Reported diluted EPS of $2.04
CALGARY, Oct. 20, 2015 /PRNewswire/ - Canadian Pacific
Railway Limited (TSX: CP) (NYSE: CP) today announced the
highest-ever revenue for the third quarter, 16-percent growth in
adjusted earnings per share and the lowest operating ratio for the
period in the company's history.
Revenue rose to $1.71 billion, a
gain of 2 percent, while the adjusted operating ratio improved 290
basis points to a record-low for the period of 59.9 percent.
"I am proud of the CP team's execution this quarter amid
stubborn economic softness and the lowest commodity prices in more
than a decade," said E. Hunter
Harrison, CP's Chief Executive Officer. "It's clear that
despite the ongoing tough economic environment, our continued focus
on service, cost control and incremental investment in the
franchise will serve customers and shareholders well in the long
run."
THIRD-QUARTER 2015 HIGHLIGHTS
- Revenue increased 2 percent to $1.71
billion
- Adjusted operating income climbed 10 percent to $685 million
- Adjusted operating ratio fell to a third-quarter record 59.9
percent, a 290-basis-point improvement
- Adjusted earnings per share advanced 16 percent to $2.69
"CP's ability to generate bottom-line double-digit earnings
growth in varied economic conditions demonstrates the resiliency
and the power of our business model," Harrison said.
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 nine months |
|
|
|
ended September 30 |
|
ended September 30 |
|
|
|
2015 |
|
2014 |
|
2015 |
|
2014 |
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
Freight |
|
$ |
1,667 |
|
$ |
1,629 |
|
$ |
4,907 |
|
$ |
4,745 |
|
Non-freight |
|
|
42 |
|
|
41 |
|
|
118 |
|
|
115 |
Total revenues |
|
|
1,709 |
|
|
1,670 |
|
|
5,025 |
|
|
4,860 |
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and benefits |
|
|
352 |
|
|
347 |
|
|
1,038 |
|
|
1,034 |
|
Fuel |
|
|
162 |
|
|
249 |
|
|
542 |
|
|
793 |
|
Materials |
|
|
47 |
|
|
47 |
|
|
144 |
|
|
146 |
|
Equipment rents |
|
|
42 |
|
|
36 |
|
|
130 |
|
|
117 |
|
Depreciation and amortization |
|
|
149 |
|
|
135 |
|
|
440 |
|
|
413 |
|
Purchased services and other (Note
4) |
|
|
272 |
|
|
235 |
|
|
788 |
|
|
726 |
|
Gain on sale of Delaware & Hudson
South (Note 5) |
|
|
(68) |
|
|
- |
|
|
(68) |
|
|
- |
Total operating expenses |
|
|
956 |
|
|
1,049 |
|
|
3,014 |
|
|
3,229 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
753 |
|
|
621 |
|
|
2,011 |
|
|
1,631 |
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income and charges (Note
6) |
|
|
168 |
|
|
1 |
|
|
236 |
|
|
4 |
|
Net interest expense |
|
|
103 |
|
|
70 |
|
|
272 |
|
|
209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
expense |
|
|
482 |
|
|
550 |
|
|
1,503 |
|
|
1,418 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (Note
7) |
|
|
159 |
|
|
150 |
|
|
470 |
|
|
393 |
Net income |
|
$ |
323 |
|
$ |
400 |
|
$ |
1,033 |
|
$ |
1,025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share (Note
8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
2.05 |
|
$ |
2.33 |
|
$ |
6.37 |
|
$ |
5.90 |
|
Diluted earnings per share |
|
$ |
2.04 |
|
$ |
2.31 |
|
$ |
6.32 |
|
$ |
5.84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares
(in millions) (Note 8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
157.6 |
|
|
171.9 |
|
|
162.0 |
|
|
173.9 |
|
Diluted |
|
|
158.7 |
|
|
173.5 |
|
|
163.3 |
|
|
175.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per
share |
|
$ |
0.3500 |
|
$ |
0.3500 |
|
$ |
1.0500 |
|
$ |
1.0500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 nine months |
|
|
|
|
ended September 30 |
|
ended September 30 |
|
|
|
|
2015 |
|
2014 |
|
2015 |
|
2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
323 |
|
$ |
400 |
|
$ |
1,033 |
|
$ |
1,025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss on foreign
currency translation adjustments, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net of hedging activities |
|
|
(33) |
|
|
(26) |
|
|
(63) |
|
|
(19) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in derivatives
designated as cash flow hedges |
|
|
(45) |
|
|
- |
|
|
(78) |
|
|
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in pension and
post-retirement defined benefit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
plans |
|
|
65 |
|
|
31 |
|
|
203 |
|
|
93 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive (loss) income before income tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(expense) recovery |
|
|
(13) |
|
|
5 |
|
|
62 |
|
|
72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax recovery
(expense) |
|
|
33 |
|
|
15 |
|
|
44 |
|
|
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (Note
3) |
|
|
20 |
|
|
20 |
|
|
106 |
|
|
71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
343 |
|
$ |
420 |
|
$ |
1,139 |
|
$ |
1,096 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Interim Consolidated
Financial Statements. |
|
INTERIM CONSOLIDATED BALANCE SHEETS AS AT
(in millions of Canadian dollars)
(unaudited)
|
|
|
September
30 |
|
December 31 |
|
|
|
2015 |
|
2014 |
Assets |
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
661 |
|
$ |
226 |
|
Accounts receivable, net |
|
|
722 |
|
|
702 |
|
Materials and supplies |
|
|
174 |
|
|
177 |
|
Deferred income taxes |
|
|
79 |
|
|
56 |
|
Other current assets |
|
|
69 |
|
|
116 |
|
|
|
|
1,705 |
|
|
1,277 |
|
|
|
|
|
|
|
|
Investments |
|
|
144 |
|
|
112 |
Properties |
|
|
15,762 |
|
|
14,438 |
Assets held for sale (Note
5) |
|
|
- |
|
|
182 |
Goodwill and intangible
assets |
|
|
204 |
|
|
176 |
Pension asset (Note 13) |
|
|
543 |
|
|
304 |
Other assets (Note 2) |
|
|
73 |
|
|
117 |
Total assets |
|
$ |
18,431 |
|
$ |
16,606 |
|
|
|
|
|
|
|
|
Liabilities and shareholders'
equity |
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
Accounts payable and accrued
liabilities |
|
$ |
1,587 |
|
$ |
1,277 |
|
Long-term debt maturing within one
year (Note 9) |
|
|
29 |
|
|
134 |
|
|
|
|
1,616 |
|
|
1,411 |
|
|
|
|
|
|
|
|
Pension and other benefit liabilities
(Note 13) |
|
|
763 |
|
|
755 |
Other long-term liabilities |
|
|
343 |
|
|
432 |
Long-term debt (Notes 2 and
9) |
|
|
8,648 |
|
|
5,625 |
Deferred income taxes |
|
|
3,069 |
|
|
2,773 |
Total liabilities |
|
|
14,439 |
|
|
10,996 |
|
|
|
|
|
|
|
|
Shareholders' equity |
|
|
|
|
|
|
|
Share capital (Note 10) |
|
|
2,054 |
|
|
2,185 |
|
Additional paid-in capital |
|
|
42 |
|
|
36 |
|
Accumulated other comprehensive loss
(Note 3) |
|
|
(2,113) |
|
|
(2,219) |
|
Retained earnings |
|
|
4,009 |
|
|
5,608 |
|
|
|
|
3,992 |
|
|
5,610 |
Total liabilities and
shareholders' equity |
|
$ |
18,431 |
|
$ |
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 nine months |
|
|
|
|
ended September 30 |
|
ended September 30 |
|
|
|
|
2015 |
|
2014 |
|
2015 |
|
2014 |
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
323 |
|
$ |
|
400 |
|
$ |
1,033 |
|
$ |
1,025 |
|
Reconciliation of net
income to cash provided by |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
operating
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
149 |
|
|
|
135 |
|
|
440 |
|
|
413 |
|
|
Deferred income taxes(Note 7) |
|
|
- |
|
|
|
120 |
|
|
106 |
|
|
194 |
|
|
Pension funding in excess of expense(Note
13) |
|
|
(10) |
|
|
|
(38) |
|
|
(40) |
|
|
(103) |
|
Other operating
activities, net |
|
|
75 |
|
|
|
(1) |
|
|
60 |
|
|
39 |
|
Change in non-cash
working capital balances related to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
