sweet is, is that any upside opportunity would be gained through our relationship with Teck. And as I said, the reason we entered into our 10-year agreement with Teck was primarily because we want to increase our volumes and increase our market share.

And, Kathryn, you noted that 2010 2% fuel consumption improvement exceeded the 1% annual target. Is 1% still a fair number to focus on for 2011, or could you give some of that back because of how well you did in 2010?

No, no, we're still targeting the 1% for 2011, and that's primarily driven of course by a lot of the technology and some of the operational initiatives.

Your next question comes from the line of Ken Hoaxter with Bank of America Merrill Lynch.

Let me just jump in, Jane, on the fertilizer side, you kind of mentioned or maybe it was the grain side, you were talking about the Canadian should soften a bit as the year progresses just as your comps got a little tougher. How about in the U.S. and the Midwest and the DM&E, how are you looking at that on the grain side? Jane O’Hagan: I mean, certainly, I think as I said in the past, we've had an excellent crop, excellent yields in our U.S. territory. And so we expect our grain shipments to be very strong. But in relation, just to make sure I condition it properly, the size of this crop is not going to offset the impact of a smaller crop in Canada. So we feel that the volumes coming off of our regular, what we would have called our Sioux territory, complemented by the strong volumes that we're seeing coming off the DM&E bodes really well for a good strong U.S. grain crop.

Ken, it's Fred. Just every now and then there's a silver lining to a bit of a dark cloud. And it hasn't been perfect on the grain supply chain, and we fully acknowledge that. Again, many reasons for it, but the good news is out of all of that is that, that demand that didn't get moved when people wanted it to move it, it will move as we move through the balance of the quarter, particularly maybe Q2, which would have otherwise been a little lighter given the lower crop size. So there's some deferred revenue in there as well as the possibility of the U.S. market helping us out considerably.

Jane, did you mention the size of where you think the crop stands as it rings now? Jane O’Hagan: For the Canadian crop? It's around 42 million metric ton size. I think that, again, we're down 15% on our seeded acres, but you'll recall in Fred's point, he talked about production being down about 13%. So we do have a smaller crop in Canada.

And one further observation, Ken, is simply that the high grain prices will probably lift product out of storage and will certainly cause people to try and take opportunistically the opportunity to move these tons that might have been traditionally part of the carryover. So it may not be as bad. We just don't know until the behaviors of the grain companies manifest themselves. Jane O’Hagan: Certainly in Canada you will see Q1 being strong because there is significant grain left to move. And after Q2, as we naturally go into the next crop, it will slowdown.

So does that conflict a bit with the fertilizer kind of moves if you're seeing the seeded acreage down so much? Jane O’Hagan: No, because I think that the function of the fertilizer, if you look at our fall fertilizer program, it's been very strong, partially because, a, the crop came up early; b, because grain prices and prices are strong and that encourages farmers to spend money on fertilizers.

Ken, just a perspective, Canadian farmers do not move a lot of potash or fertilizers by rail relative to truck just because of the proximity of the facilities. We serve the U.S. Midwest market in all states.

If I can have my follow-up on the expense side. You kind of talked about moving to the low-70s in terms of your operating ratio. You've been kind of stuck in this upper-70s for a while. Fred, what is the kicker here that's going to get that kick-started to really move that a couple of hundred basis points at a time on an annual basis to get that moving down?

Ken, I think we have to really just go back to the Investor Day in June where we outlined a pretty comprehensive program of initiatives both structural costs, market growth opportunities and probably the single greatest one is the long train strategy, which have so much productivity opportunity attached to it. So I won't repeat everything I said in June, but those are the essence, and we just have to continue because we have done a good job in 2010, to deliver on the things we said we would do at that plan, and you will see these step function improvements in our belief.

And, Ken, this is Kathryn. I think one of the things we try to emphasize on the Investor Day. There's not a silver bullet here. This is about lots of different things being done on a continuous improvement basis, and that's what's going to drive to this. This is about running a railroad well, getting our structural cost down, having the lowest overhead possible, and that's when you look at all the things that we addressed and have going forward over the next three to five years, that what's going to take us there.

