Canadian Pacific Railway Limited - Shareholder/Analyst Call

May. 1.13 | About: Canadian Pacific (CP)

Canadian Pacific Railway Limited (NYSE:CP)

May 01, 2013 9:00 am ET

Executives

Scott MacDonald - Senior Vice President of Operations (System)

Paul G. Haggis - Chairman

Paul A. Guthrie - Chief Legal Officer and Corporate Secretary

Karen L. Fleming - Former Corporate General Counsel and Corporate Secretary

Breanne Feigel

Mark Seland

E. Hunter Harrison - Chief Executive Officer, Director and Member of Safety, Operations & Environment Committee

Keith E. Creel - President and Chief Operating Officer

Scott MacDonald

Good morning. My name is Scott MacDonald, Senior Vice President of Operations. At Canadian Pacific, safety is extremely important. And it is my task this morning to inform you the procedures that we will follow should an emergency situation arise during the Annual General Meeting.

First, in the event of a fire, you'll hear a steady electronic tone over the public address system, at which time, the Chairman or CEO, whoever is at the podium, will suspend the presentation in order to hear the hotel announcement over the public address system that will describe the nature of the emergency. Evacuation, if required, will be clearly announced and will -- and would occur by proceeding to the nearest exit and continuing outside and away from the building perimeter. Hotel staff and CP security personnel will be on hand to assist, if necessary.

Our emergency exit routes are out through the main ballroom doors, into the foyer, down the stairwells, which are located adjacent to each side of the elevator bank, take either stairway down 2 flights of stairs into the main lobby, leave the hotel by the main doors of the hotel on the front street. Our evacuation destination is across the street from the hotel's main entrance and the main foyer inside Union Station. Exit the main doors of the hotel and cross front street and then enter the main entrance to Union Station. We will regroup inside the foyer in the right-hand side and wait for further information. I'll be the last person to exit the room to ensure that everyone has left safely.

Second, in the event of a medical emergency, will the people in the immediate area stand and call out loudly, "Medical emergency." Then move away from the immediate area, so that CP security personnel can easily gain access or security staff will take charge and call 911, if necessary.

Finally, before the meeting begins, I would ask that your cellphones, BlackBerries, pagers or any other electronic devices be turned off, so as not to disrupt the proceedings. Thank you very much.

Paul G. Haggis

Thank you, Scott. Good morning, ladies and gentlemen. My name is Paul Haggis. I'm -- I am the Chairman of the Board of Directors of Canadian Pacific. It is my pleasure to welcome you to the annual meeting of the shareholders of CP here in Toronto. And I would like to welcome those listening in the meeting via audio webcast over the Internet. With me on the platform today are Hunter Harrison, Chief Executive Officer; Keith Creel, President and Chief Operating Officer; and Paul Guthrie, Chief Legal Officer and Corporate Secretary.

I now call the meeting to order. I will act as Chairman, and Paul Guthrie will act as Secretary. I hereby appoint Mark Thompson and Jamie Bajzik from Computershare Investor Services to act as scrutineers of the meeting.

The secretary has deposited with me a statutory declaration establishing the sending of notice of time and place of this meeting to each shareholder entitled to vote, to each director and to its auditors of Canadian Pacific as required by law. The scrutineers have confirmed that a quorum is present. The scrutineers' final report will be kept with the records of this meeting. I declare that the meeting has been regularly called and properly constituted for the transaction of business.

Now before we commence the formal part of the meeting, I have some remarks. As you are well aware, just over a year ago, there was considerable change in the works at Canadian Pacific. With the proxy contest now behind us, we have made tremendous progress since our last meeting. It's a testament to what can be accomplished by effective and committed people working at all levels of this great company.

We have come through a process that is a stronger and more focused organization. The message from our shareholders was clear and allowed Canadian Pacific to move rapidly towards making the changes our stakeholders wanted and that our company needed. We are very pleased that our customers, employees and the market have reacted well to this tremendous change brought in under our new CEO, Hunter Harrison, and his leadership team, many of which are here today.

I would be remiss if I do not take the time to thank Steve Tobias, Railroader of the Year, a railway god as he is quietly known, for his work in stepping in as Interim CEO upon the election last year on May 17 and managing the company. His stewardship was wonderful until Hunter was appointed. Thank you, Steve Tobias.

The mandate for change encompasses all levels of Canadian Pacific, including your board. Those of us who only last year joined the CP board were -- immersed ourselves and quickly got up to speed on the business through various director education sessions. This learning process has brought the board members closer together in a very, very short timeframe and has enhanced our working relationship.

