CALGARY, Oct. 18, 2018
/CNW/ - Canadian Pacific Railway Limited (TSX: CP) (NYSE: CP)
today announced third quarter revenues of $1.9 billion, its highest ever for any quarter,
and reported diluted earnings per share (EPS) of $4.35, or $4.12 on
an adjusted diluted EPS basis, the highest in the Company's
history. The Company also achieved a record-low quarterly operating
ratio of 58.3 percent.(1)
"This quarter really showed what our operating model and our
13,000-strong family of CP railroaders can do," said Keith Creel, CP President and Chief Executive
Officer. "It was a record by almost every measure and sets us up
well for the remainder of the year and beyond. Our continued
success comes from a commitment at every level of the organization
to deliver on the principles of precision scheduled railroading for
our customers, our shareholders and the broader North American
economy."
THIRD-QUARTER HIGHLIGHTS
- Revenues increased by 19 percent to a record $1.9 billion, from $1.6
billion in Q3 2017, as CP saw revenue growth across all
major segments of its book of business
- Reported diluted EPS was $4.35,
up 24 percent from $3.50, and
adjusted diluted EPS was a record $4.12, a 42 percent increase from $2.90
- Operating ratio was a record-low 58.3 percent, a 270 basis
point improvement from 61.0 percent(1)
- Operating income was $790
million, a 27 percent increase from $622 million(1)
"As noted at our recent Investor Day, we have a compelling,
fact-based story rooted in our foundations," Creel said. "We remain
disciplined in our approach and are seeing continued and
sustainable growth across our lines of business. We have the
foundational underpinnings, and the room to grow, in the weeks,
months and years ahead. We will never lose sight of what got us
here."
Due to a record-setting third quarter and a strong outlook for
the remainder of the year, CP announced on October 4, 2018 that it was raising its 2018
full-year guidance. The Company now expects adjusted diluted EPS
for 2018 to grow in excess of 20 percent, increased from earlier
guidance of low-double digit growth.(2)
CP will discuss its results with the financial community in a
conference call beginning today at 4:30 p.m.
eastern time (2:30 p.m. mountain
time).
(1) 2017
comparative period operating ratio was restated from 56.7% to 61.0%
and operating income was restated from $690 million to $622 million
to reflect the adoption of the new accounting standard for the
presentation of net periodic benefit recoveries, which is discussed
further in Note 2 Accounting changes in CP's Interim Consolidated
Financial Statements for the three and nine months ended September
30, 2018.
|
|
(2) CP's
expectations for adjusted diluted EPS growth in 2018 are based on
adjusted diluted EPS of $11.39 in 2017. CP expects approximately
$50 million of gains from land sales in the fourth quarter of
2018.
|
Conference Call Access
Toronto participants dial in
number: 1-647-427-7450
Operator assisted toll free dial in number: 1-888-231-8191
Callers should dial in 10 minutes prior to the call.
Webcast
We encourage you to access the webcast and presentation material
in the Investors section of CP's website
at http://investor.cpr.ca.
A replay of the third-quarter conference call will be available
by phone through to November 15, 2018
at 416-849-0833 or toll free 1-855-859-2056, password 2089199.
Non-GAAP Measures
For information regarding non-GAAP measures, including
reconciliations to the nearest GAAP measures, see the attached
supplementary schedule Non-GAAP Measures.
The adjusted diluted EPS for 2017 of $11.39 is described and reconciled to reported
diluted EPS for 2017 of $16.44, the
nearest GAAP measure, under "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations -
Reconciliation of GAAP Performance Measures to Non-GAAP Performance
Measures" in the Company's Annual Report on Form 10-K for the year
ended December 31, 2017.
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 business prospects, planned
capital expenditures, programs and strategies, as well as expected
2018 adjusted diluted EPS. 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: anticipated land sales in the
fourth quarter of 2018, 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
"Item 1A - Risk Factors" and "Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operations -
Forward-Looking Information" in CP's annual and interim reports on
Form 10-K and 10-Q.
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. The
purpose of our expected 2018 adjusted diluted EPS is to assist
readers in understanding our expected and targeted financial
results, and this information may not be appropriate for other
purposes. 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 is a transcontinental railway in Canada and the
United States with direct links to major ports on the west
and east coasts. CP provides 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 CP.
CP-IR
ITEM 1. FINANCIAL STATEMENTS
INTERIM CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
|
For the three
months
ended September 30
|
|
For the nine
months
ended September 30
|
(in millions of
Canadian dollars, except share and per share data)
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
Freight
|
$
|
1,854
|
|
$
|
1,547
|
|
$
|
5,188
|
|
$
|
4,708
|
Non-freight
|
|
44
|
|
|
48
|
|
|
122
|
|
|
133
|
Total
revenues
|
|
1,898
|
|
|
1,595
|
|
|
5,310
|
|
|
4,841
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and
benefits (Note 2, 11, 12)
|
|
365
|
|
|
324
|
|
|
1,090
|
|
|
969
|
Fuel
|
|
226
|
|
|
150
|
|
|
671
|
|
|
480
|
Materials
|
|
47
|
|
|
45
|
|
|
155
|
|
|
142
|
Equipment
rents
|
|
33
|
|
|
35
|
|
|
99
|
|
|
108
|
Depreciation and
amortization
|
|
174
|
|
|
162
|
|
|
516
|
|
|
493
|
Purchased services
and other
|
|
263
|
|
|
257
|
|
|
822
|
|
|
812
|
Total operating
expenses
|
|
1,108
|
|
|
973
|
|
|
3,353
|
|
|
3,004
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
790
|
|
|
622
|
|
|
1,957
|
|
|
1,837
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
Other (income)
expense (Note 5)
|
|
(47)
|
|
|
(105)
|
|
|
56
|
|
|
(194)
|
Other components of
net periodic benefit recovery (Note 2, 12)
|
|
(96)
|
|
|
(68)
|
|
|
(287)
|
|
|
(203)
|
Net interest
expense
|
|
112
|
|
|
115
|
|
|
339
|
|
|
357
|
Income before
income tax expense
|
|
821
|
|
|
680
|
|
|
1,849
|
|
|
1,877
|
Income tax expense
(Note 6)
|
|
199
|
|
|
170
|
|
|
443
|
|
|
456
|
Net
income
|
$
|
622
|
|
$
|
510
|
|
$
|
1,406
|
|
$
|
1,421
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
(Note 7)
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per
share
|
$
|
4.36
|
|
$
|
3.50
|
|
$
|
9.81
|
|
$
|
9.72
|
Diluted earnings per
share
|
$
|
4.35
|
|
$
|
3.50
|
|
$
|
9.78
|
|
$
|
9.70
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
number of shares (millions) (Note 7)
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
142.6
|
|
|
145.5
|
|
|
143.2
|
|
|
146.2
|
Diluted
|
|
143.1
|
|
|
145.8
|
|
|
143.7
|
|
|
146.6
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared
per share
|
$
|
0.6500
|
|
$
|
0.5625
|
|
$
|
1.8625
|
|
$
|
1.6250
|
|
Certain of the
comparative figures have been reclassified in order to be
consistent with the 2018 presentation (Note 2).
|
See Notes to Interim
Consolidated Financial Statements.
|
INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME
(unaudited)
|
For the three
months
ended September 30
|
|
For the nine
months
ended September 30
|
(in millions of
Canadian dollars)
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Net income
|
$
|
622
|
|
$
|
510
|
|
$
|
1,406
|
|
$
|
1,421
|
Net gain (loss) in
foreign currency translation adjustments, net of hedging
activities
|
|
12
|
|
|
19
|
|
|
(24)
|
|
|
38
|
Change in derivatives
designated as cash flow hedges
|
|
1
|
|
|
2
|
|
|
36
|
|
|
11
|
Change in pension and
post-retirement defined benefit plans
|
|
28
|
|
|
38
|
|
|
86
|
|
|
113
|
Other comprehensive
income before income taxes
|
|
41
|
|
|
59
|
|
|
98
|
|
|
162
|
Income tax expense on
above items
|
|
(22)
|
|
|
(34)
|
|
|
(11)
|
|
|
(78)
|
Other comprehensive
income (Note 4)
|
|
19
|
|
|
25
|
|
|
87
|
|
|
84
|
Comprehensive
income
|
$
|
641
|
|
$
|
535
|
|
$
|
1,493
|
|
$
|
1,505
|
|
See Notes to Interim
Consolidated Financial Statements.
|
INTERIM CONSOLIDATED BALANCE SHEETS AS AT
(unaudited)
|
September
30
|
|
December
31
|
(in millions of
Canadian dollars)
|
2018
|
|
2017
|
Assets
|
|
|
|
|
Current
assets
|
|
|
|
|
Cash and cash
equivalents
|
$
|
150
|
|
$
|
338
|
Accounts receivable,
net
|
|
759
|
|
|
687
|
Materials and
supplies
|
|
156
|
|
|
152
|
Other current
assets
|
|
65
|
|
|
97
|
|
|
1,130
|
|
|
1,274
|
Investments
|
|
201
|
|
|
182
|
Properties
|
|
17,792
|
|
|
17,016
|
Goodwill and
intangible assets
|
|
192
|
|
|
187
|
Pension
asset
|
|
1,726
|
|
|
1,407
|
Other
assets
|
|
68
|
|
|
69
|
Total
assets
|
$
|
21,109
|
|
$
|
20,135
|
Liabilities and
shareholders' equity
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
Accounts payable and
accrued liabilities
|
$
|
1,189
|
|
$
|
1,238
|
Long-term debt
maturing within one year (Note 8, 10)
|
|
480
|
|
|
746
|
|
|
1,669
|
|
|
1,984
|
Pension and other
benefit liabilities
|
|
746
|
|
|
749
|
Other long-term
liabilities
|
|
232
|
|
|
231
|
Long-term debt (Note
8, 10)
|
|
7,806
|
|
|
7,413
|
Deferred income
taxes
|
|
3,528
|
|
|
3,321
|
Total
liabilities
|
|
13,981
|
|
|
13,698
|
Shareholders'
equity
|
|
|
|
|
|
Share
capital
|
|
2,017
|
|
|
2,032
|
Additional paid-in
capital
|
|
47
|
|
|
43
|
Accumulated other
comprehensive loss (Note 4)
|
|
(1,654)
|
|
|
(1,741)
|
Retained
earnings
|
|
6,718
|
|
|
6,103
|
|
|
7,128
|
|
|
6,437
|
Total liabilities
and shareholders' equity
|
$
|
21,109
|
|
$
|
20,135
|
|
Contingencies (Note
13)
|
See Notes to Interim
Consolidated Financial Statements.
|
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
|
For the three
months
ended September 30
|
|
For the nine
months
ended September 30
|
(in millions of
Canadian dollars)
|
2018
|
|
2017
|
|
2018
|
2017
|
Operating
activities
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
622
|
|
$
|
510
|
|
$
|
1,406
|
|
$
|
1,421
|
Reconciliation of net
income to cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
174
|
|
|
162
|
|
|
516
|
|
|
493
|
Deferred income taxes
(Note 6)
|
|
77
|
|
|
77
|
|
|
155
|
|
|
168
|
Pension recovery and
funding (Note 12)
|
|
(84)
|
|
|
(59)
|
|
|
(238)
|
|
|
(178)
|
Foreign exchange
(gain) loss on long-term debt (Note 5)
|
|
(38)
|
|
|
(105)
|
|
|
55
|
|
|
(200)
|
Settlement of forward
starting swaps on debt issuance (Note 8, 10)
|
|
—
|
|
|
—
|
|
|
(24)
|
|
|
—
|
Other operating
activities, net
|
|
(6)
|
|
|
(1)
|
|
|
(23)
|
|
|
(88)
|
Change in non-cash
working capital balances related to operations
|
|
(72)
|
|
|
(57)
|
|
|
(66)
|
|
|
(167)
|
Cash provided by
operating activities
|
|
673
|
|
|
527
|
|
|
1,781
|
|
|
1,449
|
Investing
activities
|
|
|
|
|
|
|
|
|
|
|
|
Additions to
properties
|
|
(430)
|
|
|
(319)
|
|
|
(1,084)
|
|
|
(895)
|
Proceeds from sale of
properties and other assets
|
|
7
|
|
|
13
|
|
|
16
|
|
|
29
|
Other
|
|
—
|
|
|
—
|
|
|
(1)
|
|
|
5
|
Cash used in
investing activities
|
|
(423)
|
|
|
(306)
|
|
|
(1,069)
|
|
|
(861)
|
Financing
activities
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
paid
|
|
(92)
|
|
|
(83)
|
|
|
(255)
|
|
|
(229)
|
Issuance of CP Common
Shares
|
|
4
|
|
|
2
|
|
|
16
|
|
|
39
|
Purchase of CP Common
Shares (Note 9)
|
|
—
|
|
|
(226)
|
|
|
(559)
|
|
|
(368)
|
Issuance of long-term
debt, excluding commercial paper (Note 8)
|
|
—
|
|
|
—
|
|
|
638
|
|
|
—
|
Repayment of
long-term debt, excluding commercial paper (Note 8)
|
|
(5)
|
|
|
(3)
|
|
|
(744)
|
|
|
(17)
|
Net repayment of
commercial paper (Note 8)
|
|
(53)
|
|
|
—
|
|
|
—
|
|
|
—
|
Settlement of forward
starting swaps on de-designation
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(22)
|
Cash used in
financing activities
|
|
(146)
|
|
|
(310)
|
|
|
(904)
|
|
|
(597)
|
Effect of foreign
currency fluctuations on U.S. dollar-
denominated cash and cash equivalents
|
|
(5)
|
|
|
(7)
|
|
|
4
|
|
|
(13)
|
Cash
position
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease)
in cash and cash equivalents
|
|
99
|
|
|
(96)
|
|
|
(188)
|
|
|
(22)
|
Cash and cash
equivalents at beginning of period
|
|
51
|
|
|
238
|
|
|
338
|
|
|
164
|
Cash and cash
equivalents at end of period
|
$
|
150
|
|
$
|
142
|
|
$
|
150
|
|
$
|
142
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
paid
|
$
|
74
|
|
$
|
78
|
|
$
|
230
|
|
$
|
364
|
Interest
paid
|
$
|
147
|
|
$
|
140
|
|
$
|
380
|
|
$
|
385
|
|
See Notes to Interim
Consolidated Financial Statements.