operations |
|
|
159 |
|
|
|
(82) |
|
|
237 |
|
|
(102) |
Cash provided by operating
activities |
|
|
696 |
|
|
|
534 |
|
|
1,836 |
|
|
1,466 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to
properties |
|
|
(449) |
|
|
|
(414) |
|
|
(1,067) |
|
|
(936) |
|
Proceeds from the sale of
west end of Dakota, Minnesota |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and Eastern
Railroad |
|
|
- |
|
|
|
- |
|
|
- |
|
|
236 |
|
Proceeds from the sale of
Delaware & Hudson South (Note 5) |
|
|
281 |
|
|
|
- |
|
|
281 |
|
|
- |
|
Proceeds from sale of
properties and other assets (Note 4) |
|
|
13 |
|
|
|
10 |
|
|
73 |
|
|
26 |
|
Change in restricted cash
and cash equivalents used to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
collateralize letters of credit |
|
|
- |
|
|
|
318 |
|
|
- |
|
|
327 |
|
Other (Note
4) |
|
|
(8) |
|
|
|
1 |
|
|
5 |
|
|
- |
Cash used in investing
activities |
|
|
(163) |
|
|
|
(85) |
|
|
(708) |
|
|
(347) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid |
|
|
(57) |
|
|
|
(61) |
|
|
(172) |
|
|
(184) |
|
Issuance of CP common
shares |
|
|
5 |
|
|
|
14 |
|
|
32 |
|
|
50 |
|
Purchase of CP common
shares (Note 10) |
|
|
(1,523) |
|
|
|
(455) |
|
|
(2,595) |
|
|
(987) |
|
Net repayment of
commercial paper (Note 9) |
|
|
(669) |
|
|
|
- |
|
|
(893) |
|
|
- |
|
Issuance of long-term
debt, excl. commercial paper (Note 9) |
|
|
2,601 |
|
|
|
- |
|
|
3,411 |
|
|
- |
|
Repayment of long-term
debt, excl. commercial paper (Note 9) |
|
|
(432) |
|
|
|
(21) |
|
|
(499) |
|
|
(175) |
|
Settlement of foreign
exchange forward on long-term debt |
|
|
- |
|
|
|
17 |
|
|
- |
|
|
17 |
|
Other |
|
|
- |
|
|
|
(3) |
|
|
- |
|
|
(3) |
Cash used in financing
activities |
|
|
(75) |
|
|
|
(509) |
|
|
(716) |
|
|
(1,282) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign currency
fluctuations on U.S. dollar- |
|
|
|
|
|
|
|
|
|
|
|
|
|
denominated cash and cash
equivalents |
|
|
18 |
|
|
|
6 |
|
|
23 |
|
|
2 |
Cash position |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in
cash and cash equivalents |
|
|
476 |
|
|
|
(54) |
|
|
435 |
|
|
(161) |
|
Cash and cash equivalents
at beginning of period |
|
|
185 |
|
|
|
369 |
|
|
226 |
|
|
476 |
Cash and cash equivalents at end of
period |
|
$ |
661 |
|
$ |
|
315 |
|
$ |
661 |
|
$ |
315 |
Supplemental disclosures of cash
flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
paid |
|
$ |
48 |
|
$ |
|
103 |
|
$ |
107 |
|
$ |
142 |
|
Interest paid |
|
$ |
81 |
|
$ |
|
60 |
|
$ |
242 |
|
$ |
220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
shares |
|
|
|
|
Additional |
|
other |
|
|
|
Total |
|
(in |
|
|
Share |
|
paid-in |
|
comprehensive |
|
Retained |
|
shareholders' |
|
millions) |
|
|
capital |
|
capital |
|
loss |
|
earnings |
|
equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2015 |
166.1 |
|
$ |
2,185 |
$ |
36 |
$ |
(2,219) |
$ |
5,608 |
$ |
5,610 |
Net income |
- |
|
|
- |
|
- |
|
- |
|
1,033 |
|
1,033 |
Other comprehensive income (Note 3) |
- |
|
|
- |
|
- |
|
106 |
|
- |
|
106 |
Dividends declared |
- |
|
|
- |
|
- |
|
- |
|
(170) |
|
(170) |
Effect of stock-based compensation expense |
- |
|
|
- |
|
14 |
|
- |
|
- |
|
14 |
CP common shares repurchased (Note 10) |
(12.7) |
|
|
(173) |
|
- |
|
- |
|
(2,462) |
|
(2,635) |
Shares issued under stock option plans |
0.4 |
|
|
42 |
|
(8) |
|
- |
|
- |
|
34 |
Balance at September 30, 2015 |
153.8 |
|
$ |
2,054 |
$ |
42 |
$ |
(2,113) |
$ |
4,009 |
$ |
3,992 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common |
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
shares |
|
|
|
|
Additional |
|
other |
|
|
|
Total |
|
(in |
|
|
Share |
|
paid-in |
|
comprehensive |
|
Retained |
|
shareholders' |
|
millions) |
|
|
capital |
|
capital |
|
loss |
|
earnings |
|
equity |
Balance at January 1, 2014 |
175.4 |
|
$ |
2,240 |
$ |
34 |
$ |
(1,503) |
$ |
6,326 |
$ |
7,097 |
Net income |
- |
|
|
- |
|
- |
|
- |
|
1,025 |
|
1,025 |
Other comprehensive income (Note 3) |
- |
|
|
- |
|
- |
|
71 |
|
- |
|
71 |
Dividends declared |
- |
|
|
- |
|
- |
|
- |
|
(183) |
|
(183) |
Effect of stock-based compensation expense |
- |
|
|
- |
|
16 |
|
- |
|
- |
|
16 |
CP common shares repurchased (Note 10) |
(5.3) |
|
|
(68) |
|
- |
|
- |
|
(919) |
|
(987) |
Shares issued under stock option plans |
0.9 |
|
|
68 |
|
(15) |
|
- |
|
- |
|
53 |
Balance at September 30, 2014 |
171.0 |
|
$ |
2,240 |
$ |
35 |
$ |
(1,432) |
$ |
6,249 |
$ |
7,092 |
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Interim Consolidated
Financial Statements. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS
September 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 $67
million have been presented as a reduction of the carrying
value of "Long-term debt" as at September
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 nine months ended
September 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 on the Company's financial
statements.
Simplifying the Subsequent Measurement of Inventory
In July 2015, the FASB issued ASU
2015-11, Simplifying the Measurement of Inventory under FASB ASC
Topic 330. The amendments require reporting entities to measure
inventory at the lower of cost and net realizable value. Net
realizable value is the estimated selling prices in the ordinary
course of business, less reasonably predictable costs of
completion, disposal, and transportation. The amendments apply to
inventory that is measured using first-in, first-out or average
cost. This ASU will be effective for public entities for
fiscal years, and interim periods within those years, beginning
after December 15, 2016, and will be
applied prospectively. The Company has not, at this time,
ascertained the full impact on the consolidated financial
statements from the adoption of the guidance in ASU 2015-11.
Plan Investment Disclosures
In July 2015, the FASB issued ASU
2015-12, Plan Investment Disclosures under FASB ASC Topic 960. The
amendments require that investments of employee benefit plans be
grouped only by general type, eliminating the need to disaggregate
the investments in multiple ways. In addition, if an investment is
measured using the net asset value per share (or its equivalent)
practical expedient in Topic 820 and that investment is in a fund
that files a U.S. Department of Labor Form 5500, Annual
Return/Report of Employee Benefit Plan, as a direct filing entity,
disclosure of that investment's strategy will no longer be
required. 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. Early adoption of the amendments is
permitted for financial statements that have not been previously
issued. The Company will include appropriate disclosures related to
plan investment in accordance with ASU 2015-12 when it adopts the
provisions of this ASU.
Deferral of the Effective Date for Revenue from Contracts
with Customers
In August 2015, the FASB issued
ASU 2015-14, Revenue from Contracts with Customers: Deferral of the
Effective Date under FASB ASC Topic 606. The amendments defer the
effective date of the guidance in ASU 2014-09 for public entities
to annual reporting periods beginning after December 15, 2017, including interim reporting
periods within that reporting period. The Company has not, at this
time, ascertained the full impact on the consolidated financial
statements from the adoption of the guidance in ASU 2014-09 but
does not expect the impact to be material.