The CP board is an effective group and is committed to upholding the good governance of this company. The 3 directors have decided not to stand for reelection or are retiring. It has been our pleasure during this past year to work with Madeleine Paquin, John Manley and Hartley Richardson. Madeleine is the President and CEO of Logistec Corporation and has been on the board since 2001 when rail spun out from the ownership under CP Limited. Madeleine has served on many committees, including corporate governance and nominating, as well as safety operations and the environment committee.

The Honorable John Maney -- Manley who has been on the CP board since 2006 and many of you know John as a very well-known figure both in governance and on politics. His background in law and his time in government, in portfolio such as Finance, as Deputy Prime Minister of Foreign Affairs, have been invaluable to us. And he both -- he served both CP well and all of Canada well.

Hartley Richardson, who is with us today, is the President and CEO of James Richardsons & Sons and has been on the CP board since 2006. He's been welcome and valued member and the third generation of the Richardson family to sit on the board of Canadian Pacific. He's the kind of guy that gives more than he gets. His public service and philanthropy, his activities, his focus on this company, as his family, is legendary. We are privileged to have had Hartley Richardson serving with us and his continued relationship as a valued customer and his relationship in supporting of CP will last many years after today. Hartley, could you stand and be recognized, please? Hartley Richardson, ladies and gentlemen.

The amazing things that have done by management in the last sort of while will be well known to you as well known to the marketplace. And we'll hear from Hunter and Keith later in the program.

One thing I want to highlight are 2 basic things in Hunter's 5 principles of management, and those 2 things are operate safely, as testament to Scott's briefing to you this morning, and to develop people. I call your attention to the Develop People foundation as our colleagues, employees, who are the base of this entire organization. And without those people, without that focus, this framework would never hold.

On top of this, however, is the maxim to operate safely. Canadian Pacific operates through 1,200 communities and has been part of the fabric of North American life for generations. We're always mindful of our responsibilities to community, employee safety, and we're serious in our approach to both. Safety is built into all our systems at CP. Employees are trained, systems are built, briefings are conducted, audits are performed, processes continuously improved, and all have a safety component and focus.

Railroading is a difficult calling, and it is a calling. I'm always astounded, multi-generations of people that are committed to Canadian Pacific and have worked here and call themselves railroaders. And they're called to work in all kinds of weather and conditions, in all kinds of terrain, 24 hours a day, 7 days a week, 365 days a year.

Now despite all of our best efforts and intense focus on safety, it saddens me to tell you that in the past year, we have lost 2 of our colleagues through accidents. One in Kenmare, North Dakota and the other at our regional rail yard in Regina. Robert Glasgow was a conductor who lived in Minot, North Dakota, and Bob was fatally injured in May of 2012. And Jamie Jijian was a conductor based in Regina, Saskatchewan, and Jamie was fatally injured in January of 2013. Both Bob and Jamie were well-liked members of the CP family. Sadly, each leaves behind their wives and children. Bob and Jamie is definitely a sobering reminder to us of the preciousness of life and that nothing is more important than the safety of our people. Will you please join me in a moment of silence as we honor the memory of the Canadian Pacific family members conductor Robert Glasgow and conductor Jamie Jijian?

It's not easy. As we think about Bob and Jamie and all the railway men and women who've lost their lives in the company, this time, we denote that this is Rail Safety Week. CP will continue to play an active role in the education and communication of rail safety and will work to strengthen our safety messages across North America. The safety of our neighbors also informed us a large part of our community relations.

And another significant portion is our desire to be a constructive and positive addition to community life. To that end, we're involved with several charitable organizations that focus on the support of those neighbors who may occasionally need a helping hand. In a country that has such abundance, it's not right that some of our citizens should still be ill-nourished.

Lastly, the -- CP made a donation of $100,000 to the Breakfast Clubs of Canada. Their mandate is to feed Canadian children through the funding of school breakfast programs. There are currently 20,000 Toronto schoolchildren who use this breakfast club program each morning. This donation will not only sustain the current 66 existing programs, but would allow 16 new breakfast programs to open in the greater Toronto area, so another 3,200 students will be able to start their day with a full stomach.

I would like to ask Don Inouye from the Breakfast Clubs of Canada to stand. Don, are you here? And recognize him for the excellent and meaningful work of the organization. Thank you very much, Don, for coming.

