Good morning. My name is Chris and I will be your conference operator today. At this time, I would like to welcome everyone to Canadian Pacific’s Fourth Quarter 2015 Conference Call. The slides accompanying today’s call are available at www.cpr.ca. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to introduce Nadeem Velani, Vice President, Investor Relations to begin the conference call.

Thanks, Chris. Good morning and thanks for joining us. I’m proud to have with me here today Hunter Harrison, our Chief Executive Officer; Keith Creel, President and Chief Operating Officer; Mark Erceg, our Executive Vice President and Chief Financial Officer. Before we begin, I want to remind you 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 in the press release and in the MD&A filed with Canadian and U.S. regulators. This presentation also contains non-GAAP measures outlined on Slide 3. The formal remarks will be followed by Q&A. In the interest of time, we would appreciate if you limit your questions to one. Also if you have specific modeling questions, please follow up with us after the call. It is now my pleasure to introduce our CEO, Hunter Harrison.

Thanks, Nadeem, and good morning to everyone. Thanks for joining us. We’re going to provide initially this morning a kind of an abbreviated version of what we normally do, because I think there’s going to be a lot of interest in the Q&A activity. And I trust you have seen our press release, but there is a couple of areas that I would like to spend a little time highlighting. If you look at our fourth quarter results year-over-year and look at the OR of 59.8%, which I was very pleased with what Keith and his team was able to achieve there, some of their operating metrics are pretty outstanding and really going to serve us well as we go forward. And I would just remind you some of you that have been onboard since the initial proxy contest back – going back to 2012, we talked about that we were going to 65% by mid-2016. A lot of you said it couldn’t be done. Well, I’m very pleased that we’re ahead of schedule and the – it’s certainly not over yet. In spite of the fact that we’ve got some challenging times here with everything that’s going to affect the top line. And we’re going to try to do as good a job as we think we can in providing some level of guidance today. We also have talked to you about that we’re making a – some pretty significant reductions, which is not all necessarily related to economic conditions to the capital spend. I think we’ll be down. Mark will probably touch on this further, but in the range of $400 million below what we have – our run rate has been. I think it will give us much stronger free cash flow that you can look forward…

Okay, thanks, Hunter, I’ll be brief in my comments as well. So the operating metrics that we shared with the group this morning certainly this is a story of recognizing upfront the things you can’t control, which is the economy and then doing something about those that you can, which obviously is our operating performance day to day. We finished 2015 in the face of a weak economy in the fourth quarter very strong, year-over-year very strong. This operating performance obviously is a testament to the operating model that we execute day in and day out and also a testament to the people that execute it across this company. The story of continually adjusting your assets, sizing the assets versus demand, it’s about blocking and tackling across all facets of the operating department, as well as and the headquarter and the support functions. It didn’t complicate it, but requires an understanding of the model first and then disciplined execution day in and day out. Essentially, simply said less demand, when you put that in conjunction with continuing step improvements in productivity, you must produce an environment where you’ve got fewer assets, fewer locomotives, fewer cars, fewer people across the Board that’s what drives an ability to continue to improve productivity, lower cost, provide service, and that’s why we were able to reduce headcount and the workforce in 2015 about 12% and in an environment where we saw about a 3% volume decline. That’s why today we sit roughly with about 600 locomotives stored, which obviously is a significant delay for future capital. Take us beyond 2018 and in the meantime, we’re going to enjoy much lower maintenance costs, as we move through the horizon. And all this sets the stage for – to Hunter’s point, a very strong operating performance…

Thanks, Keith. Good morning, everybody. As Keith just mentioned, revenues were down 4%, but as a customary, the team dug deep and found additional cost savings opportunities, which did allow us to tie last year’s record OR of 59.8%. And I would have to say that while a sub-60 OR during the quarter in which revenues are down is notable in and of itself. When you consider the fact that the lag on our fuel surcharge program added about a point to OR and we had two points of OR headwind from higher pension expense and lower land sales, then this accomplishment is even more impressive and really speaks to the power of CP’s precision railroading model in both good times and bad. Now before I touch on a couple of the key operating expense areas, please note that I’ll be speaking on an FX-adjusted basis, because FX has been so volatile as of late. So with that understanding comp and benefits were CAD333 million, that was flat versus a year ago. Within that pension expense was a CAD24 million headwind and higher stock-based comp and wage inflations were each up about CAD10 million. But as Keith mentioned, employee productivity was up sharply with our end of period workforce being 12% lower, which represents a decrease of nearly 1,800 employees. The positive trend of increased employee productivity is expected to continue going forward. So from a modeling perspective, you should expect comp and benefits to be lower in 2016, behind additional workforce reductions, lower stock and incentive-based comp, and a nice tailwind on the pension front, where strong asset returns, lower headcount, and a slight increase in the discount rate should result in pension income on our DB plans of approximately CAD90 million this year versus what you’ll recall was…

Okay. Thanks, Mark and Keith, and Chris, we’ll be happy to address questions now the group might have.