3 Changes in accumulated other
comprehensive loss ("AOCL") by component
|
|
For the three months ended
September 30 |
|
For the nine months ended
September 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 |
|
$ (77) |
$
(2,181) |
|
$(2,133) |
|
$ 115 |
|
$ (52) |
$
(2,282) |
|
$(2,219) |
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(loss) before
reclassifications |
|
6 |
|
(34) |
- |
|
(28) |
|
16 |
|
(60) |
5 |
|
(39) |
Amounts reclassified from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
accumulated other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
comprehensive income |
|
- |
|
2 |
46 |
|
48 |
|
- |
|
3 |
142 |
|
145 |
Net current-period other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
comprehensive income (loss) |
|
6 |
|
(32) |
46 |
|
20 |
|
16 |
|
(57) |
147 |
|
106 |
Closing balance, 2015 |
|
$ 131 |
|
$ (109) |
$
(2,135) |
|
$(2,113) |
|
$ 131 |
|
$ (109) |
$
(2,135) |
|
$(2,113) |
Opening balance, 2014 |
|
$ 114 |
|
$ (18) |
$
(1,548) |
|
$(1,452) |
|
$ 105 |
|
$ (15) |
$
(1,593) |
|
$(1,503) |
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(loss) before reclassifications |
|
(4) |
|
- |
- |
|
(4) |
|
5 |
|
- |
- |
|
5 |
Amounts reclassified from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
accumulated other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
comprehensive income (loss) |
|
- |
|
- |
24 |
|
24 |
|
- |
|
(3) |
69 |
|
66 |
Net current-period other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
comprehensive income (loss) |
|
(4) |
|
- |
24 |
|
20 |
|
5 |
|
(3) |
69 |
|
71 |
Closing balance, 2014 |
|
$ 110 |
|
$ (18) |
$
(1,524) |
|
$(1,432) |
|
$ 110 |
|
$ (18) |
$
(1,524) |
|
$(1,432) |
(1) Amounts are presented net of tax. |
|
|
Amounts in
Pension and post-retirement defined benefit plans reclassified from
AOCL |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three
months |
|
For the nine
months |
|
|
|
|
|
|
ended September
30 |
|
ended September
30 |
|
(in millions of Canadian dollars) |
|
|
|
|
2015 |
|
2014 |
|
2015 |
|
2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service
costs(a) |
|
|
|
|
$ |
(2) |
|
$ |
(17) |
|
$ |
(5) |
|
$ |
(51) |
|
Recognition of net actuarial
loss(a) |
|
|
|
|
|
67 |
|
|
48 |
|
|
201 |
|
|
144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total before income tax |
|
|
|
|
|
65 |
|
|
31 |
|
|
196 |
|
|
93 |
|
Income tax recovery |
|
|
|
|
|
(19) |
|
|
(7) |
|
|
(54) |
|
|
(24) |
|
Net of income tax |
|
|
|
|
$ |
46 |
|
$ |
24 |
|
$ |
142 |
|
$ |
69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 "Purchased services and
other".
5 Gain on sale of Delaware & Hudson
South
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 ("D&H"), Inc.'s line between Sunbury, Pennsylvania and Schenectady, New York ("D&H South"). The
sale, which received approval by the U.S. Surface Transportation
Board on May 15, 2015, was completed
on September 18, 2015 for proceeds of
$281 million (U.S. $214 million), subject to finalizing post-closing
adjustments between the Company and NS in the fourth quarter of
2015. The assets sold were previously classified as "Assets held
for Sale" on the Company's Consolidated Balance Sheet at
December 31, 2014. The Company
recorded a gain on sale of $68
million from the transaction.
6 Other income and charges
|
|
|
For the three
months |
|
For the nine months |
|
|
|
ended September
30 |
|
ended September 30 |
|
(in millions of Canadian
dollars) |
|
2015 |
|
2014 |
|
2015 |
|
2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange loss on long-term
debt |
|
$ |
128 |
|
$ |
- |
|
$ |
182 |
|
$ |
- |
|
Other foreign exchange (gains)
losses |
|
|
(10) |
|
|
2 |
|
|
(4) |
|
|
(1) |
|
Early redemption premium on notes
(Note 9) |
|
|
47 |
|
|
- |
|
|
47 |
|
|
- |
|
Other |
|
|
3 |
|
|
(1) |
|
|
11 |
|
|
5 |
|
Total other income and charges |
|
$ |
168 |
|
$ |
1 |
|
$ |
236 |
|
$ |
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7 Income tax expense
|
|
|
|
|
|
|
|
|
|
For the three months |
|
For the nine months |
|
|
|
|
|
|
|
|
|
|
ended September 30 |
|
ended September 30 |
|
(in millions of Canadian
dollars) |
|
|
|
|
|
|
|
|
2015 |
|
2014 |
|
2015 |
|
2014 |
|
Current income tax expense |
|
|
|
|
|
|
|
|
$ |
159 |
|
$ |
30 |
|
$ |
364 |
|
$ |
199 |
|
Deferred income tax expense |
|
|
|
|
|
|
|
|
|
- |
|
|
120 |
|
|
106 |
|
|
194 |
|
Income tax expense |
|
|
|
|
|
|
|
|
$ |
159 |
|
$ |
150 |
|
$ |
470 |
|
$ |
393 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the second quarter of 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 second 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 nine months ended September 30,
2015, excluding discrete items (Foreign exchange loss on
long-term debt, the Gain on sale of Delaware & Hudson
South, early redemption premium included in "Other income
and charges" and the revaluation of deferred income tax balances as
at January 1, 2015 due to the enacted
Alberta provincial corporate
income tax rate increase in the second quarter of 2015), is 27.5%
(27.2% and 27.7% for the three and nine months ended September 30, 2014, respectively).
The effective tax rate for the three and nine months ended
September 30, 2015, including
discrete items, is 32.9% and 31.3%, respectively (27.2% and 27.7%
for the three and nine months ended September 30, 2014, respectively).
8 Earnings per share
At September 30, 2015, the number
of shares outstanding was 153.8 million (September 30, 2014 - 171.0 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 nine months |
|
|
|
ended September 30 |
|
|
ended September
30 |
|
(in millions) |
|
2015 |
|
2014 |
|
|
2015 |
|
2014 |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average basic shares
outstanding |
|
157.6 |
|
171.9 |
|
|
162.0 |
|
173.9 |
|
Dilutive effect of stock options |
|
1.1 |
|
1.6 |
|
|
1.3 |
|
1.6 |
|
Weighted-average
diluted shares outstanding |
|
158.7 |
|
173.5 |
|
|
163.3 |
|
175.5 |
|
|
|
|
|
|
|
|
|
|
|
For the three and nine months ended September 30, 2015, there were 364,014 options
and 179,988 options, respectively, excluded from the computation of
diluted earnings per share because their effects were not dilutive
(three and nine months ended September 30,
2014 - 15,980 and 82,146, respectively).
9 Long-term 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%.
During the third quarter of 2015, the Company issued U.S.
$550 million 4.800% 30-year notes due
August 1, 2045 and U.S. $250 million 3.700% 10-year notes due
February 1, 2026 for a total of U.S.
$800 million with net proceeds of
U.S. $789 million (CDN $1,032 million). These notes pay interest
semi-annually and are unsecured but carry a negative pledge.
During the third quarter of 2015, the Company also issued U.S.
$900 million 6.125% 100-year notes
due September 15, 2115 and U.S.
$300 million 4.800% 20-year notes due
September 15, 2035 for a total of
U.S. $1,200 million with net proceeds
of U.S. $1,186 million (CDN
$1,569 million). These notes pay
interest semi-annually and are unsecured but carry a negative
pledge. At the time of the debt issuance the Company
de-designated the hedging relationship for U.S. $700 million of the existing forward starting
swaps. The Company did not cash settle these swaps and therefore
recorded a non-cash loss of U.S. $36
million (CDN $47 million) in
"Accumulated other comprehensive loss" (see Note 11). Subsequently
the Company re-designated these U.S. $700
million forward starting swaps as a hedging relationship to
fix the benchmark rate on cash flows associated with a highly
probable forecasted issuance of long-term notes.
Repayment of notes
During the third quarter of 2015, the Company repaid four notes
in advance of their maturities for a total of U.S. $285 million (CDN $379
million). The repayment is inclusive of the remaining
principal on the notes, totaling U.S. $247
million (CDN $329 million), an
early redemption premium of U.S. $34
million (CDN $45 million), and
accrued interest of U.S. $4 million
(CDN $5 million). The early
redemption premium and accrued interest are included in "Other
income and charges" and "Net interest expense" on the Interim
Consolidated Statements of Income, respectively. The Company
also expensed the unamortized financing fees of $2 million to "Other income and charges" upon
repayment of the notes.
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 23, 2017.
During the third quarter of 2015, the Company repaid all of its
commercial paper borrowings and had no remaining commercial paper
borrowings as at September 30,
2015. As at December 31,
2014, the Company had commercial paper borrowings of U.S.
$675 million (CDN $783 million) presented in "Long-term debt" on
the Interim Consolidated Balance Sheets as the Company had the
intent and ability to renew the borrowings on a long-term basis.
The weighted-average interest rate on these borrowings as at
December 31, 2014 was 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, to more
accurately reflect the expanded financial capacity of the
Company. 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 September 30, 2015, the Company satisfied the
threshold stipulated in the amended financial covenant. At
September 30, 2015, the facility was
undrawn.
Effective September 17, 2015, CP
extended the maturity date by one year on its U.S. $2 billion credit facility. The credit
facility has two tranches totaling U.S. $1
billion each. The maturity date on the first U.S.
$1 billion tranche has been extended
to September 23, 2017; the maturity
date on the second U.S. $1 billion
tranche has been extended to September 26,
2020. The Company remains in compliance with all terms and
conditions of the credit facility arrangements.
