Jean-Jacques Ruest

Well, thank you, Keith, and good afternoon to everybody who's joining us on the call today. As Claude already said in his opening comment, the fourth quarter result was an all-time revenue record for CN, and we will keep that momentum going in 2012.

So let's review our result for the fourth quarter. We have increased revenue 12% versus last year. This is on a currency adjusted basis. The 12% breakdown is as follows: 4% came from volume; same-store price increased by 4.0% in line with the prior 3 quarters of 2011; and the fuel surcharge brought in 3.9% from fuel surcharge revenue. We had a $16 million lag in our fuel surcharge in the fourth quarter. The mix was positive, an impact of about 1%, and for the first time in a long time, the impact of exchange was almost flat.

So if we look at the results in more detail by business unit, I'm on Page 10, and all my comments again will be on FX-adjusted basis. Starting with petroleum and chemical revenue, which was up 13% and it was on very strong petroleum product growth. Crude Oil business more than doubled from the third quarter, and the gains were enabled by our facilities in Manitoba and Saskatchewan.

Diesel, jet fuel and heavy haul also posted very strong gain in the quarter, and the chemical shipment were basically on par versus last year, they were flat. Metals and minerals grew by an impressive 29%. And shale gas drilling activities had a very strong impact into that. Fracs and carloads were up 43%, pipe carloads were up 50% and we have new production facilities located on CN, namely pipe plant in Ontario for drilling, drilling pipe, as well as frac sand mine in Wisconsin and Michigan.

Metal shipment increase for steel, raw material and iron ore, and we also had some further market share gain in copper and nickel concentrate. Forest product revenue rose 12% in the fourth quarter. Lumber and panel shipments to the U.S. continued the trend upward. Overseas lumber were up 25% in carload in the quarter. Off-shipment were somewhat weaker due to the softer world market condition in the fourth quarter. And BC export of wood pellet were up 34% in carload.

Automotive was up 12%. The West Coast imports were up, with Japanese production returning to normal and the domestic producers on CN had a good market share quarter, as well as strong truck sales. Bucking now a positive trend, coal revenue at CN were down 1%. The Ridley Terminal in Prince Rupert had a prolonged shutdown which was there for capacity expansion program. That resulted in a temporary cutback of export coal, as well as some of what Keith was mentioning about staging some train. The U.S. Gulf terminal coal export increased by 3,000 carloads in the quarter. However, our U.S. domestic coal was really affected negatively and that declined 6,800 carloads.

The story on grain. Grain was up 5% in revenue. In the U.S., the export soybean and corn were down 80% in carload, while our domestic business was fairly good. And in Canada, we had a record quarter in terms of grain. In the fourth quarter, CN market share stood at 51%. The Fertilizer revenue was down 5%. The demand for potash was slow in the last quarter, and buyers are waiting for lower potash price. The overseas intermodal market was up 15% in revenue. The trans-Pacific volume is doing very well for CN. Prince Rupert and Vancouver combined, the volume increased 20%, outpacing our Canadian competition but also more relevant, outpacing the West Coast industry average.

On the domestic side of Intermodal, the revenue was up 17%. We made some gains across all segments in domestic Intermodal. We are capitalizing on U.S. trucking conditions in the U.S. We grew our domestic U.S. business by 22% in volume. The cross-border business grew 29% in volume. And the Canadian to Canadian cities domestic volume grew by 7% in volume.

And finally, to close the review of revenue, our non-rail revenue was up 10%. The growth in non-rail revenue was driven by our iron ore terminals and vessel and by our CMT, our local trucking services. These gains were more than enough to offset the lost revenue on the terminal. And as you will recall, CN sold a CN coal terminal in Convent, Louisiana and that took place in the third quarter.

Now if we look at the outlook, I'm now looking at Page 11. And we will start with Intermodal. Intermodal has been an engine of growth for us the last 2 years, and that definitely is going to be the case for 2012 as well. We definitely, we believe at least that's what our customers tell us, we have the strongest supply chain service package out there to help our customers grow their own business in their own market. We are opening some new train service from Prince Rupert to Calgary and Edmonton this year in support of our new log park in Calgary which will open in 2013. We also just opened a new terminal services to serve some of the market in Wisconsin and Minnesota.