Thank you, sir. [Operator Instructions] Your first question comes from the line of Fadi Chamoun from BMO. Your line is open.

Yes, good morning.

Hi.

Good results, guys, and also good guidance given the context that we’re working with. I wanted to delve a little bit more into the volume assumption you have in your outlook for 2016. If you can walk us through a little bit what is implied in terms of volume for 2016? And I also have a question about coal and Teck as well.

Fadi, I would say this. Number one, tremendous amount of uncertainty, but our assumption modestly down and taking a very conservative approach. I don’t see any shining stars out there in the economy, but if you know something more than I do, then please share with me. But that’s the assumptions that we are making, so modestly down versus 2015.

Okay. Modestly down, I guess, which is on standard to be low single-digit basically 1% or 2%?

Yes, I think that’s fair.

Okay. As far as Teck goes, I mean, there is a lot of uncertainty about coal obviously. Has there been any conversation with Teck about volume pricing as we move into 2016,2017 and the challenges on their business isn’t easing at this point?

You mean volume pricing relative to pressure on us to drop the price?

Yes.

No. No, we haven’t had those discussions. And as far as guidance from Teck, I think they’ll come out with their true guidance in February, but right now we’re moving a lot of coal. Similar, we’re assuming similar first quarter as last year, which is about 6 million metric tonnes, and right now that’s really all I can tell you. We’re going to do well by them. Cycle times are down. We’re hitting all record lows as far as cycle times. They set record there, which is controlling the operating side with the costs and giving them a reliable supply source. And then the other encouraging fact is that I understand that they are diversifying their book of business, so not as dependent upon China with sales that they’re sending over to Europe. So that’s encouraging from our standpoint.

Okay. Thank you.

Your next question comes from the line of Thomas Wadewitz from UBS. Your line is open.

Yes, good morning. I wanted to see if you could give some comments on productivity and headcount. I guess, when you’ve had the strong improvement over the last couple of years and certainly a lot of improvement in 2015 in operating metrics and then big reductions in headcount, everything kind of moving the right way in terms of the productivity. How much further is there to go in 2016? I don’t know if that’s a kind of maybe a velocity comment. But also headcount if you look sequentially, where we are in the fourth quarter, how much more that can go down when you look into 2016?

Tom, let me make some comments on that and then Keith maybe can add to it if he would choose. There are – if you go back once again where we started with the proxy contest, we’ve taken, I think between 6,000 and 7,000 people out of the count, which has been predominantly done a high percentage in the high 90s through attrition, because we typically have an older workforce. And I think with the – some of the operating initiatives that Keith mentioned earlier, we feel like that through some productivity gains and efficiencies, there are probably close to 1,000 additional heads to come out potentially in 2016. So there’s still room there. There’s still more to accomplish. And the real emphasis here is, as Keith said, what we’re focusing on is what we can control, which is execution, which is running a very efficient railroad that provides good service and that’s going to serve us well, but there are still opportunities that you mentioned there.

And the only thing I would add, Tom, is, I mean, this, again, it’s a similar story. We invest in the railway. The number one, protect the safe operation, and number two, to strategically increase our productivity across the board. So you said it, speed is one. Velocity is key to your success as we drive train speed up through our investment, we run fewer trains, longer trains, faster trains, you create capacity, you reduce your operating expense and you reduce your need on locomotives, you reduce your need on the folks that have to maintain those locomotives, you reduce your need on assets that drive the bottom line. So there are several things that we’ve invested in or accomplished in 2015, which will pay benefits for us in 2016. Investments in the physical plant and progressive agreements we’ve told the market about that we signed late 2016 that we’ll start – convert our 2015 that will start converting in 2016. Some advancements even where we don’t have agreements signed, we did have consolidation agreement in Chicago that allows us to benefit from utilizing prior to employees with prior the M&A employees, which work in and through the Chicago terminal, where in the past we have been isolated to only using few employees, which means that if you run out of one you can’t depend upon the other. And – it’s just not a very optimal recipe for success from controlling costs or sustaining reliable service. So that’s an area that we’ll be able to mine in 2016. So there are several more and obviously every year there will have to be, but that’s all about improving – doing more with what you have, which means you need less from a productivity standpoint and then of course if demand reduces, then obviously I don’t need the same amount of assets, so I’m going to reduce demand. So it’s just understanding those levers and executing and converting them day in and day out and that’s how you drive this continual improvement in synergies and cost control.

Is there – I know you said 1,000 people, is that something that’s not already started to come in fourth quarter? And is that spread across the year, or is that something that happens pretty quickly in terms of timing?