10 Shareholders' Equity
On March 11, 2014, the Company
announced a new share repurchase program to implement a normal
course issuer bid ("NCIB") to purchase, for cancellation, up to 5.3
million common shares before March 16,
2015. On September 29,
2014, the Company announced the amendment of the bid to
increase the maximum number of its common shares that may be
purchased from 5.3 million to 12.7 million of its outstanding
common shares. The Company completed the purchase of 10.5
million common shares in 2014 and an additional 2.2 million common
shares in the first quarter of 2015 prior to the March 16, 2015 expiry date of the program.
On March 16, 2015, the Company
announced the renewal of its NCIB, commencing March 18, 2015, to purchase up to 9.14 million of
its outstanding common shares for cancellation before March 17, 2016. On August 31, 2015, the Company amended the NCIB to
increase the maximum number of its common shares that may be
purchased from 9.14 million to 11.9 million of its outstanding
common shares. As at September 30,
2015, the Company had purchased 10.8 million common shares
for $2,145 million under this current
NCIB program.
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 nine
months |
|
|
|
ended September
30 |
|
ended September
30 |
|
|
|
2015 |
|
2014 |
|
2015 |
|
2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of common shares repurchased
(1) |
|
|
7,738,489 |
|
|
2,000,392 |
|
|
12,972,177 |
|
|
5,270,374 |
|
Weighted-average price per
share(2) |
|
$ |
200.84 |
|
$ |
210.91 |
|
$ |
203.08 |
|
$ |
187.33 |
|
Amount of repurchase (in
millions)(2) |
|
$ |
1,555 |
|
$ |
422 |
|
$ |
2,635 |
|
$ |
987 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Includes shares repurchased but not yet
cancelled. |
(2) |
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 $9,713 million at September 30, 2015 (December 31, 2014 - $6,939
million) and a carrying value of $8,677 million at September 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 incurred and balance
sheet positions 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 nine months ended
September 30, 2015 was an unrealized
FX loss of $291 million and
$589 million, respectively (three and
nine months ended September 30, 2014
- unrealized FX loss of $175 million
and $186 million,
respectively). There was no ineffectiveness during the three
and nine months ended September 30,
2015 and comparative periods.
Interest rate management
The Company is exposed to interest rate risk, which is the risk
that the fair value of 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. 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" over the term of the underlying
hedged notes. A loss of $1 million
and $4 million related to these
previously settled derivatives has been amortized to "Net interest
expense" for the three and nine months ended September 30, 2015, respectively. The Company
expects during the next 12 months, $6
million of losses will be amortized 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.
During the third quarter of 2015, the Company de-designated the
hedging relationship for U.S. $700
million of forward starting swaps related to a portion of
the U.S. $900 million 6.125% 100-year
notes issued. The Company did not cash settle these swaps and
therefore recorded a non-cash loss of U.S. $36 million (CDN $47
million) at the time of de-designation. The effective
portion of changes in fair value of the de-designated forward
starting swaps of U.S. $36 million
(CDN $47 million) was recorded in
"Accumulated other comprehensive loss" and is amortized to "Net
interest expense" over the first 10 years as the underlying
interest expense payments, which are hedged, of the U.S.
$900 million notes are made. A
negligible loss related to these previously de-designated
derivatives has been amortized to "Net interest expense" for the
three and nine months ended September 30,
2015, respectively. The Company expects that during the next
12 months $5 million of losses will
be amortized to "Net interest expense". There was no
ineffectiveness to record upon de-designation.
During the third quarter of 2015, the Company re-designated the
forward starting swaps totalling U.S. $700
million to fix the benchmark rate on cash flows associated
with a highly probable forecasted issuance of long-term notes. The
effective portion of changes in fair value from the re-designation
date on the forward starting swaps is recorded in "Accumulated
other comprehensive loss", net of tax, as cash flow hedges until
the probable forecasted notes are issued. Subsequent to the notes
being issued, amounts in "Accumulated other comprehensive loss"
will be amortized to "Net interest expense". As at September 30, 2015, the total fair value loss of
$68 million derived from the
remaining forward starting swaps was included in "Accounts payable
and accrued liabilities" of which $21
million relates to the re-designated existing forward
starting swaps. The effective portion of $20 million on the re-designated existing forward
starting swaps is reflected in "Other comprehensive income" and the
ineffective portion of $1 million is
recorded to "Net interest expense" on the Interim Consolidated
Statements of Comprehensive Income and the Interim Consolidated
Statements of Income, respectively.
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 September
30, 2015, floating-to-fixed interest rate swap agreements
totalling U.S. $350 million were
outstanding and expire in the fourth quarter of 2015. As no
commercial paper is outstanding at September
30, 2015, or is forecasted to be issued for the balance of
the year, these interest rate swaps previously designated as a cash
flow hedge were de-designated and a negligible loss was
reclassified from "Accumulated other comprehensive loss" to "Net
interest expense". All other balances related to these swap
agreements were negligible at September 30,
2015.
12 Stock-based compensation
At September 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 an expense of
$21 million and $45 million for the three and nine months ended
September 30, 2015, respectively
(three and nine months ended September 30,
2014 an expense of $42 million
and $102 million, respectively).
Regular options
In the nine months ended September 30,
2015, under CP's stock option plans, the Company issued
317,202 regular options at the weighted-average price of
$218.89 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 nine
months |
|
|
|
ended September 30, 2015 |
|
|
|
|
|
|
|
Grant price |
|
$ |
218.89 |
|
|
Expected option life (years)(1) |
|
|
5.25 |
|
|
Risk-free interest rate(2) |
|
|
1.10 |
% |
|
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 |
|
$ |
49.73 |
|
|
|
|
|
|
|
(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 nine months ended September 30,
2015,the Company issued 137,874 PSUs with a grant
date fair value of approximately $31
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 lattice-based
valuation model.
Deferred share unit ("DSU") plan
In the nine months ended September 30,
2015, the Company granted 19,251 DSUs with a grant date fair
value of approximately $4
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 nine months ended September 30, 2015, the Company made
contributions of $20 million and
$61 million, respectively (three and
nine months ended September 30, 2014
- $25 million and $64 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 nine months ended
September 30, 2015 included the
following components:
|
|
|
|
For the three months |
|
|
|
|
ended September 30 |
|
|
|
|
Pensions |
|
Other benefits |
|
(in millions of Canadian
dollars) |
|
|
2015 |
|
2014 |
|
2015 |
|
2014 |
|
Current service cost (benefits
earned by |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
employees in the
period) |
|
|
$ |
31 |
|
$ |
27 |
|
$ |
|
3 |
|
$ |
|
4 |
|
Interest cost on benefit
obligation |
|
|
|
116 |
|
|
120 |
|
|
|
6 |
|
|
|
5 |
|
Expected return on fund
assets |
|
|
|
(201) |
|
|
(190) |
|
|
|
- |
|
|
|
- |
|
Recognized net actuarial loss |
|
|
|
66 |
|
|
47 |
|
|
|
- |
|
|
|
1 |
|
Amortization of prior service
costs |
|
|
|
(2) |
|
|
(17) |
|
|
|
- |
|
|
|
- |
|
Net periodic benefit (recovery)
cost |
|
|
$ |
10 |
|
$ |
(13) |
|
$ |
|
9 |
|
$ |
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months |
|
|
|
|
ended September 30 |
|
|
|
|
Pensions |
|
Other benefits |
|
(in millions of Canadian
dollars) |
|
|
2015 |
|
2014 |
|
2015 |
|
2014 |
|
Current service cost (benefits
earned by |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
employees in the
period) |
|
|
$ |
95 |
|
$ |
80 |
|
$ |
|
9 |
|
$ |
|
11 |
|
Interest cost on benefit
obligation |
|
|
|
347 |
|
|
358 |
|
|
|
16 |
|
|
|
17 |
|
Expected return on fund
assets |
|
|
|
(614) |
|
|
(568) |
|
|
|
- |
|
|
|
- |
|
Recognized net actuarial loss |
|
|
|
198 |
|
|
142 |
|
|
|
2 |
|
|
|
2 |
|
Amortization of prior service
costs |
|
|
|
(5) |
|
|
(51) |
|
|
|
- |
|
|
|
- |
|
Net periodic benefit (recovery)
cost |
|
|
$ |
21 |
|
$ |
(39) |
|
$ |
|
27 |
|
$ |
|
30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
September 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 ("MMA")
and/or its subsidiary, Montreal Maine and Atlantic Railway of
Canada ("MMAC", and collectively
with MMA, the "MMA Group") derailed and exploded in Lac-Mégantic,
Quebec on a section of railway
line owned by the MMA Group. The previous day CP had
interchanged the train to the MMA Group, and after that interchange
MMA Group 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 (the
"Amended Cleanup Order"). CP is a party to an administrative
appeal with respect to the Amended Cleanup Order. No hearing
date on the merits of CP's appeal has been scheduled.