|
INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY
(unaudited)
(in millions of
Canadian dollars except per
share data)
|
|
Common
shares (in
millions)
|
|
Share
capital
|
|
Additional
paid-in
capital
|
|
Accumulated
other
comprehensive
loss
|
|
Retained
earnings
|
|
Total
shareholders'
equity
|
Balance at January
1, 2018
|
|
144.9
|
|
$
|
2,032
|
|
$
|
43
|
|
$
|
(1,741)
|
|
$
|
6,103
|
|
$
|
6,437
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,406
|
|
|
1,406
|
Other comprehensive
income (Note 4)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
87
|
|
|
—
|
|
|
87
|
Dividends
declared
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(267)
|
|
|
(267)
|
Effect of stock-based
compensation expense
|
|
—
|
|
|
—
|
|
|
8
|
|
|
—
|
|
|
—
|
|
|
8
|
CP Common Shares
repurchased (Note 9)
|
|
(2.5)
|
|
|
(35)
|
|
|
—
|
|
|
—
|
|
|
(524)
|
|
|
(559)
|
Shares issued under
stock option plan
|
|
0.2
|
|
|
20
|
|
|
(4)
|
|
|
—
|
|
|
—
|
|
|
16
|
Balance at
September 30, 2018
|
|
142.6
|
|
$
|
2,017
|
|
$
|
47
|
|
$
|
(1,654)
|
|
$
|
6,718
|
|
$
|
7,128
|
Balance at January 1,
2017
|
|
146.3
|
|
$
|
2,002
|
|
$
|
52
|
|
$
|
(1,799)
|
|
$
|
4,371
|
|
$
|
4,626
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,421
|
|
|
1,421
|
Other comprehensive
income (Note 4)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
84
|
|
|
—
|
|
|
84
|
Dividends
declared
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(237)
|
|
|
(237)
|
CP Common Shares
repurchased (Note 9)
|
|
(1.8)
|
|
|
(26)
|
|
|
—
|
|
|
—
|
|
|
(342)
|
|
|
(368)
|
Shares issued under
stock option plan
|
|
0.5
|
|
|
49
|
|
|
(10)
|
|
|
—
|
|
|
—
|
|
|
39
|
Balance at September
30, 2017
|
|
145.0
|
|
$
|
2,025
|
|
$
|
42
|
|
$
|
(1,715)
|
|
$
|
5,213
|
|
$
|
5,565
|
|
See Notes to Interim
Consolidated Financial Statements.
|
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(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 generally accepted accounting principles 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 2017 annual consolidated financial statements and notes
included in CP's 2017 Annual Report on Form 10-K. The accounting
policies used are consistent with the accounting policies used in
preparing the 2017 annual consolidated financial statements, except
for the newly adopted accounting policies 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 2018
Revenue from Contracts with Customers
On January 1, 2018, the Company
adopted the new Accounting Standards Update ("ASU") 2014-09, issued
by the Financial Accounting Standards Board ("FASB"), and all
related amendments under FASB Accounting Standards Codification
("ASC") Topic 606, Revenue from Contracts with Customers, using the
modified retrospective method. Comparative financial information
has not been restated and continues to be reported under the
accounting standards in effect for those periods. The Company did
not recognize any adjustment to the opening balance of retained
earnings upon adoption of ASC Topic 606. The Company expects the
impact of adoption of this new standard to be immaterial to the
Company's net income on an ongoing basis.
Compensation - Retirement Benefits
On January 1, 2018, the Company
adopted the changes required under ASU 2017-07, Improving the
Presentation of Net Periodic Pension Cost and Net Periodic
Post-retirement Benefit Cost under FASB ASC Topic 715, Retirement
Benefits as issued by the FASB in March
2017. In accordance with the ASU, beginning on January 1, 2018, the Company reports the current
service cost component of net periodic benefit cost in Compensation
and benefits on the Company's Consolidated Statements of Income,
and reports the Other components of net periodic benefit recovery
as a separate item outside of Operating income on the Company's
Consolidated Statements of Income. The Company has applied these
changes in presentation retrospectively, which resulted in a
decrease in Operating income of $68
million and $203 million for
the three and nine months ended September
30, 2017, respectively.
These changes in presentation do not result in any changes to
net income or earnings per share. Details of the components of net
periodic benefit costs are provided in Note 12 Pensions and other
benefits.
The ASU also prospectively restricts capitalization of net
periodic benefit costs to the current service cost component when
applicable. This restriction has no impact on the Company's
operating income or amounts capitalized because the Company has and
continues to only capitalize an appropriate portion of current
service cost for self-constructed properties.
Derivatives and Hedging
In August 2017, the FASB issued
ASU 2017-12, Targeted Improvements to Accounting for Hedging
Activities, under FASB ASC Topic 815, Derivatives and Hedging. This
improves the financial reporting of hedging relationships to better
portray the economic results of an entity's risk management
activities in its financial statements. These amendments also make
targeted improvements to simplify the application of the hedge
accounting guidance in GAAP. The amendments require the entire
change in the fair value of the hedging instrument to be recorded
in Other comprehensive income for effective cash flow hedges.
Consequently, any ineffective portion of the change in fair value
will no longer be recorded to the Consolidated Statement of Income
as it arises. While the amendments are effective for public
entities beginning on January 1,
2019, early adoption is permitted and the Company early
adopted this ASU effective January 1,
2018. Entities are required to apply the amendments in this
update to hedging relationships existing on the date of adoption,
reflected as a cumulative-effect adjustment as of the beginning of
the fiscal year of adoption. Other amendments to presentation and
disclosure are applied prospectively. No significant
cumulative-effect adjustment was required.
Accumulated Other Comprehensive Income -
Reclassification
In February 2018, the FASB issued
ASU 2018-02, Reclassification of Certain Tax Effects from
Accumulated Other Comprehensive Income under FASB ASC Topic 220,
Income Statement - Reporting Comprehensive Income. The current
standard ASC Topic 740, Income Taxes, requires deferred tax
liabilities and assets to be adjusted for the effect of a change in
tax laws or rates with the effect included in income from
continuing operations in the reporting period that includes the
enactment date. This includes the tax effects of items in
Accumulated other comprehensive income ("AOCI") that were
originally recognized in Other comprehensive income, subsequently
creating stranded tax effects. This ASU allows a reclassification
from AOCI to Retained earnings for stranded tax effects
specifically resulting from the U.S. federal government's recently
enacted tax bill, the Tax Cuts and Jobs Act. The amendments are
effective for public entities beginning on January 1, 2019 and early adoption is permitted.
Entities are required to apply these amendments either in the
period of adoption or retrospectively to each period in which the
effect of the change in tax rate from the Tax Cuts and Jobs Act was
recognized. The Company early adopted this ASU effective
January 1, 2018, electing not to
change AOCI, Retained earnings or disclosure in the Company's
Interim Consolidated Financial Statements.
Future changes
Leases
In February 2016, the FASB issued
ASU 2016-02, Leases under FASB ASC Topic 842, Leases which will
supersede the lease recognition and measurement requirements in
Topic 840, Leases. This new standard requires recognition of
right-of-use assets and lease liabilities by lessees for those
leases classified as finance and operating leases with a maximum
term exceeding 12 months. For CP this new standard will be
effective for interim and annual periods commencing January 1, 2019. CP plans to adopt the new
standard with a cumulative-effect adjustment to the opening balance
of retained earnings at that date and no restatement of comparative
periods' financial information, as recently allowed by the FASB.
The Company has a detailed plan to implement the new standard and,
through a cross-functional team, is assessing contractual
arrangements that may qualify as leases under the new standard. CP
is also working with a vendor to implement a lease management
system which will assist in delivering the required accounting
changes. Testing and optimization of the lease management system is
nearing completion. The Company is also finalizing procedures
to validate the completeness of its inventory of arrangements that
meet the new definition of operating lease, in parallel to
documenting internal policy decisions and permitted elections. The
impact of the new standard will be a material increase to
right-of-use operating lease assets and operating lease liabilities
on the consolidated balance sheet, primarily, as a result of
operating leases currently not recognized on the balance sheet. The
Company is currently evaluating disclosure requirements, including
any prospective change to presentation within its Consolidated
Statements of Income.
3 Revenues
Revenue is recognized when obligations under the terms of a
contract with a customer are satisfied. Revenue is measured as the
amount of consideration the Company expects to receive in exchange
for providing services. Government-imposed taxes that the Company
collects concurrent with revenue-generating activities are excluded
from revenue. In the normal course of business the Company does not
generate any material revenue through acting as an agent for other
entities.
The following is a description of primary activities from which
the Company generates revenue.
Freight revenues
The Company provides rail freight transportation services to a
wide variety of customers and transports bulk commodities,
merchandise freight and intermodal traffic. The Company signs
service agreements with customers that dictate future services the
Company is to perform for a customer at the time a bill of lading
or service request is received. Each bill of lading or service
request represents a separate and distinct performance obligation
that the Company is obligated to satisfy. The transaction price is
generally in the form of a fixed fee determined at the inception of
the bill of lading or service request. The Company allocates the
transaction price to each distinct performance obligation based on
the estimated standalone selling price for each performance
obligation. As each bill of lading or service request represents a
separate and distinct performance obligation, the estimated
standalone selling price is assessed at an observable price which
is fair market value. Certain customer agreements include variable
consideration in the form of rebates, discounts, or incentives. The
expected value method is used to estimate variable consideration
and is allocated to the applicable performance obligation and is
recognized when the related performance obligation is satisfied.
Additionally, the Company offers published rates for services
through public tariffs in which a customer can request service,
triggering a performance obligation of the Company. In accordance
with ASC Topic 606, railway freight revenues continue to be
recognized over time as services are provided based on the
percentage of completed service method. Volume rebates to customers
are accrued as a reduction of freight revenues based on estimated
volumes and contract terms as freight service is provided. Freight
revenues also include certain ancillary and other services provided
in association with the performance of rail freight movements.
Revenues from these activities are not material and therefore have
been aggregated with the freight revenues from customer contracts
with which they are associated.
Non-freight revenues
In accordance with ASC Topic 606, non-freight revenues,
including passenger revenues, switching fees, and revenues from
logistic services, continue to be recognized at the point in time
the services are provided or when the performance obligations are
satisfied. Non-freight revenues also include leasing revenues.
Disaggregation of revenue
The following table disaggregates the Company's revenues from
contracts with customers by major source:
|
For the three
months
ended September 30
|
|
For the nine
months ended
September 30
|
(in millions of
Canadian dollars)
|
2018
|
|
2017(1)
|
|
2018
|
|
2017(1)
|
Freight
|
|
|
|
|
|
|
|
|
|
|
|
Grain
|
$
|
384
|
|
$
|
351
|
|
$
|
1,113
|
|
$
|
1,107
|
Coal
|
|
171
|
|
|
165
|
|
|
486
|
|
|
478
|
Potash
|
|
130
|
|
|
103
|
|
|
358
|
|
|
310
|
Fertilizers and
sulphur
|
|
55
|
|
|
52
|
|
|
171
|
|
|
181
|
Forest
products
|
|
76
|
|
|
67
|
|
|
211
|
|
|
202
|
Energy, chemicals and
plastics
|
|
339
|
|
|
208
|
|
|
874
|
|
|
651
|
Metals, minerals, and
consumer products
|
|
208
|
|
|
192
|
|
|
595
|
|
|
552
|
Automotive
|
|
85
|
|
|
68
|
|
|
247
|
|
|
223
|
Intermodal
|
|
406
|
|
|
341
|
|
|
1,133
|
|
|
1,004
|
Total freight
revenues
|
|
1,854
|
|
|
1,547
|
|
|
5,188
|
|
|
4,708
|
Non-freight excluding
leasing revenues
|
|
28
|
|
|
34
|
|
|
76
|
|
|
91
|
Revenues from
contracts with customers
|
|
1,882
|
|
|
1,581
|
|
|
5,264
|
|
|
4,799
|
Leasing
revenues
|
|
16
|
|
|
14
|
|
|
46
|
|
|
42
|
Total
revenues
|
$
|
1,898
|
|
$
|
1,595
|
|
$
|
5,310
|
|
$
|
4,841
|
|
(1) Prior
period amounts have not been adjusted under the modified
retrospective method.
|
Satisfying performance obligations
Payment by customers is due upon satisfaction of performance
obligations. Payment terms are such that amounts outstanding at the
period end are expected to be collected within one reporting
period. The Company invoices customers at the time the bill of
lading or service request is processed and therefore the Company
has no material unbilled receivables and no contract assets. All
performance obligations not fully satisfied at period end are
expected to be satisfied within the reporting period immediately
following.
