Revises full-year 2015 earnings outlook
CALGARY, July 21, 2015 /CNW/ - Canadian Pacific Railway
Limited (TSX: CP) (NYSE: CP) today announced the highest-ever net
income for the second quarter and the lowest operating ratio for
the period in the company's history.
Net income rose to a record quarterly high of $390 million, or $2.36 per diluted share, an improvement of 12
percent. Adjusted earnings per share gained 16 percent to
$2.45. Revenues were little changed
at $1.65 billion.
"CP remains disciplined during this period of economic
uncertainty in identifying opportunities to control costs and
improve efficiency to offset near-term headwinds," said
E. Hunter Harrison, CP's Chief
Executive Officer. "CP's achievement on the bottom line came even
as a sluggish North American recovery and stubborn global economic
softness weighed on commodity prices, forcing producers to reduce
output and cut shipments."
SECOND-QUARTER 2015 HIGHLIGHTS
- Operating income climbed 10 percent to $646 million
- OR fell to a second-quarter record 60.9 percent, a
420-basis-point improvement
- Adjusted earnings per share advanced 16 percent to $2.45
"Even in the face of this economic slowdown, CP's commitment to
providing the best service at the lowest cost will continue to
serve us well moving forward," Harrison said. "The positive CP
story is based on a business model that allows for flexibility - we
are nimble, efficient, and able to respond to the ever-changing
economic climate."
UPDATED FINANCIAL EXPECTATIONS FOR 2015
The company expects revenue growth to be 2-3 percent, operating
ratio to be below 62 percent, and 2015 annual adjusted diluted EPS
of $10.00 to $10.40.
Key assumptions for the updated full year 2015 financial
expectations include:
- Canadian to U.S. dollar average exchange rate of $1.25
- An effective income tax rate (excluding discrete items) of 27.5
percent
- Defined benefit pension expense of approximately $35 million, compared with 2014 pension income of
$52 million
- Capital expenditures of approximately $1.5 billion
- Average On Highway Diesel ("OHD") price of U.S. $2.80-$2.90
- Current share repurchase plan expected to be completed by
calendar year-end
Further, CP will no longer be exempt from the regular SEC
reporting requirements in 2016 because a majority of its board was
comprised of U.S. citizens or residents as of June 30, 2015 (the relevant date for determining
foreign private issuer status for U.S. SEC reporting purposes in
2016). This follows a determination that the resignation of
Stephen Tobias from the board
occurred on July 3, 2015.
Accordingly, CP plans to follow the regular SEC reporting
requirements effective January 1,
2016, file an annual report on Form 10-K for the year ended
December 31, 2015 and file regular
periodic reports under both Canadian and U.S. law thereafter.
Non-GAAP Measures
For further information regarding non-GAAP measures, including
reconciliations to the nearest GAAP measures, see the attached
supplementary schedule Non-GAAP Measures.
Note on forward-looking information
This news release contains certain forward-looking information
within the meaning of applicable securities laws relating, but not
limited, to our operations, priorities and plans, anticipated
financial performance, including our 2015 full-year guidance,
business prospects, planned capital expenditures, programs and
strategies. This forward-looking information also includes, but is
not limited to, statements concerning expectations, beliefs, plans,
goals, objectives, assumptions and statements about possible future
events, conditions, and results of operations or performance.
Forward-looking information may contain statements with words or
headings such as "financial expectations", "key assumptions",
"anticipate", "believe", "expect", "plan", "will", "outlook",
"should" or similar words suggesting future outcomes. To the extent
that CP has provided guidance using non-GAAP financial measures,
the Company may not be able to provide a reconciliation to a GAAP
measure, due to unknown variables and uncertainty related to future
results.
Undue reliance should not be placed on forward-looking
information as actual results may differ materially from the
forward-looking information. Forward-looking information is not a
guarantee of future performance. By its nature, CP's
forward-looking information involves numerous assumptions, inherent
risks and uncertainties that could cause actual results to differ
materially from the forward-looking information, including but not
limited to the following factors: the key assumptions identified
above; 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; changes in commodity prices; uncertainty
surrounding timing and volumes of commodities being shipped via CP;
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. The foregoing list of factors is not exhaustive.
These and other factors 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. Readers are cautioned not to place
undue reliance on forward-looking information. Forward-looking
information is based on current expectations, estimates and
projections and it is possible that predictions, forecasts,
projections, and other forms of forward-looking information will
not be achieved by CP. 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 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.
INTERIM CONSOLIDATED STATEMENTS OF
INCOME
(in millions of Canadian dollars, except per share data)
(unaudited)
|
|
|
|
|
|
|
|
For the
three months |
|
For the
six months |
|
|
|
ended June
30 |
|
ended June
30 |
|
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
Freight |
$ |
1,610 |
|
$ |
1,642 |
|
$ |
3,240 |
|
$ |
3,116 |
|
|
Non-freight |
|
41 |
|
|
39 |
|
|
76 |
|
|
74 |
|
Total revenues |
|
1,651 |
|
|
1,681 |
|
|
3,316 |
|
|
3,190 |
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and benefits |
|
308 |
|
|
342 |
|
|
686 |
|
|
687 |
|
|
Fuel |
|
185 |
|
|
273 |
|
|
380 |
|
|
544 |
|
|
Materials |
|
45 |
|
|
47 |
|
|
97 |
|
|
99 |
|
|
Equipment rents |
|
46 |
|
|
40 |
|
|
88 |
|
|
81 |
|
|
Depreciation and amortization |
|
145 |
|
|
137 |
|
|
291 |
|
|
278 |
|
|
Purchased services and other (Note 4) |
|
276 |
|
|
255 |
|
|
516 |
|
|
491 |
|
Total operating expenses |
|
1,005 |
|
|
1,094 |
|
|
2,058 |
|
|
2,180 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
646 |
|
|
587 |
|
|
1,258 |
|
|
1,010 |
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income and charges (Note 5) |
|
(5) |
|
|
3 |
|
|
68 |
|
|
3 |
|
|
Net interest expense |
|
84 |
|
|
69 |
|
|
169 |
|
|
139 |
|
Income before income tax expense |
|
567 |
|
|
515 |
|
|
1,021 |
|
|
868 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (Note 6) |
|
177 |
|
|
144 |
|
|
311 |
|
|
243 |
|
Net income |
$ |
390 |
|
$ |
371 |
|
$ |
710 |
|
$ |
625 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share (Note 7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
$ |
2.38 |
|
$ |
2.13 |
|
$ |
4.32 |
|
$ |
3.57 |
|
|
Diluted earnings per share |
$ |
2.36 |
|
$ |
2.11 |
|
$ |
4.28 |
|
$ |
3.54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares (in
millions)
(Note 7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
163.7 |
|
|
174.4 |
|
|
164.3 |
|
|
174.9 |
|
|
Diluted |
|
165.0 |
|
|
175.9 |
|
|
165.7 |
|
|
176.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per share |
$ |
0.3500 |
|
$ |
0.3500 |
|
$ |
0.7000 |
|
$ |
0.7000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Interim Consolidated Financial
Statements. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME
(in millions of Canadian dollars)
(unaudited)
|
|
|
|
|
|
|
|
|
For the three months |
|
For the
six months |
|
|
ended June 30 |
|
ended June 30 |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
$ |
390 |
|
$ |
371 |
|
$ |
710 |
|
$ |
625 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss) on foreign currency translation
adjustments, |
|
|
|
|
|
|
|
|
|
|
|
|
net of hedging activities |
|
7 |
|
|
7 |
|
|
(30) |
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in derivatives designated as cash flow
hedges |
|
36 |
|
|
(1) |
|
|
(33) |
|
|
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in pension and post-retirement defined
benefit |
|
|
|
|
|
|
|
|
|
|
|
|
plans (Note 3) |
|
66 |
|
|
31 |
|
|
138 |
|
|
62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income before income tax
recovery |
|
109 |
|
|
37 |
|
|
75 |
|
|
67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (expense) recovery |
|
(35) |
|
|
(24) |
|
|
11 |
|
|
(16) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (Note 3) |
|
74 |
|
|
13 |
|
|
86 |
|
|
51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
$ |
464 |
|
$ |
384 |
|
$ |
796 |
|
$ |
676 |
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Interim Consolidated Financial
Statements. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTERIM CONSOLIDATED BALANCE SHEETS AS AT,
(in millions of Canadian dollars)
(unaudited)
|
|
June 30 |
|
December
31 |
|
|
2015 |
|
2014 |
Assets |
|
|
|
|
|
Current assets |
|
|
|
|
|
|
Cash and cash equivalents |
$ |
185 |
|
$ |
226 |
|
Accounts receivable, net |
|
686 |
|
|
702 |
|
Materials and supplies |
|
174 |
|
|
177 |
|
Deferred income taxes |
|
69 |
|
|
56 |
|
Other current assets |
|
99 |
|
|
116 |
|
|
|
1,213 |
|
|
1,277 |
|
|
|
|
|
|
|
Investments |
|
134 |
|
|
112 |
Properties |
|
15,104 |
|
|
14,438 |
Assets held for sale (Note 8) |
|
198 |
|
|
182 |
Goodwill and intangible assets |
|
189 |
|
|
176 |
Pension asset (Note 13) |
|
469 |
|
|
304 |
Other assets (Note 2) |
|
83 |
|
|
117 |
Total assets |
$ |
17,390 |
|
$ |
16,606 |
|
|
|
|
|
|
|
Liabilities and shareholders'
equity |
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
Accounts payable and accrued liabilities |
$ |
1,331 |
|
$ |
1,277 |
|
Long-term debt maturing within one year (Note 9) |
|
90 |
|
|
134 |
|
|
|
1,421 |
|
|
1,411 |
|
|
|
|
|
|
|
Pension and other benefit liabilities (Note
13) |
|
759 |
|
|
755 |
Other long-term liabilities |
|
362 |
|
|
432 |
Long-term debt (Notes 2 and 9) |
|
6,611 |
|
|
5,625 |
Deferred income taxes |
|
2,986 |
|
|
2,773 |
Total liabilities |
|
12,139 |
|
|
10,996 |
|
|
|
|
|
|
|
Shareholders' equity |
|
|
|
|
|
|
Share capital (Note 10) |
|
2,151 |
|
|
2,185 |
|
Additional paid-in capital |
|
40 |
|
|
36 |
|
Accumulated other comprehensive loss (Note 3) |
|
(2,133) |
|
|
(2,219) |
|
Retained earnings |
|
5,193 |
|
|
5,608 |
|
|
|
5,251 |
|
|
5,610 |
Total liabilities and shareholders'
equity |
$ |
17,390 |
|
$ |
16,606 |
|
|
|
|
|
|
|
Certain of the
comparative figures have been reclassified to be consistent with
the 2015 presentation (Note 2).