Finally, as Chairman of this great company, I would like to emphasize that the board and management believe that good corporate governance practices are the key to effective management of Canadian Pacific. And to the protection of the interest of you, our owners, our employees and our stakeholders, CP is committed to ensuring that our governance principles are of the highest standard and fully compliant with all applicable requirements. The corporate governance principles and guidelines are available on our website and in print to any of you upon request. Thank you.

So that concludes my remarks. I thank you for that opportunity to speak to you, and we'll now go on to the formal part of the meeting.

Please note that after the formal business is conducted and the meeting is terminated, Hunter and Keith will have a -- Hunter will make a formal address standing here, and then there will be a Q&A, an opportunity for you to talk rather more informally with Keith and Hunter.

To expedite matters, a number of shareholders or proxy holders have agreed to propose and second motions with respect to the business of the meeting. While this will help speed the matters in handling the formal matters, it should not discourage any shareholder or proxy holder from speaking to any motion after it has been proposed and seconded or for them to bring up any questions or comments properly within the scope of this meeting. If you do have any such questions or comments at the proper time, please proceed to one of the microphones in the aisles here. Advise whether you are shareholder or proxy holder and give us your name, and then please keep your comments brief and ask one question at a time.

Shareholders who do not wish to address the meeting but would like to submit a question or comment in writing may use the bottom of the agenda, a copy of which has been placed on each of your chairs. Please hand your written questions or comments to one of my CP associates in the room here. Upon leaving it -- and questions will be responded by -- to management or, if appropriate, relating to board or governance, myself, as soon as possible.

There are 3 matters set out in the notice of this meeting to be voted on by shareholders. We will conduct all substantive items of business by way of a single ballot. If you are registered shareholder or proxy holder and advised that you wish to vote in person at this meeting, you should have received your ballot when you registered at the meeting. If you have completed and returned your form of proxy or voting instruction form, it is not necessary for you to vote today. However, if you wish to change your mind, you may do so by voting in person at the meeting by submitting a ballot. Anyone wishing to vote at the meeting and who does not have a ballot, please raise your hand and one will be provided to you.

I would request now that the secretary provide instructions in respect to the completing of the ballot.

Paul A. Guthrie

Okay, Mr. Chairman. Each shareholder or proxy holder may use the ballot provided to vote on all matters of the meeting, in particular: one, the appointment of auditors, by placing a mark beside either for or withhold in respect of the appointment of auditors; two, CP's approach to executive compensation by placing a mark beside either for or against in respect to CP's approach to executive compensation; and three, the election of directors by placing a mark opposite the names of the nominees for whom they wish to vote. The ballot should be clearly signed. If you are a shareholder or a proxy holder and the space for your name has not been pre-completed, please print your name on the ballot. Ballots will be completed later in the meeting after all matters have been voted on.

Paul G. Haggis

The first item of business is the receipt of the consolidated financial statements as included in the 2012 annual report. A copy of the annual report has been made available to shareholders, either in hard copy or electronically. I'll now place this before the meeting the consolidated financial statements and report of the auditors thereon of the year ended December 12, 2012.

The next item of business is the appointment of auditors. Karen Fleming, may I have a motion?

Karen L. Fleming

I move that Deloitte LLP, the appointed auditors of Canadian Pacific, to hold office until the next -- till the close of the next annual meeting of shareholders.

Chris Burns

Mr. Chairman?

Paul G. Haggis

May we have a seconder, please?

Chris Burns

Sorry, Mr. Chairman. My name is Chris Burns, and I second the motion.

Paul G. Haggis

Is there any discussion on this motion? I declare the poll is open in the vote on the appointment of auditors.

Next item of business is a nonbinding advisory vote on CP's approach to executive compensation, commonly known as Say on Pay.

Breanne Feigel, may I have a motion?

Breanne Feigel

I move that on an advisory basis and not to diminish the responsibilities of the Board of Directors that the shareholders accept the approach to executive compensation disclosed in the corporation's information circular and delivered in advance of the 2013 annual meeting of shareholders.

Unknown Attendee

Mr. Chairman, my name is Megan Aldiston, [ph] and I second the motion.

Paul G. Haggis

Is there any discussion on this motion? I declare the polls open for the vote on advisory vote -- vote on the advisory vote on CP's approach to executive compensation.

And finally, the final item of business is the election of directors. In accordance with the articles and bylaws of Canadian Pacific, the Board of Directors has determined that 13 directors are to be elected at this meeting. I now declare the meeting open for nominations.