4 Changes in Accumulated other
comprehensive loss ("AOCL") by component
|
For the three
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)
|
Opening balance,
July 1, 2018
|
$
|
110
|
|
$
|
(64)
|
|
$
|
(1,719)
|
|
$
|
(1,673)
|
Other comprehensive
(loss) income before reclassifications
|
|
(1)
|
|
|
(2)
|
|
|
1
|
|
|
(2)
|
Amounts reclassified
from accumulated other
comprehensive loss
|
|
—
|
|
|
2
|
|
|
19
|
|
|
21
|
Net other
comprehensive (loss) income
|
|
(1)
|
|
—
|
|
|
20
|
|
|
19
|
Closing balance,
September 30, 2018
|
$
|
109
|
|
$
|
(64)
|
|
$
|
(1,699)
|
|
$
|
(1,654)
|
Opening balance,
July 1, 2017
|
$
|
124
|
|
$
|
(97)
|
|
$
|
(1,767)
|
|
$
|
(1,740)
|
Other comprehensive
loss before reclassifications
|
|
(5)
|
|
|
—
|
|
|
—
|
|
|
(5)
|
Amounts reclassified
from accumulated other
comprehensive loss
|
|
—
|
|
|
2
|
|
|
28
|
|
|
30
|
Net other
comprehensive (loss) income
|
|
(5)
|
|
|
2
|
|
|
28
|
|
|
25
|
Closing balance,
September 30, 2017
|
$
|
119
|
|
$
|
(95)
|
|
$
|
(1,739)
|
|
$
|
(1,715)
|
|
(1)
Amounts are presented net of tax.
|
|
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)
|
Opening balance,
January 1, 2018
|
$
|
109
|
|
$
|
(89)
|
|
$
|
(1,761)
|
|
$
|
(1,741)
|
Other comprehensive
income before reclassifications
|
|
—
|
|
|
19
|
|
|
—
|
|
|
19
|
Amounts reclassified
from accumulated other
comprehensive loss
|
|
—
|
|
|
6
|
|
|
62
|
|
|
68
|
Net other
comprehensive income
|
|
—
|
|
|
25
|
|
|
62
|
|
|
87
|
Closing balance,
September 30, 2018
|
$
|
109
|
|
$
|
(64)
|
|
$
|
(1,699)
|
|
$
|
(1,654)
|
Opening balance,
January 1, 2017
|
$
|
127
|
|
$
|
(104)
|
|
$
|
(1,822)
|
|
$
|
(1,799)
|
Other comprehensive
loss before reclassifications
|
|
(8)
|
|
|
(7)
|
|
|
—
|
|
|
(15)
|
Amounts reclassified
from accumulated other
comprehensive loss
|
|
—
|
|
|
16
|
|
|
83
|
|
|
99
|
Net other
comprehensive (loss) income
|
|
(8)
|
|
|
9
|
|
|
83
|
|
|
84
|
Closing balance,
September 30, 2017
|
$
|
119
|
|
$
|
(95)
|
|
$
|
(1,739)
|
|
$
|
(1,715)
|
|
(1)
Amounts are presented net of tax.
|
Amounts in Pension and post-retirement defined benefit plans
reclassified from AOCL are as follows:
|
For the three
months
ended September 30
|
|
For the nine
months
ended September 30
|
(in millions of
Canadian dollars)
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Amortization of prior
service costs(1)
|
$
|
(1)
|
|
$
|
(1)
|
|
$
|
(2)
|
|
$
|
(3)
|
Recognition of net
actuarial loss(1)
|
|
29
|
|
|
39
|
|
|
88
|
|
|
116
|
Total before income
tax
|
|
28
|
|
|
38
|
|
|
86
|
|
|
113
|
Income tax
recovery
|
|
(9)
|
|
|
(10)
|
|
|
(24)
|
|
|
(30)
|
Total net of
income tax
|
$
|
19
|
|
$
|
28
|
|
$
|
62
|
|
$
|
83
|
|
(1)
Impacts "Other components of net periodic benefit recovery" on the
Interim Consolidated Statements of Income.
|
5 Other (income) expense
|
For the three
months
ended September 30
|
|
For the nine
months
ended September 30
|
(in millions of
Canadian dollars)
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Foreign exchange
(gain) loss on long-term debt
|
$
|
(38)
|
|
$
|
(105)
|
|
$
|
55
|
|
$
|
(200)
|
Other foreign
exchange (gains) losses
|
|
(1)
|
|
|
(3)
|
|
|
2
|
|
|
(5)
|
Insurance recovery of
legal settlement
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(10)
|
Charge on hedge roll
and de-designation
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13
|
Other
|
|
(8)
|
|
|
3
|
|
|
(1)
|
|
|
8
|
Other (income)
expense
|
$
|
(47)
|
|
$
|
(105)
|
|
$
|
56
|
|
$
|
(194)
|
|
"Other (income)
expense" was previously presented as "Other income and charges" in
the Company's Consolidated Statements of Income. This change in
presentation has no impact on the components within this line
item.
|
6 Income taxes
|
For the three
months
ended September 30
|
|
For the nine
months
ended September 30
|
(in millions of
Canadian dollars)
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Current income tax
expense
|
$
|
122
|
|
$
|
93
|
|
$
|
288
|
|
$
|
288
|
Deferred income tax
expense
|
|
77
|
|
|
77
|
|
|
155
|
|
|
168
|
Income tax
expense
|
$
|
199
|
|
$
|
170
|
|
$
|
443
|
|
$
|
456
|
During the nine months ended September
30, 2018, legislation was enacted to decrease the
Iowa and Missouri state corporate income tax rates. As
a result of these changes, the Company recorded a deferred tax
recovery of $21 million in the second
quarter of 2018 related to the revaluation of deferred income tax
balances as at January 1, 2018.
The effective tax rates for the three and nine months ended
September 30, 2018, were 24.23% and
23.95%, respectively, compared to 24.95% and 24.28% for the same
periods in 2017.
For the three months ended September 30,
2018, the effective tax rate excluding the discrete item of
the foreign exchange ("FX") gain of $38
million on the Company's U.S. dollar-denominated debt, was
24.75%.
For the three months ended September 30,
2017, the effective tax rate excluding the discrete items of
the FX gain of $105 million on the
Company's U.S. dollar-denominated debt, and the $3 million deferred tax expense related to
legislation enacted to increase the Illinois state income tax rate, was 26.50%
For the nine months ended September 30,
2018, the effective tax rate excluding the discrete items of
the FX loss of $55 million on the
Company's U.S. dollar-denominated debt and the $21 million tax recovery described above, was
24.75%.
For the nine months ended September 30,
2017, the effective tax rate excluding the discrete items of
the management transition recovery of $51
million related to the retirement of the Company's Chief
Executive Officer, the FX gain of $200
million on the Company's U.S. dollar-denominated debt, an
insurance recovery of $10 million on
a legal settlement, the $13 million
charge associated with the hedge roll and de-designation, and the
$14 million tax net recovery related
to legislation enacted to increase the Illinois tax rate and decrease the
Saskatchewan provincial corporate
income tax rate, was 26.50%.
7 Earnings per share
At September 30, 2018, the number of shares outstanding was
142.6 million (September 30, 2017 - 145.0 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
ended September 30
|
|
For the nine
months
ended September 30
|
(in
millions)
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Weighted-average
basic shares outstanding
|
142.6
|
|
145.5
|
|
143.2
|
|
146.2
|
Dilutive effect of
stock options
|
0.5
|
|
0.3
|
|
0.5
|
|
0.4
|
Weighted-average
diluted shares outstanding
|
143.1
|
|
145.8
|
|
143.7
|
|
146.6
|
For the three and nine months ended September 30, 2018,
there were 0.3 million and 0.2 million options, respectively,
excluded from the computation of diluted earnings per share because
their effects were not dilutive (three and nine months ended
September 30, 2017 - 0.3 million and 0.3 million).
8 Debt
Revolving credit facility
Effective June 8, 2018, the
Company amended its U.S. $2.0 billion
revolving credit facility agreement dated September 26, 2014. This fifth amending agreement
included, among other things, the extension of the five year
maturity date from June 28, 2022 to June 28, 2023 and the
cancellation of the U.S. $1.0 billion
one-year plus one-year credit facility agreement. As at
September 30, 2018, the remaining U.S. $1.0 billion credit facility was undrawn.
Issuance of long-term debt
During the second quarter of 2018, the Company issued U.S.
$500 million 4.000% 10-year Notes due
June 1, 2028 for net proceeds of U.S. $495 million ($638
million). These notes pay interest semi-annually and are
unsecured but carry a negative pledge. In conjunction with the
issuance, the Company settled a notional U.S. $500 million of forward starting
floating-to-fixed interest rate swap agreements ("forward starting
swaps") for a payment of U.S. $19
million ($24 million) (see
Note 10). This payment was included in cash provided by operating
activities consistent with the location of the related hedged item
on the Company's Interim Consolidated Statements of Cash Flows.
Retirement of long-term debt
During the second quarter of 2018, the Company repaid U.S.
$275 million 6.500% 10-year Notes at
maturity for a total of U.S. $275
million ($352 million) and
$375 million 6.250% 10-year Medium
Term Notes at maturity for a total of $375
million.
Commercial paper program
The Company has a commercial paper program which enables it to
issue commercial paper up to a maximum aggregate principal amount
of U.S. $1.0 billion in the form of
unsecured promissory notes. The commercial paper is backed by the
U.S. $1.0 billion revolving credit
facility. As at September 30, 2018 and December 31, 2017, the Company had no commercial
paper borrowings.
The Company presents issuances and repayments of commercial
paper, all of which have a maturity of less than 90 days, in the
Company's Interim Consolidated Statements of Cash Flows on a net
basis.
9 Shareholders' equity
On May 10, 2017, the Company
announced a new normal course issuer bid ("NCIB"), commencing
May 15, 2017, to purchase up to 4.38
million Common Shares for cancellation before May 14, 2018.
The Company completed this NCIB on May 10, 2018.
All purchases were made in accordance with the NCIB at prevalent
market prices plus brokerage fees, or such other prices that were
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 describes activities under the share
repurchase program:
|
For the three
months
ended September 30
|
|
For the nine
months
ended September 30
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Number of Common
Shares repurchased
|
|
—
|
|
|
1,145,400
|
|
|
2,495,962
|
|
|
1,828,300
|
Weighted-average
price per share(1)
|
$
|
—
|
|
$
|
196.46
|
|
$
|
223.97
|
|
$
|
201.50
|
Amount of repurchase
(in millions)(1)
|
$
|
—
|
|
$
|
225
|
|
$
|
559
|
|
$
|
368
|
|
(1)
Includes brokerage fees.
|
On October 17, 2018, the Company
announced that it intends to implement a new NCIB to repurchase,
for cancellation, up to approximately 5.68 million of its Common
Shares, subject to Toronto Stock Exchange acceptance.
10 Financial instruments
A. Fair values of financial instruments
The Company categorizes its financial assets and liabilities
measured at fair value into a three-level hierarchy established by
GAAP that prioritizes those inputs to valuation techniques used to
measure fair value based on the degree to which they are
observable. The three levels of the fair value hierarchy are as
follows: Level 1 inputs are quoted prices in active markets for
identical assets and liabilities; Level 2 inputs, other than quoted
prices included within Level 1, are observable for the asset or
liability either directly or indirectly; and Level 3 inputs are not
observable in the market.
When possible, the estimated fair value is based on quoted
market prices and, if not available, it is based on 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, FX and commodity) and
volatility, depending on the type of derivative and the nature of
the underlying risk. The Company uses 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. All derivatives
and long-term debt are classified as Level 2.
The carrying values of financial instruments equal or
approximate their fair values with the exception of long-term
debt:
(in millions of
Canadian dollars)
|
September 30,
2018
|
|
December 31,
2017
|
Long-term debt
(including current maturities):
|
|
|
|
Fair value
|
$
|
9,206
|
|
$
|
9,680
|
Carrying
value
|
|
8,286
|
|
|
8,159
|
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 principal and interest at estimated
interest rates expected to be available to the Company at period
end.
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 Company's 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 as to 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.
FX 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 the value of financial commitments,
assets, liabilities, income or cash flows due to changes in FX
rates. The Company may enter into FX risk management transactions
primarily to manage fluctuations in the exchange rate between
Canadian and U.S. currencies. FX exposure is primarily mitigated
through natural offsets created by revenues, expenditures and
balance sheet positions incurred in the same currency. Where
appropriate, the Company may negotiate with customers and suppliers
to reduce the net exposure.
Net investment hedge
The FX gains and losses on long-term debt are mainly unrealized
and can only be realized when U.S. dollar-denominated long-term
debt matures or is settled. The Company also has long-term FX
exposure on its investment in U.S. affiliates. The majority of the
Company's U.S. dollar-denominated long-term debt has been
designated as a hedge of the net investment in foreign
subsidiaries. This designation has the effect of mitigating
volatility on Net income by offsetting long-term FX gains and
losses on U.S. dollar-denominated long-term debt and gains and
losses on its net investment. The effect of the net investment
hedge recognized in "Other comprehensive income" for the three and
nine months ended September 30, 2018 was an unrealized FX gain
of $96 million and an unrealized FX
loss of $177 million, respectively
(three and nine months ended September 30, 2017 - an
unrealized FX gain of $180 million
and $342 million, respectively).
Interest rate management
The Company is exposed to interest rate risk, which is the risk
that the fair value or future cash flows of a financial instrument
will vary as a result of changes in market interest rates. In order
to manage funding needs or capital structure goals, the Company
enters into debt or capital lease agreements that are subject to
either fixed market interest rates set at the time of issue or
floating rates determined by ongoing 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 second quarter of 2018, the Company settled a
notional U.S. $500 million of forward
starting swaps related to the U.S. $500
million 4.000% 10-year Notes issued in the same period. The
fair value of these derivative instruments at the time of
settlement was a loss of U.S. $19
million ($24 million). The
changes in fair value of the forward starting swaps for the three
and nine months ended September 30,
2018 was $nil and a gain of $31
million, respectively (three and nine months ended
September 30, 2017 - $nil and a loss
of $12 million, respectively). This
was recorded in "Accumulated other comprehensive loss", net of tax,
and is being reclassified to "Net interest expense" until the
underlying hedged notes are repaid.
For the three and nine months ended September 30, 2018, a
net loss of $2 million and
$7 million, respectively, related to
settled forward starting swap hedges has been amortized to "Net
interest expense" (three and nine months ended September 30,
2017 - a net loss of $3 million and
$8 million, respectively). The
Company expects that during the next twelve months, an additional
$9 million of net losses will be
amortized to "Net interest expense".
11 Stock-based compensation
At September 30, 2018, the Company had several stock-based
compensation plans, including stock option plans, various cash
settled liability plans and an employee share purchase plan. These
plans resulted in an expense for the three and nine months ended
September 30, 2018 of $28
million and $60 million,
respectively (three and nine months ended September 30, 2017 -
an expense of $11 million and
$16 million, respectively).