It’s certainly not a hockey stick; it’s front-end loaded, if you will. I mean, we have determined given what we see happening through the year what we need. And we’ve taken into account, as Keith mentioned the changes in the labor agreement and this is across the Board. This is labor, management, and everywhere. So I would think that most of that will have kicked in. There is always a little lag, but has kicked in by the mid-second quarter for sure.

Okay, great. Thank you for the time. I appreciate it.

Thanks, Tom.

Thanks, Tom.

Your next question comes from the line of Steve Hansen from Raymond James. Your line is open.

Yes, good morning, guys. Just a question on the reallocation of capital going forward. With the free cash flow being quite strong and CapEx coming down. Just curious about the – your perspective on the share repurchases going forward here, I guess in the context of some M&A talk still ongoing and you’ve been relatively strong through the back-half of the year. Just wanting to get a sense for how that will continue going forward and whether that’s accounted for at all in your guidance outlook?

Yes, it’s a good question. I would offer a couple things for your consideration. Obviously you’ve seen throughout the year 2015, we were aggressive buyers of our shares. We believe we were buying shares well below our intrinsic value. Clearly, there has been a little bit of market dislocation as of late, but that doesn’t change our fundamental view of where this railroad can get to and will go and therefore it doesn’t fundamentally change our view on intrinsic value. Recently, you’ll see that we’ve had suspended our share repurchase program so to speak temporarily as we’ve been in discussions. That’s the appropriate thing and the correct thing to do. We still have about 500,000 shares left under our existing authorization, which runs through the end of March. Then I think after that point in time, we would likely put forward a recommendation to the Board for their consideration. But obviously having not done that yet, it wouldn’t really be appropriate for us to say much more than that, other than the fact that we are very confident that our share repurchase program will serve us well and our shareholders well over the long-term.

Okay, helpful. That’s my one. Thanks.

Your next question comes from the line of Chris Wetherbee from Citi. Your line is open.

Hey, thanks. Good morning, guys. Wanted to talk a little bit about sort of the EPS growth outlook. And as you guys think about the cadence of that, I’m guessing it’s probably a little bit back-half loaded. But wanted to get sort of a rough sense of sort of how you are thinking about that and maybe how the currency kind of adjust to that as we go forward through the year?

Yes, again, I would offer a couple of things. Currency has been all over the map as of late. As recently as April of 2015, we were at like 1.2. I think we’re around 1.45 as we sit here today. We didn’t give a lot of specifics on the year’s guidance, because the uncertainty out there is fairly acute. But I think it would be somewhat irresponsible for us to try to be even more exacting on the quarters. I would simply say that we have a balanced plan. We do have some land sales that were in Q1 of 2014, and so there are some other things that will kind of come into play that might cause a few little kinks here and there. But we’re going to run the railroad every day as efficiently as possible every single day, but for us to try and give quarterly guidance in this environment, we don’t think that’s very helpful.

Yes, that’s helpful. And just a point of clarity on that just when you think about for the full-year, any sense what you are using? I apologize to Nadeem for the somewhat modeling question, how you think about the benefit of FX within that context of double-digit EPS growth? Thanks.

Yes, it’s a good question. Again, I wouldn’t want to be overly specific, because we believe that FX is tied to crude and obviously is involved with the fuel surcharge program as well. And so as different elements move up, other things move down. So again, I don’t think it’s our intention today to be overly exacting in that regard. If you have some specifics you want to follow-up with Nadeem on after this call, please feel free to do that.

Yes. Thanks for the comment, guys.

FX is going to be more of a benefit if we assume kind of the current levels in the first-half than it will be in the back-half. And clearly, the front half volumes are going to be tougher comps in the first-half than the back-half.

I appreciate it.

Your next question comes from the line of Brandon Oglenski from Barclays. Your line is open.

Hey, good morning, everyone, and it’s pretty amazing we haven’t gotten a question on M&A yet. And I’m actually going to ask one about your business too as much as I’d like to ask one on the other topic. But I guess, Hunter or Keith, maybe about a year ago, maybe a little bit more we were talking about how as you improve velocity and service on the network you can get to much better growth levels in your business. And somewhat macro agnostic, I mean, at what point do you think you’ve reached that service level, where you can start to capture greater share in your markets even though we are in this very difficult macro backdrop for commodities and the changes in currencies?

Well, we are probably awful close as we speak. We have not taken any action, pricing action. Our margins are up. And as we look out going forward, we will have to take into consideration the net-net bottom line effect, if we took some of that action that we’ve talked about earlier. So I think that -- I think everything is working like we had seen going forward. The only thing is the economy ran out on us and – but I think that’s something that we will be continually reviewing as we go forward.