Your next question comes from the line of Garrett Chase with Barclays Capital.

This is actually Brandon Oglenski, filling in for Gary. If I could, I just wanted to ask if there's a way to quantify how the weather impacted the quarter in 4Q or even in the first quarter, either maybe from an expense perspective or from volumes that you maybe weren't able to move?

Brandon, unfortunately, winter comes and goes. It varies month-to-month and it varies every year by how severe it is. I don't really know how to quantify it. Certainly, we didn't get all the revenue we thought we'd get in certain periods, but some of it's deferred, as I said earlier. So I would just suggest to you that if there is a significant impact of an extended winter set of events, we will do our best to quantify it on the quarter, at the end of the first quarter. At this point in time, I wouldn't know how to do it and I don't think it's significant enough that it warrants too much attention at this point in time. It's clearly going to be frustrating in January for us, but we've got a rhythm and a great couple of days, in the last day or two, and I think hopefully the weather is buying this.

But your volumes in the first few weeks were clearly impacted by significant weather, right?

That is correct.

So is that expected to come back? Are you guys going to be able to catch up with that, let's say, through February and March?

They are a little bit like lost airplane seats sometimes, Brandon. There's only so many trains you can run on so many days of the week. So will it all come back? Doubt it. Will some of it come back? Of course. And at this point, we don't know until we work extensively with our clients to figure out what they have done in the meantime, whether they've simply deferred or whether they've gone elsewhere with some of their business.

And then maybe just a quick follow-up for Kathryn. I think you mentioned that changes in incentive comp were going to offset good part of wage inflation and the pension expense that you discussed. Now does that also offset the natural progression that labor expense goes up with volumes as well?

No. I mean we will have and we are projecting, hopefully, some productivity improvements next year. But again, what we're looking at, and I was trying to give guidance on, was the overall comp and benefit line, we'll see some pressure. We've got higher training cost. We will have inflation, but you should see some lower incentive comp. So it's not a complete offset. You'll still see some higher comp and benefits associated with 2011.

Is there any way to quantify how much of a benefit the restructuring should be this year?

No. We're not going to give that type of information at this point. I think I have been pretty clear in Investor Day, and otherwise, that when we do restructuring, it's when we clearly have good rates of return on it. It's a function of timing. It's a function of a lot of different activities, but we look at it no differently than we do in any other kind of investment, and some of it will be through people. Some of it will be through other items as well. So we have to look at, this is a network business and there's a lot of puts and takes. But overall, our restructuring relocation cost always have good rates of return.

Your next question comes from the line of David Newman from Cormark Securities.

Just in terms of the port issues, all the Western ports in general, how does that sort of factor in your CapEx plans for the railroad, not only from the issues that were previously faced by Westshore but the potential investment that's going on in Ridley. Does that factor into how you think the flows of traffic will ultimately go in your plans for CapEx for the next three to five years?

Well, I think, David, it's fair to say. I think you're on to a legitimate point that the flow of some traffic, now that either could be incremental traffic or could be the changing of existing traffic, is changing modestly. The most obvious one is the possibility of some Powder River coal making its way north. What that would simply lead to is that we've got certain connectors if we were to participate in that, that would have the capability of moving x amount of tons. And if this incremental opportunity required us to move 2x, then we would have to ensure that the caliber of the railway and also the siding capacity on those segments of the railways were adjusted to reflect those opportunities. So we don't see any bottlenecks in the short term in that regard. The question is how much of this changing movement or changing logistics are spot markets and how many of these are long-term permanent changes. So if they're spot markets for a season, you're not about to go out and put a massive capital program in. And if it's got a five- or 10-year horizon to it with a good payback, then we will might be more inclined to do that. So we'll be selective. We're obviously very involved in dialogue. And our primary lane, as you know, is the Vancouver lane and the Port of Vancouver. And we're doing everything that we possibly can to make sure that we never become the bottleneck in that lane over the next five- to 10-year horizon so that our customers can grow as fast as they want to grow, always trying to make sure we're not too far ahead of the curve.