Contingencies (Note 14)
See Notes to Interim Consolidated Financial Statements. |
|
|
|
|
|
|
|
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions of Canadian dollars)
(unaudited)
|
|
For the three
months |
|
For the six
months |
|
|
ended June
30 |
|
ended June
30 |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
$ |
390 |
|
$ |
371 |
|
$ |
710 |
|
$ |
625 |
|
Reconciliation of net income to cash provided
by |
|
|
|
|
|
|
|
|
|
|
|
|
operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
145 |
|
|
137 |
|
|
291 |
|
|
278 |
|
|
Deferred income taxes (Note
6) |
|
74 |
|
|
(15) |
|
|
106 |
|
|
74 |
|
|
Pension funding in excess of
expense (Note 13) |
|
(20) |
|
|
(33) |
|
|
(30) |
|
|
(65) |
|
Other operating activities, net |
|
(38) |
|
|
23 |
|
|
(15) |
|
|
40 |
|
Change in non-cash working capital balances related
to |
|
|
|
|
|
|
|
|
|
|
|
|
operations |
|
34 |
|
|
162 |
|
|
78 |
|
|
(20) |
Cash provided by operating activities |
|
585 |
|
|
645 |
|
|
1,140 |
|
|
932 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Additions to properties |
|
(355) |
|
|
(298) |
|
|
(618) |
|
|
(522) |
|
Proceeds from the sale of west end of Dakota,
Minnesota |
|
|
|
|
|
|
|
|
|
|
|
|
and Eastern Railroad |
|
- |
|
|
236 |
|
|
- |
|
|
236 |
|
Proceeds from sale of properties and other assets
(Note 4) |
|
8 |
|
|
11 |
|
|
60 |
|
|
16 |
|
Change in restricted cash and cash equivalents used
to |
|
|
|
|
|
|
|
|
|
|
|
|
collateralize letters of credit |
|
- |
|
|
7 |
|
|
- |
|
|
9 |
|
Other (Note 4) |
|
(7) |
|
|
(1) |
|
|
13 |
|
|
(1) |
Cash used in investing activities |
|
(354) |
|
|
(45) |
|
|
(545) |
|
|
(262) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid |
|
(57) |
|
|
(62) |
|
|
(115) |
|
|
(123) |
|
Issuance of CP common shares |
|
11 |
|
|
22 |
|
|
27 |
|
|
36 |
|
Purchase of CP common shares (Note 10) |
|
(543) |
|
|
(447) |
|
|
(1,072) |
|
|
(532) |
|
Net issuance (repayment) of commercial paper
(Note 9) |
|
369 |
|
|
- |
|
|
(224) |
|
|
- |
|
Issuance of long-term debt, excl. commercial paper
(Note 9) |
|
- |
|
|
- |
|
|
810 |
|
|
- |
|
Repayment of long-term debt, excl. commercial paper
(Note 9) |
|
(9) |
|
|
(11) |
|
|
(67) |
|
|
(154) |
Cash used in financing activities |
|
(229) |
|
|
(498) |
|
|
(641) |
|
|
(773) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign currency fluctuations on U.S.
dollar- |
|
|
|
|
|
|
|
|
|
|
|
denominated cash and cash equivalents |
|
(1) |
|
|
(12) |
|
|
5 |
|
|
(4) |
Cash position |
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash
equivalents |
|
1 |
|
|
90 |
|
|
(41) |
|
|
(107) |
|
Cash and cash equivalents at beginning of
period |
|
184 |
|
|
279 |
|
|
226 |
|
|
476 |
Cash and cash equivalents at end of
period |
$ |
185 |
|
$ |
369 |
|
$ |
185 |
|
$ |
369 |
Supplemental disclosures of cash flow
information: |
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid |
$ |
62 |
|
$ |
30 |
|
$ |
59 |
|
$ |
39 |
|
Interest paid |
$ |
94 |
|
$ |
88 |
|
$ |
161 |
|
$ |
160 |
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Interim Consolidated Financial
Statements. |
|
INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY
(in millions of Canadian dollars, except common share
amounts)
(unaudited)
|
|
|
|
|
|
|
|
|
|
Common
shares
(in
millions) |
|
Share
capital |
Additional
paid-in
capital |
Accumulated
other
comprehensive
loss |
|
Retained
earnings |
Total
shareholders'
equity |
Balance at January 1, 2015 |
166.1 |
|
$ |
2,185 |
$ |
36 |
$ |
(2,219) |
$ |
5,608 |
$ |
5,610 |
Net income |
- |
|
|
- |
|
- |
|
- |
|
710 |
|
710 |
Other comprehensive income (Note 3) |
- |
|
|
- |
|
- |
|
86 |
|
- |
|
86 |
Dividends declared |
- |
|
|
- |
|
- |
|
- |
|
(115) |
|
(115) |
Effect of stock-based compensation expense |
- |
|
|
- |
|
10 |
|
- |
|
- |
|
10 |
CP common shares repurchased (Note 10) |
(5.2) |
|
|
(70) |
|
- |
|
- |
|
(1,010) |
|
(1,080) |
Shares issued under stock option plans (Note 12) |
0.4 |
|
|
36 |
|
(6) |
|
- |
|
- |
|
30 |
Balance at June 30, 2015 |
161.3 |
|
$ |
2,151 |
$ |
40 |
$ |
(2,133) |
$ |
5,193 |
$ |
5,251 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
shares
(in
millions) |
|
Share
capital |
Additional
paid-in
capital |
Accumulated
other
comprehensive
loss |
Retained
earnings |
Total
shareholders'
equity |
Balance at January 1, 2014 |
175.4 |
|
$ |
2,240 |
$ |
34 |
$ |
(1,503) |
$ |
6,326 |
$ |
7,097 |
Net income |
- |
|
|
- |
|
- |
|
- |
|
625 |
|
625 |
Other comprehensive income (Note 3) |
- |
|
|
- |
|
- |
|
51 |
|
- |
|
51 |
Dividends declared |
- |
|
|
- |
|
- |
|
- |
|
(122) |
|
(122) |
Effect of stock-based compensation expense |
- |
|
|
- |
|
11 |
|
- |
|
- |
|
11 |
CP common shares repurchased (Note 10) |
(3.2) |
|
|
(42) |
|
- |
|
- |
|
(523) |
|
(565) |
Shares issued under stock option plans (Note 12) |
0.6 |
|
|
50 |
|
(11) |
|
- |
|
- |
|
39 |
Balance at June 30, 2014 |
172.8 |
|
$ |
2,248 |
$ |
34 |
$ |
(1,452) |
$ |
6,306 |
$ |
7,136 |
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Interim Consolidated Financial
Statements. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS
June 30, 2015
(unaudited)
1 Basis of presentation
These unaudited interim consolidated financial statements of
Canadian Pacific Railway Limited ("CP", or "the Company"),
expressed in Canadian dollars, reflect management's estimates and
assumptions that are necessary for their fair presentation in
conformity with accounting principles generally accepted in
the United States of America
("GAAP"). They do not include all disclosures required under GAAP
for annual financial statements and should be read in conjunction
with the 2014 annual consolidated financial statements. The
accounting policies used are consistent with the accounting
policies used in preparing the 2014 annual consolidated financial
statements, except for the accounting change discussed in Note
2.
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 statements include all adjustments (consisting of normal
and recurring adjustments) necessary to present fairly such
information. Interim results are not necessarily indicative of the
results expected for the fiscal year.
2 Accounting changes
Implemented in 2015
Simplifying the Presentation of Debt Issuance Costs
In April 2015, the Financial
Accounting Standards Board ("FASB") issued Accounting Standards
Update ("ASU") 2015-03, Simplifying the Presentation of Debt
Issuance Costs under FASB Accounting Standards Codification ("ASC")
Topic 835. The amendments require that debt issuance costs related
to a recognized debt liability be presented in the balance sheet as
a direct deduction from the carrying amount of that debt liability,
consistent with debt discounts. The recognition and measurement
guidance for debt issuance costs are not affected by the
amendments. Early adoption of this ASU is permitted. The Company
adopted the provisions of this ASU during the second quarter of
2015 and retrospectively adjusted the 2014 comparative periods to
conform with current presentation.
Long-term debt issuance costs of $38
million have been presented as a reduction of the carrying
value of "Long-term debt" as at June 30,
2015. The comparative period has been adjusted for the
retrospective change in accounting principle with a
reclassification of $34 million from
"Other assets" against the carrying value of "Long-term debt" as at
December 31, 2014. There was no
impact on the income statement as a result of the adoption of the
provisions of this ASU during the three and six months ended
June 30, 2015 and comparative
periods.
Future changes
Amendments to the Consolidation Analysis
In February 2015, the FASB issued ASU
2015-02, Amendments to the Consolidation Analysis under FASB ASC
Topic 810. The amendments require reporting entities to evaluate
whether they should consolidate certain legal entities under the
revised consolidation model. Specifically, the amendments modify
the evaluation of whether limited partnerships and similar legal
entities are variable interest entities ("VIEs") or voting interest
entities, eliminate the presumption that a general partner should
consolidate a limited partnership and affect the consolidation
analysis of reporting entities that are involved with VIEs,
particularly those that have fee arrangements and related party
relationships. This ASU will be effective for public entities for
fiscal years, and interim periods within those years, beginning
after December 15, 2015. Entities
have the option of using either a full retrospective or a modified
retrospective approach to adopt this ASU. The Company is currently
evaluating the impact on the consolidated financial statements the
adoption of this ASU will have.
Disclosures for Investments in Certain Entities That Calculate
Net Asset Value per Share (or Its Equivalent)
In May 2015, the FASB issued ASU
2015-07, Disclosures for Investments in Certain Entities That
Calculate Net Asset Value per Share (or Its Equivalent) under FASB
ASC Topic 820. The amendments remove the requirement to
categorize within the fair value hierarchy all investments for
which fair value is measured using the net asset value per share
practical expedient and certain disclosures related to those
investments. This ASU will be effective for public entities
for fiscal years, and interim periods within those years, beginning
after December 15, 2015, and will be
applied retrospectively. The adoption of this ASU is not
expected to have a material impact to the Company's financial
statements.