Effective January 31, 2017, Mr. E.
Hunter Harrison resigned from all
positions held by him at the Company, including as the Company's
Chief Executive Officer and a member of the Board of Directors of
the Company. In connection with Mr. Harrison's resignation, the
Company entered into a separation agreement with Mr. Harrison.
Under the terms of the separation agreement, the Company agreed to
a limited waiver of Mr. Harrison's non-competition and
non-solicitation obligations.
Effective January 31, 2017,
pursuant to the separation agreement, Mr. Harrison forfeited
certain pension and post-retirement benefits and agreed to the
surrender for cancellation of 22,514 performance share units
("PSUs"), 68,612 deferred share units ("DSUs"), and 752,145 stock
options.
As a result of this agreement, the Company recognized a recovery
of $51 million in "Compensation and
benefits" in the first quarter of 2017. Of this amount,
$27 million related to a recovery
from cancellation of certain pension benefits.
Stock option plan
In the nine months ended September 30, 2018, under CP's
stock option plans, the Company issued 282,125 options at the
weighted-average price of $240.91 per
share, based on the closing price on the grant date.
Pursuant to the employee plan, these options may be exercised
upon vesting, which is between 12 months and 48 months after the
grant date, and will expire after seven years.
Under the fair value method, the fair value of the stock options
at the grant date was approximately $16
million. The weighted-average fair value assumptions were
approximately:
|
For the nine
months
ended September 30, 2018
|
Grant
price
|
$240.91
|
Expected option life
(years)(1)
|
5.00
|
Risk-free interest
rate(2)
|
2.22%
|
Expected stock price
volatility(3)
|
24.81%
|
Expected annual
dividends per share(4)
|
$2.3854
|
Expected forfeiture
rate(5)
|
4.7%
|
Weighted-average
grant date fair value per option granted during the
period
|
$55.63
|
(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
term commensurate with the expected term of the option.
|
(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. On May 10, 2018, the Company announced an increase in
its quarterly dividend to $0.6500 per share, representing $2.6000
on an annual basis.
|
(5)
|
The Company estimated
forfeitures based on past experience. This rate is monitored on a
periodic basis.
|
Performance share unit plan
In the nine months ended September 30, 2018, the Company
issued 161,323 PSUs with a grant date fair value of approximately
$39 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 performance period for the PSUs issued in the nine months
ended September 30, 2018 is January 1,
2018 to December 31, 2020. The
fair value of these PSUs is measured periodically until settlement,
using either a lattice-based valuation model or a Monte Carlo simulation model.
The performance period for the PSUs issued in 2015 was
January 1, 2015 to December 31, 2017. The performance factors for
these PSUs were Operating Ratio, ROIC, TSR compared to the
S&P/TSX 60 index and TSR compared to Class I railways. The
resulting payout was 160% of the Company's average share price that
was calculated using the last 30 trading days preceding
December 31, 2017. In the first
quarter of 2018, payouts occurred on the total outstanding awards,
including dividends reinvested, totaling $30
million on 82,800 outstanding awards.
Deferred share unit plan
In the nine months ended September 30, 2018, the Company
granted 13,888 DSUs with a grant date fair value of approximately
$3 million. DSUs vest over various
periods of up to 48 months and are only redeemable for a specified
period after employment is terminated. An expense to income for
DSUs is recognized over the vesting period for both the initial
subscription price and the change in value between reporting
periods.
Restricted share unit plan
In the nine months ended September 30,
2018, the Company granted 21,895 restricted share units
("RSUs") with a grant date fair value of approximately $5 million. The RSUs are notional full value
shares that attract dividend equivalents in the form of additional
units based on the dividends paid on the Company's Common Shares.
RSUs have no performance factors attached to them and are vested
and settled in cash after a period of three years from the grant
date. An expense to income for RSUs is recognized over the vesting
period for both the initial subscription price and the change in
value between reporting periods.
12 Pension and other benefits
In the three months ended September 30, 2018, the Company
made contributions of $13 million
(three months ended September 30, 2017 - $11 million) to its defined benefit pension
plans. In the nine months ended September 30, 2018, the
Company made net contributions of $25
million (nine months ended September 30, 2017 -
$35 million), to its defined benefit
pension plans, which is net of a $10
million refund of plan surplus (nine months ended
September 30, 2017 - $nil). Net periodic benefit costs for
defined benefit pension plans and other benefits recognized in the
three and nine months ended September 30, 2018 included the
following components:
|
For the three
months ended September 30
|
|
Pensions
|
|
Other
benefits
|
(in millions of
Canadian dollars)
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Current service cost
(benefits earned by employees)
|
$
|
30
|
|
$
|
26
|
|
$
|
3
|
|
$
|
3
|
Other components of
net periodic benefit (recovery) cost:
|
|
|
|
|
|
|
|
|
|
|
|
Interest cost on
benefit obligation
|
|
110
|
|
|
112
|
|
|
5
|
|
|
5
|
Expected return on
fund assets
|
|
(239)
|
|
|
(223)
|
|
|
—
|
|
|
—
|
Recognized net
actuarial loss
|
|
29
|
|
|
38
|
|
|
—
|
|
|
1
|
Amortization of prior
service costs
|
|
(1)
|
|
|
(1)
|
|
|
—
|
|
|
—
|
Total other
components of net periodic benefit (recovery) cost
|
|
(101)
|
|
|
(74)
|
|
|
5
|
|
|
6
|
Net periodic benefit
(recovery) cost
|
$
|
(71)
|
|
$
|
(48)
|
|
$
|
8
|
|
$
|
9
|
|
For the nine
months ended September 30
|
|
Pensions
|
|
Other
benefits
|
(in millions of
Canadian dollars)
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Current service cost
(benefits earned by employees)
|
$
|
90
|
|
$
|
77
|
|
$
|
9
|
|
$
|
9
|
Other components of
net periodic benefit (recovery) cost:
|
|
|
|
|
|
|
|
|
|
|
|
Interest cost on
benefit obligation
|
|
329
|
|
|
338
|
|
|
14
|
|
|
15
|
Expected return on
fund assets
|
|
(716)
|
|
|
(669)
|
|
|
—
|
|
|
—
|
Recognized net
actuarial loss
|
|
86
|
|
|
114
|
|
|
2
|
|
|
2
|
Amortization of prior
service costs
|
|
(2)
|
|
|
(3)
|
|
|
—
|
|
|
—
|
Total other
components of net periodic benefit (recovery) cost
|
|
(303)
|
|
|
(220)
|
|
|
16
|
|
|
17
|
Net periodic benefit
(recovery) cost
|
$
|
(213)
|
|
$
|
(143)
|
|
$
|
25
|
|
$
|
26
|
13 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, 2018 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
petroleum crude oil operated by Montreal Maine and Atlantic Railway
("MMAR") or a subsidiary, Montreal Maine & Atlantic Canada Co.
("MMAC" and collectively the "MMA Group"), derailed in
Lac-Mégantic, Québec. The derailment occurred on a section of
railway owned and operated by the MMA Group. The previous day CP
had interchanged the train to the MMA Group, and after the
interchange, the MMA Group exclusively controlled the train.
In the wake of the derailment, MMAC sought court protection in
Canada under the Companies'
Creditors Arrangement Act, R.S.C., 1985, c. C-36 and MMAR filed
for bankruptcy in the United
States. Plans of arrangement have been approved in both
Canada and the U.S. (the "Plans").
These Plans provide for the distribution of a fund of approximately
$440 million amongst those claiming
derailment damages.
A number of legal proceedings, set out below, were commenced
after the derailment in Canada
and/or in the U.S. against CP and others:
(1) Québec's Minister of Sustainable Development, Environment,
Wildlife and Parks (the "Minister") ordered various parties,
including CP, to clean up the derailment site (the "Cleanup
Order"). CP appealed the Cleanup Order to the Administrative
Tribunal of Québec (the "TAQ"). The Minister subsequently served a
Notice of Claim seeking $95 million
for compensation spent on cleanup. CP filed a contestation of the
Notice of Claim with the TAQ (the "TAQ Proceeding"). CP and the
Minister agreed to stay the TAQ Proceedings pending the outcome of
the Province of Québec's action, described in item #2 below.
(2) Québec's Attorney General sued CP in the Québec Superior
Court initially claiming $409 million
in damages, which claim was amended and reduced to $315 million (the "Province's Action"). The
Province's Action alleges that CP exercised custody or control over
the petroleum crude oil until its delivery to Irving Oil, that CP
was negligent in its custody and control of the petroleum crude oil
and that therefore CP is jointly and severally liable with third
parties responsible for the derailment and vicariously liable for
the acts and omissions of MMAC.
(3) A class action in the Québec Superior Court on behalf of
persons and entities residing in, owning or leasing property in,
operating a business in or physically present in Lac-Mégantic at
the time of the derailment (the "Class Action") was certified
against CP, MMAC and the train conductor, Mr. Thomas Harding ("Harding"). The Class Action
seeks unquantified damages, including for wrongful death, personal
injury, and property damage arising from the derailment. All known
wrongful death claimants in the Class Action have opted out and, by
court order, cannot re-join the Class Action.
(4) Eight subrogated insurers sued CP in the Québec Superior
Court initially claiming approximately $16
million in damages, which claim was amended and reduced to
$14 million (the "Promutuel Action")
and two additional subrogated insurers sued CP in the Québec
Superior Court claiming approximately $3
million in damages (the "Royal Action"). Both Actions
contain essentially the same allegations as the Province's Action.
The lawsuits do not identify the parties to which the insurers are
subrogated, and therefore the extent to which these claims overlap
with the proof of claims process under the Plans is difficult to
determine at this stage. The Royal Action has been stayed pending
the determination of the consolidated proceedings described
below.
The Province's Action, the Class Action and the Promutuel Action
have been consolidated and will proceed together through the
litigation process in the Québec Superior Court. While each Action
will remain a separate legal proceeding, there will be a trial to
determine liability issues commencing mid-September 2019, and subsequently, if
necessary, a trial to determine damages issues.
(5) Forty-eight plaintiffs (all individual claims joined in one
action) sued CP, MMAC and Harding in the Québec Superior Court
claiming approximately $5 million in
damages for economic loss and pain and suffering. These plaintiffs
assert essentially the same allegations as those contained in the
Class Action and the Province's Action against CP. The plaintiffs
assert they have opted-out of the Class Action. All but two of the
plaintiffs were plaintiffs in litigation against CP, described in
paragraph 7 below, that originated in the U.S. who either withdrew
their claims or had their case dismissed in the U.S.
(6) An adversary proceeding filed by the MMAR U.S. estate
representative ("Estate Representative") in Maine accuses CP of failing to abide by
certain regulations (the "Adversary Proceeding"). The Estate
Representative alleges that CP should not have moved the petroleum
crude oil train because an inaccurate classification by the shipper
was or should have been known. The Estate Representative seeks
damages for MMAR's business value (as yet unquantified) allegedly
destroyed by the derailment.
(7) A class action and mass tort action on behalf of
Lac-Mégantic residents and wrongful death representatives commenced
in Texas and wrongful death and
personal injury actions commenced in Illinois and Maine against CP were all removed to and
consolidated in Maine (the "Maine
Actions"). The Maine Actions allege that CP negligently
misclassified and mis-packaged the petroleum crude oil being
shipped. On CP's motion, the Maine Actions were dismissed by the
Court on several grounds. The plaintiffs are appealing the
dismissal decision.
(8) The Trustee (the "WD Trustee") for the wrongful death trust
(the "WD Trust"), as defined and established by the Estate
Representative under the Plans, asserts Carmack Amendment claims
against CP in North Dakota federal
court (the "Carmack Claims"). The WD Trustee seeks to recover
approximately $6 million for damaged
rail cars, and the settlement amounts the consignor and the
consignee paid to the bankruptcy estates, alleged to be
$110 million and $60 million, respectively. On CP's motion, the
federal court in North Dakota
dismissed the Carmack Claims on timeliness grounds but the Eighth
Circuit Court of Appeals reversed that decision. CP is seeking a
rehearing of the Eighth Circuit Court of Appeals decision, failing
which CP will seek dismissal of the Carmack Claims on various other
grounds.
At this stage of the proceedings, the risk of a finding of
liability and the quantum of potential losses cannot be determined.
CP denies liability and is vigorously defending the above noted
proceedings.
Environmental liabilities
Environmental remediation accruals, recorded on an undiscounted
basis unless a reliable, 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,
and as 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, 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, 2018 was
$2 million and $4 million, respectively (three and nine months
ended September 30, 2017 - $1
million and $3 million).
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, 2018 was $80 million (December 31, 2017 -
$78 million). Payments are expected
to be made over 10 years through 2028.
14 Condensed consolidating financial
information
Canadian Pacific Railway Company, a 100%-owned subsidiary
of Canadian Pacific Railway Limited ("CPRL"), is the issuer of
certain debt securities, which are fully and unconditionally
guaranteed by CPRL. The following tables present condensed
consolidating financial information ("CCFI") in accordance with
Rule 3-10(c) of Regulation S-X.
Investments in subsidiaries are accounted for under the equity
method when presenting the CCFI.
The tables include all adjustments necessary to reconcile the
CCFI on a consolidated basis to CPRL's consolidated financial
statements for the periods presented.