Yes. I mean as I look at it, I mean it doesn't look like the railroad could be the bottleneck or Teck, it looks like ultimately it could be the amount of port capacity that we have in Canada on the West Coast. Does that concern you as being a potential limitation about how much you can take advantage of the world market? Obviously, it's a great opportunity, but obviously, the limitations will be the ports.

Well, David, I think I'd summarize this simply by saying, we have -- the last eight to 10 months has been such a great evolution of our relationship with Teck. I have incredible confidence that if there is anything that is a bottleneck in the supply chain, they're as committed to addressing the parts for which they have accountability as we are to addressing the parts that we have. So I'm not worried about it. I think it's just situational. If something arises between the two of us, we are committed to make sure the supply chain is functional and we don't miss opportunities, whether that affects a month or a quarter is not something that I worry about. It's the longer-term commitment and really delighted to have a partner with the same level of intense commitment that we have.

On the grain supply chain that you saw in the quarter, I mean some of it was related to I guess some of your partners at the port, and I guess maybe some of it was related to weather. You mentioned introducing more -- it sounded like you were introducing more of a grain service plan. Can you add a bit of color there as to what you guys are planning to do?

Yes, David. It's Ed Harris. Certainly, we've got a double-sided plan. Number one is we'll be scheduling the loads into the Vancouver right out of the Calgary gateway. In addition to that, we've just kicked off an empty order fulfillment plan where we'll go with a scheduled spotting plan testing out of locations and Lethbridge and Calgary right now to actually schedule an empty plan, empty spotting plan by day of the week. And of course, that would return back for the loaded plan. One of the most important focus is that besides just the scheduled grain operation is our activities in the terminal area in Vancouver. Scheduled transfers between Coquitlam and the Waterfront, a lot of focus, tremendous amount of focus on scorecarding and a local service operating plan within the Port of Vancouver. That's all been initiated and kicked off, and it's been well received by the terminal operators, as well as both carriers working in conjunction with each other to ensure that the scheduling and the timing and the inbound blocking remain intact and that we turn the product, or turn the equipment just as quickly as they can get it unloaded.

Your next question comes from the line of Walter Spracklin from RBC Capital Markets.

So looking at sort of a broader picture, we're hearing the call from CN yesterday that they are saying about opportunities to take market share on the basis of service. And based on our discussions, you mentioned the Canadian wheat board, they have indicated that they're going to be shifting more over to CN on that service basis. Is the plan that you have in place for grain or in any product going to recapture that market share, or are there any other areas where you expect it to take some market share on the basis of an improved service offering?

I'll ask Jane to address some of those issues but let me just start at the front end of it. If you look at RTM growth, you'll see the Canadian Pacific grew its RTM faster that CN in 2010. So I'm not at all worried about "market share." We have an enormous amount of energy as you've heard from Ed on multiple calls with regard to first mile, last mile, you're hearing some more now today about the scheduled grain activities. So we are not at all concerned about that. I mean it's a competitive game. We have to be competitive or we won't sustain or grow our market shares. With that, maybe I'll ask Jane to give a little context here. Jane O’Hagan: Walter, it's probably good if I give you a little context specifically on the grain because I think you are certainly asking that question. Our grain market share has been fairly consistent over the last five crop years. And when you look at the variability on market share on a quarter-by-quarter basis, grain market share does go up and down. This short-term fluctuation, I mean I'm sure to see WB has indicated this to you as well, it's based on originations, our product availability, it's on market supply chain performance, et cetera. So in Q4, these short-term components favored CN. And in addition, when you look at the crop and its dynamic, I want you to go to the West Coast because of the quality, CN has two outlets to our one outlet. So I think first and foremost, if we anchor ourselves back there and create that context, there's still a lot of grain that's left to move. As I said in my comments, we expect strong shipments for the remainder of the crop year, in line with the overall supply. And I think most importantly, when it comes back to growth, when we think about growth and our prospects we outlined at Investor Day, when you look specifically at this one commodity, we have a great and strong country elevator network, and we do have a strong product. And I'm confident that our market share performance will be maintained going forward.