3 Changes in accumulated other comprehensive loss
("AOCL") by component
|
|
|
|
For the three
months ended June 30 |
For the six
months ended June 30 |
(in millions of
Canadian dollars) |
Foreign
currency net
of hedging
activities(1) |
Derivatives
and other(1) |
Pension and
post-
retirement
defined
benefit plans(1) |
Total(1) |
Foreign
currency net
of hedging
activities(1) |
Derivatives
and other(1) |
Pension and
post-
retirement
defined
benefit plans(1) |
Total(1) |
Opening balance, 2015 |
$
125 |
$
(103) |
$
(2,229) |
$
(2,207) |
$
115 |
$
(52) |
$
(2,282) |
$
(2,219) |
Other comprehensive income |
|
|
|
|
|
|
|
|
(loss) before
reclassifications |
- |
26 |
- |
26 |
10 |
(26) |
5 |
(11) |
|
|
|
|
|
|
|
|
|
Amounts reclassified from |
|
|
|
|
|
|
|
|
accumulated other |
|
|
|
|
|
|
|
|
comprehensive income |
- |
- |
48 |
48 |
- |
1 |
96 |
97 |
Net current-period other |
|
|
|
|
|
|
|
|
comprehensive income (loss) |
- |
26 |
48 |
74 |
10 |
(25) |
101 |
86 |
Closing balance, 2015 |
$
125 |
$
(77) |
$
(2,181) |
$
(2,133) |
$
125 |
$
(77) |
$
(2,181) |
$
(2,133) |
Opening balance, 2014 |
$
122 |
$
(16) |
$
(1,571) |
$
(1,465) |
$
105 |
$
(15) |
$
(1,593) |
$
(1,503) |
Other comprehensive income |
|
|
|
|
|
|
|
|
(loss) before
reclassifications |
(8) |
(10) |
- |
(18) |
9 |
- |
- |
9 |
|
|
|
|
|
|
|
|
|
Amounts reclassified from |
|
|
|
|
|
|
|
|
accumulated other |
|
|
|
|
|
|
|
|
comprehensive income (loss) |
- |
8 |
23 |
31 |
- |
(3) |
45 |
42 |
Net current-period other |
|
|
|
|
|
|
|
|
comprehensive income (loss) |
(8) |
(2) |
23 |
13 |
9 |
(3) |
45 |
51 |
Closing balance, 2014 |
$
114 |
$
(18) |
$
(1,548) |
$
(1,452) |
$
114 |
$
(18) |
$
(1,548) |
$
(1,452) |
(1) Amounts are presented net of
tax. |
|
|
|
|
Amounts in
Pension and post-retirement defined benefit plans reclassified from
Accumulated |
|
other
comprehensive loss |
|
|
|
|
|
|
|
For the three months
ended June 30 |
|
For the six months
ended June 30 |
|
(in millions of Canadian dollars) |
2015 |
|
2014 |
|
2015 |
|
2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service costs(a) |
$ |
(2) |
|
$ |
(17) |
|
$ |
(3) |
|
$ |
(34) |
|
Recognition of net actuarial loss(a) |
|
67 |
|
|
48 |
|
|
134 |
|
|
96 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total before income tax |
|
65 |
|
|
31 |
|
|
131 |
|
|
62 |
|
Income tax recovery |
|
(17) |
|
|
(8) |
|
|
(35) |
|
|
(17) |
|
Net of income tax |
$ |
48 |
|
$ |
23 |
|
$ |
96 |
|
$ |
45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Impacts Compensation and benefits on the Interim
Consolidated Statements of Income. |
|
|
4 Gain on settlement of legal proceedings related to the
purchase and sale of a building
In 2013, CP provided an interest free loan pursuant to a court
order to a corporation owned by a court appointed trustee ("the
judicial trustee") to facilitate the acquisition of a building. The
building was held in trust during the legal proceedings with regard
to CP's entitlement to an exercised purchase option of the building
("purchase option"). As at December 31,
2014, the loan of $20 million
and the purchase option with a carrying value of $8 million, were recorded as "Other assets" in
the Company's Consolidated Balance Sheets.
In the first quarter of 2015, CP reached a settlement with a third
party that, following the sale of the building to an arm's length
third party, resulted in resolution of legal proceedings. CP
received $59 million for the sale of
the building which included repayment of the aforementioned loan to
the judicial trustee. A gain of $31
million ($27 million after
tax) was recorded as a credit within "Operating expenses".
5 Other income and charges
|
|
For the three
months |
|
For the six
months |
|
|
ended June
30 |
|
ended June
30 |
|
(in millions of Canadian dollars) |
2015 |
|
2014 |
|
2015 |
|
2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange loss (gain) on long-term debt |
$ |
(10) |
|
$ |
- |
|
$ |
54 |
|
$ |
- |
|
Other foreign exchange losses (gains) |
|
- |
|
|
(1) |
|
|
6 |
|
|
(4) |
|
Other |
|
5 |
|
|
4 |
|
|
8 |
|
|
7 |
|
Total other income and charges |
$ |
(5) |
|
$ |
3 |
|
$ |
68 |
|
$ |
3 |
6 Income taxes
|
|
For the three
months |
|
For the six
months |
|
|
ended June
30 |
|
ended June
30 |
|
(in millions of Canadian dollars) |
2015 |
|
2014 |
|
2015 |
|
2014 |
|
Current income tax expense |
$ |
103 |
|
$ |
159 |
|
$ |
205 |
|
$ |
169 |
|
Deferred income tax expense (recovery) |
|
74 |
|
|
(15) |
|
|
106 |
|
|
74 |
|
Income tax expense |
$ |
177 |
|
$ |
144 |
|
$ |
311 |
|
$ |
243 |
During the three months ended June 30,
2015, legislation was enacted to increase the Alberta provincial corporate income tax rate.
As a result of this change, the Company recorded an income tax
expense of $23 million in the quarter
related to the revaluation of its deferred income tax balances as
at January 1, 2015.
The estimated 2015 annualized effective tax rate for the three
and six months ended June 30, 2015,
excluding discrete items (Foreign exchange loss on long-term debt
included in "Other income and charges" and revaluation of deferred
income tax balances as at January 1,
2015 due to the enacted Alberta provincial corporate income tax rate
increase), is 27.5% (28.0% for the three and six months ended
June 30, 2014).
The effective tax rate for the three and six months ended
June 30, 2015, including discrete
items, is 31.3% and 30.5%, respectively.
The higher rates for the three and six months ended June 30, 2015 compared to the estimated 2015
annualized effective tax rate was the result of the income tax
expense of $23 million in the second
quarter related to the revaluation of deferred income tax balances
as at January 1, 2015 due to the
enacted Alberta provincial
corporate income tax rate increase.
7 Earnings per share
At June 30, 2015, the number of
shares outstanding was 161.3 million (June
30, 2014 - 172.8 million).
Basic earnings per share have been calculated using net income
for the period divided by the weighted-average number of shares
outstanding during the period.
The number of shares used in earnings per share calculations is
reconciled as follows:
|
|
|
For the three
months |
|
|
For the six months |
|
|
|
|
ended June
30 |
|
|
ended June
30 |
|
|
(in millions) |
|
2015 |
|
2014 |
|
|
2015 |
|
2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average basic shares outstanding |
|
163.7 |
|
174.4 |
|
|
164.3 |
|
174.9 |
|
|
Dilutive effect of stock options |
|
1.3 |
|
1.5 |
|
|
1.4 |
|
1.6 |
|
|
Weighted-average diluted shares outstanding |
|
165.0 |
|
175.9 |
|
|
165.7 |
|
176.5 |
|
For the three and six months ended June
30, 2015, there were 175,068 options and 87,976 options,
respectively, excluded from the computation of diluted earnings per
share because their effects were not dilutive (three and six months
ended June 30, 2014 - 124,093 and
120,930, respectively).
8 Assets held for sale
During the first quarter of 2015, the Company finalized a sales
agreement with Norfolk Southern Corporation ("NS") for the portion
of Delaware and Hudson Railway
Company, Inc.'s line between Sunbury,
Pennsylvania and Schenectady, New
York. The assets expected to be sold to NS, for proceeds of
approximately U.S. $215 million
subject to closing adjustments, have been classified as "Assets
held for sale" on the Company's Consolidated Balance Sheets at
June 30, 2015 and December 31, 2014. The sale, which received
approval by the U.S. Surface Transportation Board on May 15, 2015, is expected to close later in
2015.
9 Debt
Issuance of long-term debt
During the first quarter of 2015, the Company issued U.S.
$700 million 2.900% 10-year notes due
February 1, 2025 for net proceeds of
U.S. $694 million (CDN $873 million). These notes pay interest
semi-annually and are unsecured but carry a negative pledge.
In addition, the Company settled a notional U.S. $700 million of forward starting
floating-to-fixed interest rate swap agreements ("forward starting
swaps") for a payment of U.S. $50
million (CDN $63 million) cash
(see Note 11). This payment was included in the same line
item as the related hedged item on the Consolidated Statements of
Cash Flows. Inclusive of the settlement of the forward
starting swap, the annualized effective yield at issuance was
3.61%.
Commercial paper program
During the fourth quarter of 2014, the Company established a
commercial paper program which enables it to issue commercial paper
up to a maximum aggregate principal amount of U.S. $1 billion in the form of unsecured promissory
notes. The commercial paper is backed by a U.S. $1 billion committed, revolving credit facility,
which matures on September 26,
2016. As at June 30,
2015, the Company had total commercial paper borrowings of
U.S. $500 million (CDN $625 million), presented in "Long-term debt" on
the Interim Consolidated Balance Sheets (December 31, 2014 - U.S. $675 million (CDN $783
million)) as the Company has the intent and ability to renew
these borrowings on a long term basis. The weighted-average
interest rate on these borrowings was 0.48% (December 31, 2014 - 0.44%).
The Company presents issuances and repayments of commercial
paper in the Interim Consolidated Statements of Cash Flows on a net
basis, all of which have a maturity of less than 90 days.
Revolving credit facility
Effective June 15, 2015, CP
amended its existing revolving credit facility agreement dated
September 26, 2014. The amended
credit facility agreement requires the Company not to exceed a
maximum debt to earnings before interest, tax, depreciation and
amortization ratio. The original revolving credit facility
agreement stipulated that the Company not exceed a maximum debt to
capitalization ratio. As at June 30,
2015, the Company satisfied the thresholds stipulated in
both the existing and amended financial covenant.
