CP Canadian Pacific Kansas City Limited

CALGARY, Jan. 29, 2013 /CNW/ - Canadian Pacific Railway Limited (TSX: CP) (NYSE: CP) announced its fourth-quarter 2012 results today.  CP's diluted earnings per share, excluding significant items (*see Non-GAAP Measures below) comprised of labour restructuring and asset impairment charges was $1.28.  This compares favourably with fourth quarter of 2011 diluted earnings per share, exclusive of significant items of $1.11, an improvement of 15 per cent.  Reported diluted earnings per share for the fourth-quarter 2012, inclusive of significant items, was $0.08. Reported diluted earnings per share in fourth-quarter 2011, inclusive of significant items, was $1.30.

CP's operating ratio, excluding significant items (*see Non-GAAP Measures below) was 74.8 per cent for fourth-quarter 2012, which compares favourably to 2011's operating ratio of 78.5 per cent.  Reported operating ratio for fourth-quarter 2012, inclusive of significant items was 96.0 per cent.

"Canadian Pacific is moving forward on our transformational journey to become the most efficient railroad in North America," said E. Hunter Harrison, President and Chief Executive Officer.   "This quarter, CP saw strong operating performance as we continued to implement significant changes to how we run the railroad."

"Management made a number of hard decisions this quarter including booking several significant items.  With these decisions now behind us, we anticipate record-setting financial and operational results starting in 2013," added Harrison.

Fourth-Quarter Significant Items

Announced items that impacted reported fourth-quarter 2012 and 2011 earnings include:

2012:

• $53 million labour restructuring charge ($39 million after tax), which unfavourably impacted diluted earnings per share ("EPS") by 22 cents
• $185 million impairment of Powder River Basin and other investment ($111 million after tax), which unfavourably impacted diluted EPS by 64 cents
• $80 million asset impairment of certain locomotives ($59 million after tax), which unfavourably impacted diluted EPS by 34 cents

2011:

• $6 million advisory fees related to shareholder matters, which unfavourably impacted diluted EPS by 3 cents
• $37 million income tax benefit, which favourably impacted diluted EPS in 2011 by 22 cents

Financial Expectations for Full Year 2013

• Revenue growth to be in the high single digits
• Operating ratio to be in the low 70s
• Diluted EPS to be up in excess of 40 per cent versus 2012's diluted EPS, excluding significant items (*see Non-GAAP Measures below) of $4.34

Key Assumptions for Full Year 2013

• Average fuel cost per gallon of US$3.45 per U.S. gallon
• Tax rate in the range of 25 per cent to 27 per cent
• Canadian to U.S. exchange rate at par

Defined Benefit Pension Expense Assumptions

• Defined benefit pension expense in 2013 and 2014 in the range of $50 million to $60 million per year, increasing to be in the range of $90 million to $110 million in 2015 and 2016

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 29, 2013.

Conference Call Access

Toronto 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 the "Invest In CP" tab.

A replay of the conference call will be available by phone through February 28, 2012 at 416-849-0833 or toll free 1-855-859-2056, password 85400106. A webcast of the presentation and an audio file will be available at www.cpr.ca under "Invest In CP" tab.

Non-GAAP Measures

We present non-GAAP measures and cash flow information to provide a basis for evaluating underlying earnings and liquidity trends in our business that can be compared with the results of our operations in prior periods.  These non-GAAP measures exclude significant items that are not among our normal ongoing revenues and operating expenses.  They have no standardized meaning and are not defined by GAAP and, therefore, are unlikely to be comparable to similar measures presented by other companies.

Diluted earnings per share, excluding significant items provides management with a measure of earnings on a per share basis that can help in a multi-period assessment of long-term profitability and also allows management and other external users of our consolidated financial statements to compare profitability on a long-term basis with that of our peers.  U.S. GAAP reported full year diluted earnings per share in 2012 was $2.79.  Diluted earnings per share, excluding significant items was $4.34, which excludes the fourth quarter significant items discussed above as well as an additional $0.35 related to management transition costs, advisory fees related to shareholder matters and an Ontario statutory tax rate change.  U.S. GAAP reported full year diluted earnings per share in 2011 was $3.34.  Diluted earnings per share, excluding significant items was $3.15, which excludes advisory fees related to shareholder matters and a significant favourable tax item.  Operating ratio, excluding significant items provides a measure of the profitability of the railway on an ongoing basis.  It provides the percentage of revenues used to operate the railway on an ongoing basis as it excludes significant items.

For further information regarding non-GAAP measures see our Management's Discussion and Analysis for the third quarter of 2012 or the document Non-GAAP Measures on our web site at www.cpr.ca.

Note on forward-looking information

This news release contains certain forward-looking statements relating but not limited to our operations, anticipated financial performance, planned capital expenditures, and business prospects.  Undue reliance should not be placed on forward-looking information as actual results may differ materially. To the extent that we have provided guidance that contains non-GAAP financial measures, we may not be able to provide a reconciliation to the GAAP measure due to unknown variables and uncertainty related to future results.

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; 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 (TSX:CP)(NYSE:CP) is a transcontinental railway in Canada and the United States with direct links to eight major ports, including Vancouver and Montreal, providing North American customers a competitive rail service with access to key markets in every corner of the globe. CP is a low-cost provider that is growing with its customers, offering a suite of freight transportation services, logistics solutions and supply chain expertise. Visit cpr.ca to see the rail advantages of Canadian Pacific.

CONSOLIDATED STATEMENTS OF INCOME     
(in millions of Canadian dollars, except per share data)
(unaudited)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions of Canadian dollars)
(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, 2012
(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 2011 consolidated financial statements and 2012 consolidated interim financial statements.  The accounting policies used are consistent with the accounting policies used in preparing the 2011 consolidated financial statements.

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 necessary to present fairly such information.

2  Asset impairment

(a) Powder River Basin impairment

As part of the acquisition of Dakota, Minnesota & Eastern Railroad Corporation ("DM&E") in 2007, CP acquired the option to build a 260 mile extension of its network into coal mines in the Powder River Basin ("PRB").

Due to continued deterioration in the market for domestic thermal coal, including a sharp deterioration in 2012, in the fourth quarter of 2012 CP deferred plans to extend its rail network into the PRB coal mines indefinitely.  The amount of the impairment was $180 million ($107 million after tax).  The impairment was comprised of the following and was charged against income as an "Asset impairment":

(b) Impairment loss on locomotives

In the fourth quarter of 2012, CP reached a decision to dispose of a certain series of locomotives to improve operating efficiencies, and accordingly performed an impairment test on these assets.  The impairment test determined that the net book value of these locomotives at the date of the impairment test was $80 million higher than their estimated fair value.  The impairment charge of $80 million ($59 million after tax) was recorded as an "Asset impairment" to be consistent with CP's policy to record a gain or loss for the sale or retirement of larger groups of depreciable assets that are unusual, and were not anticipated in depreciation studies.

3  Labour restructuring 

In the fourth quarter of 2012, CP recorded a charge of $53 million ($39 million after tax) for a labour restructuring initiative which was included in "Labour restructuring" in the Consolidated Statements of Income, and "Accounts payable and accrued liabilities" and "Other long-term liabilities" in the Consolidated Balance Sheets.  The resulting position reductions are expected to be completed by the end of 2014.

SOURCE Canadian Pacific