Our wholesale and retail volume will be strong. We are getting more market traction with our different initiatives to grow our business in both Canada and United States. The U.S. consumer confidence index improved, it was currently at 64.5, which is up from a 55.2 in November and up from 49.0 of October.

If we look at the bulk outlook, I'm on Page 12. Coal and pet coke by the West Coast, starting with the West Coast business of CN for the coal and pet coke. We are poised for a year of record on the West Coast. The capacity expansion of the Ridley terminal is very well in place. They had a good production run here since mid-December, and this year we are targeting an increase probably over the range of 30% increase in revenue for the West Coast business.

National gas price, though, are cheap and will remain cheap this year, and that will definitely negatively affect our carload of U.S. terminal coal. However, our export of U.S. terminal coal by the Gulf will grow versus 2011.

In fertilizer, Q1 will be soft, and that's because of the slow demand on the potash right now. But the long-term prospect is bright. We are pleased to confirm that CN earned a long-term position with Canpotex starting this 1st of July.

On Canadian grain, the outlook for Q1 is also very positive. We have a very good order book for wheat and canola. And key service offering is the best in terms of service offering in the industry. U.S. volume will be down because of the weak U.S. export of corn and soybean. The U.S. farmer is waiting for better selling price at this point and that may be a story more for Q2 as opposed to Q1.

If we look at our Manufacturing sector, on Page 13, global oil price remain high. Shale drilling activity is also very strong, and we think that for most of the market that we serve, they will stay above the breakeven point for the shale play. This will produce significant revenue growth in our crude business, our metal business, as well as our frac sand business.

We're expecting steel operating rate to do better than last year and to be in the range of 75% to 78% operating rate for the United States. This will be driven by local steel consumption in automotive sector, the energy sector and the heavy equipment sector. We anticipate a moderate improvement in U.S. housing starts and, therefore, in our construction-related volume, we have in our forecast 700,000 units. We also expect moderate growth in automotive production and U.S. domestic sales of 13.5 million units. The ISM purchasing manager index increased to 53.9 in December, which is up from the average of 51.0 that it was in the third quarter.

In closing, so far this year, we have a good start at January. Our service is solid and our revenue is up in excess of 10% so far, it's very early in the year. We have produced 2 very strong years, back to back, and we're positive about the outlook for this year. And we will tell you more of our many commercial initiatives in the upcoming February 8 and 9 New Orleans Investor Day that Claude has put together. Luc?

Luc Jobin

Okay. Thanks, JJ. Now turning to Page 15 of the presentation. Let me walk you through the key financial highlights for the fourth quarter of the year.

Revenues were up 12% to just under $2.4 billion. Practically all sectors progressed in several categories as JJ described. Once again, registered a performance that outpaced base market conditions. Operating income was $839 million, up 8% versus last year, driven by strong revenue growth but partly offset by higher fuel and stock-based compensation cost.

Other income was up slightly on account of a couple of small partial sales. Our net income for the fourth quarter was $592 million, up 18%. And the reported diluted EPS was $1.32, up 22%. Now excluding an income tax recovery of $0.02 per share relating to prior years, the adjusted diluted EPS stood at $1.30, up 20% versus 2010.

On an adjusted basis, our effective tax rate was 25% in the quarter, resulting from a number of small adjustments to the year's estimated tax expense. Our operating ratio was 64.7% in the quarter versus 63.4% last year, an increase of 1.3 points.

Allow me to turn to the operating expenses on the next page to provide some color on this unusual increase in our operating ratio in the quarter. First, it's important to note that we came through with another solid quarter in terms of operational productivity, in terms of our metrics, in terms of our customer service and our overall expense management. Keith and his team continued to make progress in improving trainload, terminal dwell, yard productivity, and fuel efficiency. Our operating expenses were $1,538,000,000, up 15% versus last year, and the key drivers were fuel prices and stock-based compensation.