Interim Condensed Consolidating Statements of Income
For the three months ended September
30, 2018
(in millions of
Canadian dollars)
|
CPRL (Parent
Guarantor)
|
|
CPRC
(Subsidiary
Issuer)
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments and
Eliminations
|
|
CPRL
Consolidated
|
Revenues
|
|
|
|
|
|
|
|
|
|
Freight
|
$
|
—
|
|
$
|
1,316
|
|
$
|
538
|
|
$
|
—
|
|
$
|
1,854
|
Non-freight
|
|
—
|
|
|
31
|
|
|
92
|
|
|
(79)
|
|
|
44
|
Total
revenues
|
|
—
|
|
|
1,347
|
|
|
630
|
|
|
(79)
|
|
|
1,898
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and
benefits
|
|
—
|
|
|
246
|
|
|
117
|
|
|
2
|
|
|
365
|
Fuel
|
|
—
|
|
|
177
|
|
|
49
|
|
|
—
|
|
|
226
|
Materials
|
|
—
|
|
|
33
|
|
|
11
|
|
|
3
|
|
|
47
|
Equipment
rents
|
|
—
|
|
|
27
|
|
|
6
|
|
|
—
|
|
|
33
|
Depreciation and
amortization
|
|
—
|
|
|
105
|
|
|
69
|
|
|
—
|
|
|
174
|
Purchased services
and other
|
|
—
|
|
|
224
|
|
|
123
|
|
|
(84)
|
|
|
263
|
Total operating
expenses
|
|
—
|
|
|
812
|
|
|
375
|
|
|
(79)
|
|
|
1,108
|
Operating
income
|
|
—
|
|
|
535
|
|
|
255
|
|
|
—
|
|
|
790
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income)
expense
|
|
(4)
|
|
|
(46)
|
|
|
3
|
|
|
—
|
|
|
(47)
|
Other components of
net periodic benefit
(recovery) expense
|
|
—
|
|
|
(97)
|
|
|
1
|
|
|
—
|
|
|
(96)
|
Net interest (income)
expense
|
|
(2)
|
|
|
121
|
|
|
(7)
|
|
|
—
|
|
|
112
|
Income before
income tax expense and
equity in net earnings of subsidiaries
|
|
6
|
|
|
557
|
|
|
258
|
|
|
—
|
|
|
821
|
Less: Income tax
(recovery) expense
|
|
(1)
|
|
|
142
|
|
|
58
|
|
|
—
|
|
|
199
|
Add: Equity in net
earnings of subsidiaries
|
|
615
|
|
|
200
|
|
|
—
|
|
|
(815)
|
|
|
—
|
Net
income
|
$
|
622
|
|
$
|
615
|
|
$
|
200
|
|
$
|
(815)
|
|
$
|
622
|
Interim Condensed Consolidating Statements of Income
For the three months ended September 30,
2017
(in millions of
Canadian dollars)
|
CPRL (Parent
Guarantor)
|
|
CPRC
(Subsidiary
Issuer)
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments and
Eliminations
|
|
CPRL
Consolidated
|
Revenues
|
|
|
|
|
|
|
|
|
|
Freight
|
$
|
—
|
|
$
|
1,092
|
|
$
|
455
|
|
$
|
—
|
|
$
|
1,547
|
Non-freight
|
|
—
|
|
|
38
|
|
|
90
|
|
|
(80)
|
|
|
48
|
Total
revenues
|
|
—
|
|
|
1,130
|
|
|
545
|
|
|
(80)
|
|
|
1,595
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and
benefits
|
|
—
|
|
|
218
|
|
|
103
|
|
|
3
|
|
|
324
|
Fuel
|
|
—
|
|
|
116
|
|
|
34
|
|
|
—
|
|
|
150
|
Materials
|
|
—
|
|
|
33
|
|
|
11
|
|
|
1
|
|
|
45
|
Equipment
rents
|
|
—
|
|
|
35
|
|
|
—
|
|
|
—
|
|
|
35
|
Depreciation and
amortization
|
|
—
|
|
|
108
|
|
|
54
|
|
|
—
|
|
|
162
|
Purchased services
and other
|
|
—
|
|
|
195
|
|
|
146
|
|
|
(84)
|
|
|
257
|
Total operating
expenses
|
|
—
|
|
|
705
|
|
|
348
|
|
|
(80)
|
|
|
973
|
Operating
income
|
|
—
|
|
|
425
|
|
|
197
|
|
|
—
|
|
|
622
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income)
expense
|
|
(10)
|
|
|
(100)
|
|
|
5
|
|
|
—
|
|
|
(105)
|
Other components of
net periodic benefit
(recovery) expense
|
|
—
|
|
|
(69)
|
|
|
1
|
|
|
—
|
|
|
(68)
|
Net interest (income)
expense
|
|
(2)
|
|
|
126
|
|
|
(9)
|
|
|
—
|
|
|
115
|
Income before
income tax expense and
equity in net earnings of subsidiaries
|
|
12
|
|
|
468
|
|
|
200
|
|
|
—
|
|
|
680
|
Less: Income tax
expense
|
|
7
|
|
|
99
|
|
|
64
|
|
|
—
|
|
|
170
|
Add: Equity in net
earnings of subsidiaries
|
|
505
|
|
|
136
|
|
|
—
|
|
|
(641)
|
|
|
—
|
Net
income
|
$
|
510
|
|
$
|
505
|
|
$
|
136
|
|
$
|
(641)
|
|
$
|
510
|
|
Certain of these
figures have been reclassified in order to be consistent with the
2018 presentation (Note 2).
|
Interim Condensed Consolidating Statements of Income
For the nine months ended September
30, 2018
(in millions of
Canadian dollars)
|
CPRL (Parent
Guarantor)
|
|
CPRC
(Subsidiary
Issuer)
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments and
Eliminations
|
|
CPRL
Consolidated
|
Revenues
|
|
|
|
|
|
|
|
|
|
Freight
|
$
|
—
|
|
$
|
3,667
|
|
$
|
1,521
|
|
$
|
—
|
|
$
|
5,188
|
Non-freight
|
|
—
|
|
|
89
|
|
|
271
|
|
|
(238)
|
|
|
122
|
Total
revenues
|
|
—
|
|
|
3,756
|
|
|
1,792
|
|
|
(238)
|
|
|
5,310
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and
benefits
|
|
—
|
|
|
740
|
|
|
346
|
|
|
4
|
|
|
1,090
|
Fuel
|
|
—
|
|
|
523
|
|
|
148
|
|
|
—
|
|
|
671
|
Materials
|
|
—
|
|
|
106
|
|
|
38
|
|
|
11
|
|
|
155
|
Equipment
rents
|
|
—
|
|
|
88
|
|
|
11
|
|
|
—
|
|
|
99
|
Depreciation and
amortization
|
|
—
|
|
|
314
|
|
|
202
|
|
|
—
|
|
|
516
|
Purchased services
and other
|
|
—
|
|
|
647
|
|
|
428
|
|
|
(253)
|
|
|
822
|
Total operating
expenses
|
|
—
|
|
|
2,418
|
|
|
1,173
|
|
|
(238)
|
|
|
3,353
|
Operating
income
|
|
—
|
|
|
1,338
|
|
|
619
|
|
|
—
|
|
|
1,957
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense
(income)
|
|
7
|
|
|
81
|
|
|
(32)
|
|
|
—
|
|
|
56
|
Other components of
net periodic benefit
(recovery) expense
|
|
—
|
|
|
(289)
|
|
|
2
|
|
|
—
|
|
|
(287)
|
Net interest expense
(income)
|
|
4
|
|
|
356
|
|
|
(21)
|
|
|
—
|
|
|
339
|
(Loss) income
before income tax expense
and equity in net earnings of subsidiaries
|
|
(11)
|
|
|
1,190
|
|
|
670
|
|
|
—
|
|
|
1,849
|
Less: Income tax
(recovery) expense
|
|
(2)
|
|
|
327
|
|
|
118
|
|
|
—
|
|
|
443
|
Add: Equity in net
earnings of subsidiaries
|
|
1,415
|
|
|
552
|
|
|
—
|
|
|
(1,967)
|
|
|
—
|
Net
income
|
$
|
1,406
|
|
$
|
1,415
|
|
$
|
552
|
|
$
|
(1,967)
|
|
$
|
1,406
|
Interim Condensed Consolidating Statements of Income
For the nine months ended September
30, 2017
(in millions of
Canadian dollars)
|
CPRL (Parent
Guarantor)
|
|
CPRC
(Subsidiary
Issuer)
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments and
Eliminations
|
|
CPRL
Consolidated
|
Revenues
|
|
|
|
|
|
|
|
|
|
Freight
|
$
|
—
|
|
$
|
3,310
|
|
$
|
1,398
|
|
$
|
—
|
|
$
|
4,708
|
Non-freight
|
|
—
|
|
|
104
|
|
|
278
|
|
|
(249)
|
|
|
133
|
Total
revenues
|
|
—
|
|
|
3,414
|
|
|
1,676
|
|
|
(249)
|
|
|
4,841
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and
benefits
|
|
—
|
|
|
644
|
|
|
320
|
|
|
5
|
|
|
969
|
Fuel
|
|
—
|
|
|
370
|
|
|
110
|
|
|
—
|
|
|
480
|
Materials
|
|
—
|
|
|
101
|
|
|
28
|
|
|
13
|
|
|
142
|
Equipment
rents
|
|
—
|
|
|
110
|
|
|
(2)
|
|
|
—
|
|
|
108
|
Depreciation and
amortization
|
|
—
|
|
|
325
|
|
|
168
|
|
|
—
|
|
|
493
|
Purchased services
and other
|
|
—
|
|
|
613
|
|
|
466
|
|
|
(267)
|
|
|
812
|
Total operating
expenses
|
|
—
|
|
|
2,163
|
|
|
1,090
|
|
|
(249)
|
|
|
3,004
|
Operating
income
|
|
—
|
|
|
1,251
|
|
|
586
|
|
|
—
|
|
|
1,837
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income)
expense
|
|
(35)
|
|
|
(166)
|
|
|
7
|
|
|
—
|
|
|
(194)
|
Other components of
net periodic benefit
(recovery) expense
|
|
—
|
|
|
(206)
|
|
|
3
|
|
|
—
|
|
|
(203)
|
Net interest (income)
expense
|
|
(9)
|
|
|
390
|
|
|
(24)
|
|
|
—
|
|
|
357
|
Income before
income tax expense and
equity in net earnings of subsidiaries
|
|
44
|
|
|
1,233
|
|
|
600
|
|
|
—
|
|
|
1,877
|
Less: Income tax
expense
|
|
9
|
|
|
259
|
|
|
188
|
|
|
—
|
|
|
456
|
Add: Equity in net
earnings of subsidiaries
|
|
1,386
|
|
|
412
|
|
|
—
|
|
|
(1,798)
|
|
|
—
|
Net
income
|
$
|
1,421
|
|
$
|
1,386
|
|
$
|
412
|
|
$
|
(1,798)
|
|
$
|
1,421
|
|
Certain of these
figures have been reclassified in order to be consistent with the
2018 presentation (Note 2).