Directly related to this matter, the Province of Québec filed a
lawsuit against CP before the Québec Superior Court on July 6, 2015 in which it claims $409 million for the damages sustained by the
province as a result of the expenses incurred following the
derailment, including costs incurred for the work carried out
pursuant to the Amended Cleanup Order. The province alleges
that CP had custody or control of the contaminants that were
discharged in Lac-Mégantic on July 6,
2013, and that CP was otherwise negligent and therefore is
solidarily (joint and severally) liable with the other third
parties responsible for the accident. No timetable governing
the conduct of this lawsuit has been ordered by the court.
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
"Class Action"). 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 as against the shipper, Western Petroleum,
and the shipper's parent, World Fuel Services (collectively, the
"World Fuel Defendants"). The World Fuel Defendants have since
settled, although the settlement is not yet final. No timetable
governing the conduct of this lawsuit has been ordered by the
court.
In the wake of the derailment and ensuing litigation, MMAC filed
for bankruptcy in Canada (the
"Canadian Proceeding") and MMA filed for bankruptcy in the United States (the "U.S.
Proceeding"). An Adversary Proceeding filed by the MMA U.S.
bankruptcy trustee against CP, Irving Oil and the World Fuel
Defendants accuses CP of failing to ensure that World Fuel
Defendants or Irving Oil properly classified the oil lading and of
not refusing to ship the oil in DOT-111 tank cars. Private
party litigation in Texas and
Illinois charge CP of the same
wrongdoing. Those cases include class actions and mass
actions in Texas and wrongful
death actions in Illinois.
CP removed all cases to U.S. federal court, and motions have been
filed with respect to jurisdiction and venue.
In response to CP's motion to withdraw the adversary proceedings
from the U.S. Proceeding, 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. CP moved to dismiss for want of personal
jurisdiction, but that motion, which was heard on August 18, 2015, has been denied.
Plans of arrangement have been conditionally approved both in
the Canadian Proceeding and the U.S. Proceeding. These Plans
provide for the distribution of a fund of approximately
$440 million amongst those who
claimed loss or damage as a result of the derailment and will
release those parties which contributed to the fund from any
further liability. The Plans also provide for broadly worded
third-party releases and injunctions that prevent actions against
settling parties. CP has not participated in the settlement
and hence will not benefit from any third party releases or
injunctions. In addition, both Plans contain judgment
reduction provisions. Pursuant to these provisions, in the event of
a judgment against CP in a case arising from the Lac-Mégantic
derailment, CP should receive a credit for the greater of (i) the
settlement monies received by the plaintiff(s) for the claim, or
(ii) the amount which, but for the third party non-debtor
injunctions, CP would have been entitled to obtain from third
parties other than MMA and MMAC through contribution or
indemnification. CP may also have rights to judgment
reduction, as part of the contribution/indemnification credit, for
the fault of MMA and/or MMAC. The provisions of the Plans
also provide for a potential re-allocation of some aspects of the
MMA Group's liability among plaintiffs and non-settling
parties.
Besides litigation that has now been commenced by wrongful
death, personal injury, and property damage plaintiffs against CP
in Maine, Texas, and Illinois, CP has received two damage to cargo
notices of claims from the shipper of the oil on the derailed
train, Western Petroleum. Western Petroleum 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 Petroleum is part of the World Fuel Services group, and
those entities recently settled with the trustee. In
connection with that settlement, Western Petroleum assigned to the
bankruptcy trustee the right to delegate those cargo-related
claims. To date the trustee has not so delegated, but he has
indicated that the cargo claims will be given to the Trust to be
formed to handle distributions of funds to wrongful death
plaintiffs. Before the settlement, both the World Fuel
Services group and the trustee maintained that Carmack liability
extends beyond lading losses to cover all damages incurred by the
World Fuel Services group or Irving Oil associated with the
derailment. CP disputes this interpretation of the law.
At this early stage of the legal proceedings, any potential
liability and the quantum of potential loss cannot be
determined. Nevertheless, CP denies liability for the MMA
derailment and intends to vigorously defend itself in the
proceedings described above and in any proceeding that may be
commenced in the future.
Legal proceedings initiated by Canadian National Railway
Company
On August 13, 2015, Canadian
National Railway Company ("CN") issued a statement of claim against
the company and an employee. The principal allegations are that the
Company obtained and benefited from certain confidential CN
customer data. CN is seeking damages but has not yet provided
evidence to substantiate its damages claim. The Company plans
to defend this claim and the amount of loss, if any, to the Company
as a result of the claim cannot be reasonably estimated.
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 nine months ended September 30,
2015 was $1 million and
$7 million, respectively (three and
nine months ended September 30, 2014
- $1 and $2
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 September 30, 2015 was
$98 million (December 31, 2014 - $91
million). Payments are expected to be made over 10
years to 2025.
Summary of Rail
Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third
Quarter |
|
|
|
|
Year-to-date |
|
2015 |
|
|
2014 |
|
|
Change |
|
% |
|
Financial (millions, except per share
data) |
|
|
2015 |
|
|
2014 |
|
|
Change |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
$ |
1,667 |
|
$ |
1,629 |
|
$ |
38 |
|
2 |
|
|
Freight revenues |
|
$ |
4,907 |
|
$ |
4,745 |
|
$ |
162 |
|
3 |
|
42 |
|
|
41 |
|
|
1 |
|
2 |
|
|
Non-freight revenues |
|
|
118 |
|
|
115 |
|
|
3 |
|
3 |
|
1,709 |
|
|
1,670 |
|
|
39 |
|
2 |
|
Total revenues |
|
|
5,025 |
|
|
4,860 |
|
|
165 |
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
352 |
|
|
347 |
|
|
5 |
|
1 |
|
|
Compensation and benefits |
|
|
1,038 |
|
|
1,034 |
|
|
4 |
|
- |
|
162 |
|
|
249 |
|
|
(87) |
|
(35) |
|
|
Fuel |
|
|
542 |
|
|
793 |