10 Shareholders' Equity
On March 16, 2015, the Company
announced the renewal of its Board of Directors approved normal
course issuer bid ("bid" or "NCIB"), commencing March 18, 2015 to March
17, 2016, to purchase up to 9.14 million of its outstanding
Common shares for cancellation.
All purchases are made in accordance with the bid at prevalent
market prices plus brokerage fees, or such other prices that may be
permitted by the Toronto Stock Exchange, with consideration
allocated to share capital up to the average carrying amount of the
shares, and any excess allocated to retained earnings. The
following table provides the activities under the share repurchase
program:
|
|
For the three
months |
|
For the six
months |
|
|
ended June
30 |
|
ended June
30 |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of common shares repurchased |
|
3,058,900 |
|
|
2,702,232 |
|
|
5,233,688 |
|
|
3,269,982 |
|
Weighted-average price per share(1) |
$ |
193.10 |
|
$ |
176.86 |
|
$ |
206.40 |
|
$ |
172.90 |
|
Amount of repurchase (in millions)(1) |
$ |
590 |
|
$ |
478 |
|
$ |
1,080 |
|
$ |
565 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Includes brokerage fees. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11 Financial instruments
A. Fair values of financial
instruments
The Company categorizes its financial assets and liabilities
measured at fair value in line with the fair value hierarchy
established by GAAP that prioritizes, with respect to reliability,
the inputs to valuation techniques used to measure fair value. This
hierarchy consists of three broad levels. Level 1 inputs consist of
quoted prices (unadjusted) in active markets for identical assets
and liabilities and give the highest priority to these inputs.
Level 2 and 3 inputs are based on significant other observable
inputs and significant unobservable inputs, respectively, and give
lower priority to these inputs.
When possible, the estimated fair value is based on quoted
market prices and, if not available, estimates from third party
brokers. For non-exchange traded derivatives classified in Level 2,
the Company uses standard valuation techniques to calculate fair
value. Primary inputs to these techniques include observable market
prices (interest, foreign exchange ("FX"), and commodity) and
volatility, depending on the type of derivative and nature of the
underlying risk. The Company applied inputs and data used by
willing market participants when valuing derivatives and considers
its own credit default swap spread, as well as those of its
counterparties, in its determination of fair value.
The carrying values of financial instruments equal or
approximate their fair values with the exception of long-term debt
which has a fair value of approximately $7,669 million at June 30,
2015 (December 31, 2014 -
$6,939 million) and a carrying value
of $6,701 million at June 30, 2015 (December
31, 2014 - $5,759 million).
The estimated fair value of current and long-term borrowings has
been determined based on market information where available, or by
discounting future payments of interest and principal at estimated
interest rates expected to be available to the Company at period
end. All derivatives and long-term debt are classified as Level
2.
B. Financial risk management
Derivative financial instruments
Derivative financial instruments may be used to selectively
reduce volatility associated with fluctuations in interest rates,
FX rates, the price of fuel, and stock-based compensation expense.
Where derivatives are designated as hedging instruments, the
relationship between the hedging instruments and their associated
hedged items is documented, as well as the risk management
objective and strategy for the use of the hedging instruments. This
documentation includes linking the derivatives that are designated
as fair value or cash flow hedges to specific assets or liabilities
on the Interim Consolidated Balance Sheets, commitments, or
forecasted transactions. At the time a derivative contract is
entered into and at least quarterly thereafter, an assessment is
made whether the derivative item is effective in offsetting the
changes in fair value or cash flows of the hedged items. The
derivative qualifies for hedge accounting treatment if it is
effective in substantially mitigating the risk it was designed to
address.
It is not the Company's intent to use financial derivatives or
commodity instruments for trading or speculative purposes.
Foreign exchange management
The Company conducts business transactions and owns assets in
both Canada and the United States. As a result, the Company is
exposed to fluctuations in value of financial commitments, assets,
liabilities, income or cash flows due to changes in FX rates. The
Company may enter into FX risk management transactions primarily to
manage fluctuations in the exchange rate between Canadian and U.S.
currencies. FX exposure is primarily mitigated through natural
offsets created by revenues, expenditures and balance sheet
positions incurred in the same currency. Where appropriate, the
Company may negotiate with customers and suppliers to reduce the
net exposure.
Net investment hedge
The FX gains and losses on long-term debt are mainly unrealized
and can only be realized when U.S. dollar denominated long-term
debt matures or is settled. The Company also has long-term FX
exposure on its investment in U.S. affiliates. The majority of the
Company's U.S. dollar denominated long-term debt has been
designated as a hedge of the net investment in foreign
subsidiaries. This designation has the effect of mitigating
volatility on net income by offsetting long-term FX gains and
losses on U.S. dollar denominated long-term debt and gains and
losses on its net investment. The effective portion recognized in
"Other comprehensive income" for the three and six months ended
June 30, 2015 was an unrealized FX
gain of $58 million and an unrealized
FX loss of $298 million, respectively
(three and six months ended June 30,
2014 - unrealized FX gain of $119 million and loss of $12 million, respectively). There was no
ineffectiveness during the three and six months ended June 30, 2015 and comparative periods.
Interest rate management
The Company is exposed to interest rate risk, which is the risk
that the fair value or future cash flows of a financial instrument
will vary as a result of changes in market interest rates. In
order to manage funding needs or capital structure goals, the
Company enters into debt or capital lease agreements that are
subject to either fixed market interest rates set at the time of
issue or floating rates determined by on-going market
conditions. Debt subject to variable interest rates exposes
the Company to variability in interest expense, while debt subject
to fixed interest rates exposes the Company to variability in the
fair value of debt.
To manage interest rate exposure, the Company accesses diverse
sources of financing and manages borrowings in line with a targeted
range of capital structure, debt ratings, liquidity needs, maturity
schedule, and currency and interest rate profiles. In
anticipation of future debt issuances, the Company may enter into
forward rate agreements, that are designated as cash flow hedges,
to substantially lock in all or a portion of the effective future
interest expense. The Company may also enter into swap
agreements, designated as fair value hedges, to manage the mix of
fixed and floating rate debt.
Forward starting swaps
During the fourth quarter of 2014, the Company entered into
forward starting swaps totalling a notional U.S. $1.4 billion to fix the benchmark rate on cash
flows associated with highly probable forecasted issuances of
long-term notes.
During the first three months of 2015, the Company settled a
notional U.S. $700 million of forward
starting swaps related to the U.S. $700
million 2.900% 10-year notes issued in the same
period. Inclusive of the settlement of the forward starting
swap, the annualized effective yield at issuance was 3.61%.
The fair value of these derivative instruments was a loss of U.S.
$50 million (CDN $63 million) at the time of settlement. The
effective portion of changes in fair value on the forward starting
swaps of U.S. $48 million (CDN
$60 million), was recorded in
"Accumulated other comprehensive loss", and is amortized to "Net
interest expense" until the underlying notes, which were hedged,
are repaid. A loss of $1
million and $2 million related
to these previously settled derivatives has been reclassified to
"Net interest expense" for the three and six months ended
June 30, 2015, respectively.
The Company expects during the next 12 months, $6 million of losses will be reclassified to "Net
interest expense". The ineffective portion of U.S.
$2 million (CDN $2 million), was recorded immediately in income
as "Net interest expense" during the first three months of
2015.
As at June 30, 2015 the unrealized
loss of $22 million derived from the
remaining forward starting swaps was included in "Accounts payable
and accrued liabilities" with the offset reflected in "Other
comprehensive income" on the Interim Consolidated Statements of
Comprehensive Income.
As at December 31, 2014, the
unrealized loss derived from the forward starting swaps was
$46 million of which $21 million was included in "Accounts payable and
accrued liabilities" and $25 million
in "Other long-term liabilities" with the offset reflected in
"Other comprehensive income" on the Consolidated Statements of
Comprehensive Income.
Interest rate swaps
During the fourth quarter of 2014, the Company entered into
floating-to-fixed interest rate swap agreements totalling U.S.
$600 million to hedge the variability
in cash flow associated with fluctuations in interest rates on
commercial paper issuances. As at June
30, 2015, floating-to-fixed interest rate swap agreements
totalling U.S. $350 million are
outstanding. These swaps expire in 2015 and are accounted for
as a cash flow hedge. The effective portion of changes in
fair value of the swaps is recorded in "Accumulated other
comprehensive loss", net of tax. Subsequent to the commercial
paper issuance, the amounts recorded in "Accumulated other
comprehensive loss" are reclassified to "Net interest expense".
A negligible realized gain was reclassified from "Accumulated
other comprehensive loss" to "Net interest expense" related to
settled derivatives in the three and six months ended June 30, 2015.
At June 30, 2015, a negligible
unrealized loss from the outstanding derivatives was recorded in
"Accounts payable and accrued liabilities" on the Interim
Consolidated Balance Sheets with the offset reflected in "Other
comprehensive income" on the Interim Consolidated Statements of
Comprehensive Income.
At December 31, 2014, the
unrealized gain recorded in "Other current assets" on the
Consolidated Balance Sheets was not significant. The offset
was reflected in "Other comprehensive income" on the Consolidated
Statements of Comprehensive Income.
12 Stock-based compensation
At June 30, 2015, the Company had
several stock-based compensation plans, including stock option
plans, various cash settled liability plans and an employee stock
savings plan. These plans resulted in a recovery of $5 million and expense of $24 million for the three and six months ended
June 30, 2015, respectively (three
and six months ended June 30, 2014 an
expense of $39 million and
$61 million, respectively).
Regular options
In the six months ended June 30,
2015, under CP's stock option plans, the Company issued
315,724 regular options at the weighted-average price of
$218.93 per share, based on the
closing price on the grant date.
Pursuant to the employee plans, these regular options may be
exercised upon vesting, which is between 12 and 48 months after the
grant date, and will expire after 10 years.