And I would add to that that some of this business is locked up in contracts. So I know that we’re having more and more contracts with – or discussions on contracts with business that we haven’t enjoyed in the past that is service sensitive. The caution though that I’m pushing our marketing team with is while they have to sell service, I’m not interested in getting locked up into contracts that are going to lock me into this downward economic cycle. So we’re pushing more to tariff pricing, which we can adapt and adjust to the market and let the market set the rate and we’ve lowered our costs and if there is a buck to be made then will be playing in it. We’ve got the service offering. We’ve got the cost structure, that’s pretty compelling.

Okay. Thank you.

Thank you.

Your next question comes from the line of Ken Hoexter from Bank of America. Your line is open.

Hey, great. Good morning. Maybe just talk a little bit about intermodal, where it looks like volume has accelerated to the downside. Is that more just a factor of the Canadian economy, or there still share shifts that you’re seeing? And I guess this highlighted on the domestic side, so it’s not I guess more on the international – changing of contracts. Maybe you could talk a little bit about that or is that just transitioning to the trucking loose capacity industry?

It’s the excess capacity in the industry exaggerating a comp, a very tough comp. You’ve got to think about our story and what’s happened in domestic intermodal the previous two years, very strong growth. So it’s a mix of the two. Expressway is the biggest driver of that which of course is our service between Montreal and Toronto, short-haul, obviously we make a buck in there or we wouldn’t do it, but it’s not the most lucrative business that we enjoy. We’ve got some very creative things we’re going to be doing in 2016 though, converting service there is lanes that we haven’t enjoyed a lot of business in – domestic cross-border business that we’re putting a very compelling service offering out of the marketplace, both from service and the cost of doing business. So we’re on the verge of some pretty exciting stuff there, which is going to help us on the domestic side grow the business in 2016.

Ken, I will only add that I think that one of the things that’s been missed a little bit in the model an example, the potential of any kind of change in structure M&A activity-wise is the opportunity that we see to take a business off the highway to do a conversion there. And people have kind of missed that. It’s not something that’s going to happen overnight. But I think if we’re able to encourage a model that allows us to be more even pro-competitive that it would – it should have some significant impact on our competitive vis-à-vis the highway, but not necessarily intermodal business.

So just to understand that answer a little bit, has the M&A discussion frozen activity in terms of management, I guess frozen between where they should move march forward on yours and Keith’s direction versus maybe just the concept of what could happen in M&A, or is that – is this just purely economics? Just to understand the answer.

Well, I guess it’s a little bit of both.

Okay.

Obviously, there have been – there’s a lot of moving parts going on here. There are some things that have happened and almost happened daily that we certainly did not anticipate. And I’m sure that all of you have seen our press release asking, the Justice Department asking for a review. And I don’t need to comment any further beyond that, but I think it’s appropriate to say review, what took place. And as a result, I think of also this becoming in my view more of a political process that I didn’t anticipate, things have changed. And so will that change potentially some of our strategies? Absolutely, because we’ve got to respond to that and so I would say that when you try to anticipate what we might do, you’re probably going to get ahead of us a little bit, because one of the things I’ve said early on in this exercise is, look, if nothing happens, we’ve got a wonderful franchise here in Canada. We have not fallen in love with any deal, and we can make this happen. We felt like there is not – was an opportunity to make a positive contribution to the North American network that would be potentially transformational. But other people see it differently and so maybe all of our strategy changes.

Great, Keith, Hunter, appreciate the insights.

Thanks, Ken.

Your next question comes from the line of Scott Group from Wolfe Research. Your line is open.

Hey, thanks. Good morning, guys. So, Hunter, let’s follow-up on that if we can when you talk about changing your strategy. Maybe just at a high level, is your appetite for M&A or confidence in your ability to do M&A or get M&A approved, is that wavering in any way? And when you talk about changing strategy, are you suggesting maybe a proxy campaign is less likely? Is it thinking about approaching other rails? What do you mean when you say change in strategy?

That’s a six-part question you say. Let me see if I can answer it. We remain steadfast in our initial reaction that has by the way not been opportunistic, it’s been our view for public for 10 to 15 years that we think in the long-term M&A is going to happen and it should happen. It’s just a matter of time. Now, whether that’s a year or 10 years, I can’t tell you, but we still remain there. And having said that also understand that when you’re playing the game, and somebody changes the rules on you, you have to review your strategy as far as going forward. And the rules are moving on us as we speak. I have never, for example, never heard an argument, I mean when this was rewritten in the early 2000s and it talked about in the public interest that’s a pretty broad statement. And when people start saying that if you put two cultures together, it’s unsafe, I’ve never heard that argument in my life. So if we’re going to – if this is a political contest and we’re going to forget about the process that was designed, and we’re going to let the legislative branch take over, the rules all changed and what is right for our shareholders, the CP shareholders change. And so we will respond accordingly, and I’m not trying to be ambiguous here, I’m not trying to dodge any questions. I’m just telling you to – I think those of you that think you’ve got this figured out of what we’re going to do, you ought to let me know because I haven’t figured it out quite yet.