|
|
(251) |
|
(32) |
|
47 |
|
|
47 |
|
|
- |
|
- |
|
|
Materials |
|
|
144 |
|
|
146 |
|
|
(2) |
|
(1) |
|
42 |
|
|
36 |
|
|
6 |
|
17 |
|
|
Equipment rents |
|
|
130 |
|
|
117 |
|
|
13 |
|
11 |
|
149 |
|
|
135 |
|
|
14 |
|
10 |
|
|
Depreciation and amortization |
|
|
440 |
|
|
413 |
|
|
27 |
|
7 |
|
272 |
|
|
235 |
|
|
37 |
|
16 |
|
|
Purchased services and other |
|
|
788 |
|
|
726 |
|
|
62 |
|
9 |
|
(68) |
|
|
- |
|
|
(68) |
|
100 |
|
|
Gain on sale of Delaware & Hudson South |
|
|
(68) |
|
|
- |
|
|
(68) |
|
100 |
|
956 |
|
|
1,049 |
|
|
(93) |
|
(9) |
|
Total operating expenses |
|
|
3,014 |
|
|
3,229 |
|
|
(215) |
|
(7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
753 |
|
|
621 |
|
|
132 |
|
21 |
|
Operating income |
|
|
2,011 |
|
|
1,631 |
|
|
380 |
|
23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
168 |
|
|
1 |
|
|
167 |
|
- |
|
|
Other income and charges |
|
|
236 |
|
|
4 |
|
|
232 |
|
- |
|
103 |
|
|
70 |
|
|
33 |
|
47 |
|
|
Net interest expense |
|
|
272 |
|
|
209 |
|
|
63 |
|
30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
482 |
|
|
550 |
|
|
(68) |
|
(12) |
|
Income before income tax expense |
|
|
1,503 |
|
|
1,418 |
|
|
85 |
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
159 |
|
|
150 |
|
|
9 |
|
6 |
|
|
Income tax expense |
|
|
470 |
|
|
393 |
|
|
77 |
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
323 |
|
$ |
400 |
|
$ |
(77) |
|
(19) |
|
Net income |
|
$ |
1,033 |
|
$ |
1,025 |
|
$ |
8 |
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55.9 |
|
|
62.8 |
|
|
(6.9) |
(690) |
bps |
|
Operating ratio (%) |
|
|
60.0 |
|
|
66.4 |
|
|
(6.4) |
(640) |
bps |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2.05 |
|
$ |
2.33 |
|
$ |
(0.28) |
|
(12) |
|
|
Basic earnings per share |
|
$ |
6.37 |
|
$ |
5.90 |
|
$ |
0.47 |
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2.04 |
|
$ |
2.31 |
|
$ |
(0.27) |
|
(12) |
|
|
Diluted earnings per share |
|
$ |
6.32 |
|
$ |
5.84 |
|
$ |
0.48 |
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares |
|
|
|
|
|
|
|
|
|
|
|
|
157.6 |
|
|
171.9 |
|
|
(14.3) |
|
(8) |
|
|
outstanding (millions) |
|
|
162.0 |
|
|
173.9 |
|
|
(11.9) |
|
(7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of diluted shares |
|
|
|
|
|
|
|
|
|
|
|
|
158.7 |
|
|
173.5 |
|
|
(14.8) |
|
(9) |
|
|
outstanding (millions) |
|
|
163.3 |
|
|
175.5 |
|
|
(12.2) |
|
(7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Exchange |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average foreign exchange rate |
|
|
|
|
|
|
|
|
|
|
|
|
0.76 |
|
|
0.93 |
|
|
(0.17) |
|
(18) |
|
|
(US$/Canadian$) |
|
|
0.79 |
|
|
0.92 |
|
|
(0.13) |
|
(14) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average foreign exchange rate |
|
|
|
|
|
|
|
|
|
|
|
|
1.31 |
|
|
1.08 |
|
|
0.23 |
|
21 |
|
|
(Canadian$/US$) |
|
|
1.26 |
|
|
1.09 |
|
|
0.17 |
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summary of Rail
Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third
Quarter |
|
|
|
|
|
Year-to-date |
|
2015 |
|
|
2014 |
|
|
Change |
|
% |
|
|
|
|
|
|
2015 |
|
|
2014 |
|
|
Change |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freight Revenues (millions) |
|
|
|
|
|
|
|
|
|
|
|
$ |
261 |
|
$ |
248 |
|
$ |
13 |
|
5 |
|
|
|
- Canadian Grain |
|
$ |
772 |
|
$ |
721 |
|
$ |
51 |
|
7 |
|
148 |
|
|
127 |
|
|
21 |
|
17 |
|
|
|
- U.S. Grain |
|
|
391 |
|
|
348 |
|
|
43 |
|
12 |
|
163 |
|
|
150 |
|
|
13 |
|
9 |
|
|
|
- Coal |
|
|
490 |
|
|
463 |
|
|
27 |
|
6 |
|
82 |
|
|
70 |
|
|
12 |
|
17 |
|
|
|
- Potash |
|
|
281 |
|
|
251 |
|
|
30 |
|
12 |
|
62 |
|
|
55 |
|
|
7 |
|
13 |
|
|
|
- Fertilizers and sulphur |
|
|
200 |
|
|
173 |
|
|
27 |
|
16 |
|
66 |
|
|
52 |
|
|
14 |
|
27 |
|
|
|
- Forest products |
|
|
184 |
|
|
152 |
|
|
32 |
|
21 |
|
173 |
|
|
160 |
|
|
13 |
|
8 |
|
|
|
- Chemicals and plastics |
|
|
522 |
|
|
462 |
|
|
60 |
|
13 |
|
109 |
|
|
136 |
|
|
(27) |
|
(20) |
|
|
|
- Crude |
|
|
288 |
|
|
354 |
|
|
(66) |
|
(19) |
|
173 |
|
|
190 |
|
|
(17) |
|
(9) |
|
|
|
- Metals, minerals, and consumer products |
|
|
492 |
|
|
521 |
|
|
(29) |
|
(6) |
|
87 |
|
|
83 |
|
|
4 |
|
5 |
|
|
|
- Automotive |
|
|
260 |
|
|
275 |
|
|
(15) |
|
(5) |
|
189 |
|
|
202 |
|
|
(13) |
|
(6) |
|
|
|
- Domestic intermodal |
|
|
575 |
|
|
579 |
|
|
(4) |
|
(1) |
|
154 |
|
|
156 |
|
|
(2) |
|
(1) |
|
|
|
- International intermodal |
|
|
452 |
|
|
446 |
|
|
6 |
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,667 |
|
$ |
1,629 |
|
$ |
38 |
|
2 |
|
|
Total Freight Revenues |
|
$ |
4,907 |
|
$ |
4,745 |
|
$ |
162 |
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Revenue Ton-Miles (RTM) |
|
|
|
|
|
|
|
|
|
|
|
|
6,639 |
|
|
6,790 |
|
|
(151) |
|
(2) |
|
|
|
- Canadian Grain |
|
|
19,666 |
|
|
19,710 |
|
|
(44) |
|
- |
|
2,727 |
|
|
3,011 |
|
|
(284) |
|
(9) |
|
|
|
- U.S. Grain |
|
|
7,855 |
|
|
8,229 |
|
|
(374) |
|
(5) |
|
5,316 |
|
|
5,422 |
|
|
(106) |
|
(2) |
|
|
|
- Coal |
|
|
16,914 |
|
|
16,804 |
|
|
110 |
|
1 |
|
3,569 |
|
|
2,812 |
|
|
757 |
|
27 |
|
|
|
- Potash |
|
|
11,758 |
|
|
10,219 |
|
|
1,539 |
|
15 |
|
973 |
|
|
915 |
|
|
58 |
|
6 |
|
|
|
- Fertilizers and sulphur |
|
|
3,023 |
|
|
3,119 |
|
|
(96) |
|
(3) |
|
1,083 |
|
|
1,036 |
|
|
47 |
|
5 |
|
|
|
- Forest products |
|
|
3,163 |
|
|
2,959 |
|
|
204 |
|
7 |
|
3,227 |
|
|
3,409 |
|
|
(182) |
|
(5) |
|
|
|
- Chemicals and plastics |
|
|
10,220 |
|
|
9,941 |
|
|
279 |
|
3 |
|
3,703 |
|
|
4,625 |
|
|
(922) |
|
(20) |
|
|
|
- Crude |
|
|
9,531 |
|
|
11,799 |
|
|
(2,268) |
|
(19) |
|
2,451 |
|
|
2,993 |
|
|
(542) |
|
(18) |
|
|
|
- Metals, minerals, and consumer products |
|
|
6,906 |
|
|
8,404 |
|
|
(1,498) |
|
(18) |
|
424 |
|
|
420 |
|
|
4 |
|
1 |
|
|
|
- Automotive |
|
|
1,339 |
|
|
1,531 |
|
|
(192) |
|
(13) |
|
3,027 |
|
|
3,076 |
|
|
(49) |
|
(2) |
|
|
|
- Domestic intermodal |
|
|
9,114 |
|
|
8,713 |
|
|
401 |
|
5 |
|
2,999 |
|
|
3,040 |
|
|
(41) |
|
(1) |
|
|
|
- International intermodal |
|
|
8,993 |
|
|
8,925 |
|
|
68 |
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,138 |
|
|
37,549 |
|
|
(1,411) |
|
(4) |
|
|
Total RTMs |
|
|
108,482 |
|
|
110,353 |
|
|
(1,871) |
|
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freight Revenue per RTM (cents) |
|
|
|
|
|
|
|
|
|
|
|
|
3.93 |
|
|
3.65 |
|
|
0.28 |
|
8 |
|
|
|
- Canadian Grain |
|
|
3.93 |
|
|
3.66 |
|
|
0.27 |
|
7 |
|
5.43 |
|
|
4.22 |
|
|
1.21 |
|
29 |
|
|
|
- U.S. Grain |
|
|
4.98 |
|
|
4.23 |
|
|
0.75 |
|
18 |
|
3.07 |
|
|
2.76 |
|
|
0.31 |
|
11 |
|
|
|
- Coal |
|
|
2.89 |
|
|
2.76 |
|
|
0.13 |
|
5 |
|
2.29 |
|
|
2.51 |
|
|
(0.22) |
|
(9) |
|
|
|
- Potash |
|
|
2.39 |
|
|
2.46 |
|
|
(0.07) |
|
(3) |
|
6.38 |
|
|
6.06 |
|
|
0.32 |
|
5 |
|
|
|
- Fertilizers and sulphur |
|