|
Interim Condensed Consolidating Statements of Comprehensive
Income
For the three months ended September 30, 2018
(in millions of
Canadian dollars)
|
CPRL (Parent
Guarantor)
|
|
CPRC
(Subsidiary
Issuer)
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments and
Eliminations
|
|
CPRL
Consolidated
|
Net income
|
$
|
622
|
|
$
|
615
|
|
$
|
200
|
|
$
|
(815)
|
|
$
|
622
|
Net gain (loss) in
foreign currency translation
adjustments, net of hedging activities
|
|
—
|
|
|
96
|
|
|
(84)
|
|
|
—
|
|
|
12
|
Change in derivatives
designated as cash flow
hedges
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
Change in pension and
post-retirement defined
benefit plans
|
|
—
|
|
|
27
|
|
|
1
|
|
|
—
|
|
|
28
|
Other
comprehensive income (loss) before
income taxes
|
|
—
|
|
|
124
|
|
|
(83)
|
|
|
—
|
|
|
41
|
Income tax expense on
above items
|
|
—
|
|
|
(22)
|
|
|
—
|
|
|
—
|
|
|
(22)
|
Equity accounted
investments
|
|
19
|
|
|
(83)
|
|
|
—
|
|
|
64
|
|
|
—
|
Other
comprehensive income (loss)
|
|
19
|
|
|
19
|
|
|
(83)
|
|
|
64
|
|
|
19
|
Comprehensive
income
|
$
|
641
|
|
$
|
634
|
|
$
|
117
|
|
$
|
(751)
|
|
$
|
641
|
Interim Condensed Consolidating Statements of Comprehensive
Income
For the three months ended September 30, 2017
(in millions of
Canadian dollars)
|
CPRL (Parent
Guarantor)
|
|
CPRC
(Subsidiary
Issuer)
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments and
Eliminations
|
|
CPRL
Consolidated
|
Net income
|
$
|
510
|
|
$
|
505
|
|
$
|
136
|
|
$
|
(641)
|
|
$
|
510
|
Net gain (loss) in
foreign currency translation
adjustments, net of hedging activities
|
|
—
|
|
|
180
|
|
|
(161)
|
|
|
—
|
|
|
19
|
Change in derivatives
designated as cash flow
hedges
|
|
—
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
2
|
Change in pension and
post-retirement defined
benefit plans
|
|
—
|
|
|
36
|
|
|
2
|
|
|
—
|
|
|
38
|
Other
comprehensive income (loss) before
income taxes
|
|
—
|
|
|
218
|
|
|
(159)
|
|
|
—
|
|
|
59
|
Income tax expense on
above items
|
|
—
|
|
|
(34)
|
|
|
—
|
|
|
—
|
|
|
(34)
|
Equity accounted
investments
|
|
25
|
|
|
(159)
|
|
|
—
|
|
|
134
|
|
|
—
|
Other
comprehensive income (loss)
|
|
25
|
|
|
25
|
|
|
(159)
|
|
|
134
|
|
|
25
|
Comprehensive
income
|
$
|
535
|
|
$
|
530
|
|
$
|
(23)
|
|
$
|
(507)
|
|
$
|
535
|
Interim Condensed Consolidating Statements of Comprehensive
Income
For the nine months ended September 30, 2018
(in millions of
Canadian dollars)
|
CPRL (Parent
Guarantor)
|
|
CPRC
(Subsidiary
Issuer)
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments and
Eliminations
|
|
CPRL
Consolidated
|
Net income
|
$
|
1,406
|
|
$
|
1,415
|
|
$
|
552
|
|
$
|
(1,967)
|
|
$
|
1,406
|
Net (loss) gain in
foreign currency translation
adjustments, net of hedging activities
|
|
—
|
|
|
(177)
|
|
|
153
|
|
|
—
|
|
|
(24)
|
Change in derivatives
designated as cash flow
hedges
|
|
—
|
|
|
36
|
|
|
—
|
|
|
—
|
|
|
36
|
Change in pension and
post-retirement defined
benefit plans
|
|
—
|
|
|
82
|
|
|
4
|
|
|
—
|
|
|
86
|
Other
comprehensive (loss) income before
income taxes
|
|
—
|
|
|
(59)
|
|
|
157
|
|
|
—
|
|
|
98
|
Income tax expense on
above items
|
|
—
|
|
|
(10)
|
|
|
(1)
|
|
|
—
|
|
|
(11)
|
Equity accounted
investments
|
|
87
|
|
|
156
|
|
|
—
|
|
|
(243)
|
|
|
—
|
Other
comprehensive income
|
|
87
|
|
|
87
|
|
|
156
|
|
|
(243)
|
|
|
87
|
Comprehensive
income
|
$
|
1,493
|
|
$
|
1,502
|
|
$
|
708
|
|
$
|
(2,210)
|
|
$
|
1,493
|
Interim Condensed Consolidating Statements of Comprehensive
Income
For the nine months ended September 30, 2017
(in millions of
Canadian dollars)
|
CPRL (Parent
Guarantor)
|
|
CPRC
(Subsidiary
Issuer)
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments and
Eliminations
|
|
CPRL
Consolidated
|
Net income
|
$
|
1,421
|
|
$
|
1,386
|
|
$
|
412
|
|
$
|
(1,798)
|
|
$
|
1,421
|
Net gain (loss) in
foreign currency translation
adjustments, net of hedging activities
|
|
—
|
|
|
342
|
|
|
(304)
|
|
|
—
|
|
|
38
|
Change in derivatives
designated as cash flow
hedges
|
|
—
|
|
|
11
|
|
|
—
|
|
|
—
|
|
|
11
|
Change in pension and
post-retirement defined
benefit plans
|
|
—
|
|
|
108
|
|
|
5
|
|
|
—
|
|
|
113
|
Other
comprehensive income (loss) before
income taxes
|
|
—
|
|
|
461
|
|
|
(299)
|
|
|
—
|
|
|
162
|
Income tax expense on
above items
|
|
—
|
|
|
(77)
|
|
|
(1)
|
|
|
—
|
|
|
(78)
|
Equity accounted
investments
|
|
84
|
|
|
(300)
|
|
|
—
|
|
|
216
|
|
|
—
|
Other
comprehensive income (loss)
|
|
84
|
|
|
84
|
|
|
(300)
|
|
|
216
|
|
|
84
|
Comprehensive
income
|
$
|
1,505
|
|
$
|
1,470
|
|
$
|
112
|
|
$
|
(1,582)
|
|
$
|
1,505
|
Interim Condensed Consolidating Balance Sheets
As
at September 30, 2018
(in millions of
Canadian dollars)
|
CPRL (Parent
Guarantor)
|
|
CPRC
(Subsidiary
Issuer)
|
|
Non-Guarantor
Subsidiaries
|
Consolidating
Adjustments and
Eliminations
|
|
CPRL
Consolidated
|
Assets
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
$
|
—
|
|
$
|
103
|
|
$
|
47
|
|
$
|
—
|
|
$
|
150
|
Accounts receivable,
net
|
|
—
|
|
|
592
|
|
167
|
|
|
—
|
|
|
759
|
Accounts receivable,
intercompany
|
|
119
|
|
|
128
|
|
182
|
|
|
(429)
|
|
|
—
|
Short-term advances
to affiliates
|
|
—
|
|
|
1,049
|
|
4,676
|
|
|
(5,725)
|
|
|
—
|
Materials and
supplies
|
|
—
|
|
|
123
|
|
33
|
|
|
—
|
|
|
156
|
Other current
assets
|
|
—
|
|
|
45
|
|
48
|
|
|
(28)
|
|
|
65
|
|
|
119
|
|
|
2,040
|
|
5,153
|
|
|
(6,182)
|
|
|
1,130
|
Long-term advances to
affiliates
|
|
1,090
|
|
|
5
|
|
88
|
|
|
(1,183)
|
|
|
—
|
Investments
|
|
—
|
|
|
35
|
|
166
|
|
|
—
|
|
|
201
|
Investments in
subsidiaries
|
|
11,366
|
|
|
11,728
|
|
—
|
|
|
(23,094)
|
|
|
—
|
Properties
|
|
—
|
|
|
9,395
|
|
8,397
|
|
|
—
|
|
|
17,792
|
Goodwill and
intangible assets
|
|
—
|
|
|
—
|
|
192
|
|
|
—
|
|
|
192
|
Pension
asset
|
|
—
|
|
|
1,726
|
|
—
|
|
|
—
|
|
|
1,726
|
Other
assets
|
|
—
|
|
|
57
|
|
11
|
|
|
—
|
|
|
68
|
Deferred income
taxes
|
|
6
|
|
|
—
|
|
—
|
|
|
(6)
|
|
|
—
|
Total
assets
|
$
|
12,581
|
|
$
|
24,986
|
|
$
|
14,007
|
|
$
|
(30,465)
|
|
$
|
21,109
|
Liabilities and
shareholders' equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and
accrued liabilities
|
$
|
93
|
|
$
|
822
|
|
$
|
302
|
|
$
|
(28)
|
|
$
|
1,189
|
Accounts payable,
intercompany
|
|
4
|
|
|
297
|
|
128
|
|
|
(429)
|
|
|
—
|
Short-term advances
from affiliates
|
|
5,356
|
|
|
366
|
|
3
|
|
|
(5,725)
|
|
|
—
|
Long-term debt
maturing within one year
|
|
—
|
|
|
480
|
|
—
|
|
|
—
|
|
|
480
|
|
|
5,453
|
|
|
1,965
|
|
433
|
|
|
(6,182)
|
|
|
1,669
|
Pension and other
benefit liabilities
|
|
—
|
|
|
668
|
|
78
|
|
|
—
|
|
|
746
|
Long-term advances
from affiliates
|
|
—
|
|
|
1,178
|
|
5
|
|
|
(1,183)
|
|
|
—
|
Other long-term
liabilities
|
|
—
|
|
|
114
|
|
118
|
|
|
—
|
|
|
232
|
Long-term
debt
|
|
—
|
|
|
7,754
|
|
52
|
|
|
—
|
|
|
7,806
|
Deferred income
taxes
|
|
—
|
|
|
1,941
|
|
1,593
|
|
|
(6)
|
|
|
3,528
|
Total
liabilities
|
|
5,453
|
|
|
13,620
|
|
2,279
|
|
|
(7,371)
|
|
|
13,981
|
Shareholders'
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
capital
|
|
2,017
|
|
|
538
|
|
6,127
|
|
|
(6,665)
|
|
|
2,017
|
Additional paid-in
capital
|
|
47
|
|
|
1,653
|
|
92
|
|
|
(1,745)
|
|
|
47
|
Accumulated other
comprehensive (loss) income
|
|
(1,654)
|
|
|
(1,654)
|
|
571
|
|
|
1,083
|
|
|
(1,654)
|
Retained
earnings
|
|
6,718
|
|
|
10,829
|
|
4,938
|
|
|
(15,767)
|
|
|
6,718
|
|
|
7,128
|
|
|
11,366
|
|
11,728
|
|
|
(23,094)
|
|
|
7,128
|
Total liabilities
and shareholders' equity
|
$
|
12,581
|
|
$
|
24,986
|
|
$
|
14,007
|
|
$
|
(30,465)
|
|
$
|
21,109
|
Condensed Consolidating Balance Sheets
As at
December 31,
2017
(in millions of
Canadian dollars)
|
CPRL (Parent
Guarantor)
|
|
CPRC
(Subsidiary
Issuer)
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments and
Eliminations
|
|
CPRL
Consolidated
|
Assets
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
$
|
—
|
|
$
|
241
|
|
$
|
97
|
|
$
|
—
|
|
$
|
338
|
Accounts receivable,
net
|
|
—
|
|
|
508
|
|
|
179
|
|
|
—
|
|
|
687
|
Accounts receivable,
intercompany
|
|
97
|
|
|
153
|
|
|
215
|
|
|
(465)
|
|
|
—
|
Short-term advances
to affiliates
|
|
500
|
|
|
1,004
|
|
|
4,996
|
|
|
(6,500)
|
|
|
—
|
Materials and
supplies
|
|
—
|
|
|
120
|
|
|
32
|
|
|
—
|
|
|
152
|
Other current
assets
|
|
—
|
|
|
31
|
|
|
66
|
|
|
—
|
|
|
97
|
|
|
597
|
|
|
2,057
|
|
|
5,585
|
|
|
(6,965)
|
|
|
1,274
|
Long-term advances to
affiliates
|
|
590
|
|
|
—
|
|
|
410
|
|
|
(1,000)
|
|
|
—
|
Investments
|
|
—
|
|
|
27
|
|
|
155
|
|
|
—
|
|
|
182
|
Investments in
subsidiaries
|
|
10,623
|
|
|
12,122
|
|
|
—
|
|
|
(22,745)
|
|
|
—
|
Properties
|
|
—
|
|
|
8,982
|
|
|
8,034
|
|
|
—
|
|
|
17,016
|
Goodwill and
intangible assets
|
|
—
|
|
|
—
|
|
|
187
|
|
|
—
|
|
|
187
|
Pension
asset
|
|
—
|
|
|
1,407
|
|
|
—
|
|
|
—
|
|
|
1,407
|
Other
assets
|
|
—
|
|
|
56
|
|
|
13
|
|
|
—
|
|
|
69
|
Deferred income
taxes
|
|
3
|
|
|
—
|
|
|
—
|
|
|
(3)
|
|
|
—
|
Total
assets
|
$
|
11,813
|
|
$
|
24,651
|
|
$
|
14,384
|
|
$
|
(30,713)
|
|
$
|
20,135
|
Liabilities and
shareholders' equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and
accrued liabilities
|
$
|
82
|
|
$
|
844
|
|
$
|
312
|
|
$
|
—
|
|
$
|
1,238
|
Accounts payable,
intercompany
|
|
3
|
|
|
309
|
|
|
153
|
|
|
(465)
|
|
|
—
|
Short-term advances
from affiliates
|
|
5,291
|
|
|
1,185
|
|
|
24
|
|
|
(6,500)
|
|
|
—
|
Long-term debt
maturing within one year
|
|
—
|
|
|
746
|
|
|
—
|
|
|
—
|
|
|
746
|
|
|
5,376
|
|
|
3,084
|
|
|
489
|
|
|
(6,965)
|
|
|
1,984
|
Pension and other
benefit liabilities
|
|
—
|
|
|
672
|
|
|
77
|
|
|
—
|
|
|
749
|
Long-term advances
from affiliates
|
|
—
|
|
|
1,000
|
|
|
—
|
|
|
(1,000)
|
|
|
—
|
Other long-term
liabilities
|
|
—
|
|
|
108
|
|
|
123
|
|
|
—
|
|
|
231
|
Long-term
debt
|
|
—
|
|
|
7,362
|
|
|
51
|
|
|
—
|
|
|
7,413
|
Deferred income
taxes
|
|
—
|
|
|
1,802
|
|
|
1,522
|
|
|
(3)
|
|
|
3,321
|
Total
liabilities
|
|
5,376
|
|
|
14,028
|
|
|
2,262
|
|
|
(7,968)
|
|
|
13,698
|
Shareholders'
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
capital
|
|
2,032
|
|
|
1,037
|
|
|
6,730
|
|
|
(7,767)
|
|
|
2,032
|
Additional paid-in
capital
|
|
43
|
|
|
1,643
|
|
|
259
|
|
|
(1,902)
|
|
|
43
|
Accumulated other
comprehensive (loss)
income
|
|
(1,741)
|
|
|
(1,742)
|
|
|
417
|
|
|
1,325
|
|
|
(1,741)
|
Retained
earnings
|
|
6,103
|
|
|
9,685
|
|
|
4,716
|
|
|
(14,401)
|
|
|
6,103
|
|
|
6,437
|
|
|
10,623
|
|
|
12,122
|
|
|
(22,745)
|
|
|
6,437
|
Total liabilities
and shareholders' equity
|
$
|
11,813
|
|
$
|
24,651
|
|
$
|
14,384
|
|
$
|
(30,713)
|
|
$
|
20,135
|
Interim Condensed Consolidating Statements of Cash
Flows
For the three months ended September 30,
2018
(in millions of
Canadian dollars)
|
CPRL (Parent
Guarantor)
|
|
CPRC (Subsidiary
Issuer)
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments and Eliminations
|
|
CPRL
Consolidated
|
Cash provided by
operating activities
|
$
|
87
|
|
$
|
416
|
|
$
|
319
|
|
$
|
(149)
|
|
$
|
673
|