So just to follow-up on that. Are there things that you think you can do to start winning that political discussion and do you want to engage in that? And then maybe more specifically just on that last point of, we think we know what you’re going to do like. It seems like there’s certainly an expectation of a proxy fight in your mind. Is that something that we should be reconsidering and something that’s less likely now?

Well, I’m going to make comments, you’ll have to draw the conclusion. As I’ve said, the rules did change. I’ve been through and I have a little history in this industry. And as I said in one of the earlier calls, there has been 144 times trusts have been asked for an 144 times they been granted. And all of a sudden we’ve raised an issue about the trust and it’s all inappropriate and unethical and border zone illegal and I quite don’t understand those arguments. So look, I understand – we understand something. If the deck is stacked okay and if somebody’s got an ace up their sleeves and are not playing by the rules, then we understand that and we have to adjust accordingly. So I don’t think – I’ve said to this group that we would take our message to the shareholders and we have done that. And one of the cases was one of the roads that we talked a lot about. I think I have personally focused to their over 50% of their owners or reps to their owners. And all indications is there – they would be in support of, but they don’t call all the shots. So I think my only advice would – don’t get ahead of us.

Okay. All right. Thank you.

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

Yes, good morning, gentlemen, and thanks for taking my question. Just with respect to your 2018 target, I was just wondering whether the current environment, how does it impact your guidance for 2018?

Again, I think what I would say is, it’s going to be hard to ascertain with any real certitude where 2016 will land. So to try and leapfrog out to 2018, I think again isn’t something that will be responsible for us to comment on just now. I think both Hunter and Keith have talked about the fact that we believe we have a lot of runway still to work. We have a lot of efficiency still to realize, a lot of synergies to be gained through our own internal operations, and we’re very confident that we’re going to continue to pace the group as far as having your best-in-class earnings progression out over the horizon. But to make specific comments about 2018 at this point, I don’t think, again, is responsible in this uncertain environment.

I think we could say, we could maybe add a little bit of flavor, Mark, to this group. I think, Benoit, all the things that we’ve talked about in 2018, as far as OR and operating efficiencies and a lot of those things, we’re ahead of schedule for. Clearly, the question mark is the economy and the top line and what happens to the dollar and what happens to Asia and all those other issues. Now, and I started to answer the question saying, well, if the dollar stays weak and it pumps our revenues up, but look, we’ve got to understand and be mature enough to understand what is best for the overall North America and maybe global network now. So I think we’re pretty well there. Mark is exactly right. If I wish we knew more about the top line, I wouldn’t be sitting here. I would be doing something else. But we happened to be railroaders and pretty good at it, but when it starts to predicting revenue and the economy and so forth, we are a little weak.

Okay. Thanks for the time.

Yes, sir.

Your next question comes from the line of David Vernon from Bernstein. Your line is open.

Hi, good morning and thanks for taking the question. The reduction in CapEx level is about $1.1 billion. Is that a number that we should expect kind of going forward absent material improvement in the volume – of the economy, or is this a temporary cutback that’s going to spring back a little bit in 2017, 2018?

I think what we say is, we have completed a lot of the infrastructure upgrades that were required from years of under investment. So at this point, we think that’s probably a reasonably sustainable level. Obviously it might grow a little bit with the overall economy or overall business. But we do think that’s more of a sustainable run rate going forward based on all the good work that’s been done to date

Yes, what we scaled back was capacity capital. Obviously, if we don’t have the vibes to support it, we’re not going to put the rails and ties and ballasts in ground and start eating the depreciation expense, so we’ll bring it on lockstep with the business.

And there is…

If the business doesn’t come in, you can expect pretty steady state.

And with regards to some of the stuff you’re looking at on the intermodal side, is there some additional capacity investment associated with that, or is that more about service design and marketing?

No, it’s about marketing using existing assets. There is no investment involved in that at all.

Excellent. Thanks a lot for the time.

Yes.

Thank you.

Your next question comes from the line of Walter Spracklin from RBC. Your line is open.

Thanks very much. Good morning, everyone. I just wanted to start really on pricing just or first housekeeping. You targeted price and mix together. Could you break that apart in terms of core pricing for fourth quarter?

You’re talking about 3%, our 3%?

Yes. So a 3% for the quarter was your core price?

Yes.

Okay.

And we just backed out the adverse impact of raising the grain adjustment, because fuel is such a large piece of that. I mean, that was – that alone is about 1%, so excluding that, that’s really just a 3% same-store price for the fourth quarter.