|
6.62 |
|
|
5.56 |
|
|
1.06 |
|
19 |
|
6.07 |
|
|
5.01 |
|
|
1.06 |
|
21 |
|
|
|
- Forest products |
|
|
5.82 |
|
|
5.13 |
|
|
0.69 |
|
13 |
|
5.37 |
|
|
4.68 |
|
|
0.69 |
|
15 |
|
|
|
- Chemicals and plastics |
|
|
5.11 |
|
|
4.65 |
|
|
0.46 |
|
10 |
|
2.92 |
|
|
2.93 |
|
|
(0.01) |
|
- |
|
|
|
- Crude |
|
|
3.02 |
|
|
3.00 |
|
|
0.02 |
|
1 |
|
7.08 |
|
|
6.36 |
|
|
0.72 |
|
11 |
|
|
|
- Metals, minerals, and consumer products |
|
|
7.13 |
|
|
6.20 |
|
|
0.93 |
|
15 |
|
20.64 |
|
|
19.74 |
|
|
0.90 |
|
5 |
|
|
|
- Automotive |
|
|
19.44 |
|
|
17.99 |
|
|
1.45 |
|
8 |
|
6.24 |
|
|
6.57 |
|
|
(0.33) |
|
(5) |
|
|
|
- Domestic intermodal |
|
|
6.31 |
|
|
6.65 |
|
|
(0.34) |
|
(5) |
|
5.14 |
|
|
5.11 |
|
|
0.03 |
|
1 |
|
|
|
- International intermodal |
|
|
5.02 |
|
|
4.99 |
|
|
0.03 |
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.61 |
|
|
4.34 |
|
|
0.27 |
|
6 |
|
|
Total Freight Revenue per RTM |
|
|
4.52 |
|
|
4.30 |
|
|
0.22 |
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summary of Rail
Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third
Quarter |
|
|
|
|
|
Year-to-date |
|
2015 |
|
|
2014 |
|
|
Change |
|
% |
|
|
|
|
|
2015 |
|
|
2014 |
|
|
Change |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carloads (thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
72 |
|
|
76 |
|
|
(4) |
|
(5) |
|
|
- Canadian Grain |
|
|
205 |
|
|
216 |
|
|
(11) |
|
(5) |
|
44 |
|
|
44 |
|
|
- |
|
- |
|
|
- U.S. Grain |
|
|
117 |
|
|
127 |
|
|
(10) |
|
(8) |
|
79 |
|
|
73 |
|
|
6 |
|
8 |
|
|
- Coal |
|
|
245 |
|
|
233 |
|
|
12 |
|
5 |
|
29 |
|
|
24 |
|
|
5 |
|
21 |
|
|
- Potash |
|
|
97 |
|
|
85 |
|
|
12 |
|
14 |
|
14 |
|
|
15 |
|
|
(1) |
|
(7) |
|
|
- Fertilizers and sulphur |
|
|
46 |
|
|
46 |
|
|
- |
|
- |
|
16 |
|
|
15 |
|
|
1 |
|
7 |
|
|
- Forest products |
|
|
46 |
|
|
44 |
|
|
2 |
|
5 |
|
50 |
|
|
52 |
|
|
(2) |
|
(4) |
|
|
- Chemicals and plastics |
|
|
152 |
|
|
146 |
|
|
6 |
|
4 |
|
25 |
|
|
31 |
|
|
(6) |
|
(19) |
|
|
- Crude |
|
|
66 |
|
|
80 |
|
|
(14) |
|
(18) |
|
58 |
|
|
71 |
|
|
(13) |
|
(18) |
|
|
- Metals, minerals, and consumer products |
|
|
167 |
|
|
187 |
|
|
(20) |
|
(11) |
|
32 |
|
|
33 |
|
|
(1) |
|
(3) |
|
|
- Automotive |
|
|
98 |
|
|
100 |
|
|
(2) |
|
(2) |
|
105 |
|
|
111 |
|
|
(6) |
|
(5) |
|
|
- Domestic intermodal |
|
|
314 |
|
|
318 |
|
|
(4) |
|
(1) |
|
145 |
|
|
142 |
|
|
3 |
|
2 |
|
|
- International intermodal |
|
|
426 |
|
|
412 |
|
|
14 |
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
669 |
|
|
687 |
|
|
(18) |
|
(3) |
|
Total Carloads |
|
|
1,979 |
|
|
1,994 |
|
|
(15) |
|
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freight Revenue per Carload |
|
|
|
|
|
|
|
|
|
|
|
$ |
3,613 |
|
$ |
3,264 |
|
$ |
349 |
|
11 |
|
|
- Canadian Grain |
|
$ |
3,767 |
|
$ |
3,336 |
|
$ |
431 |
|
13 |
|
3,413 |
|
|
2,878 |
|
|
535 |
|
19 |
|
|
- U.S. Grain |
|
|
3,347 |
|
|
2,746 |
|
|
601 |
|
22 |
|
2,057 |
|
|
2,040 |
|
|
17 |
|
1 |
|
|
- Coal |
|
|
1,997 |
|
|
1,987 |
|
|
10 |
|
1 |
|
2,816 |
|
|
2,917 |
|
|
(101) |
|
(3) |
|
|
- Potash |
|
|
2,898 |
|
|
2,951 |
|
|
(53) |
|
(2) |
|
4,265 |
|
|
3,835 |
|
|
430 |
|
11 |
|
|
- Fertilizers and sulphur |
|
|
4,344 |
|
|
3,790 |
|
|
554 |
|
15 |
|
4,113 |
|
|
3,426 |
|
|
687 |
|
20 |
|
|
- Forest products |
|
|
3,960 |
|
|
3,443 |
|
|
517 |
|
15 |
|
3,479 |
|
|
3,097 |
|
|
382 |
|
12 |
|
|
- Chemicals and plastics |
|
|
3,444 |
|
|
3,176 |
|
|
268 |
|
8 |
|
4,281 |
|
|
4,436 |
|
|
(155) |
|
(3) |
|
|
- Crude |
|
|
4,357 |
|
|
4,446 |
|
|
(89) |
|
(2) |
|
3,026 |
|
|
2,697 |
|
|
329 |
|
12 |
|
|
- Metals, minerals, and consumer products |
|
|
2,951 |
|
|
2,785 |
|
|
166 |
|
6 |
|
2,719 |
|
|
2,519 |
|
|
200 |
|
8 |
|
|
- Automotive |
|
|
2,646 |
|
|
2,741 |
|
|
(95) |
|
(3) |
|
1,795 |
|
|
1,819 |
|
|
(24) |
|
(1) |
|
|
- Domestic intermodal |
|
|
1,833 |
|
|
1,823 |
|
|
10 |
|
1 |
|
1,067 |
|
|
1,090 |
|
|
(23) |
|
(2) |
|
|
- International intermodal |
|
|
1,061 |
|
|
1,079 |
|
|
(18) |
|
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,493 |
|
$ |
2,372 |
|
$ |
121 |
|
5 |
|
Total Freight Revenue per Carload |
|
$ |
2,480 |
|
$ |
2,380 |
|
$ |
100 |
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summary of Rail Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third
Quarter |
|
|
|
Year-to-date |
|
2015 |
|
|
2014(1) |
|
|
Change |
|
% |
|
|
|
|
2015 |
|
|
2014(1) |
|
|
Change |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations Performance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65,027 |
|
|
68,800 |
|
|
(3,773) |
|
(5) |
|
Freight gross ton-miles (millions) |
|
|
196,647 |
|
|
201,653 |
|
|
(5,006) |
|
(2) |
|
36,138 |
|
|
37,549 |
|
|
(1,411) |
|
(4) |
|
Revenue ton-miles (millions) |
|
|
108,482 |
|
|
110,353 |
|
|
(1,871) |
|
(2) |
|
8,365 |
|
|
8,977 |
|
|
(612) |
|
(7) |
|
Train miles (thousands) |
|
|
25,499 |
|
|
27,044 |
|
|
(1,545) |
|
(6) |
|
8,328 |
|
|
8,234 |
|
|
94 |
|
1 |
|
Average train weight - excluding local traffic
(tons) |
|
|
8,260 |
|
|
8,007 |
|
|
253 |
|
3 |
|
6,946 |
|
|
6,828 |
|
|
118 |
|
2 |
|
Average train length - excluding local traffic
(feet) |
|
|
6,904 |
|
|
6,636 |
|
|
268 |
|
4 |
|
6.6 |
|
|
8.1 |
|
|
(1.5) |
|
(19) |
|
Average terminal dwell - (hours) |
|
|
7.3 |
|
|
8.9 |
|
|
(1.6) |
|
(18) |
|
22.2 |
|
|
18.6 |
|
|
3.6 |
|
19 |
|
Average network train speed - (mph) |
|
|
21.0 |
|
|
17.6 |
|
|
3.4 |
|
19 |
|
0.952 |
|
|
1.000 |
|
|
(0.05) |
|
(5) |
|
Fuel efficiency(2) |
|
|
0.999 |
|
|
1.039 |
|
|
(0.04) |
|
(4) |
|
61.7 |
|
|
68.0 |
|
|
(6.3) |
|
(9) |
|
U.S. gallons of locomotive fuel consumed
(millions)(3) |
|
|
195.1 |
|
|
206.6 |
|
|
(11.5) |
|
(6) |
|
2.00 |
|
|
3.39 |
|
|
(1.39) |
|
(41) |
|
Average fuel price (U.S. dollars per U.S.
gallon) |
|
|
2.21 |
|
|
3.52 |
|
|
(1.31) |
|
(37) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,822 |
|
|
14,699 |
|
|
(877) |
|
(6) |
|
Total employees (average)(4) |
|
|
14,020 |
|
|
14,577 |
|
|
(557) |
|
(4) |
|
13,700 |
|
|
14,659 |
|
|
(959) |
|
(7) |
|
Total employees (end of period)(4) |
|
|
13,700 |
|
|
14,659 |
|
|
(959) |
|
(7) |
|
13,601 |
|
|
14,944 |
|
|
(1,343) |
|
(9) |
|
Workforce (end of period)(5) |
|
|
13,601 |
|
|
14,944 |
|
|
(1,343) |
|
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Safety |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.75 |
|
|
1.57 |
|
|
0.18 |
|
11 |
|
FRA personal injuries per 200,000
employee-hours |
|
|
1.72 |
|
|
1.64 |
|
|
0.08 |
|
5 |
|
0.97 |
|
|
1.62 |
|
|
(0.65) |
|
(40) |
|
FRA train accidents per million train-miles |
|
|
1.24 |
|
|
1.29 |
|
|
(0.05) |
|
(4) |
(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, 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.