Mark Seland

Mr. Chairman, my name is Mark Seland and I nominate the following 13 Canadian Pacific director nominees. William Ackman, Gary Colter, Isabelle Courville, Paul Haggis, Hunter Harrison, Paul Hilal, Krystyna Hoeg, Richard Kelly, Rebecca MacDonald, Dr. Anthony Melman, Linda Morgan, Andrew Reardon and Stephen Tobias.

Paul G. Haggis

Thank you. Are there any further nominations?

As there are no further nominations, I now declare the nominations closed. Mark Seland, may I have a motion?

Mark Seland

I move that the persons nominated be elected directors of Canadian Pacific, each to hold office until the close of the next annual meeting of shareholders or until such person's successor is elected or appointed.

Unknown Attendee

Mr. Chairman, made name is Derek Gillespie [ph], and I second the motion.

Paul G. Haggis

Thank you, Derek [ph]. Is there any discussion on this motion? I declare the polls open for the vote on election of directors. As the number of nominees equals the number of board positions, I will declare the polls closed momentarily once the scrutineers have collected all the ballots. Will the scrutineers please proceed and collect the ballots?

I think we're done here. So I hereby declare that the polls have now closed. With respect to all items of business, I will now take a short recess to allow the scrutineers time to count the ballots. And I will call, once we're finished, on the secretary to report on the preliminary results of the votes cast by the ballot. I note that the company will report the details of voting results following the meeting once the tabulation is complete.

Paul A. Guthrie

I can report on the vote. Deloitte LLP have been reappointed auditors of Canadian Pacific. The Say on Pay vote has been passed, and each of the 13 nominees has been elected as a director of Canadian Pacific.

Paul G. Haggis

I adopt the preliminary report, Mr. Secretary and the scrutineers, and declare that these 13 director nominees duly elected directors of Canadian Pacific. And I direct the scrutineers' report to be annexed to the minutes of this meeting.

Ladies and gentlemen, it's my pleasure to present to you your duly elected directors. They are as follows: Bill Ackman, Chairman and Executive Officer of Pershing Square. Bill, if we could -- ask the directors to stand up and face the audience and remain standing? And if you'd hold your applause till the end please. Gary Colter, President of CRS Inc. and formally a long-standing leader of KPMG and its predecessor Peat Marwick, having retired from the Canadian firm as Vice Chairman in 2002; Isabelle Courville, Chair of the Board of Laurentian Bank of Canada and formerly a top executive of Hydro-Québec and Bell Canada; myself, Paul Haggis, your Chair and formerly President and Chief Executive Officer of OMERS and Alberta Treasury Branch; Hunter Harrison, our Chief Executive; Paul Hilal, partner at Pershing Square; Krys Hoeg, former President and Chief Executive Officer of Corby Distilleries; Dick Kelly, retired Chairman and Chief Executive Officer of Xcel Energy; Rebecca MacDonald, Founder and current Executive Chair of Just Energy Group; Tony Melman, President and CEO of Acasta Capital and formerly a Managing Director of Onex Corporation; Linda Morgan, partner at the law firm of Nossaman LLP and previously Chair of the United States Surface Transportation Board; Andy Reardon, most recently a partner at the law firm of Reardon & Chasar, LPA and former Chairman and Chief Financial Officer of TTX Company, the leading railcar leasing company in North America; and finally, Steve Tobias, former Vice Chairman and Chief Operating Officer of Norfolk Southern and a railway god.

Thank you. As there are no other business that may be properly brought before the meeting, that concludes the formal business part of the meeting. I wish to thank you all for attending, and I now declare the meeting terminated.

Hunter? The stage is yours.

E. Hunter Harrison

Thank you, Mr. Chairman. Good morning to everyone. It's certainly a pleasure to be here. And I would like to take this opportunity for me to welcome our valued shareholders and customers and members of the Board of Directors and, maybe more importantly, fellow railroaders.

This happens to be my first annual general meeting as your CEO. And as I sat back and reflected this morning. What a difference a year makes. I was not at Calgary last year. I'm happy to be -- happy that I wasn't there. It was a little different environment, I think, than we're -- we were facing this morning. But I think one of the things that it does is there has been obviously a lot of change at the board level in this organization as a result of the proxy contest and resignations and retirements. And we have dealt with -- lost a lot of very talented people, but at the same time, we've been able to replace that group.

And I think it's certainly a reflection of the talent the Board of Directors to be able to turn the page, put this behind us, develop a certain esprit de corps, if you will, chemistry, that we need to take this organization forward and be in position to be able to create what a lot of you are concerned about, which is shareholder value.