Let me start by labor and fringe benefit costs. These were up 20% versus last year at $511 million. Now close to half of the variance or $40 million was the result of an increase of about $10 in our stock price in the quarter, from $70 to $80. Now you'll recall that we had anticipated this reversal in our stock-based compensation expense in the third quarter's report earlier this year. So in the fourth quarter, this impact amounts to a headwind of $0.07 of EPS.

Now, wages were up 6% or $27 million. This was the result of wage cost inflation of approximately 3% and higher headcount for 3%. Meanwhile, benefit costs, including pension, post-employment benefits, health and welfare were up 4%. Our headcount stood at just over 23,000 employees, and we were essentially flat versus the third quarter and up 5% versus last year, roughly in line with our TTM growth of 5%. The headcount increase was driven by a 3% higher base workforce and a 2% increase related to advanced hiring, ahead of attrition, to allow for training. Looking to 2012, we do expect headcount to stabilize and be closer to replacing for attrition. But we continue to monitor our business levels and economic indicators to adapt as the need be.

On our fuel expense, it increased by $87 million to $382 million on account of prices being up some 25% in the quarter, while the balance of the change was attributable to volume increase, partly offset by efficiency gains of 1.5%. So the negative impact of increased fuel prices, i.e. the fuel lag, was $16 million or $0.03 of EPS in the quarter.

On the casualty and other cost category, we came in with $56 million, $9 million better than last year, as we continued to incur lower G&A expenses and experience lower claims. This follows the trend that we've seen all year, but the benefit of such improved experience is clearly slowing down and we'll be looking at more difficult comps in 2012.

Now turning to our full year results. We wrapped up 2011 with over $9 billion in revenues, a 9% increase or 11% on a constant currency basis. This was achieved with 4% increase in volume, a combined 4% increase in pricing and mix, 3% for fuel surcharge offset by 2% of FX.

Our operating earnings grew at the same rate as revenues to reach $3.3 billion. Our operating ratio stood at 63.5%, 10 basis points better than last year. Net income stood at $2,457,000,000, up 17%. And this translated into a 21% increase in reported diluted EPS at $5.41. Excluding the impact of our major asset sales and some of the income tax adjustments, the adjusted diluted EPS stood at $4.84, a 15% increase over 2010 or 17% on a constant-currency basis.

In terms of free cash flow, we had a record year and generated a $1,175,000,000. This was the product of better operating results, higher proceeds from major asset sales and after taking into account a $350 million special pension contribution which was made in the fourth quarter of the year. These free cash flow improvements were partly offset by higher cash taxes, higher capital expenditures and higher dividends. Including capital leases, we finished the year with $1,712,000,000 in capital investments which translates into 19% of our revenues. Our debt to total capital stood at 40%, and our adjusted debt to EBITDA was 1.7x.

Finally, let me turn to our 2012 guidance. While it's obvious that we have an uncertain global economic environment, we continue to see a gradual, although modest, improvement in the North American economy. We assume North American industrial production will be lower than in 2011, but nevertheless in the 3% range. Furthermore, we expect U.S. housing starts to reach 700,000 units and U.S. motor vehicle sales to attain 13.5 million units. These and other key assumptions underpinning our outlook should translate into mid-single digit carload growth in 2012. And on the pricing front, we will continue with our inflation-plus policy.

One element that is emerging in 2012 as a significant headwind is an increase of approximately $120 million in our pension expense. Our plan has historically enjoyed a very solid financial position on account of a conservative funding policy, as we have not taken contribution holidays and we've also made special contributions to the tune of $650 million in the last 2 years. In addition, we've enjoyed a strong investment performance over the years. Our plan has a sound design that calls for risk and cost sharing measures between the company and its members. However, the weak economic environment has led to a continued decline in interest rates over the last several years and also lower investment returns more recently. This has resulted in a significant increase in pension obligation and the accumulation of actuarial losses. In 2012, we will be amortizing a portion of these accumulated actuarial losses, and this is the major source of the increased expense. This will mean an impact of over 1 point -- actually, close to 1.5 points of operating ratio and a headwind of 4% on our EPS growth.