Operating expenses, excluding significant items, provide
relevant and useful information for evaluating the effectiveness of
the Company's operations and underlying business trends.
Operating income, excluding significant items, also referred to
as Adjusted operating income, provides a measure of the
profitability of the railway on an ongoing basis.
Operating ratio, excluding significant items, also referred to
as Adjusted operating ratio, calculated as operating expenses,
excluding significant items divided by revenues, provides the
percentage of revenues used to operate the railway on an ongoing
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 third quarter 2015 earnings
include:
- a $128 million loss ($111 million after tax) due to foreign exchange
("FX") translation of the Company's U.S. dollar-denominated debt
which unfavourably impacted Diluted EPS by 69 cents;
- a $68 million gain ($42 million after tax) related to the sale of
Delaware and Hudson Railway south
of Schenectady ("D&H South")
which favourably impacted Diluted EPS by 26
cents; and
- a $47 million charge
($35 million after tax) related to
the early redemption premium on notes which unfavourably impacted
Diluted EPS by 22 cents.
There were no significant items in the third quarter of
2014.
Items that impacted reported the nine months ended September 30, 2015 and 2014 earnings, in addition
to those discussed above, include:
2015:
- in the second quarter, a $10
million gain ($9 million
after-tax) due to FX translation on U.S. dollar-denominated debt
which favourably impacted Diluted EPS by 5
cents;
- in the second quarter, 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;
- in the first quarter, a $64
million loss ($55 million
after-tax) due to FX translation on U.S. dollar-denominated debt
which unfavourably impacted Diluted EPS by 34 cents; and
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 Income, excluding significant items,
Adjusted EPS, Adjusted operating income and Adjusted Operating
ratio to Net income, Diluted earnings per share, operating income
and operating ratio, respectively.
|
For the three
months |
|
For the nine months |
Income |
ended September
30 |
|
ended September 30 |
(in millions of Canadian dollars) |
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
Income, excluding significant
items |
$ |
427 |
|
$ |
400 |
|
$ |
1,206 |
|
$ |
1,022 |
Add significant items, net of
tax: |
|
|
|
|
|
|
|
|
|
|
|
|
Labour restructuring |
|
- |
|
|
- |
|
|
- |
|
|
3 |
|
Early redemption premium on
notes |
|
(35) |
|
|
- |
|
|
(35) |
|
|
- |
|
Gain on sale of D&H South |
|
42 |
|
|
- |
|
|
42 |
|
|
- |
|
Impact of FX translation on U.S.
dollar denominated debt |
|
(111) |
|
|
- |
|
|
(157) |
|
|
- |
|
Income tax rate change |
|
- |
|
|
- |
|
|
(23) |
|
|
- |
Net income as reported |
$ |
323 |
|
$ |
400 |
|
$ |
1,033 |
|
$ |
1,025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three
months |
|
For the nine
months |
Diluted earnings per share |
ended September
30 |
|
ended September
30 |
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
Diluted earnings per share,
excluding significant items |
$ |
2.69 |
|
$ |
2.31 |
|
$ |
7.39 |
|
$ |
5.82 |
Add significant items: |
|
|
|
|
|
|
|
|
|
|
|
|
Labour restructuring |
|
- |
|
|
- |
|
|
- |
|
|
0.02 |
|
Early redemption premium on
notes |
|
(0.22) |
|
|
- |
|
|
(0.22) |
|
|
- |
|
Gain on sale of D&H South |
|
0.26 |
|
|
- |
|
|
0.26 |
|
|
- |
|
Impact of FX translation on U.S.
dollar denominated debt |
|
(0.69) |
|
|
- |
|
|
(0.97) |
|
|
- |
|
Income tax rate change |
|
- |
|
|
- |
|
|
(0.14) |
|
|
- |
Diluted earnings per share as
reported |
$ |
2.04 |
|
$ |
2.31 |
|
$ |
6.32 |
|
$ |
5.84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three
months |
|
For the nine
months |
Operating income |
ended September
30 |
|
ended September 30 |
(in millions of Canadian dollars) |
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
Operating income, excluding
significant items |
$ |
685 |
|
$ |
621 |
|
$ |
1,943 |
|
$ |
1,627 |
Add significant items: |
|
|
|
|
|
|
|
|
|
|
|
|
Labour restructuring |
|
- |
|
|
- |
|
|
- |
|
|
4 |
|
Gain on sale of D&H South |
|
68 |
|
|
- |
|
|
68 |
|
|
- |
Operating income as
reported |
$ |
753 |
|
$ |
621 |
|
$ |
2,011 |
|
$ |
1,631 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months |
|
|
For the nine months |
Operating ratio |
|
ended September 30 |
|
|
ended September 30 |
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
Operating ratio, excluding
significant items |
|
59.9% |
|
|
62.8% |
|
|
61.3% |
|
|
66.6% |
Add significant items: |
|
|
|
|
|
|
|
|
|
|
|
|
Labour restructuring |
|
- |
|
|
- |
|
|
- |
|
|
(0.2)% |
|
Gain on sale of D&H South |
|
(4.0)% |
|
|
- |
|
|
(1.3)% |
|
|
- |
Operating ratio as
reported |
|
55.9% |
|
|
62.8% |
|
|
60.0% |
|
|
66.4% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 FX
fluctuations.
Reconciliation of Free Cash to GAAP cash
position(1) |
|
For the three
months |
|
For the nine
months |
|
|
ended September
30 |
|
ended September
30 |
(in millions of Canadian dollars) |
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
Cash provided by operating activities |
|
$ |
696 |
|
$ |
534 |
|
$ |
1,836 |
|
$ |
1,466 |
Cash used in investing activities |
|
|
(163) |
|
|
(85) |
|
|
(708) |
|
|
(347) |
Change in restricted cash and cash equivalents
used to |
|
|
|
|
|
|
|
|
|
|
|
|
collateralize letters of credit |
|
|
- |
|
|
(318) |
|
|
- |
|
|
(327) |
Dividends paid |
|
|
(57) |
|
|
(61) |
|
|
(172) |
|
|
(184) |
Effect of FX fluctuations on U.S.
dollar-denominated |
|
|
|
|
|
|
|
|
|
|
|
|
cash and cash equivalents |
|
|
18 |
|
|
6 |
|
|
23 |
|
|
2 |
Free cash(1) |
|
|
494 |
|
|
76 |
|
|
979 |
|
|
610 |
Cash used in financing activities, excluding
dividend payment |
|
|
(18) |
|
|
(448) |
|
|
(544) |
|
|
(1,098) |
Change in restricted cash and cash equivalents
used to |
|
|
|
|
|
|
|
|
|
|
|
|
collateralize letters of credit |
|
|
- |
|
|
318 |
|
|
- |
|
|
327 |
Increase (Decrease) in cash and cash
equivalents, as |
|
|
|
|
|
|
|
|
|
|
|
|
shown on the Interim Consolidated Statements of
Cash Flows |
|
|
476 |
|
|
(54) |
|
|
435 |
|
|
(161) |
Cash and cash equivalents at beginning of
period |
|
|
185 |
|
|
369 |
|
|
226 |
|
|
476 |
Cash and cash equivalents at end of
period |
|
$ |
661 |
|
$ |
315 |
|
$ |
661 |
|
$ |
315 |
(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
FX 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 FX 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
September 30 |
|
For the nine
months ended September 30 |
(in millions of
Canadian dollars) |
|
|
2015 |
|
2014 |
Variance
due to FX |
|
Adjusted
2014(1) |
|
FX Adj.
%(1) |
|
|
2015 |
|
|
2014 |
Variance
due to FX |
|
Adjusted
2014(1) |
|
FX Adj.
%(1) |
Freight revenues |
|
$ |
1,667 |
$ |
1,629 |
$ |
177 |
|
$ |
1,806 |
|
(8%) |
|
$ |
4,907 |
|
$ |
4,745 |
$ |
383 |
|
$ |
5,128 |
|
(4%) |
Non-freight revenues |
|
|
42 |
|
41 |
|
2 |
|
|
43 |
|
(2%) |
|
|
118 |
|
|
115 |
|
3 |
|
|
118 |
|
-% |
Total revenues |
|
|
1,709 |
|
1,670 |
|
179 |
|
|
1,849 |
|
(8%) |
|
|
5,025 |
|
|
4,860 |
|
386 |
|
|
5,246 |
|
(4%) |
Total operating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
expenses |
|
|
956 |
|
1,049 |
|
95 |
|
|
1,144 |
|
(16%) |
|
|
3,014 |
|
|
3,229 |
|
219 |
|
|
3,448 |
|
(13%) |
Operating income |
|
$ |
753 |
$ |
621 |
$ |
84 |
|
$ |
705 |
|
7% |
|
$ |
2,011 |
|
$ |
1,631 |
$ |
167 |
|
$ |
1,798 |
|
12% |
(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