We can certainly have not done the things that we have done initially, from an operating standpoint, without the confidence that the directors have shown in this management team. And so from a personal standpoint, we'd like to thank you very much. We needed that.

As I first came aboard with this organization, and I've been in this situation several times before, what was my job? What did I need to do? And first thing I needed to do was really reflect on what the organization needed. I think you or you, the shareholders of the organization, were, at least in my view, begging for change, for whatever reason. And I don't think that's important. We've turned the page and moving forward.

But I think there was 2 things that quickly jumped out of me. One, there was an urgent need to improve our product, in our case, transportation service; and number two, to get our cost under control. We went about that. I committed to the board that I would work diligently and do it effectively to oversimplify 2 things: to turn this organization in the right direction, which is difficult to do, effectively, an overused term, but really make cultural change internally; and develop for the organization some sustainability.

Now the tough part of that equation is change and how do you create change. And I've been through this a lot in my career, and it's difficult to do. It's difficult for all of us that have been in this business as long as, for example, I have, 50 years now, to have someone tell us we need to make a change, that we had it wrong. So my view, how you create change is through -- and probably only effective way is to great leadership. And so we really set about to develop a team, a world-class team that could put this organization certainly on the right track. We tried to take the layers out of the organization. We were -- obviously, in my view, we were very fat at the top of the organization. And so we've gone about making those changes.

And I've said before, and one of the most pleasant parts of this experience, has been the ability of CP employees to accept and embrace change and recognize that we had to change to move this organization forward. I think every organization, if you look back in their history, has to go through periods, for whatever reason, of cleansing. And so I think this is kind of viewed as a cleansing. So I try to use the term leaders and I like the term managers because I think there's distinction that you can draw, which we try to draw and try to change in our culture. And then it basically says this, managers do things right, but leaders do the right things. And so we're trying to do the right things.

One that always we had and probably one of the most, if not the most significant change in a positive note that we've made is the recruitment appointment of my colleague, Keith Creel, as President and Chief Operating Officer. Keith and I have worked together for 25 years plus. If I know anything about this business, he's the right man for the job to take this organization forward. There's only 2 others that were on the list, and that was Tobias and I, and we're both too old, and so Keith is joining us. And he's hit the ground running. You're going to see quickly the -- some of the results that he has brought to the organization. And so I think I look forward to being here next year and looking and reflecting on some of those changes.

So how are we going to make these changes with this great leadership? We've got a model that has been referred to as Precision/Scheduled Railroading, and I wrote a couple of books about it. And people say, "Is that all there is? Is that the only message you've got?" It's worked pretty well for about 25 years now in a lot of different cases, and so I think it still has some applications here.

And let me just take a brief moment to tell you the underpinnings of that model. One, if you can look at it, you can think of -- that it's built on a foundation that you've heard this morning, of people, people being the real cornerstone of the organization. And I'm going to talk about 4 other important values, but I would suggest this to you. If you missed the people part, don't worry about the others. Because you're not going to be successful, because you have to have people to execute, dedicated loyal workers to make this model a success.

The second thing is our product, our service offering, our transportation service in the railroad business. The second, is to control our cost. We do pretty well at that. And this is really a balancing act. In all of my career, I have been through this balancing act between cost and service and keeping some harmony and balance there. What is -- and we've been challenged this, what is good service? And if you look and reflect upon our tariffs and our contracts, very seldom do you hear the term service used and see it in that writing. So people misunderstand what is "good service".

Well, we had a lot of debate about that, a lot of focus groups, a lot of outside help, and we kind of came up with a simple definition. Good service is just doing what you say you're going to do. So as you reflect with the customers and make certain commitments, just do what you say you're going to do.

The third, after the people foundation, is asset utilization, a very important left out. Throughout my career, I used to say that asset utilization was the missing ingredient in the recipe to success in the rail industry. We didn't measure it, we didn't give it a lot of focus, we didn't give it a lot of attention, and so we got the kind of results that you could certainly expect.

And the fourth, and some would argue the most important, rightfully so, is that -- I'd like to say it simply this way, don't get anybody hurt. Now we can talk about risk management, loss controls, safety processes, we can be very sophisticated, but it's just all about not getting anybody hurt.

So I think if you learn a little bit about the culture we're trying to shape, if you think about those values and if you think about what I would say was adding some seasoning to those 5 values, and the seasonings have been integrity and passion. You understand a little bit about what we want to be. I say to people internally is you've got to love what you're doing and love what you do. Life's too short. If this is not the business you love and appreciate and enjoy doing every day, we got to find something else to do.

