CP Canadian Pacific Kansas City Limited

CALGARY, Jan. 26, 2012 /PRNewswire/ - Canadian Pacific Railway Limited (TSX: CP) (NYSE: CP) announced its fourth-quarter and full year 2011 results today.  Fourth-quarter CP reported net income of $221 million and diluted earnings per share of $1.30, inclusive of $0.22 per share income tax benefit.  For the full year, the company reported net income of $570 million and diluted earnings per share of $3.34.

"We exited 2011 having made meaningful progress on the three pillars of our Multi-Year Plan: driving growth, expanding network capacity to safely and efficiently support higher volumes and controlling costs.  During the fourth quarter we delivered record asset velocity, a direct link to better service, positioning us for a lower operating ratio," said Fred Green, President and Chief Executive Officer.  "We begin 2012 with operating momentum, excellent service levels and a stronger, more resilient rail network.  We are aggressively executing on our Multi-Year Plan, which is instrumental in creating long-term value for shareholders."

RECORD OPERATING PERFORMANCE

• Car miles per car day and terminal dwell both improved 20 per cent during the quarter
• Active cars online improved 14 per cent while handling five per cent more gross ton miles (GTMs) during the quarter
• Fuel efficiency of 1.17 gallons per 1,000 GTMs, matching best ever fourth-quarter performance
• Train weights set new full year record

FOURTH-QUARTER 2011 RESULTS COMPARED WITH FOURTH-QUARTER 2010

• Total revenues were $1.4 billion, an increase of $114 million
• Operating expenses were $1.1 billion, an increase of $109 million
• Average fuel price increased 29 per cent to $3.45 U.S. dollars per U.S. gallon
• Operating income was $303 million, an increase of $5 million
• Net income was $221 million, an increase of $35 million
• Diluted earnings per share were $1.30 per share, an increase of $0.21 per share

FULL YEAR 2011 RESULTS COMPARED WITH FULL YEAR 2010

• Total revenues were $5.2 billion, an increase of $196 million
• Operating expenses were $4.2 billion, an increase of $345 million
• Average fuel price increased 35 per cent to $3.38 U.S. dollars per U.S. gallon
• Operating income was $967 million, a decrease of $149 million
• Net income was $570 million, a decrease of $81 million
• Diluted earnings per share were $3.34 per share, a decrease of $0.51 per share
• Made a pension prepayment of $600 million in 2011 and $650 million in 2010
• Increased dividends to shareholders by 11 per cent to $1.1700 per share

MULTI-YEAR PLAN

"Our operational metrics are a leading indicator of both customer satisfaction and financial results.  The operational improvements we have already achieved will now begin to drive enhanced financial results in the first quarter of 2012 and, as we continue to execute on our Multi-Year Plan, further operational improvements will deliver financial benefits," added Fred Green. "Given our recent market successes and operating trends, we can now with confidence, narrow our target operating ratio range to 70 to 72 per cent in three years and we have no intention of stopping there."

2012 ASSUMPTIONS

Defined benefit pension contributions are currently estimated to be between $100 million and $125 million in each of the next few years, a decrease from previous estimates of $125 million to $150 million. These contribution levels reflect the Company's intentions with respect to application of voluntary prepayments.  Defined benefit pension expense for 2012 is expected to be $41 million.  For 2013, defined benefit pension expense is expected to be approximately $125 million, assuming normal equity market returns and modest increases in bond yields in 2012.

CP plans to spend in the range of $1.1 billion to $1.2 billion on capital programs in 2012, as announced on January 17, 2012.

CP expects its tax rate to be in the 25 per cent to 27 per cent range in 2012.

CONFERENCE CALL INFORMATION

CP will discuss its results with analysts in a conference call beginning at 11:00 a.m. Eastern time (9:00 a.m. Mountain time) on January 26, 2012.

Toronto/International participants dial in number: (647) 427-7450

Operator assisted toll free dial in number: 1-888-231-8191

Callers should dial in 10 minutes prior to the call.

WEBCAST

For those with Internet access we encourage you to listen via CP's website at www.cpr.ca. To access the webcast and the presentation material, click on "Invest In CP" tab.

A replay of the conference call will be available by phone through February 29, 2012 at (416) 849-0833 or toll free 1-855-859-2056, passcode 36730106. A webcast of the presentation and an audio file will be available at www.cpr.ca under "Invest In CP" tab.

NOTE ON FORWARD-LOOKING INFORMATION

This news release contains certain forward-looking statements relating but not limited to our operations, anticipated financial performance and business prospects.  Undue reliance should not be placed on forward-looking information as actual results may differ materially.