Investing
activities
|
|
|
|
|
|
Additions to
properties
|
—
|
|
(303)
|
|
(127)
|
|
—
|
|
(430)
|
Proceeds from sale of
properties and other assets
|
—
|
|
4
|
|
3
|
|
—
|
|
7
|
Advances to
affiliates
|
—
|
|
—
|
|
(209)
|
|
209
|
|
—
|
Repayment of advances
to affiliates
|
—
|
|
499
|
|
345
|
|
(844)
|
|
—
|
Repurchase of share
capital from affiliates
|
500
|
|
236
|
|
—
|
|
(736)
|
|
—
|
Cash provided by
(used in) investing activities
|
500
|
|
436
|
|
12
|
|
(1,371)
|
|
(423)
|
Financing
activities
|
|
|
|
|
|
Dividends
paid
|
(92)
|
|
(92)
|
|
(57)
|
|
149
|
|
(92)
|
Return of share
capital to affiliates
|
—
|
|
(500)
|
|
(236)
|
|
736
|
|
—
|
Issuance of CP Common
Shares
|
4
|
|
—
|
|
—
|
|
—
|
|
4
|
Repayment of
long-term debt, excluding commercial paper
|
—
|
|
(5)
|
|
—
|
|
—
|
|
(5)
|
Net repayment of
commercial paper
|
—
|
|
(53)
|
|
—
|
|
—
|
|
(53)
|
Advances from
affiliates
|
209
|
|
—
|
|
—
|
|
(209)
|
|
—
|
Repayment of advances
from affiliates
|
(708)
|
|
(136)
|
|
—
|
|
844
|
|
—
|
Cash used in
financing activities
|
(587)
|
|
(786)
|
|
(293)
|
|
1,520
|
|
(146)
|
Effect of foreign
currency fluctuations on U.S. dollar-denominated cash and cash
equivalents
|
—
|
|
17
|
|
(22)
|
|
—
|
|
(5)
|
Cash
position
|
|
|
|
|
|
Increase in cash and
cash equivalents
|
—
|
|
83
|
|
16
|
|
—
|
|
99
|
Cash and cash
equivalents at beginning of period
|
—
|
|
20
|
|
31
|
|
—
|
|
51
|
Cash and cash
equivalents at end of period
|
$
|
—
|
|
$
|
103
|
|
$
|
47
|
|
$
|
—
|
|
$
|
150
|
Interim Condensed Consolidating Statements of Cash
Flows
For the three months ended September 30, 2017
(in millions of
Canadian dollars)
|
CPRL (Parent
Guarantor)
|
|
CPRC
(Subsidiary Issuer)
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments and Eliminations
|
|
CPRL
Consolidated
|
Cash provided by
operating activities
|
$
|
98
|
|
$
|
322
|
|
$
|
213
|
|
$
|
(106)
|
|
$
|
527
|
Investing
activities
|
|
|
|
|
|
|
|
|
|
Additions to
properties
|
—
|
|
(193)
|
|
(126)
|
|
—
|
|
(319)
|
Proceeds from sale of
properties and other assets
|
—
|
|
11
|
|
2
|
|
—
|
|
13
|
Advances to
affiliates
|
—
|
|
—
|
|
(50)
|
|
50
|
|
—
|
Repayment of advances
to affiliates
|
159
|
|
1
|
|
—
|
|
(160)
|
|
—
|
Capital contributions
to affiliates
|
—
|
|
(26)
|
|
—
|
|
26
|
|
—
|
Repurchase of share
capital from affiliates
|
—
|
|
32
|
|
—
|
|
(32)
|
|
—
|
Cash provided by
(used in) investing activities
|
159
|
|
(175)
|
|
(174)
|
|
(116)
|
|
(306)
|
Financing
activities
|
|
|
|
|
|
|
|
|
Dividends
paid
|
(83)
|
|
(83)
|
|
(23)
|
|
106
|
|
(83)
|
Issuance of share
capital
|
—
|
|
—
|
|
26
|
|
(26)
|
|
—
|
Return of share
capital to affiliates
|
—
|
|
—
|
|
(32)
|
|
32
|
|
—
|
Issuance of CP Common
Shares
|
2
|
|
—
|
|
—
|
|
—
|
|
2
|
Purchase of CP Common
Shares
|
(226)
|
|
—
|
|
—
|
|
—
|
|
(226)
|
Repayment of
long-term debt, excluding commercial paper
|
—
|
|
(3)
|
|
—
|
|
—
|
|
(3)
|
Advances from
affiliates
|
50
|
|
—
|
|
—
|
|
(50)
|
|
—
|
Repayment of advances
from affiliates
|
—
|
|
(159)
|
|
(1)
|
|
160
|
|
—
|
Cash used in
financing activities
|
(257)
|
|
(245)
|
|
(30)
|
|
222
|
|
(310)
|
Effect of foreign
currency fluctuations on U.S. dollar-denominated cash and cash
equivalents
|
—
|
|
(2)
|
|
(5)
|
|
—
|
|
(7)
|
Cash
position
|
|
|
|
|
|
|
|
|
|
(Decrease) increase
in cash and cash equivalents
|
—
|
|
(100)
|
|
4
|
|
—
|
|
(96)
|
Cash and cash
equivalents at beginning of period
|
—
|
|
178
|
|
60
|
|
—
|
|
238
|
Cash and cash
equivalents at end of period
|
$
|
—
|
|
$
|
78
|
|
$
|
64
|
|
$
|
—
|
|
$
|
142
|
Interim Condensed Consolidating Statements of Cash
Flows
For the nine months ended September 30, 2018
(in millions of
Canadian dollars)
|
CPRL (Parent
Guarantor)
|
|
CPRC
(Subsidiary
Issuer)
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments and
Eliminations
|
|
CPRL
Consolidated
|
Cash provided by
operating activities
|
$
|
235
|
|
$
|
1,309
|
|
$
|
782
|
|
$
|
(545)
|
|
$
|
1,781
|
Investing
activities
|
|
|
|
|
|
|
|
|
|
Additions to
properties
|
—
|
|
(701)
|
|
(383)
|
|
—
|
|
(1,084)
|
Proceeds from sale of
properties and other assets
|
—
|
|
10
|
|
6
|
|
—
|
|
16
|
Advances to
affiliates
|
—
|
|
(63)
|
|
(209)
|
|
272
|
|
—
|
Repayment of advances
to affiliates
|
—
|
|
—
|
|
840
|
|
(840)
|
|
—
|
Repurchase of share
capital from affiliates
|
500
|
|
783
|
|
—
|
|
(1,283)
|
|
—
|
Other
|
—
|
|
—
|
|
(1)
|
|
—
|
|
(1)
|
Cash provided by
(used in) investing activities
|
500
|
|
29
|
|
253
|
|
(1,851)
|
|
(1,069)
|
Financing
activities
|
|
|
|
|
|
|
|
|
|
Dividends
paid
|
(255)
|
|
(255)
|
|
(290)
|
|
545
|
|
(255)
|
Return of share
capital to affiliates
|
—
|
|
(500)
|
|
(783)
|
|
1,283
|
|
—
|
Issuance of CP Common
Shares
|
16
|
|
—
|
|
—
|
|
—
|
|
16
|
Purchase of CP Common
Shares
|
(559)
|
|
—
|
|
—
|
|
—
|
|
(559)
|
Issuance of long-term
debt, excluding commercial paper
|
—
|
|
638
|
|
—
|
|
—
|
|
638
|
Repayment of
long-term debt, excluding commercial paper
|
—
|
|
(744)
|
|
—
|
|
—
|
|
(744)
|
Advances from
affiliates
|
272
|
|
—
|
|
—
|
|
(272)
|
|
—
|
Repayment of advances
from affiliates
|
(209)
|
|
(631)
|
|
—
|
|
840
|
|
—
|
Cash used in
financing activities
|
(735)
|
|
(1,492)
|
|
(1,073)
|
|
2,396
|
|
(904)
|
Effect of foreign
currency fluctuations on U.S. dollar-denominated cash and cash
equivalents
|
—
|
|
16
|
|
(12)
|
|
—
|
|
4
|
Cash
position
|
|
|
|
|
|
|
|
|
|
Decrease in cash and
cash equivalents
|
—
|
|
(138)
|
|
(50)
|
|
—
|
|
(188)
|
Cash and cash
equivalents at beginning of year
|
—
|
|
241
|
|
97
|
|
—
|
|
338
|
Cash and cash
equivalents at end of year
|
$
|
—
|
|
$
|
103
|
|
$
|
47
|
|
$
|
—
|
|
$
|
150
|
Interim Condensed Consolidating Statements of Cash
Flows
For the nine months ended September 30, 2017
(in millions of
Canadian dollars)
|
CPRL (Parent
Guarantor)
|
|
CPRC
(Subsidiary
Issuer)
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments and
Eliminations
|
|
CPRL
Consolidated
|
Cash provided by
operating activities
|
$
|
256
|
|
$
|
875
|
|
$
|
716
|
|
$
|
(398)
|
|
$
|
1,449
|
Investing
activities
|
|
|
|
|
|
Additions to
properties
|
—
|
|
(494)
|
|
(401)
|
|
—
|
|
(895)
|
Proceeds from sale of
properties and other assets
|
—
|
|
17
|
|
12
|
|
—
|
|
29
|
Advances to
affiliates
|
(1,079)
|
|
(550)
|
|
(1,157)
|
|
2,786
|
|
—
|
Capital contributions
to affiliates
|
—
|
|
(1,039)
|
|
—
|
|
1,039
|
|
—
|
Repurchase of share
capital from affiliates
|
—
|
|
32
|
|
—
|
|
(32)
|
|
—
|
Other
|
—
|
|
6
|
|
(1)
|
|
—
|
|
5
|
Cash used in
investing activities
|
(1,079)
|
|
(2,028)
|
|
(1,547)
|
|
3,793
|
|
(861)
|
Financing
activities
|
|
|
|
|
|
Dividends
paid
|
(229)
|
|
(229)
|
|
(169)
|
|
398
|
|
(229)
|
Issuance of share
capital
|
—
|
|
—
|
|
1,039
|
|
(1,039)
|
|
—
|
Return of share
capital to affiliates
|
—
|
|
—
|
|
(32)
|
|
32
|
|
—
|
Issuance of CP Common
Shares
|
39
|
|
—
|
|
—
|
|
—
|
|
39
|
Purchase of CP Common
Shares
|
(368)
|
|
—
|
|
—
|
|
—
|
|
(368)
|
Repayment of
long-term debt, excluding commercial paper
|
—
|
|
(17)
|
|
—
|
|
—
|
|
(17)
|
Advances from
affiliates
|
1,381
|
|
1,405
|
|
—
|
|
(2,786)
|
|
—
|
Settlement of forward
starting swaps on de-designation
|
—
|
|
(22)
|
|
—
|
|
—
|
|
(22)
|
Cash provided by
(used in) financing activities
|
823
|
|
1,137
|
|
838
|
|
(3,395)
|
|
(597)
|
Effect of foreign
currency fluctuations on U.S. dollar-denominated cash and cash
equivalents
|
—
|
|
(6)
|
|
(7)
|
|
—
|
|
(13)
|
Cash
position
|
|
|
|
|
|
Decrease in cash and
cash equivalents
|
—
|
|
(22)
|
|
—
|
|
—
|
|
(22)
|
Cash and cash
equivalents at beginning of year
|
—
|
|
100
|
|
64
|
|
—
|
|
164
|
Cash and cash
equivalents at end of year
|
$
|
—
|
|
$
|
78
|
|
$
|
64
|
|
$
|
—
|
|
$
|
142
|
Summary of Rail Data
|
Third
Quarter
|
|
Year-to-date
|
Financial
(millions, except per share data)
|
2018
|
|
2017
|
|
Total
Change
|
|
%
Change
|
|
2018
|
|
2017
|
|
Total
Change
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
Freight
|
$
|
1,854
|
|
$
|
1,547
|
|
$
|
307
|
|
20
|
|
$
|
5,188
|
|
$
|
4,708
|
|
$
|
480
|
|
10
|
Non-freight
|
44
|
|
48
|
|
(4)
|
|
(8)
|
|
122
|
|
133
|
|
(11)
|
|
(8)
|
Total
revenues
|
1,898
|
|
1,595
|
|
303
|
|
19
|
|
5,310
|
|
4,841
|
|
469
|
|
10
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
Compensation and
benefits(1)
|
365
|
|
324
|
|
41
|
|
13
|
|
1,090
|
|
969
|
|
121
|
|
12
|
Fuel
|
226
|
|
150
|
|
76
|
|
51
|
|
671
|
|
480
|
|
191
|
|
40
|
Materials
|
47
|
|
45
|
|
2
|
|
4
|
|
155
|
|
142
|
|
13
|
|
9
|
Equipment
rents
|
33
|
|
35
|
|
(2)
|
|
(6)
|
|
99
|
|
108
|
|
(9)
|
|
(8)
|
Depreciation and
amortization
|
174
|
|
162
|
|
12
|
|
7
|
|
516
|
|
493
|
|
23
|
|
5
|
Purchased services
and other
|
263
|
|
257
|
|
6
|
|
2
|
|
822
|
|
812
|
|
10
|
|
1
|
Total operating
expenses(1)
|
1,108
|
|
973
|
|
135
|
|
14
|
|
3,353
|
|
3,004
|
|
349
|
|
12
|
|
|
|
|
|
|
|
|
|
Operating
income(1)
|
790
|
|
622
|
|
168
|
|
27
|
|
1,957
|
|
1,837
|
|
120
|
|
7
|
|
|
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
Other (income)
expense
|
(47)
|
|
(105)
|
|
58
|
|
(55)
|
|
56
|
|
(194)
|
|
250
|
|
(129)
|
Other components of
net periodic benefit recovery(1)
|
(96)
|
|
(68)
|
|
(28)
|
|
41
|
|
(287)
|
|
(203)
|
|
(84)
|
|
41
|
Net interest
expense
|
112
|
|
115
|
|
(3)
|
|
(3)
|
|
339
|
|
357
|
|
(18)
|
|
(5)
|
|
|
|
|
|
|
|
|
|
Income before income
tax expense
|
821
|
|
680
|
|
141
|
|
21
|
|
1,849
|
|
1,877
|
|
(28)
|
|
(1)
|
|
|
|
|
|
|
|
|
|
Income tax
expense
|
199
|
|
170
|
|
29
|
|
17
|
|
443
|
|
456
|
|
(13)
|
|
(3)
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
622
|
|
$
|
510
|
|
$
|
112
|
|
22
|
|
$
|
1,406
|
|
$
|
1,421
|
|
$
|
(15)
|
|
(1)
|
Operating ratio
(%)(1)
|
58.3
|
|
61.0
|
|
(2.7)
|
|
(270)
bps
|
|
63.1
|
|
62.1
|
|
1.0
|
|
100
bps
|
|
|
|
|
|
|
|
|
|
Basic earnings per
share
|
$
|
4.36
|
|
$
|
3.50
|
|
$
|
0.86
|
|
25
|
|
$
|
9.81
|
|
$
|
9.72
|
|
$
|
0.09
|
|
1
|
|
|
|
|
|
|
|
|
|
Diluted earnings per
share
|
$
|
4.35
|
|
$
|
3.50
|
|
$
|
0.85
|
|
24
|
|
$
|
9.78
|
|
$
|
9.70
|
|
$
|
0.08
|
|
1
|
|
|
|
|
|
|
|
|
|
Shares
Outstanding
|
|
|
|
|
|
|
|
|
Weighted average
number of shares outstanding (millions)
|
142.6
|
|
145.5
|
|
(2.9)
|
|
(2)
|
|
143.2
|
|
146.2
|
|
(3.0)
|
|
(2)
|
Weighted average
number of diluted shares outstanding (millions)
|
143.1
|
|
145.8
|
|
(2.7)
|
|
(2)
|
|
143.7
|
|
146.6
|
|
(2.9)
|
|
(2)
|
|
|
|
|
|
|
|
|
|
Foreign
Exchange
|
|
|
|
|
|
|
|
|
Average foreign
exchange rate (US$/Canadian$)
|
0.76
|
|
0.80
|
|
(0.04)
|
|
(5)
|
|
0.78
|
|
0.76
|
|
0.02
|
|
3
|
Average foreign
exchange rate (Canadian$/US$)
|
1.31
|
|
1.25
|
|
0.06
|
|
5
|
|
1.29
|
|
1.31
|
|
(0.02)
|
|
(2)
|
|
|
(1)
|
2017 comparative
period figures have been restated for the retrospective adoption of
Accounting Standards Update ("ASU") ASU 2017-07, discussed further
in Note 2 Accounting changes in CP's Interim Consolidated Financial
Statements for the period ended September 30, 2018.