So what have we done? What's been accomplished so far in this short period of 10 months, which sometimes seems like 10 decades? First thing we did was we announced -- and a lot of these things were simultaneous. We've announced we were going to move into -- the headquarters in Calgary for several reasons. One, it saves us about $20 million a year, but maybe more importantly, I think it has an impact on changing a culture. I think it's important that we not forget how we got where we got, and we got there through railroading. And it's nice to be able to look out the window, at least in my view, and see a railroad and some locomotives and some cars, and that's what we're all about, rather than looking out some downtown Calgary in a big glass tower looking at the business district. Now that works for some, but I think we've taken a underused utilized asset and going to turn it into a first-class facility. So that was one of the first things.

On the service side, the first thing we did, 3 days into my tenure, we took an -- took a day, excuse me, out of the transcontinental schedule from an intermodal standpoint. If you look at every one of our operating metrics, the velocity measurements are up, dwell measurements are down. I think you can hear customers testify to a better, more consistent service. Is it where it's going to be? No. Have we got a ways to go? Yes. But clearly, I think it's obvious that we're on the right track. In fact, just to take you inside a little bit. Next week, I think it is, or the following week in Chicago, Keith and I will be conducting with about 20 to 25 other leaders of the organization what we call in a whiteboard exercise, where we take our ties off, roll our sleeves up and go to a whiteboard and design the whole railroad from A to Z. Now I would suggest to you that I've been around this industry a long time and very seldom that you see the top 2 officers of an organization sitting down and scheduling trains and movements and industrial movements and that type thing, but that's the commitment, and hopefully, the dedication that we have to service that reflects that.

On the cost side. We've seen the operating ratio on a run rate basis improved 500 basis points in 10 months. You've read about the closures of the humps, the hump here in Toronto, the hump at Winnipeg, the hump at Calgary and Alyth, several closings of intermodal facilities, all in the answers of getting our cost under control and becoming more competitive.

Now a lot of people misunderstood, for example, the closures of the humps. Why do you put these automatic high-technology humps in? They were high-technology in late '50s and early '60s in. Well, our book of business has changed totally. If you go back to late '50s, early '60s, we were still moving grain in 40-foot box cars. 85% to 90% of the cars that we handled needed to be sorted. Today, that reversed. Today, 80% of our business, if you include intermodal from a unit train standpoint, is bulk. And it doesn't have to be sorted. So these yards became antiquated. And the best analogy I could possibly give you is maybe from Henry Ford. I can -- I think that if he was going to build 15 Model As, he would never had assembly line. But when he get to the point of building 300, 400, 500 Models As a day, assembly line was very appropriate.

In asset utilization, all of this has been accomplished with about 450 less locomotives, 7,000 less freight cars on the way to 10,000 by year end, all the time while maintaining an intense focus on safety.

So let me just take a moment to look at some of the results. They're pretty staggering, I think, as biased as I might be. First quarter, we set records. EPS was up, earnings per share, excuse me, I criticize people all the time for acronyms here because I don't understand about half of them, up 51%. Operating ratio for the quarter, a tough quarter with winter and a seasonally quarter that's challenging to us always, the operating ratio down 450 basis points, with improved service and record deliveries to Vancouver and most of our bulk commodities. Our headcount, which is, to some degree, misunderstood, is at about 3,700 at this point, on the way to 4,000 by year end, which is mostly -- a high percentage of is due to natural attrition.

So things are going quite well. Thomas Jefferson once said, "I like the dreams of the future better than the history of the past." So I'm guilty of kind of being a dreamer. Hopefully, those dreams can turn into a vision and a point. So my dream for CP is that we're on the way to becoming, again, the best railroad in North America. People are looking in their rearview mirrors, watching us gaining on them every day. They've said we're going to catch them and pass them, it's just a matter of when. But I think the challenge to this organization and to our shareholders is take this organization from the best railroad in North America to potentially one of the best transportation companies in the world.

So I think those are pretty ambitious challenges. I think this road -- that we've been on quite a road. This has been a bumpy road but a successful road. And I would've personally want to thank all of you for the confidence that you've shown in the organization and this team and what we can hopefully potentially produce for you as shareholders, which is what it's all about.

So thank you very much.

Paul G. Haggis

Ladies and gentlemen, we're just going to get some stools up, move this out of the way and Keith and Hunter will then have a chance to answer your questions and interact with the shareholders of the stature. So just give us 2 minutes.