So with this in context, our annual guidance for 2012 has us aiming to achieve up to 10% of EPS growth over 2011 adjusted diluted EPS of $4.84. We're also calling for free cash flow in the order of $875 million. This assumes a capital investment program of approximately $1,750,000,000 and a 15% increase in our dividends. It also takes into account total pension contribution of approximately $275 million in 2012 as we adapt our funding to address an actuarial solvency deficit, which we estimate at this point to be approximately $1,400,000,000.

So the CN team remains, as always, committed to delivering superior results and creating value for our shareholders. And we continue to leverage a solid pipeline of productivity and growth initiatives in 2012. On this note, Claude, back over to you.

Claude Mongeau

All right. Well, thank you, Keith, JJ and Luc. I think a good rundown on the results. Clearly, the fourth quarter finished the year strong. But the overall year was also, to me, a good indication that our strategy and our game plan is unfolding very well. To be able to grow faster in the economy, grow faster than our peers in the industry, to contain expense and actually come up as a leader once again in expense management during 2011, to deliver 15% EPS growth in what was good but sluggish economic growth is testament to the strength of our franchise, the focus of our workforce and our game plan overall. So we're very pleased with those results. We're looking forward to 2012. If the economy stays with us, we should be delivering another year of very, very solid performance. And as Luc indicated, other than the pension headwind, all of our key other drivers are pointing in the right direction for another solid year of financial performance.

JJ said it earlier, as I close in on my comments, we are looking forward to see as many of you as possible in sunny New Orleans in early February on the 8th and the 9th. We will have an Investor Day there where we intend to, obviously, give you some color on our guidance for 2012, but even more importantly, to allow you to get a good sense of our key initiatives, what we're doing to expand our agenda, supply chain collaboration and the focus that we have on balancing operational and service excellence. We have the entire management team ready, and it should be a great meeting, and we look forward to see you there to talk about the long-term future for CN.

And with that, Patrick, we will take questions from those on the call.

Well, pricing, nobody wants to pay any price increase. If you're a consumer and you need to buy, you always look for the best price, best value. So what we sell here, based on the product that Keith gives me day in, day out to sell, we sell on the value. So we present ourself as the cheapest cost, not the cheapest price. So therefore, in general, we come in with a price which is slightly maybe higher than some other option. But all in, the cost of using that product because it's more reliable, it's steady, dependable, gives the customers a better cost. So from that point of view we -- there's always desire from the buyer to get a better price, but our product's appealing, we got a value proposition, we don't sell on cost, we sell on value, and we do have to compete. So the next best option is always important to the final decision. The run rate we had in 2011, we're satisfied with and we think it's a good run rate for 2012.

Operator

The next question is from Bill Greene from Morgan Stanley.

William J. Greene - Morgan Stanley, Research Division

Keith, in the past, CN's done an awful lot of coproduction with competitors. And I'm just curious if you think there's a lot more scope for doing that up in Canada, given the relative overlap of the networks or have you pretty much maxed out on that opportunity?

Claude Mongeau

I think, I won't say maxed out, but certainly we've converted quite a bit of the opportunity that was on the ground. We've done some aggressive stuff in the East with our partners in the rail industry and we've done some things in the West, even fine-tuning what we had in the West Coast on the Vancouver area as recently as last quarter which, at the end of the day, will benefit both parties. So far, there's still some opportunities, nothing monumental, nothing that would equal what we've done in the past. But we're always looking for an opportunity and if one presents itself, that makes sense to coproduce, then certainly we'll step up to the table and convert.

William J. Greene - Morgan Stanley, Research Division

Okay. And then, Keith, was there anything in the fourth quarter? It seemed like an easier weather quarter. Is that something we need to keep in mind when you think about cost when we're modeling going forward?