Under the fair value method, the fair value of the regular
options at the grant date was $16
million. The weighted-average fair value assumptions were
approximately:
|
|
|
|
|
|
|
|
For the six
months |
|
|
|
ended June 30, 2015 |
|
|
|
|
|
|
|
|
Grant price |
$ |
218.93 |
|
|
|
Expected option life (years)(1) |
|
5.25 |
|
|
|
Risk-free interest rate(2) |
|
1.09 |
% |
|
|
Expected stock price volatility(3) |
|
25.83 |
% |
|
|
Expected annual dividends per share (4) |
$ |
1.40 |
|
|
|
Expected forfeiture rate(5) |
|
1.20 |
% |
|
|
Weighted-average grant date fair value per regular options |
|
|
|
|
|
granted during the period |
$ |
49.76 |
|
|
|
|
(1) |
Represents the period of time that awards are expected to be
outstanding. Historical data on exercise behaviour, or when
available, specific expectations regarding future exercise
behaviour, were used to estimate the expected life of the
option. |
(2) |
Based on the implied yield available on zero-coupon government
issues with an equivalent remaining term at the time of the
grant. |
(3) |
Based on the historical stock price volatility of the Company's
stock over a period commensurate with the expected term of the
option. |
(4) |
Determined by the current annual dividend at the time of grant.
The Company does not employ different dividend yields throughout
the contractual term of the option. |
(5) |
The Company estimated forfeitures based on past experience.
This rate is monitored on a periodic basis. |
|
|
Performance share unit ("PSU") plan
In the six months ended June 30,
2015, the Company issued 137,222 PSUs with a
grant date fair value of approximately $29
million. These units attract dividend equivalents in the
form of additional units based on the dividends paid on the
Company's Common Shares. PSUs vest and are settled in cash, or in
CP common shares approximately three years after the grant date,
contingent upon CP's performance ("performance factor"). The fair
value of PSUs is measured, both on the grant date and each
subsequent quarter until settlement, using a Monte Carlo simulation
model. The model utilizes multiple input variables that determine
the probability of satisfying the performance factor and market
conditions stipulated in the grant.
Deferred share unit ("DSU") plan
In the six months ended June 30,
2015, the Company granted 15,652 DSUs with a
grant date fair value of approximately $3
million. DSUs vest over various periods of up to 48 months
and are only redeemable for a specified period after employment is
terminated. An expense to income for DSUs is recognized over the
vesting period for both the initial subscription price and the
change in value between reporting periods.
13 Pensions and other benefits
In the three and six months ended June
30, 2015, the Company made contributions of $20 million and $41
million, respectively (three and six months ended
June 30, 2014 - $20 million and $39
million, respectively) to its defined benefit pension plans.
The net periodic benefit cost for defined benefit pension plans and
other benefits, including the recognition of an $11 million gain related to legacy pension plans,
in the three and six months ended June 30,
2015 included the following components:
|
|
|
|
|
|
|
|
|
|
For the three months
ended June 30 |
|
|
|
|
Pensions |
|
Other benefits |
|
|
(in millions of Canadian dollars) |
|
2015 |
|
2014 |
|
2015 |
|
2014 |
|
|
Current service cost (benefits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
earned by employees in the period) |
|
$ |
32 |
|
$ |
26 |
|
$ |
3 |
|
$ |
4 |
|
|
Interest cost on benefit obligation |
|
|
116 |
|
|
119 |
|
|
5 |
|
|
6 |
|
|
Expected return on fund assets |
|
|
(212) |
|
|
(189) |
|
|
- |
|
|
- |
|
|
Recognized net actuarial loss |
|
|
66 |
|
|
48 |
|
|
1 |
|
|
- |
|
|
Amortization of prior service costs |
|
|
(2) |
|
|
(17) |
|
|
- |
|
|
- |
|
|
Net periodic benefit (recovery) cost |
|
$ |
- |
|
$ |
(13) |
|
$ |
9 |
|
$ |
10 |
|
|
|
|
|
|
For the six months
ended June 30 |
|
|
Pensions |
|
Other benefits |
|
(in millions of Canadian dollars) |
2015 |
|
2014 |
|
2015 |
|
2014 |
|
Current service cost (benefits |
|
|
|
|
|
|
|
|
|
|
|
|
|
earned by employees in the period) |
$ |
64 |
|
$ |
53 |
|
$ |
6 |
|
$ |
7 |
|
Interest cost on benefit obligation |
|
231 |
|
|
238 |
|
|
10 |
|
|
12 |
|
Expected return on fund assets |
|
(413) |
|
|
(378) |
|
|
- |
|
|
- |
|
Recognized net actuarial loss |
|
132 |
|
|
95 |
|
|
2 |
|
|
1 |
|
Amortization of prior service costs |
|
(3) |
|
|
(34) |
|
|
- |
|
|
- |
|
Net periodic benefit (recovery) cost |
$ |
11 |
|
$ |
(26) |
|
$ |
18 |
|
$ |
20 |
14 Contingencies
In the normal course of its operations, the Company becomes
involved in various legal actions, including claims relating to
injuries and damage to property. The Company maintains provisions
it considers to be adequate for such actions. While the final
outcome with respect to actions outstanding or pending at
June 30, 2015 cannot be predicted
with certainty, it is the opinion of management that their
resolution will not have a material adverse effect on the Company's
financial position or results of operations.
Legal proceedings related to Lac-Mégantic rail
accident
On July 6, 2013, a train carrying
crude oil operated by Montreal Maine and Atlantic Railway
("MM&A") derailed and exploded in Lac-Mégantic, Quebec on a section of railway line owned by
MM&A. The previous day CP had interchanged the train to
MM&A, and after that interchange MM&A exercised exclusive
control over the train.
Following this incident, the Minister of Sustainable
Development, Environment, Wildlife and Parks of Quebec issued an order directing certain named
parties to recover the contaminants and to clean up and
decontaminate the derailment site. CP was added as a named
party on August 14, 2013. CP is
a party to an administrative appeal with respect to this
order. No hearing date on the merits of CP's appeal has been
scheduled.
A class action lawsuit has also been filed in the Superior Court
of Quebec on behalf of a class of
persons and entities residing in, owning or leasing property in,
operating a business in or physically present in
Lac-Mégantic. The lawsuit seeks damages caused by the
derailment including for wrongful deaths, personal injuries, and
property damages. CP was added as a defendant on August 16, 2013. On May 8, 2015, the Superior Court of Quebec authorized the institution of the Class
Action as against CP and the shipper, Western Petroleum, and its
parent, World Fuel Services.
In the wake of the derailment and ensuing litigation, MM&A
filed for bankruptcy in Canada and
the United States. In an
Adversary Proceeding filed by the MM&A U.S. bankruptcy trustee
against CP, Irving Oil and the World Fuel entities, CP has been
accused of failing to ensure that World Fuel or Irving Oil properly
classified the oil lading and of not refusing to ship the oil in
DOT-111 tank cars. In response to CP's motion to withdraw the
bankruptcy court reference, the trustee maintained that Canadian
law rather than U.S. law controlled, and the court found that if
the federal regulations governed the case was not complex enough to
warrant withdrawal. Because the trustee maintained that
conduct subject to Canadian regulation prevailed CP moved to
dismiss for want of personal jurisdiction. That motion will
be heard on August 18, 2015.
On March 31, 2015, the Canadian
Monitor in the MM&A bankruptcy filed a Plan of Arrangement
under the Companies' Creditors Arrangement Act
("CCAA") whereby the Monitor sought court approval of the
Plan. On July 13, 2015, the Quebec
Superior court approved MM&A's Plan of arrangement. Subject to
this judgement becoming a final judgement and subject to approval
by the U.S. Court, the plan will provide for the distribution of a
fund of approximately $430 million
amongst those who claimed loss or damage as a result of the
derailment and will release those parties which contributed to the
fund for any further liability. Moreover, the Plan of arrangement
provides for broadly worded third-party releases and channeling
injunctions. CP has not contributed to the fund.
In addition, CP has received two damage to cargo notices of
claims from the shipper of the oil on the derailed train, Western
Petroleum. Western Petroleum has submitted U.S. and Canadian
notices of claims for the same damages and, under the Carmack
Amendment (the U.S. damage to cargo statute), seeks to recover for
all injuries associated with, and indemnification for all claims
arising from, the derailment. Both jurisdictions permit a
shipper to recover the value of damaged lading against any carrier
in the delivery chain, subject to limitations in the carrier's
tariffs. CP's tariffs significantly restrict shipper damage
claim rights. Western Fuels is part of the World Fuels group,
and those entities recently settled with the trustee. In
connection with that settlement, Western Petroleum assigned all
Carmack claims to the trustee. So far the trustee has not
pursued Carmack claims against CP, but both the World Fuels group
and the trustee have maintained that Carmack liability extends
beyond lading losses to cover all damages incurred by the World
Fuels group or Irving Oil associated with the derailment.
At this early stage in the legal proceedings, any potential
liability and the quantum of potential loss cannot be
determined. Nevertheless, CP denies liability for MM&A's
derailment and will vigorously defend itself in the proceedings
described above and in any proceeding that may be commenced in the
future.
Environmental liabilities
Environmental remediation accruals, recorded on an undiscounted
basis unless a reliably determinable estimate as to an amount and
timing of costs can be established, cover site-specific remediation
programs.
The accruals for environmental remediation represent CP's best
estimate of its probable future obligation and include both
asserted and unasserted claims, without reduction for anticipated
recoveries from third parties. Although the recorded accruals
include CP's best estimate of all probable costs, CP's total
environmental remediation costs cannot be predicted with certainty.
Accruals for environmental remediation may change from time to time
as new information about previously untested sites becomes known,
environmental laws and regulations evolve and advances are made in
environmental remediation technology. The accruals may also vary as
the courts decide legal proceedings against outside parties
responsible for contamination. These potential charges, which
cannot be quantified at this time, are not expected to be material
to CP's financial position, but may materially affect income in the
particular period in which a charge is recognized. Costs related to
existing, but as yet unknown, or future contamination will be
accrued in the period in which they become probable and reasonably
estimable.
The expense included in "Purchased services and other" for the
three and six months ended June 30,
2015 was $3 million and
$6 million, respectively (three and
six months ended June 30, 2014 - $nil
and $1 million, respectively).
Provisions for environmental remediation costs are recorded in
"Other long-term liabilities", except for the current portion which
is recorded in "Accounts payable and accrued liabilities".
The total amount provided at June 30,
2015 was $94 million
(December 31, 2014 - $91 million). Payments are expected to be
made over 10 years to 2025.