By its nature, CP's forward-looking information involves numerous assumptions, inherent risks and uncertainties, including but not limited to the following factors: changes in business strategies; general North American and global economic, credit and business conditions; risks in agricultural production such as weather conditions and insect populations; the availability and price of energy commodities; the effects of competition and pricing pressures; industry capacity; shifts in market demand; inflation; changes in laws and regulations, including regulation of rates; changes in taxes and tax rates; potential increases in maintenance and operating costs; uncertainties of investigations, proceedings or other types of claims and litigation; labour disputes; risks and liabilities arising from derailments; transportation of dangerous goods; timing of completion of capital and maintenance projects; currency and interest rate fluctuations; effects of changes in market conditions and discount rates on the financial position of pension plans and investments, including long-term floating rate notes; and various events that could disrupt operations, including severe weather, droughts, floods, avalanches and earthquakes as well as security threats and governmental response to them, and technological changes.  Other risks are detailed from time to time in reports filed by CP with securities regulators in Canada and the United States.  Reference should be made to "Management's Discussion and Analysis" in CP's annual and interim reports, Annual Information Form and Form 40-F.

Except as required by law, CP undertakes no obligation to update publicly or otherwise revise any forward-looking information, whether as a result of new information, future events or otherwise.

ABOUT CANADIAN PACIFIC

Canadian Pacific (CP:TSX)(NYSE:CP) operates a North American transcontinental railway providing freight transportation services, logistics solutions and supply chain expertise. Incorporating best-in-class technology and environmental practices, CP is re-defining itself as a modern 21st century transportation company built on safety, service reliability and operational efficiency. Visit cpr.ca and see how Canadian Pacific is Driving the Digital Railway.

CONSOLIDATED STATEMENTS OF INCOME     

(in millions of Canadian dollars, except per share data)

(unaudited)

CONSOLIDATED BALANCE SHEETS

(in millions of Canadian dollars)

(unaudited)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions of Canadian dollars)

(unaudited)

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(in millions of Canadian dollars, except common share amounts)

(unaudited)

NOTES TO INTERIM CONSOLIDATED FINANCIAL INFORMATION

December 31, 2011

(unaudited)

1  Basis of presentation

This unaudited interim consolidated financial information of Canadian Pacific Railway Limited ("CP", or "the Company") reflects management's estimates and assumptions that are necessary for its fair presentation in conformity with accounting principles generally accepted in the United States of America ("GAAP").  This information does not include all disclosures required under GAAP for annual and interim financial statements and should be read in conjunction with the 2010 consolidated financial statements and 2011 consolidated interim financial statements.  The policies used are consistent with the policies used in preparing the 2010 consolidated financial statements.  The Company's investments in which CP has significant influence, which are not consolidated, are accounted for using the equity method.

CP's operations can be affected by seasonal fluctuations such as changes in customer demand and weather-related issues.  This seasonality could impact quarter-over-quarter comparisons.

In management's opinion, the unaudited interim consolidated financial information includes all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly such information.

2  Income taxes

Income tax expense for the fourth quarter of 2011 reflects a tax recovery of $37 million resulting from the resolution of certain income tax matters and adjustments related to previous year's tax filings and estimates.

3 Long-term debt

On September 13, 2011, the Company announced a cash tender offer and consent solicitation for any or all its outstanding US$246 million 6.25% Notes due October 15, 2011.  Notes tendered with a principal value of US$204 million were redeemed on October 12, 2011, and the remaining US$42 million Notes not tendered were redeemed on October 17, 2011.  Upon redemption of the Notes a net loss of $1 million was recognized to "Other income and charges" in the fourth quarter of 2011.

During December 2011, the Company issued $125 million 5.10% 10-year Notes, US$250 million 4.50% 10-year Notes and US$250 million 5.75% 30-year Notes.  Net proceeds from these offerings were $618 million and were largely used to make a $600 million voluntary prepayment to the Company's main Canadian defined benefit pension plan (see Note 4).

During the fourth quarter of 2011, the Company issued US$139 million 3.88% Series A and B Senior Secured Notes due in 2026 for net proceeds of $139 million.  These Notes are secured by locomotives previously acquired by the Company with a carrying value of $139 million at December 31, 2011.  The Company pays equal blended semi-annual payments of principal and interest up to and including December 2026. Final repayment of the remaining principal of US$69 million is due in the fourth quarter of 2026.

4  Pensions and other benefits

During the fourth quarter of 2011, the Company made a $600 million voluntary prepayment to the Company's main Canadian defined benefit pension plan.  The Company made a voluntary prepayment of $650 million to the Company's main Canadian defined benefit plan in September 2010.

As a result of lower discount rates at December 31, 2011, compared with December 31, 2010, as well as unfavourable 2011 equity returns, pension and post-retirement benefit liabilities increased by $1,040 million, other comprehensive loss was increased by $768 million and the Company's deferred tax liability was reduced by $272 million.  The Company used a discount rate of 4.55% at December 31, 2011, (2010 - 5.20%) to determine the pension and other post-retirement benefit obligation.

SOURCE Canadian Pacific