Keith E. Creel

Comparatively speaking, the last 3 weeks of the year were definitely favorable compared to 2010. But as far as it having any material difference on the way this railway operates, I would say no.

Operator

The next question is from Fadi Chamoun from BMO Capital Markets.

Fadi Chamoun - BMO Capital Markets Canada

Just to follow up on the potash. Maybe JJ, you can help us understand a little bit, the value proposition CN offers for a potential planned super terminal. I mean, if the choices are for expanding some of the other facilities on the West Coast, Vancouver and Portland versus Prince Rupert, what does Prince Rupert bring to the table that would sway that volume growth in the medium term, I guess, to go to Prince Rupert? The other related question is also, would CN be inclined to participate in building a terminal there and potentially getting a little bit more involved in the supply chain if that was something that would facilitate that decision for Canpotex to go to Prince Rupert?

Claude Mongeau

So starting with the first question. Rupert is an attractive port because it is deepwater. Not that Vancouver is not deepwater, but Rupert is even deeper water. For the product that goes to the northern part of Asia, it is a little closer. Showed some saving sailing time in those cases. It's a greenfield site, that is, you start with a map where you can actually lay down your terminal the way it should be done if you want to build a terminal that could go to phase 2 and phase 3; 5, 10, 15, 25 years from now. And Rupert can give you that because there's no neighbor, the footprint that Canpotex has under an option gives them a long, long time in terms of access to market and future expansion. Then you have the rail line. It is a different rail line than when you go to Vancouver. So [indiscernible], we have the north line at CN currently under this other contract, they're using the south line of both CN and CP. So it gives you redundancy in case of disruption caused by whatever the reason that might be, derailment, weather, things that might happen on occasion over the years. And the CN service from the Saskatchewan, we access all these lines. One of them actually we're going to physically connect here this year, the one that we don't physically connect today. And our service from the prairies is, as experienced last winter, is pretty good, pretty good, very dependable. And whether it's grain or potash, I mean, Keith's guys do a great job of moving the train to the West Coast.

Claude Mongeau

I would say, Fadi, in 2 words. It's a very compelling proposal. If you're looking at diversity in your supply chain and you have an aggressive growth plan, which is what Canpotex is after. So we feel very good about our chances to convince them to stay in Canada and have a supply chain solution that meets their needs. As for your other question, we would certainly be happy to work with them and offer more seamless switching service in and out of the terminal and even help them if there is a need to in terms of operating that facility, we do that in other location. But it would really be for Canpotex to decide if they want us to be involved in that activity or not. Our offer is based on the strength of our rail service, and I think it stands on its own 2 feet.

Fadi Chamoun - BMO Capital Markets Canada

Okay. And just quickly, also on labor, just trying to understand the mechanics. Your headcount grew at above rate than your volume in 2011, if I'm looking at this right. And you seem to be suggesting that 2012 will see much better productivity or underlying productivity in labor. I'm just wondering what are the mechanics that have held you back last year from doing a little bit -- sort of not growing the headcount as much and why this sort of reverting in 2012.

Luc Jobin

Well, I think the biggest driver there, the trigger, was our decision, number one, to hire ahead to handle the business; and number two, the challenge we have with training with our attrition. We've talked about our attrition level that we have in the company. We're going to be experiencing turnover in the company through 2015 that equates to about 50% of our workforce. Then on the running trade side, you've got about a 6-month lag time, so to speak, to go out and hire and train a qualified conductor and, of course, the conductors become engineers. So there was an investment, the conscious decision that made, that I think you see now, more steady-state since we've absorbed that and we'll grow the headcount, so to speak, at least on the running trade side more similar to matching the growth in business with an expectation that we will get productivity as well.

Operator

The next question is from Matt Troy from Susquehanna Financial.

Matthew Troy - Susquehanna Financial Group, LLLP, Research Division

Question on international imports. Your volumes were quite strong. I think you referenced 20% growth through Vancouver and Rupert. Certainly a standout versus what we're seeing from the other railroads and other ports. Wondering if you could just pick apart -- I'm trying to get a sense for market growth versus what is residual share gain from CP service disruption last year. What's driving that growth? And if you could just make best premise of why it so far exceeds what we're seeing elsewhere.