[Break]

E. Hunter Harrison

I've lost a little control today because I ask them if they would turn the lights down before my remarks because I'd like to be able to see the audience and get some feedback. It didn't happen. And here they come again when I stand up. Would somebody dial those lights down and keep them down, please? Questions?

Question-and-Answer Session

Unknown Attendee

Paul Bern [ph] is my name, Mr. Harrison.

E. Hunter Harrison

Yes, sir.

Unknown Attendee

Yes, okay, you just said that first quarter numbers are up very nicely. Nevertheless, revenue's been rising over the last 3 years, but profit and earnings per share has been falling. If I assume that, that is because of onetime restructuring costs, am I fairly accurate on that, or are there other reasons?

E. Hunter Harrison

The first quarter results? No, I think the first quarter...

Unknown Attendee

No, no. The last 3 years is what I'm primarily focusing on.

E. Hunter Harrison

Well, I don't know that I'm qualified to focus on the last 3 years. I can tell you this. We need revenue growth, but at the same time, we need that balance of controlling costs. And I don't know if anything in the numbers that indicates behavior in the past will affect what we have been predicting for the future. If that's...

Unknown Attendee

Okay. I'm just looking at the popular Business Media, and they said they're -- in order to accommodate the oil and gas, the new shale development, it said in this article that, that requires the company to have some construction and infrastructure on the secondary lines. And now how much -- can you quantify what the shale gas transportation will mean to the company? And is there a quite of cost for that development? And also, looking out a little bit further, if -- when Keystone XL comes online, if it does, which is probably 2 or 3 years away, is that going to hurt the company in terms of, all of a sudden, you -- it's not going to move my rail, it's going into the pipeline. Is that a potential future problem?

E. Hunter Harrison

It's an opportunity, but it's something that we have to be pretty cautious about. It's true that most of the growth from an energy standpoint is what on -- is on the areas that have been described as the secondary branch lines, the north line that we refer to it as the Winnipeg, Edmonton. But we've recognized that, and the board has shown enough confidence that they gave us latitude yesterday to spend some additional capital, if and where required, to bring the infrastructure up to handle the additional tonnage. The growth, it, certainly, in the early years, will be pretty phenomenal. I think we're looking this year for the growth to be -- to more than double what it has been. But at the same time, I'm not sure what's going to happen with Keystone.I mean, it's a political nightmare in some quarters right now. So -- but I think, there's enough for a lot of us. I think that this whole issue has brought to people's attention that rail is -- provides some flexibility that pipeline don't. And so I happen to think that there's enough for both. If the pipeline is built, so be it. The pipeline can very -- effectively in some markets, very productively move crude. And we're not against productivity. So if they can move crude like us effectively and safely, more power to them. Final note, so I would say this, we're proceeding cautiously. We're not going to go out and spend capital and build infrastructure that's going to last 40 or 45 years when we're not so sure about the market for 5 or 6. So that'll -- there'll be some caution there.

Keith E. Creel

I think there's one more point that's key to understand, the demand or the capacity, what they're actually consuming in the Gulf, which is where the Keystone is, it's a north-south play. Even if Keystone goes then, it's only a fraction of the demand that's needed there. So there's space for both. It's tip of the iceberg. It's not going to set us all the demand that's there for us. So there's a play on both sides.

Unknown Shareholder

Mr. Harrison, John Decker [ph]. I'm a stockholder down in New York. The -- speaking of energy plays and the infrastructure improvements, is the DM&E all gone?

E. Hunter Harrison

No, the DM&E is not gone. We're still going through, and we got a great dialogue about it yesterday. We're still going through expressions of interests. There have been a lot of people that have been expressed interest initially, which typically what happens. But we've taken a long list and cut it down to a short list. But I can tell you this, if we don't receive the appropriate proceeds for the DM&E, we'll continue to operate it. So it's not -- no decision has been made. There are other potential options, but it's just a way to take a look at our whole garden and see if there's a way to strike more value. Yes, sir?

Unknown Shareholder

My name is David Reid [ph]...

E. Hunter Harrison

Sorry, excuse me. Yes, sir?

Unknown Attendee

My name is Gordon Dyer [ph]. I have a question. It may not make sense. But with you showing such a wonderful first quarter at CP, and CN is showing a decline in the first quarter, would this not be a time to maybe discuss a merger with CN and CP under one management group, with you at the helm?

E. Hunter Harrison

Next question. Gosh, I don't know. I don't think -- let me, let me address that honestly and straightforward. I just don't think right now that you could deal with regulatory approval in Canada. I think the Competition Bureau would be very interested in that transaction. And although, I think, I can do some great things with railroads, I don't do very well in Ottawa. So we'll keep that in mind.