Okay. And as we look forward, I know, we’ve been hearing that there is a little bit of pressure on the pricing side that perhaps the historical 3% to 5% you might be at the lower-end of that going forward. I think that was what you communicated the last time, Keith. Has there been any shift in that with the weaker environment? Are we seeing any, in particular, as you mentioned, the trucking – competitive trucking environment – are we seeing pricing in intermodal on a core basis dipping down at all year-over-year? And as a result, is there a risk that we may trend below the 3% core pricing level for 2016?

Well, there’s obviously headwinds there, because there is excess capacity. So that is a place that we’re seeing the most pressure, more so from the truck. So there’s some risk there. We’re not going to dip it down too much, though. At the end of the day the market sets the rate. There’s going to be some things that are wins for us and some negatives for us. But at the end of the day, we’re not going to get into a pricing war, we’re going to be responsible about it and strive for that 3%.

And just…

Well, I might describe it in a different way. I think that if you peel back surcharge and the Canadian grain and the regulated -- the margins have held up well and continue to increase. So, if you just hone in on price you could say there are some pressures there, but once again if you look at the productivity improvements, and look at the margins, the margins have held up awful well in this kind of environment.

Yes, the contribution is what drives the bottom line. That’s a key word and a key principle.

Okay. That’s my one question. Thank you very much.

Yes.

Thank you, Walter. Take care.

Your next question comes from the line of Jason Seidl from Cowen and Company. Your line is open.

Thank you very much and good morning, gentlemen. Hunter, you made a comment and you said about the deck being stacked against you. I was wondering if you could elaborate on that a little bit in terms of M&A? Do you mean the deck is stacked against you from the terms of more politically and from a governmental standpoint with the Service Transportation Board, or are you getting a sense that maybe some investors might not want this as well? I’d just love to hear your thoughts.

No, it’s more political in nature. I don’t want to point out any one group. I just think that when a group of congressmen in Chicago get together and we hadn’t even announced a transaction to start asking against it, and they are concerned about jobs in Canada. I quite frankly don’t understand that. And then when two other congressmen come out against it and we hadn’t even made a proposal yet and they don’t know what’s going to be in there, and they are opposed, and then some of the other actions that are taking place. And I do think that – my personal view is that when the judge should be talking about the case when we’ve got the case, okay? And we’re bordering on that of people giving hypothetical. And I just think that I think that in my view is inappropriate. We said early on that we were very happy to let the process work as it should through the Service Transportation Board and we have perfect confidence that they would reach the right decisions and we would abide by their decisions and we’re moving away from that model. And now there is more political pressures, if you will, and I would only say there’s more to come on that.

And if I – I can’t resist making this comment, Hunter. These are the same constituents or people that in the face of – when this industry goes into gridlock, they are the same ones demanding solutions and answers on how we’re going to fix it. I guess they have a better solution than I do. I’m the operator, they are the politician, I guess they’re going to figure it out, because it’s going to happen again.

And – well, I appreciate all that color. That was great, guys. If I could turn it around in terms of your own employees, obviously news of a pending transaction would mean, at least, some form of change. And the longer this goes on, has there been any consternation among your rank and file employees in terms of what may or may not happen?

I’m sure maybe there is a little bit. But I think that our people generally speaking are pleased with where this railroad stacks up vis-a-vis the others. They are proud to be a part of the organization. I’m very proud that – with one exception – we have made some very progressive, unprecedented, longer-term labor agreements. We were not successful with the Teamsters in Canada, but that’s the – we’re the outliers and they are the outliers. But I think overall they understand that our interests, number one, are serving our shareholders. Our owner of the company and that’s why we are trying to give guidance, because I think it’s inappropriate if you say to your owners of the business we don’t know what’s going to happen and we’re not providing any guidance to you or anybody, or your representatives. So we’re trying to do the best we can there. No, but I think our – I think our people know that the better – and this is the point I would like to leave you with if I don’t have any other message today. The thing we can do and I say that we focus on everyday is execution. It is serving the customer and doing it efficiently and productively and we will be served well. And if we all do that then we don’t have to worry about job security and M&A and a lot of the things. Things will happen like before. If we don’t, there’s other challenges.

Gentlemen I appreciate the time as always.

Thanks.

Your next question comes from the line of Allison Landry from Credit Suisse. Your line is open.

Thanks. So looking at the balance sheet, you are close to 3 times levered on a growth basis and setting aside the M&A, are you comfortable at this level? And thinking about your earlier comments, the expectations for improved free cash flow in 2016, do you have a targeted leverage ratio in mind by the end of the year?

Yes, what I would say is that we are very comfortable at these levels. If you look at our interest coverage ratios, they are very, very strong. We have a lot of liquidity available to us. We are going to maintain our investment grade credit rating, strong investment grade credit rating and we’re very comfortable in this environment even with all the uncertainty that’s out there that we’re going to be able to do that. If we were to recommend another share repurchase program to the Board in March, maybe when our current program expires, obviously it would be a responsible program that balances a lot of different constituencies. One is our value as it relates to intrinsic. One would be our credit rating metrics. But I can assure you that the company’s balance sheet has really never been stronger and again it’s interest coverage ratios, I would encourage you to look at more than just the leverage itself.