Claude Mongeau

I will not do that versus CP, as such because I don't really have those numbers, we don't have that kind of level of detail. But definitely in the West Coast we did add some destination in 2011, where we have destination that we served last year that we didn't serve as much in 2010. One of them is Detroit, for example. By the way, when we talk about Rupert and Vancouver, both these ports do a lot of Canadian business and U.S. business. Both of them do all the Canadian cities and the U.S. cities just as well. So Detroit last year, 2011, has been strong for us. We've also increased our presence in other areas of the U.S., like Chicago, Memphis and Arcadia in Wisconsin. Montréal and Toronto went well. So it's been very, very diverse. Western Canada is also an area of increased trade. Consumer consumption or things that comes from Asia, China, which are used in the energy sector in Western Canada. We also have very strong, extremely strong, export program. You've heard a number of times about what we do on lumber, for example. Huge amount of lumber, B.C. lumber going to Asia. All of that finds its way into a container. A lot of that now is actually done in Prince George with the new CN ramp. 2011 was already the real success here, for Prince George [indiscernible]. So it's a very wide range of things regarding import, export, source loading, new destination market. It's not about just the one event that took place in my Canadian competitor.

Luc Jobin

I think it's key for you to understand, Matt, that at the end of the day, in Intermodal, where the traffic goes is a decision that takes place one box at a time. So boxes can move on one shipping line that is served by CN or it can move on another shipping line that is served by CN at a different port. And so, really, the better your service offering is, the better your transit time, the better you're capable of putting all the pieces together from a supply chain standpoint so that you have less dwell at the port, better transit time on rail, better connection all the way to the dock side out of your inland terminal, the more of those boxes will find their way on the shipping lines that we serve, and that's what's happening.

Matthew Troy - Susquehanna Financial Group, LLLP, Research Division

So running out singles and doubles beats swinging for the fences every time. The second question, last question. Chemicals, it's a more significant traffic relative to your commodity mix. Given its importance as a feedstock in the industrial economy, certainly your trends are no different than what we've seen elsewhere in the class ones. You were up about 7% the first quarter, up 2% to 3% in the second and third, and then fourth you were actually off a little bit. Are you seeing anything, either from a destocking perspective or restocking perspective, that gives you concern that some of the slowing we saw in consumer, the lack of a peak season in the back half of 2011, might be creeping into the industrial landscape or are you comfortable, based on your conversation with customers, that we're just taking a slight pause here? What's behind that kind of moderation in chemical carload growth?

Claude Mongeau

For example, if we push fertilizer as the chemical, there's been some destocking because people are waiting for somewhat better price. So if you're a wholesaler or a buyer, you don't want to have too much product on hand, you just want to see if you're going to get a better price. Which might be the case, might be not. Same thing in plastics. I think there was an effort by some of our major large chemical customers to finish the year with a good cash flow, meaning not having too much inventory in their hand as finished product because they may have to take a write-down. Meaning the value of the product may have been lower in the fourth quarter than it was earlier in the year. That in itself, though, is good because if our customers enter 2012 with lower inventory, when the demand start to pick up or the signal that chemical price have to go up, these are cyclical commodities, they move fairly fast. As soon as there's a signal, either plastics, potash or fertilizer price start to go up, people want to buy ahead of the next price increase. And these are not, call it, price increase. When they start to come in, you might have a price -- you may have 2 or 3 price increases in the quarter or so. We're happy to see that our customers, maybe at this point, have lower inventories so it makes us less vulnerable to what's ahead of us.

Operator

The next question is from Benoit Poirier from Desjardins Securities.

Benoit Poirier - Desjardins Securities Inc., Research Division

Just to come back on the volume growth assumptions for 2012 by commodity group. How would you rank the growth potential, by commodity, from the top to the bottom?