Unknown Attendee

Logistically, with 2 railroads in Canada, in CN and CP under one management group, logistically, it would be incredible because we have one line going west and one line coming east.

E. Hunter Harrison

I don't disagree with that. We would have to -- realistically, if that was ever done, we would have to address some competitive issues, rightfully so, certainly from, maybe a term that's used, it scares people, called open access, where both of us could operate on both franchises. It's not a bad idea. It's just that, sometimes, good ideas take a long time to come to get.

Unknown Attendee

But the question has been made that the government would not approve it, but honestly, we have a lame-duck government. U.S. Steel purchased Stelco 6, 7 years ago and agreed to keep the mills open. As of Sunday, they've locked out 1,000 workers at Nanticoke, so in effect, we don't have a steel mill in Canada. Anyway, the government won't do anything.

E. Hunter Harrison

Thank you.

Unknown Attendee

Anyway, thanks about the -- it's wonderful...

E. Hunter Harrison

Have you taken note?

Paul A. Guthrie

I've got it.

E. Hunter Harrison

Yes, sir?

Unknown Shareholder

Yes, my name is David Reid [ph]. I'm a shareholder. With the growth of the energy opportunity for the railway and we've had a couple of spills, a couple of oil spills, and they're being addressed, but to avoid the issues that the pipelines or -- pipelines are having now in terms of their public image, can you just give us some insight as to how we operate those trains that are carrying that oil products that might differ from how we operate other commodities that we ship?

E. Hunter Harrison

Let me make a couple of comments and I want Keith to weigh in here. Look, I don't think this is a -- in my view, I don't think this is a safety issue. Pipelines' been operating very safely. Railroads going to operate very safely. It's the execution. Now we've had a couple of unfortunate derailments that, on scale, were not looked as large major, but because they had oil on the train and there were some oil that hit the ground, they've picked up a lot of "media coverage." These were -- and we have thoroughly investigated -- Keith and his team looked at our policies, are they where they should be? And these were 2 cases. And Keith will get more in detail where we had, in one case, a broken rail, which was an internal flaw in the rail, which surfaced when it broke, and the other one was a case of a broken wheel, which shattered and -- but we're extremely sensitive to those issues, hopefully, always. But particularly, in the environment we're in now, and I don't think this is a case of finger pointing over the safety, I think it's more of a issue of who can do the job in the right markets and -- but Keith, you weigh in?

Keith E. Creel

Let me add a little emphasis. Number one, safety is, and always will be, paramount. It's job #1. So when this instance occur, we certainly, ahead of time, had discussions about this. Because inevitably, sometimes things are going to happen that you can't predict. And in these cases, both an internal rail flaw and the steel of the rail. There's also a flaw with the steel on the wheel. Sometimes, like I've said, you can't predict, but we invest heavily in technology, process and people. Those are the 3 ways you address it, and you approach it in each of those instances. First, they went through each one to -- do a very finite detail. From a process standpoint, from a regulatory standpoint, from an inspection standpoint, we were not deficient at all. But that doesn't mean you don't have an additional opportunity to improve. So on the training side, we're investing more money training our employees that digitally inspect. We're investing more money in technology on the locomotives to detect track irregularities would -- as this technology develops. The industry, overall, to the AAR, there's a place in Pueblo, Colorado that we all invest in, a technical training center that develops technology. There are solutions. They're being advanced through science and through engineering to get better at detecting those metallurgical problems or flaws in rail, as well as in wheels. So that's something that we'll continue. And then the other piece, what do you do when it happens? How does a company respond when an accident does occur? And that's an area that we're getting stronger as well. We've been recognized in the industry with our competitor doing co-pro arrangements. So when this incident happened in White River, I think to point out, that I called my prior colleagues at the Canadian National, I said, "Listen, we've got a joint opportunity that we can look at. We can do a co-production on emergency hazmat response." So we're in the process now of collectively and collaboratively working together to identify resources, which are strategically located across the property. So in the event that something does occur, we can respond and mitigate the impact to the environment. So that's something that's -- it's an exciting opportunity for us. They're going to be able to improve their response. We'll be able to improve our response, and at the same time, control cost and protect the environment.

E. Hunter Harrison

Thank you. Any other questions? Well, I'm going to call the Competition Bureau, and I'll get back with you, okay? It's a great question.

But thanks for joining us today, and hopefully, we can gather here again in a year and celebrate even more shareholder value creation. So thanks for coming.

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