Got it, and but any target as far as the end of this year?

As far as the end of 2016, again, there’s a lot of uncertainty that’s out there. We’re going to maintain a strong investment grade credit ratings. That’s probably the best way for me to couch the answer.

Okay. Thank you.

Thanks Al.

Your next question comes from the line of Matt Troy from Nomura. Your line is open.

Thank you. Hey, everybody. Just wanted to get a quick question on roadmap. Obviously in the last update you gave us in terms of the acquisition approach, you had anticipated a condensed due diligence session with a potential filing early in 2016, a three-month review period and something hopefully done by March. Obviously due to a lack of cooperation or even engagement by the target, perhaps that timeframe has been pushed back. Without showing your hand, I just want to know tactically what does the roadmap look like? Have we been delayed in terms of expectations of timing relative to what was laid out just a few weeks ago just due to the political environment that you guys have noted today?

Yes, I think there’s no doubt there is a delay going to kick in here. And I don’t know, I can’t anticipate what the Justice Department is going to do or what their review is going to say or how others will respond. But I would sense that that would probably delay things some from what maybe our original roadmap if we had been able to lay it out and it had all worked perfectly.

Yes, which is logical. I guess, my follow-up would be, your stock has been caught up in the downdraft of the other railroads. You’re off more than 50% on a U.S. listed basis. Is there a point at, which you decide to fish or cut bait given the value of your own stock relative to where it’s been where it just becomes a much easier and frictionless value proposition to pursue your own stock as opposed to a merger that politically may raise the hackles of a lot of constituents? That can always be revisited and your stock might not always be at $99?

Absolutely. And I think that that’s one of the things that we’re reviewing. These things change daily almost. But certainly one of the potential reactions could be just exactly what you described and we could pursue and we’d recommend to the Board an aggressive repurchase and run this railroad and that’s worked well for us and life goes on?

Understood. Thank you, Hunter.

Yes, sir.

Your next question comes from the line of Steven Paget from FirstEnergy. Your line is open.

Good morning and thank you. Could I ask what major labor negotiations or contracts might come due this year and what progress you might expect to make on them?

Nothing major this year at all, Steven. We still – I’m cautiously optimistic. But I think we’ll do – we’ve got more work to do in the U.S. property. But as far as anything major across the board, that’s museum [ph].

And the nature of the work on the U.S. properties would be?

Be on the running trains side and a little bit work on the signal side as well.

All right. Thank you, Keith.

Thank you.

Your next question comes from the line of David Tyerman from Canaccord Genuity. Your line is open.

Yes. So just two things. On the guidance for 2016, the share repurchase assumption, what is the assumption there? And also what is the tax rate assumption that you’re using there?

Tax rate pretty easy, we’d be using the normalized 27.5%. As far as share repurchase again, I simply mentioned that under our existing authorization, we have about 500,000 shares that we’re still authorized to purchase. Beyond that, as I said, if we have the opportunity to bring forward a recommendation to the Board at the appropriate time and we will give proper consideration to that. But I guess as far as your specific question, I mean, I would tell you that it’s a little bit open ended. I think for modeling purposes, it’s probably reasonable to assume that we would complete the residual balance of our existing program at some point. But again, given where we are with the M&A, at this point we have now been buying shares on advice of counsel, which is appropriate.

So there is – from the answer, I don’t really understand in terms of the – is there anything beyond the 500, or is there even anything baked into your guidance?

No, yet. No, we have not done that specifically. But what I would tell you is, we contemplate double-digit EPS growth in this very uncertain environment, that there will combination of means and mechanisms perhaps.

Okay. I’m still not clear, but anyway?

That would be, if we did – if we did an additional repurchase, that would be additive to the GAAP.

Okay, that’s clearer. Thank you.

Your next question comes from the line of Jeff Kauffman from Buckingham Research. Your line is open.

Thank you very much. My question on share repurchase was answered, but let me shift gears a little bit, talk about products. I’m thinking more about potash and fertilizer, given what’s going on. Can you talk about how the Canadian grain market is moving differently than the U.S. grain market in terms of acreage, and talk a little bit about what’s going on globally in some of the potash markets?