Claude Mongeau

I think, on the weak side, export grain in the U.S. looks pretty weak. Paper is not a commodity that we have, that will do wonders in 2012. On the higher side we believe intermodal, in general, will do well. That's where we see the domestic. Canadian grain, so far, is doing very well and then we'll see, next summer, what kind of crop we have in Canada. And then after that, in between -- you got everything in between. We've talked about things related to the shale activity, shale drilling. So frac sand should do very well. Drilling pipe should be doing very well. Even though the world coal market may not be as strong right now as it used to, whether it was terminal or steel, our customers are still profitable and we think, I think at least in the case of CN, export coal for both coasts will be a positive thing. Terminal coal in the U.S. may not be so strong, so I think we've covered some of that in the early half of discussion.

Benoit Poirier - Desjardins Securities Inc., Research Division

And maybe just a quick housekeeping item for Luc. What is the effective tax rate you assume for 2012?

Luc Jobin

I'd be looking at 28% approximately.

Claude Mongeau

I've seen a little trend here of having 2 questions from everybody. So if we want to be able to answer everybody, I would appreciate if we had only one question.

Operator

The next question is from Gary Chase from Barclays Capital.

Garrett L. Chase - Barclays Capital, Research Division

I know you don't want to address certain aspects of this, but just wondered if you could offer a little perspective. I mean, one way or another, there's a lot of effort being applied, right now, towards the idea that your Canadian competition can operate a lot better operationally and financially. Wondering if you think, in that event, it would change in any way some of the longer-term strategic thoughts you have about what's appropriate for CN, some of the last mile initiatives. And is there potential that you would need to change course on some of the broader strategic initiatives if that were to develop?

Claude Mongeau

Well, Gary, that's a good question. Quite frankly, I think strong competition is a good thing. The best hockey or sports franchise really gets to their full potential when they meet a strong opponent. So we are all for a strong CP and we wish them well. And I think what both railroads, CN and CP, need to do is to continue to focus on improving service, the price to market. Pricing discipline is a very important driver of solid financial performance and continued productivity. If we both do that, the railroad industry wins and CN and CP and other rail carriers win. And that's what we wish for the industry as a whole and for CN shareholders in particular.

Garrett L. Chase - Barclays Capital, Research Division

So no real change to your longer-term thought process?

Claude Mongeau

No, absolutely not. We have a game plan to meet our customer needs every day and grow with them, and that doesn't change from what's happening across the street.

Operator

The next question is from Walter Spracklin from RBC Capital Markets.

Walter Spracklin - RBC Capital Markets, LLC, Research Division

I know Bob had mentioned, at the beginning, that you prefer not to talk about any of the movements or the things going on with Hunter Harrison. And the only thing -- and help us here if this is a little bit too direct. But in some of the legal documents that I've read, you've indicated that there's a concern that there could be a very real threat to CN and so forth, in the future, if that role were to be taken. And I think a lot of investor concern out there is around that position, and without discussing the legal or the pension or any of that other aspect, can you give us a little bit of comfort around that perspective, that perhaps you are going to be negatively impacted should things develop the way that you're fearing?

Claude Mongeau

Walter, you heard Bob very well, and I can give you all the comfort in the world. And all I would say is our lawyers have filed the papers. This is in front of the court and we will not comment today.

Walter Spracklin - RBC Capital Markets, LLC, Research Division

Okay, I understand. If I may ask a second one then. Just on the Canpotex -- just to follow up on this. I know this is an agreement or a business that you had historically sort of walked away from at this price and I'm curious to see what's changed. Is it the volume now has risen to make it a much more effective or much more attractive business for you or has the pricing evolved that has made it more attractive? Can you give us a sense of what has changed from the last go around that's made this a much more attractive business for you this time?

Claude Mongeau

I was going to say, and JJ, you can add to this, I don't think that saying that we walked away from this business is accurate. The last 10 years, we did not have any of the business because CP won it at the time and this is a business that is growing fast and will continue to grow fast and it's good business to have, and I believe it's in the interest of Canpotex to diversify its rail carriers the same way everybody who wants reliability to their end market, would do. So I think diversifying railroad, diversifying terminals, diversifying gateways is what they should do. And they seem to be pleased with what we have to offer them and are intent on continuing down that path.