Summary of Rail
Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter |
|
|
|
|
|
Year-to-date |
|
2015 |
|
|
2014 |
|
Change |
% |
|
Financial
(millions, except per share data) |
|
|
2015 |
|
|
2014 |
|
Change |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
$ |
1,610 |
|
$ |
1,642 |
|
$ |
(32) |
(2) |
|
|
Freight revenues |
|
$ |
3,240 |
|
$ |
3,116 |
|
$ |
124 |
4 |
|
41 |
|
|
39 |
|
|
2 |
5 |
|
|
Non-freight revenues |
|
|
76 |
|
|
74 |
|
|
2 |
3 |
|
1,651 |
|
|
1,681 |
|
|
(30) |
(2) |
|
Total revenues |
|
|
3,316 |
|
|
3,190 |
|
|
126 |
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
308 |
|
|
342 |
|
|
(34) |
(10) |
|
|
Compensation and benefits |
|
|
686 |
|
|
687 |
|
|
(1) |
- |
|
185 |
|
|
273 |
|
|
(88) |
(32) |
|
|
Fuel |
|
|
380 |
|
|
544 |
|
|
(164) |
(30) |
|
45 |
|
|
47 |
|
|
(2) |
(4) |
|
|
Materials |
|
|
97 |
|
|
99 |
|
|
(2) |
(2) |
|
46 |
|
|
40 |
|
|
6 |
15 |
|
|
Equipment rents |
|
|
88 |
|
|
81 |
|
|
7 |
9 |
|
145 |
|
|
137 |
|
|
8 |
6 |
|
|
Depreciation and amortization |
|
|
291 |
|
|
278 |
|
|
13 |
5 |
|
276 |
|
|
255 |
|
|
21 |
8 |
|
|
Purchased services and other |
|
|
516 |
|
|
491 |
|
|
25 |
5 |
|
1,005 |
|
|
1,094 |
|
|
(89) |
(8) |
|
Total operating expenses |
|
|
2,058 |
|
|
2,180 |
|
|
(122) |
(6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
646 |
|
|
587 |
|
|
59 |
10 |
|
Operating income |
|
|
1,258 |
|
|
1,010 |
|
|
248 |
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5) |
|
|
3 |
|
|
(8) |
(267) |
|
|
Other income and charges |
|
|
68 |
|
|
3 |
|
|
65 |
2,167 |
|
84 |
|
|
69 |
|
|
15 |
22 |
|
|
Net interest expense |
|
|
169 |
|
|
139 |
|
|
30 |
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
567 |
|
|
515 |
|
|
52 |
10 |
|
Income before income tax expense |
|
|
1,021 |
|
|
868 |
|
|
153 |
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
177 |
|
|
144 |
|
|
33 |
23 |
|
|
Income tax expense |
|
|
311 |
|
|
243 |
|
|
68 |
28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
390 |
|
$ |
371 |
|
$ |
19 |
5 |
|
Net income |
|
$ |
710 |
|
$ |
625 |
|
$ |
85 |
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60.9 |
|
|
65.1 |
|
|
(4.2) |
(420) |
bps |
|
Operating ratio (%) |
|
|
62.1 |
|
|
68.3 |
|
|
(6.2) |
(620) |
bps |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2.38 |
|
$ |
2.13 |
|
$ |
0.25 |
12 |
|
|
Basic earnings per share |
|
$ |
4.32 |
|
$ |
3.57 |
|
$ |
0.75 |
21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2.36 |
|
$ |
2.11 |
|
$ |
0.25 |
12 |
|
|
Diluted earnings per share |
|
$ |
4.28 |
|
$ |
3.54 |
|
$ |
0.74 |
21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
number of shares |
|
|
|
|
|
|
|
|
|
|
|
|
163.7 |
|
|
174.4 |
|
|
(10.7) |
(6) |
|
|
outstanding (millions) |
|
|
164.3 |
|
|
174.9 |
|
|
(10.6) |
(6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
number of diluted shares |
|
|
|
|
|
|
|
|
|
|
|
|
165.0 |
|
|
175.9 |
|
|
(10.9) |
(6) |
|
|
outstanding (millions) |
|
|
165.7 |
|
|
176.5 |
|
|
(10.8) |
(6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Exchange |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average foreign
exchange rate |
|
|
|
|
|
|
|
|
|
|
|
|
0.81 |
|
|
0.91 |
|
|
(0.10) |
(11) |
|
|
(US$/Canadian$) |
|
|
0.81 |
|
|
0.91 |
|
|
(0.10) |
(11) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average foreign
exchange rate |
|
|
|
|
|
|
|
|
|
|
|
|
1.23 |
|
|
1.10 |
|
|
0.13 |
12 |
|
|
(Canadian$/US$) |
|
|
1.23 |
|
|
1.10 |
|
|
0.13 |
12 |
|
|
|
Summary of Rail
Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter |
|
|
|
|
|
Year-to-date |
|
2015 |
|
2014 |
|
Change |
|
% |
|
|
|
|
|
2015 |
|
2014 |
|
Change |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freight Revenues
(millions) |
|
|
|
|
|
|
|
|
|
|
|
$ |
255 |
|
$ |
252 |
|
$ |
3 |
|
1 |
|
|
|
- Canadian Grain |
|
$ |
511 |
|
$ |
473 |
|
$ |
38 |
|
8 |
|
106 |
|
|
115 |
|
|
(9) |
|
(8) |
|
|
|
- U.S. Grain |
|
|
243 |
|
|
221 |
|
|
22 |
|
10 |
|
167 |
|
|
165 |
|
|
2 |
|
1 |
|
|
|
- Coal |
|
|
327 |
|
|
313 |
|
|
14 |
|
4 |
|
106 |
|
|
101 |
|
|
5 |
|
5 |
|
|
|
- Potash |
|
|
199 |
|
|
181 |
|
|
18 |
|
10 |
|
67 |
|
|
64 |
|
|
3 |
|
5 |
|
|
|
- Fertilizers and sulphur |
|
|
138 |
|
|
118 |
|
|
20 |
|
17 |
|
61 |
|
|
52 |
|
|
9 |
|
17 |
|
|
|
- Forest products |
|
|
118 |
|
|
100 |
|
|
18 |
|
18 |
|
171 |
|
|
155 |
|
|
16 |
|
10 |
|
|
|
- Chemicals and plastics |
|
|
349 |
|
|
302 |
|
|
47 |
|
16 |
|
81 |
|
|
114 |
|
|
(33) |
|
(29) |
|
|
|
- Crude |
|
|
179 |
|
|
218 |
|
|
(39) |
|
(18) |
|
160 |
|
|
170 |
|
|
(10) |
|
(6) |
|
|
|
- Metals, minerals, and consumer
products |
|
|
319 |
|
|
331 |
|
|
(12) |
|
(4) |
|
91 |
|
|
104 |
|
|
(13) |
|
(13) |
|
|
|
- Automotive |
|
|
173 |
|
|
192 |
|
|
(19) |
|
(10) |
|
192 |
|
|
200 |
|
|
(8) |
|
(4) |
|
|
|
- Domestic intermodal |
|
|
386 |
|
|
377 |
|
|
9 |
|
2 |
|
153 |
|
|
150 |
|
|
3 |
|
2 |
|
|
|
- International intermodal |
|
|
298 |
|
|
290 |
|
|
8 |
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,610 |
|
$ |
1,642 |
|
$ |
(32) |
|
(2) |
|
|
Total Freight
Revenues |
|
$ |
3,240 |
|
$ |
3,116 |
|
$ |
124 |
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Revenue
Ton-Miles (RTM) |
|
|
|
|
|
|
|
|
|
|
|
|
6,622 |
|
|
7,074 |
|
|
(452) |
|
(6) |
|
|
|
- Canadian Grain |
|
|
13,027 |
|
|
12,920 |
|
|
107 |
|
1 |
|
2,184 |
|
|
2,679 |
|
|
(495) |
|
(18) |
|
|
|
- U.S. Grain |
|
|
5,128 |
|
|
5,218 |
|
|
(90) |
|
(2) |
|
5,894 |
|
|
5,941 |
|
|
(47) |
|
(1) |
|
|
|
- Coal |
|
|
11,598 |
|
|
11,382 |
|
|
216 |
|
2 |
|
4,514 |
|
|
4,114 |
|
|
400 |
|
10 |
|
|
|
- Potash |
|
|
8,189 |
|
|
7,407 |
|
|
782 |
|
11 |
|
935 |
|
|
1,130 |
|
|
(195) |
|
(17) |
|
|
|
- Fertilizers and sulphur |
|
|
2,050 |
|
|
2,204 |
|
|
(154) |
|
(7) |
|
1,061 |
|
|
1,003 |
|
|
58 |
|
6 |
|
|
|
- Forest products |
|
|
2,080 |
|
|
1,923 |
|
|
157 |
|
8 |
|
3,423 |
|
|
3,326 |
|
|
97 |
|
3 |
|
|
|
- Chemicals and plastics |
|
|
6,993 |
|
|
6,532 |
|
|
461 |
|
7 |
|
2,796 |
|
|
3,816 |
|
|
(1,020) |
|
(27) |
|
|
|
- Crude |
|
|
5,828 |
|
|
7,174 |
|
|
(1,346) |
|
(19) |
|
2,172 |
|
|
2,698 |
|
|
(526) |
|
(19) |
|
|
|
- Metals, minerals, and consumer
products |
|
|
4,455 |
|
|
5,411 |
|
|
(956) |
|
(18) |
|
496 |
|
|
597 |
|
|
(101) |
|
(17) |
|
|
|
- Automotive |
|
|
915 |
|
|
1,111 |
|
|
(196) |
|
(18) |
|
3,063 |
|
|
3,003 |
|
|
60 |
|
2 |
|
|
|
- Domestic intermodal |
|
|
6,087 |
|
|
5,637 |
|
|
450 |
|
8 |
|
3,121 |
|
|
3,048 |
|
|
73 |
|
2 |
|
|
|
- International intermodal |
|
|
5,994 |
|
|
5,885 |
|
|
109 |
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,281 |
|
|
38,429 |
|
|
(2,148) |
|
(6) |
|
|
Total RTMs |
|
|
72,344 |
|
|
72,804 |
|
|
(460) |
|
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freight Revenue per
RTM (cents) |
|
|
|
|
|
|
|
|
|
|
|
|
3.86 |
|
|
3.56 |
|
|
0.30 |
|
8 |
|
|
|
- Canadian Grain |
|
|
3.92 |
|
|
3.66 |
|
|
0.26 |
|
7 |
|
4.85 |
|
|
4.31 |
|
|
0.54 |
|
13 |
|
|
|
- U.S. Grain |
|
|
4.74 |
|
|
4.24 |
|
|
0.50 |
|
12 |
|
2.83 |
|
|
2.79 |
|
|
0.04 |
|
1 |
|
|
|
- Coal |
|
|
2.82 |
|
|
2.75 |
|
|
0.07 |
|
3 |
|
2.34 |
|
|
2.46 |
|
|
(0.12) |
|
(5) |
|
|
|
- Potash |
|
|
2.43 |
|
|
2.44 |
|
|
(0.01) |
|
- |
|
7.12 |
|
|
5.61 |
|
|
1.51 |
|
27 |
|
|
|
- Fertilizers and sulphur |
|
|
6.73 |
|
|
5.35 |
|
|
1.38 |
|
26 |
|
5.73 |
|
|
5.20 |
|
|
0.53 |
|
10 |
|
|
|
- Forest products |
|
|
5.69 |
|
|
5.19 |
|
|
0.50 |
|
10 |
|
4.99 |
|
|
4.67 |
|
|
0.32 |
|
7 |
|
|
|
- Chemicals and plastics |
|
|
4.99 |
|
|
4.63 |
|
|
0.36 |
|
8 |
|
2.92 |
|
|
2.99 |
|
|
(0.07) |
|
(2) |
|
|
|