Canadian grain, strong, strong year in 2015; so obviously, a couple things we don’t know. We don’t know what the harvest is going to be second-half. What we do know is, we don’t have a strong carryover, so that could be a bit of a headwind and we’re assuming as much, just don’t know where to put the needle exactly in 2016. And on the potash side, obviously we have pretty strong 2015 as well in potash. Canpotex is saying it’s going to be a similar year in 2016. Obviously, some of those contracts haven’t been resolved yet with the Chinese that’s a big piece of that. I think that’s going to happen after the Chinese New Year, probably sometime in the second quarter. So, obviously there is risk there. But at the same time with the latest announcement on the Canadian side with CCS shutting down that facility out in Nova Scotia, there’s a chance – if that’s going to be sourced from Canpotex, and obviously we’re the primary care for Canpotex, there might be some upside there. So, again, it’s like everything else, some uncertainty. We’re taking a modest approach to it. That’s what’s given us what we shared as far as what we see. We see again modest single-digit reduction in carloads, mix is going to matter. Maybe a little bit more on the RTM side, because that carload headwind is going to be on crude and obviously some of the bulk. So I’d say modest single-digit on carloads and maybe mid single-digit on RTM basis.

Okay, Keith. Thanks so much.

Thank you.

Thank you.

Your next question comes from the line of Alex Vecchio from Morgan Stanley. Your line is open.

Good morning. Thanks for taking the question. Hunter, at the earlier part of the call, you had emphasized that your longer-term views on M&A were the same, that you believed it should happen and it will happen in the long-term. That being said obviously, the political challenges were greater than you had foreseen. So, I guess my question is what actually gives you, I think we can all agree on the merits of M&A itself, but what gives you the confidence that even in the long-term M&A can be accomplished in this industry if we still have this kind of political situation that could obstruct it? Do you assume at some point that the politics involved, they will come to their senses, or is there some kind of change in the landscape that you think will occur that would actually make folks more convinced that M&A actually is in the best interest of all the shareholders in the industry?

Well, let me give you the choices. Right now, if you go back to 2014, this industry was criticized severely for not having enough infrastructure to handle the business and had damaging affects on North American economy, both U.S. and Canada, and I could go on and on. And I would remind you that we don’t make choices about crude and so forth. We have a common carrier obligation and we have to haul it by law. No choice. So we know, I think at a point the economy is going to bounce back and there’s going to be pressure on the infrastructure from the Mississippi River East tremendous. Now, as we try to add infrastructure, communities are opposing and fighting us, because they don’t – rails coming through their backyards. They don’t want crude moving through it. There is not going to be any pipelines and we’re going to run out of rail capacity and we can’t add infrastructure. I don’t know what the opposition’s suggestion is as to what we do in the future longer-range. And I’m not talking about our shareholding tomorrow. I’m talking about for my grandchildren and great-grandchildren, what are they going to do? What’s going to be the solution? Who is going to look at this a little bit longer-range in a more mature fashion and say what are we going to do? God forbid that something happens in Chicago in this environment we’re in. Could you imagine? What would happen? So I think, in my view, some people are just sticking their heads in the sand. And so as a concerned citizen, I think that that should be reviewed. Now, maybe is the timing wrong today? Maybe. But I just – until there is other solutions given where we are today with no pipelines, no more infrastructure, not in my backyard, but you’ve got to haul it, but no M&A, I’ve been in this business 50 years, I can tell you one thing. That formula doesn’t work.

In Chicago alone, the tracks going to double in the next 10 years. That’s not a very long timeframe in my mind. What are you going to do? Unless you believe that the economy is not going to grow. Unless you believe that the population is not going to grow. Unless you believe that the need for rail transportation is going to drastically reduce, I don’t like to say the word train wreck, but it’s coming. That’s exactly what we’re talking about. So pain and suffering, the same politicians that it’s easy to say it’s the wrong time now when their constituents can’t get the goods that the railroads support to produce. When we can’t move the nation’s economy, then those same politicians are going to be challenged with and charged with solving this problem. And you’re not going to build new railroads. This is the only rational solution to increasing capacity in this country to be able to handle the future freight growth. So it’s now or later and I tend to come from a school that I recognize that maybe the pain and suffering is what makes people understand and wake up and open their eyes. But I’d much rather manage this in a time of calmness than a time of craziness and a time of meltdown, which we suffered back in 2014. I just don’t think that’s the rational and the pragmatic and the right way to manage this.

And I – let me just finish up with this. If you look at the – some of the opposition and their views are pretty well across the board. One says that stop mergers at all costs after they have merged into one of the largest systems in the U.S. okay, and is made up of – multi-mergers. But when they are through, not for anybody else. The other – both say that look, transcontinental merger could make some sense. Timing is not right. The other folks say, I don’t think mergers are really – they are probably destructive which is a new – and the others don’t say anything. So you get four – thus those are not very – you put those arguments together and it’s not very stimulating in saying we are going to come out with the right answer. So that’s why we asked for some help on the system.

Okay. That makes sense. Thanks very much for the thoughtful responses, gentlemen.

Thank you.

So that concludes the Q&A. We appreciate you joining us and hopefully we all look forward to better times on the top line and being able to see you in a few months here. Thanks.

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