Jean-Jacques Ruest

Yes, 10 years is a long time. I think everybody started with basically a clean sheet, a white sheet, as to what made sense for them, buyers or sellers. And we're happy with what Canpotex has trusted in CN. We were looking for a chunk, we had the chunk, and it is profitable business. So I don't know what happened 10 years ago, that's almost like before most of us, but we started with a fresh look, and I think it was the case for all the people who looked at that transaction.

Operator

The next question is from Chris Wetherbee from Citi.

Christian Wetherbee - Citigroup Inc, Research Division

When I think about the guidance you guys have given for 2012, it looks like there's not much margin opportunity kind of built in. When you think about the puts and takes to what could change relative to your expectations, are there more maybe opportunities on the cost side to potentially leverage up EPS above your guidance or maybe hit the high end or is it more just a function of you need to get a little bit more revenue contribution from better volumes and a better economic outlook? I'm just kind of curious kind of how you think about the puts and takes of the guidance within what you've given us.

Claude Mongeau

Yes, well at this stage, I mean -- again, I mean, given the visibility we have on the economy and so on and so forth. So I would say, I mean, it could go either way. I mean, we could see things slowing down a little bit. Again, we're not forecasting another recession, but it's been a pretty spotty rate of growth. So if we would be surprised on the upside, then, of course, you would expect that to flow to the bottom line. In terms of cost, I mean, we continue to look for every opportunity we can find. In fact, our guidance has a certain amount of productivity improvement built in. It's really when you factor in the pension headwind that, that's a big offsetting force in 2012. But, I mean, we're still looking for further opportunity for productivity improvement and if there's anything out there, we'll be pushing more towards the high end of our guidance. That's where we are.

Christian Wetherbee - Citigroup Inc, Research Division

So the cost side from the pension is enough to -- it's probably the key gating factor from an expense perspective, right? As far as leveraging.

Claude Mongeau

Absolutely.

Luc Jobin

Yes, and when you add it all up, $120 million takes a lot of productivity to make up for and that's what exactly what we're going to do next year. We're going to make up for it and show solid growth despite that headwind.

Operator

Our last question will be from Jacob Bout from CIBC.

Jacob Bout - CIBC World Markets Inc., Research Division

My question is about the Canadian Wheat Board. And following the dissolution, can we expect to see any changes to your network as far as how you're handling grain, and what type of opportunities do you see here?

Claude Mongeau

I think there's some questions out there that we can't answer today, but we'll be able to answer in a year from now. So how the grain will flow through the different ports, whether some of the ports will be entering the same business post Wheat Board as before. And we'll see how that work. That will depend partly on what shape the Wheat Board exists post August 1. I think the Wheat Board will exist, they'll be a market player, but market players in a different format. And also the role of the major grain companies who control and own these terminals on both coasts, different ports. So the volume will be the same, the flow might change and we're prepared to adapt to that in the coming months.

Luc Jobin

Yes. I would say, overall, you can make a case for efficiency gains. You can make a case for changes in terms of routing as a result of the Canadian Wheat Board becoming what we all think will be a smaller player in the marketplace. But the good news is we have a great franchise, we have more diversity in the outlets we can serve, that we feel we will be able to follow the market and do well as this new structure unfolds.

Claude Mongeau

It's more about the efficiency of the supply chain than -- we'll make more grain, the grain will be the quantity that's grown out there.

Robert Noorigian

All right. Well, thank you, all, for this call. Again we're, as we said, we are very pleased with the year and we are looking forward to another strong year in 2012. We are keeping our focus and delivering on our agenda and we really look forward to meet as many of you as possible in New Orleans, so that we can give you the details and share and press the flesh on what we're all about. Thank you very much. Have a safe day.

Claude Mongeau

Thank you.

Operator

Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.