- Crude |
|
|
3.09 |
|
|
3.04 |
|
|
0.05 |
|
2 |
|
7.37 |
|
|
6.27 |
|
|
1.10 |
|
18 |
|
|
|
- Metals, minerals, and consumer
products |
|
|
7.15 |
|
|
6.11 |
|
|
1.04 |
|
17 |
|
18.37 |
|
|
17.37 |
|
|
1.00 |
|
6 |
|
|
|
- Automotive |
|
|
18.89 |
|
|
17.31 |
|
|
1.58 |
|
9 |
|
6.26 |
|
|
6.66 |
|
|
(0.40) |
|
(6) |
|
|
|
- Domestic intermodal |
|
|
6.35 |
|
|
6.69 |
|
|
(0.34) |
|
(5) |
|
4.90 |
|
|
4.94 |
|
|
(0.04) |
|
(1) |
|
|
|
- International intermodal |
|
|
4.97 |
|
|
4.93 |
|
|
0.04 |
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.44 |
|
|
4.27 |
|
|
0.17 |
|
4 |
|
|
Total Freight Revenue
per RTM |
|
|
4.48 |
|
|
4.28 |
|
|
0.20 |
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summary of Rail
Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter |
|
|
|
|
|
Year-to-date |
2015 |
|
2014 |
|
Change |
|
% |
|
|
|
|
|
2015 |
|
2014 |
|
Change |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carloads
(thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
72 |
|
|
78 |
|
|
(6) |
|
(8) |
|
|
|
- Canadian Grain |
|
|
133 |
|
|
140 |
|
|
(7) |
|
(5) |
|
33 |
|
|
44 |
|
|
(11) |
|
(25) |
|
|
|
- U.S. Grain |
|
|
73 |
|
|
83 |
|
|
(10) |
|
(12) |
|
84 |
|
|
82 |
|
|
2 |
|
2 |
|
|
|
- Coal |
|
|
166 |
|
|
160 |
|
|
6 |
|
4 |
|
37 |
|
|
33 |
|
|
4 |
|
12 |
|
|
|
- Potash |
|
|
68 |
|
|
61 |
|
|
7 |
|
11 |
|
15 |
|
|
16 |
|
|
(1) |
|
(6) |
|
|
|
- Fertilizers and sulphur |
|
|
32 |
|
|
31 |
|
|
1 |
|
3 |
|
15 |
|
|
15 |
|
|
- |
|
- |
|
|
|
- Forest products |
|
|
30 |
|
|
29 |
|
|
1 |
|
3 |
|
51 |
|
|
49 |
|
|
2 |
|
4 |
|
|
|
- Chemicals and plastics |
|
|
102 |
|
|
94 |
|
|
8 |
|
9 |
|
19 |
|
|
25 |
|
|
(6) |
|
(24) |
|
|
|
- Crude |
|
|
41 |
|
|
49 |
|
|
(8) |
|
(16) |
|
54 |
|
|
60 |
|
|
(6) |
|
(10) |
|
|
|
- Metals, minerals, and consumer
products |
|
|
109 |
|
|
116 |
|
|
(7) |
|
(6) |
|
36 |
|
|
37 |
|
|
(1) |
|
(3) |
|
|
|
- Automotive |
|
|
66 |
|
|
67 |
|
|
(1) |
|
(1) |
|
106 |
|
|
110 |
|
|
(4) |
|
(4) |
|
|
|
- Domestic intermodal |
|
|
209 |
|
|
207 |
|
|
2 |
|
1 |
|
146 |
|
|
140 |
|
|
6 |
|
4 |
|
|
|
- International intermodal |
|
|
281 |
|
|
270 |
|
|
11 |
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
668 |
|
|
689 |
|
|
(21) |
|
(3) |
|
|
Total Carloads |
|
|
1,310 |
|
|
1,307 |
|
|
3 |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freight Revenue per
Carload |
|
|
|
|
|
|
|
|
|
|
|
$ |
3,546 |
|
$ |
3,219 |
|
$ |
327 |
|
10 |
|
|
|
- Canadian Grain |
|
$ |
3,852 |
|
$ |
3,374 |
|
$ |
478 |
|
14 |
|
3,187 |
|
|
2,645 |
|
|
542 |
|
20 |
|
|
|
- U.S. Grain |
|
|
3,308 |
|
|
2,675 |
|
|
633 |
|
24 |
|
1,996 |
|
|
2,027 |
|
|
(31) |
|
(2) |
|
|
|
- Coal |
|
|
1,968 |
|
|
1,963 |
|
|
5 |
|
- |
|
2,854 |
|
|
3,046 |
|
|
(192) |
|
(6) |
|
|
|
- Potash |
|
|
2,933 |
|
|
2,983 |
|
|
(50) |
|
(2) |
|
4,508 |
|
|
3,925 |
|
|
583 |
|
15 |
|
|
|
- Fertilizers and sulphur |
|
|
4,381 |
|
|
3,770 |
|
|
611 |
|
16 |
|
3,902 |
|
|
3,502 |
|
|
400 |
|
11 |
|
|
|
- Forest products |
|
|
3,880 |
|
|
3,452 |
|
|
428 |
|
12 |
|
3,354 |
|
|
3,185 |
|
|
169 |
|
5 |
|
|
|
- Chemicals and plastics |
|
|
3,427 |
|
|
3,213 |
|
|
214 |
|
7 |
|
4,294 |
|
|
4,524 |
|
|
(230) |
|
(5) |
|
|
|
- Crude |
|
|
4,404 |
|
|
4,452 |
|
|
(48) |
|
(1) |
|
2,946 |
|
|
2,810 |
|
|
136 |
|
5 |
|
|
|
- Metals, minerals, and consumer
products |
|
|
2,911 |
|
|
2,839 |
|
|
72 |
|
3 |
|
2,541 |
|
|
2,798 |
|
|
(257) |
|
(9) |
|
|
|
- Automotive |
|
|
2,610 |
|
|
2,850 |
|
|
(240) |
|
(8) |
|
1,812 |
|
|
1,822 |
|
|
(10) |
|
(1) |
|
|
|
- Domestic intermodal |
|
|
1,852 |
|
|
1,825 |
|
|
27 |
|
1 |
|
1,047 |
|
|
1,074 |
|
|
(27) |
|
(3) |
|
|
|
- International intermodal |
|
|
1,058 |
|
|
1,074 |
|
|
(16) |
|
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,409 |
|
$ |
2,383 |
|
$ |
26 |
|
1 |
|
|
|
Total Freight Revenue per
Carload |
|
$ |
2,473 |
|
$ |
2,384 |
|
$ |
89 |
|
4 |
|
|
|
Summary of Rail
Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter |
|
|
|
|
Year-to-date |
2015 |
|
2014 (1) |
|
Change |
|
% |
|
|
|
|
2015 |
|
2014 (1) |
|
Change |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations Performance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,435 |
|
|
70,756 |
|
|
(4,321) |
|
(6) |
|
|
Freight gross
ton-miles (millions) |
|
|
131,620 |
|
|
132,853 |
|
|
(1,233) |
|
(1) |
|
36,281 |
|
|
38,429 |
|
|
(2,148) |
|
(6) |
|
|
Revenue ton-miles
(millions) |
|
|
72,344 |
|
|
72,804 |
|
|
(460) |
|
(1) |
|
8,649 |
|
|
9,297 |
|
|
(648) |
|
(7) |
|
|
Train miles
(thousands) |
|
|
17,133 |
|
|
18,066 |
|
|
(933) |
|
(5) |
|
8,261 |
|
|
8,149 |
|
|
112 |
|
1 |
|
|
Average train weight -
excluding local traffic (tons) |
|
|
8,227 |
|
|
7,895 |
|
|
332 |
|
4 |
|
6,991 |
|
|
6,790 |
|
|
201 |
|
3 |
|
|
Average train length -
excluding local traffic (feet) |
|
|
6,884 |
|
|
6,541 |
|
|
343 |
|
5 |
|
6.7 |
|
|
8.6 |
|
|
(1.9) |
|
(22) |
|
|
Average terminal dwell
(hours) |
|
|
8.6 |
|
|
9.4 |
|
|
(0.8) |
|
(9) |
|
21.7 |
|
|
18.0 |
|
|
3.7 |
|
21 |
|
|
Average network train
speed (mph) |
|
|
20.5 |
|
|
17.1 |
|
|
3.4 |
|
20 |
|
0.996 |
|
|
1.004 |
|
|
(0.008) |
|
(1) |
|
|
Fuel
efficiency(2) |
|
|
1.023 |
|
|
1.055 |
|
|
(0.032) |
|
(3) |
|
65.5 |
|
|
70.3 |
|
|
(4.8) |
|
(7) |
|
|
U.S. gallons of
locomotive fuel consumed (millions)(3) |
|
|
133.4 |
|
|
138.7 |
|
|
(5.3) |
|
(4) |
|
2.30 |
|
|
3.53 |
|
|
(1.23) |
|
(35) |
|
|
Average fuel price
(U.S. dollars per U.S. gallon) |
|
|
2.31 |
|
|
3.58 |
|
|
(1.27) |
|
(35) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,150 |
|
|
14,787 |
|
|
(637) |
|
(4) |
|
|
Total employees
(average)(4) |
|
|
14,119 |
|
|
14,516 |
|
|
(397) |
|
(3) |
|
14,069 |
|
|
14,736 |
|
|
(667) |
|
(5) |
|
|
Total employees (end
of period)(4) |
|
|
14,069 |
|
|
14,736 |
|
|
(667) |
|
(5) |
|
14,128 |
|
|
14,960 |
|
|
(832) |
|
(6) |
|
|
Workforce (end of
period)(5) |
|
|
14,128 |
|
|
14,960 |
|
|
(832) |
|
(6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Safety |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.44 |
|
|
1.74 |
|
|
(0.30) |
|
(17) |
|
|
FRA personal injuries
per 200,000 employee-hours |
|
|
1.74 |
|
|
1.67 |
|
|
0.07 |
|
4 |
|
1.04 |
|
|
1.15 |
|
|
(0.11) |
|
(10) |
|
|
FRA train accidents
per million train-miles |
|
|
1.25 |
|
|
1.14 |
|
|
0.11 |
|
10 |
(1) |
Certain prior period figures have been revised to conform with
current presentation or have been updated to reflect new
information. |
(2) |
Fuel efficiency is defined as U.S. gallons of locomotive fuel
consumed per 1,000 GTMs - freight and yard. |
(3) |
Includes gallons of fuel consumed from freight, yard and
commuter service but excludes fuel used in capital projects and
other non-freight activities. |
(4) |
An employee is defined as an individual, including trainees,
who has worked more than 40 hours in a standard biweekly pay
period. This excludes part time
employees, contractors, and consultants. |
(5) |
Workforce is defined as total employees plus part time
employees, contractors, and consultants. |
|
|
Non-GAAP Measures - Unaudited
The Company presents non-GAAP measures and cash flow information
to provide a basis for evaluating underlying earnings and liquidity
trends in its business that can be compared with the results of
operations in prior periods. In addition, these non-GAAP
measures facilitate a multi-period assessment of long-term
profitability allowing management and other external users of the
Company's consolidated financial statements to compare
profitability on a long-term basis with that of the Company's
peers.