My second question here is on the pricing. And I know that the rails in general are talking about inflation plus. And last year, you talked about 3% to 4%. Now we're down to sort of 3% on renewals. That's excluding Teck but nevertheless a positive 7% on grain. So what's bringing pricing down? Because when we hear about what rail inflation is, it's generally 3% to 3.5%, but we're talking about pricing renewals of 3% probably lower all in despite the objective to get inflation plus. Can you help me understand what's at play there. Jane O’Hagan: Well I think, Walter, I mean again, we've got to go back to price and look at the components of what we do with price. I mean, we have a strong product. We price it for value. We've been very explicit about our price strategy around 3% to 4%, and we delivered that in 2010. And as I indicated, on a same-store basis, our price is positive. So at this point, again, our strategy given our markets, given our segments, given the regulatory environment, everything else that we work in, we're looking to target price at inflation plus pricing. That doesn't mean that we won't push price as hard as we can. But again, we've got to look at it within the context of our strategy.

Your next question comes from the line of Peter Nesvold from Jefferies.

On coal, it looked like coal yields were much stronger than what I would've expected given the talk around the Teck contract and that going forward coal would be more of a volume story. So maybe just a little bit more color on what drove the 7% yield improvement in 4Q year-over-year versus the more modest yield improvement in coal for 3Q? Jane O’Hagan: Again, I think that this is a question around mix. I think that when we look at our export volumes, and again, I'll remind you about one of the changes that we'll look that will impact our average revenue per car on a go-forward basis will be this removal of 40,000 carloads of short-haul revenue traffic. So again, the quarter could be described by mix.

It seems like that should continue then going forward for the next couple of quarters, is that fair? Jane O’Hagan: Yes, that's fair.

I think Jane indicated that you should probably expect about a 10% increase in the... Jane O’Hagan: Yes. In the average revenue per carload.

Average revenue per carload as a result of the mix change.

Your next question comes from the line of Scott Group from Wolfe Trahan.

Just a follow-up on Walter's question on pricing. When you think about 3% renewals, 2% same-store pricing, what is the rail cost inflation that you guys are seeing right now?

Rail cost inflation is, we haven't seen the last quarter, but excluding fuel, which is what we would be looking at, is somewhere between the 2% to 3% range.

If it picks up, what's the ability to get the pricing up, because if inflation does pick up then it doesn't feel like you're pricing above inflation?

Scott, it's a pretty simple world. We've got a good portion of our traffic in some form of index, which would be reflecting any kind of escalation in those expenses. So that section of our business, which is substantial, is a non-issue, and the market will dictate what we can do. I mean if the opportunity exists, why wouldn't we take it. If the market opportunity doesn't exists, then we won't take it. So I'm not at all worried about this. We've got a game plan that says, let's ensure that we cover our cost escalation and command more than that definition of inflation product plus and opportunistically, we'll take it, and we're guaranteed to do that through an awful lot of our indexed multiyear contracts. So what else we could do.

This is Kathryn. I also like to remind everybody, we just went through, when you look at 2009 and even just coming out in 2010, one of the deepest recessions in North American history and globally and we kept to a very disciplined pricing program. So Jane's team is very focused on what they can do, but it is market-based world out there, and we're very pleased with what they've been able to deliver.

Just one last one for, I guess Ed or Kathryn. I understand you don't want to talk about the benefits from restructuring. Are there any more costs to come in the first half of '11?

Well, there could possibly be. Again, we have to evaluate each project on its own ROI, as well as some of the capital that we placed into our 2011 capital plan, which will also move some of that forward. So you see it all at several different places, whether it's capital or whether it's in the expense side. I think one thing that I did also point out was the higher IT cost. We'll still see some higher IT cost-outs. The accounting treatment has a lot of planning from some of these major programs are expense rather than capitalized. So as we plan with some of the capital programs, the planning phases of that will be expensed as well.