These non-GAAP measures exclude foreign currency translation
effects on long-term debt, which can be volatile and short term,
and other significant items that are not among the Company's 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.
Adjusted Performance Measures
Income, excluding significant items, also referred to as Adjusted
earnings, provides management with a measure of income on an
ongoing basis.
Diluted earnings per share ("EPS"), excluding significant items,
also referred to as Adjusted EPS, provides the same information on
a per share basis.
Significant items
Significant items are material transactions that may include, but
are not limited to, restructuring and asset impairment charges,
gains and losses on non-routine sales of assets and other items
that are neither normal course business activities or among our
normal ongoing revenues and operating expenses.
Items that impacted reported second-quarter 2015 earnings
include:
- a $10 million gain ($9 million after-tax) due to foreign exchange
translation on U.S dollar-denominated debt which favourably
impacted Diluted EPS by 5 cents
- an income tax expense of $23
million as a result of the change in the Alberta provincial corporate income tax rate
which unfavourably impacted Diluted EPS by 14 cents
There were no significant items in the second quarter of
2014.
Items that impacted reported six months ended 2015 and 2014
earnings, in addition to those discussed above, include:
2015:
- in the first quarter, a $64
million charge ($55 million
after-tax) due to foreign exchange translation on U.S
dollar-denominated debt which unfavourably impacted Diluted EPS by
34 cents
2014:
- in the first quarter, a $4
million recovery ($3 million
after-tax) for experience gains from the Company's 2012 labour
restructuring initiative which favourably impacted Diluted EPS by
2 cents
Reconciliation of Non-GAAP measures to GAAP
measures
The following tables reconcile Adjusted earnings and Adjusted EPS
to Net income and Diluted earnings per share, respectively.
|
|
|
For the three
months |
|
For the six
months |
Income |
|
ended June
30 |
|
ended June
30 |
(in millions of Canadian dollars) |
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
Income, excluding significant items |
$ |
404 |
|
$ |
371 |
|
$ |
779 |
|
$ |
622 |
Add significant items, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
Labour restructuring |
|
- |
|
|
- |
|
|
- |
|
|
3 |
|
Impact of foreign exchange
translation on U.S. dollar-denominated debt |
|
9 |
|
|
- |
|
|
(46) |
|
|
- |
|
Income tax rate change |
|
(23) |
|
|
- |
|
|
(23) |
|
|
- |
Net income as reported |
$ |
390 |
|
$ |
371 |
|
$ |
710 |
|
$ |
625 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three
months |
|
For the six
months |
Diluted earnings per share |
|
ended June
30 |
|
ended June
30 |
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
Diluted earnings per share, excluding
significant items |
$ |
2.45 |
|
$ |
2.11 |
|
$ |
4.70 |
|
$ |
3.52 |
Add significant items: |
|
|
|
|
|
|
|
|
|
|
|
|
Labour restructuring |
|
- |
|
|
- |
|
|
- |
|
|
0.02 |
|
Impact of foreign exchange
translation on U.S. dollar-denominated debt |
|
0.05 |
|
|
- |
|
|
(0.28) |
|
|
- |
|
Income tax rate change |
|
(0.14) |
|
|
- |
|
|
(0.14) |
|
|
- |
Diluted earnings per share as reported |
$ |
2.36 |
|
$ |
2.11 |
|
$ |
4.28 |
|
$ |
3.54 |
Free Cash
Free cash is a non-GAAP measure that management considers to be an
indicator of liquidity. The measure is used by management to
provide information with respect to the relationship between cash
provided by operating activities and investment decisions and
provides a comparable measure for period to period changes.
Free cash is calculated as cash provided by operating activities,
less cash used in investing activities, excluding changes in
restricted cash and cash equivalents and investment balances
used to collateralize letters of credit, and dividends paid,
adjusted for changes in cash and cash equivalents balances
resulting from foreign exchange ("FX") fluctuations.
Reconciliation of Free Cash to GAAP cash
position(1) |
For the three
months |
|
For the six
months |
|
ended June
30 |
|
ended June
30 |
(in millions of Canadian dollars) |
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
Cash provided by operating activities |
$ |
585 |
|
$ |
645 |
|
$ |
1,140 |
|
$ |
932 |
Cash used in investing activities |
|
(354) |
|
|
(45) |
|
|
(545) |
|
|
(262) |
Change in restricted cash and cash equivalents used
to |
|
|
|
|
|
|
|
|
|
|
|
collateralize letters of credit |
|
- |
|
|
(7) |
|
|
- |
|
|
(9) |
Dividends paid |
|
(57) |
|
|
(62) |
|
|
(115) |
|
|
(123) |
Effect of foreign exchange fluctuations on U.S.
dollar-denominated |
|
|
|
|
|
|
|
|
|
|
|
cash and cash equivalents |
|
(1) |
|
|
(12) |
|
|
5 |
|
|
(4) |
Free cash(1) |
|
173 |
|
|
519 |
|
|
485 |
|
|
534 |
Cash used in financing activities, excluding
dividend payment |
|
(172) |
|
|
(436) |
|
|
(526) |
|
|
(650) |
Change in restricted cash and cash equivalents used
to |
|
|
|
|
|
|
|
|
|
|
|
collateralize letters of credit |
|
- |
|
|
7 |
|
|
- |
|
|
9 |
Decrease in cash and cash equivalents,
as |
|
|
|
|
|
|
|
|
|
|
|
shown on the Interim Consolidated Statements of
Cash Flows |
|
1 |
|
|
90 |
|
|
(41) |
|
|
(107) |
Cash and cash equivalents at beginning of
period |
|
184 |
|
|
279 |
|
|
226 |
|
|
476 |
Cash and cash equivalents at end of
period |
$ |
185 |
|
$ |
369 |
|
$ |
185 |
|
$ |
369 |
(1) |
Free cash and cash equivalents provided by
financing activities, excluding dividend payment have no
standardized
meaning prescribed by GAAP and, therefore, are unlikely to be
comparable to similar measures presented by other
companies. |
Foreign Exchange Adjusted Variance
Foreign exchange adjusted variance ("FX adj. variance") allows
certain financial results to be viewed without the impact of
fluctuations in foreign currency exchange rates, thereby
facilitating period-to-period comparisons in the analysis of trends
in business performance. Financial results at a constant
currency are obtained by translating the previous period results in
U.S. dollars at the foreign exchange rate of the comparable period
of the current year. Measures at constant currency are
considered non-GAAP measures and do not have any standardized
meaning prescribed by GAAP and, therefore, are unlikely to be
comparable to similar measures presented by other companies.
|
For the three
months ended June 30 |
|
For the six
months ended June 30 |
(in millions of |
|
|
|
|
Variance |
Adjusted |
FX Adj. |
|
|
|
|
|
Variance |
Adjusted |
FX Adj. |
Canadian dollars) |
|
2015 |
|
2014 |
due to FX |
2014(1) |
%(1) |
|
|
2015 |
|
2014 |
due to FX |
2014(1) |
%(1) |
Freight revenues |
$ |
1,610 |
$ |
1,642 |
$ |
104 |
$ |
1,746 |
(8%) |
|
$ |
3,240 |
$ |
3,116 |
$ |
206 |
$ |
3,322 |
(2%) |
Non-freight revenues |
|
41 |
|
39 |
|
- |
|
39 |
5% |
|
|
76 |
|
74 |
|
- |
|
74 |
3% |
Total revenues |
|
1,651 |
|
1,681 |
|
104 |
|
1,785 |
(8%) |
|
|
3,316 |
|
3,190 |
|
206 |
|
3,396 |
(2%) |
Total operating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
expenses |
|
1,005 |
|
1,094 |
|
58 |
|
1,152 |
(13%) |
|
|
2,058 |
|
2,180 |
|
124 |
|
2,304 |
(11%) |
Operating income |
$ |
646 |
$ |
587 |
$ |
46 |
$ |
633 |
2% |
|
$ |
1,258 |
$ |
1,010 |
$ |
82 |
$ |
1,092 |
15% |
(1) |
These earnings measures have no standardized
meaning prescribed by GAAP and, therefore, are unlikely
to be comparable to similar measures presented by other
companies. |
|
|
SOURCE Canadian Pacific