|
Summary of Rail Data (Continued)
|
Third
Quarter
|
|
|
Year-to-date
|
Commodity
Data
|
2018
|
|
2017
|
|
Total
Change
|
|
%
Change
|
|
FX
Adjusted
%
Change(1)
|
|
|
2018
|
|
2017
|
|
Total
Change
|
|
%
Change
|
|
FX
Adjusted
%
Change(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freight Revenues
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Grain
|
$
|
384
|
|
$
|
351
|
|
$
|
33
|
|
9
|
|
7
|
|
|
$
|
1,113
|
|
$
|
1,107
|
|
$
|
6
|
|
1
|
|
1
|
- Coal
|
171
|
|
165
|
|
6
|
|
4
|
|
4
|
|
|
486
|
|
478
|
|
8
|
|
2
|
|
2
|
- Potash
|
130
|
|
103
|
|
27
|
|
26
|
|
24
|
|
|
358
|
|
310
|
|
48
|
|
15
|
|
17
|
- Fertilizers and
sulphur
|
55
|
|
52
|
|
3
|
|
6
|
|
2
|
|
|
171
|
|
181
|
|
(10)
|
|
(6)
|
|
(4)
|
- Forest
products
|
76
|
|
67
|
|
9
|
|
13
|
|
12
|
|
|
211
|
|
202
|
|
9
|
|
4
|
|
6
|
- Energy, chemicals
and plastics
|
339
|
|
208
|
|
131
|
|
63
|
|
58
|
|
|
874
|
|
651
|
|
223
|
|
34
|
|
36
|
- Metals, minerals,
and consumer products
|
208
|
|
192
|
|
16
|
|
8
|
|
5
|
|
|
595
|
|
552
|
|
43
|
|
8
|
|
9
|
-
Automotive
|
85
|
|
68
|
|
17
|
|
25
|
|
20
|
|
|
247
|
|
223
|
|
24
|
|
11
|
|
13
|
-
Intermodal
|
406
|
|
341
|
|
65
|
|
19
|
|
18
|
|
|
1,133
|
|
1,004
|
|
129
|
|
13
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Freight
Revenues
|
$
|
1,854
|
|
$
|
1,547
|
|
$
|
307
|
|
20
|
|
17
|
|
|
$
|
5,188
|
|
$
|
4,708
|
|
$
|
480
|
|
10
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
Freight Revenue
per Revenue Ton-Miles (RTM) (cents)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Grain
|
4.25
|
|
4.07
|
|
0.18
|
|
4
|
|
2
|
|
|
4.17
|
|
4.06
|
|
0.11
|
|
3
|
|
3
|
- Coal
|
2.98
|
|
2.73
|
|
0.25
|
|
9
|
|
9
|
|
|
2.92
|
|
2.77
|
|
0.15
|
|
5
|
|
5
|
- Potash
|
2.64
|
|
2.53
|
|
0.11
|
|
4
|
|
2
|
|
|
2.61
|
|
2.60
|
|
0.01
|
|
—
|
|
1
|
- Fertilizers and
sulphur
|
5.87
|
|
6.08
|
|
(0.21)
|
|
(3)
|
|
(6)
|
|
|
5.90
|
|
6.39
|
|
(0.49)
|
|
(8)
|
|
(6)
|
- Forest
products
|
6.01
|
|
5.78
|
|
0.23
|
|
4
|
|
1
|
|
|
5.88
|
|
5.96
|
|
(0.08)
|
|
(1)
|
|
—
|
- Energy, chemicals
and plastics
|
4.53
|
|
4.18
|
|
0.35
|
|
8
|
|
5
|
|
|
4.36
|
|
4.26
|
|
0.10
|
|
2
|
|
4
|
- Metals, minerals,
and consumer products
|
7.00
|
|
6.32
|
|
0.68
|
|
11
|
|
7
|
|
|
6.57
|
|
6.49
|
|
0.08
|
|
1
|
|
2
|
-
Automotive
|
24.76
|
|
21.62
|
|
3.14
|
|
15
|
|
11
|
|
|
23.56
|
|
21.92
|
|
1.64
|
|
7
|
|
9
|
-
Intermodal
|
5.84
|
|
5.59
|
|
0.25
|
|
4
|
|
3
|
|
|
5.72
|
|
5.61
|
|
0.11
|
|
2
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Freight Revenue
per RTM
|
4.67
|
|
4.40
|
|
0.27
|
|
6
|
|
4
|
|
|
4.57
|
|
4.47
|
|
0.10
|
|
2
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
Freight Revenue
per Carload
|
|
|
|
|
|
|
|
|
|
|
|
- Grain
|
$
|
3,565
|
|
$
|
3,251
|
|
$
|
314
|
|
10
|
|
7
|
|
|
$
|
3,536
|
|
$
|
3,402
|
|
$
|
134
|
|
4
|
|
5
|
- Coal
|
2,234
|
|
2,021
|
|
213
|
|
11
|
|
9
|
|
|
2,145
|
|
2,047
|
|
98
|
|
5
|
|
3
|
- Potash
|
3,089
|
|
2,978
|
|
111
|
|
4
|
|
1
|
|
|
3,052
|
|
3,013
|
|
39
|
|
1
|
|
2
|
- Fertilizers and
sulphur
|
3,957
|
|
3,814
|
|
143
|
|
4
|
|
1
|
|
|
4,084
|
|
4,198
|
|
(114)
|
|
(3)
|
|
(1)
|
- Forest
products
|
4,240
|
|
3,870
|
|
370
|
|
10
|
|
6
|
|
|
4,107
|
|
4,056
|
|
51
|
|
1
|
|
3
|
- Energy, chemicals
and plastics
|
3,806
|
|
3,227
|
|
579
|
|
18
|
|
15
|
|
|
3,606
|
|
3,357
|
|
249
|
|
7
|
|
9
|
- Metals, minerals,
and consumer products
|
3,206
|
|
2,806
|
|
400
|
|
14
|
|
11
|
|
|
3,140
|
|
2,888
|
|
252
|
|
9
|
|
10
|
-
Automotive
|
3,102
|
|
2,737
|
|
365
|
|
13
|
|
9
|
|
|
2,970
|
|
2,788
|
|
182
|
|
7
|
|
8
|
-
Intermodal
|
1,545
|
|
1,343
|
|
202
|
|
15
|
|
14
|
|
|
1,485
|
|
1,364
|
|
121
|
|
9
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Freight Revenue
per Carload
|
$
|
2,640
|
|
$
|
2,321
|
|
$
|
319
|
|
14
|
|
11
|
|
|
$
|
2,556
|
|
$
|
2,408
|
|
$
|
148
|
|
6
|
|
7
|
|
|
(1)
|
This earnings measure
has no standardized meaning prescribed by GAAP and, therefore, is
unlikely to be comparable to similar measures presented by other
companies. This measure is defined and reconciled in Non-GAAP
Measures of this Earnings Release.
|
Summary of Rail Data (Continued)
|
Third
Quarter
|
|
|
Year-to-date
|
Commodity Data
(Continued)
|
2018
|
|
2017
|
|
Total
Change
|
|
%
Change
|
|
|
2018
|
|
2017
|
|
Total
Change
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of
RTM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Grain
|
9,009
|
|
8,627
|
|
382
|
|
4
|
|
|
26,698
|
|
27,274
|
|
(576)
|
|
(2)
|
- Coal
|
5,764
|
|
6,009
|
|
(245)
|
|
(4)
|
|
|
16,657
|
|
17,230
|
|
(573)
|
|
(3)
|
- Potash
|
4,944
|
|
4,083
|
|
861
|
|
21
|
|
|
13,750
|
|
11,919
|
|
1,831
|
|
15
|
- Fertilizers and
sulphur
|
935
|
|
864
|
|
71
|
|
8
|
|
|
2,902
|
|
2,837
|
|
65
|
|
2
|
- Forest
products
|
1,263
|
|
1,157
|
|
106
|
|
9
|
|
|
3,596
|
|
3,390
|
|
206
|
|
6
|
- Energy, chemicals
and plastics
|
7,485
|
|
4,992
|
|
2,493
|
|
50
|
|
|
20,047
|
|
15,302
|
|
4,745
|
|
31
|
- Metals, minerals,
and consumer products
|
2,979
|
|
3,030
|
|
(51)
|
|
(2)
|
|
|
9,067
|
|
8,512
|
|
555
|
|
7
|
-
Automotive
|
343
|
|
316
|
|
27
|
|
9
|
|
|
1,047
|
|
1,016
|
|
31
|
|
3
|
-
Intermodal
|
6,942
|
|
6,092
|
|
850
|
|
14
|
|
|
19,820
|
|
17,901
|
|
1,919
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
Total RTMs
|
39,664
|
|
35,170
|
|
4,494
|
|
13
|
|
|
113,584
|
|
105,381
|
|
8,203
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carloads
(thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
- Grain
|
107.4
|
|
108.0
|
|
(0.6)
|
|
(1)
|
|
|
314.5
|
|
325.6
|
|
(11.1)
|
|
(3)
|
- Coal
|
76.8
|
|
81.3
|
|
(4.5)
|
|
(6)
|
|
|
226.7
|
|
233.3
|
|
(6.6)
|
|
(3)
|
- Potash
|
42.3
|
|
34.6
|
|
7.7
|
|
22
|
|
|
117.4
|
|
102.9
|
|
14.5
|
|
14
|
- Fertilizers and
sulphur
|
13.8
|
|
13.8
|
|
—
|
|
—
|
|
|
41.9
|
|
43.2
|
|
(1.3)
|
|
(3)
|
- Forest
products
|
17.9
|
|
17.2
|
|
0.7
|
|
4
|
|
|
51.5
|
|
49.8
|
|
1.7
|
|
3
|
- Energy, chemicals
and plastics
|
89.1
|
|
64.7
|
|
24.4
|
|
38
|
|
|
242.4
|
|
194.0
|
|
48.4
|
|
25
|
- Metals, minerals,
and consumer products
|
65.0
|
|
68.2
|
|
(3.2)
|
|
(5)
|
|
|
189.6
|
|
191.1
|
|
(1.5)
|
|
(1)
|
-
Automotive
|
27.4
|
|
25.0
|
|
2.4
|
|
10
|
|
|
83.0
|
|
79.9
|
|
3.1
|
|
4
|
-
Intermodal
|
262.3
|
|
253.6
|
|
8.7
|
|
3
|
|
|
762.9
|
|
735.4
|
|
27.5
|
|
4
|
|
|
|
|
|
|
|
|
|
|
Total
Carloads
|
702.0
|
|
666.4
|
|
35.6
|
|
5
|
|
|
2,029.9
|
|
1,955.2
|
|
74.7
|
|
4
|
|
Third
Quarter
|
|
|
|
Year-to-date
|
|
|
|
2018
|
|
2017
|
|
Total
Change
|
|
%
Change
|
|
FX
Adjusted %
Change(1)
|
|
2018
|
|
2017
|
|
Total
Change
|
|
%
Change
|
|
FX
Adjusted %
Change(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and
benefits(2)
|
$
|
365
|
|
$
|
324
|
|
$
|
41
|
|
13
|
|
11
|
|
$
|
1,090
|
|
$
|
969
|
|
$
|
121
|
|
12
|
|
13
|
Fuel
|
226
|
|
150
|
|
76
|
|
51
|
|
46
|
|
671
|
|
480
|
|
191
|
|
40
|
|
42
|
Materials
|
47
|
|
45
|
|
2
|
|
4
|
|
4
|
|
155
|
|
142
|
|
13
|
|
9
|
|
10
|
Equipment
rents
|
33
|
|
35
|
|
(2)
|
|
(6)
|
|
(11)
|
|
99
|
|
108
|
|
(9)
|
|
(8)
|
|
(7)
|
Depreciation and
amortization
|
174
|
|
162
|
|
12
|
|
7
|
|
6
|
|
516
|
|
493
|
|
23
|
|
5
|
|
5
|
Purchased services
and other
|
263
|
|
257
|
|
6
|
|
2
|
|
—
|
|
822
|
|
812
|
|
10
|
|
1
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating
Expenses(2)
|
$
|
1,108
|
|
$
|
973
|
|
$
|
135
|
|
14
|
|
12
|
|
$
|
3,353
|
|
$
|
3,004
|
|
$
|
349
|
|
12
|
|
12
|
|
|
(1)
|
This earnings measure
has no standardized meaning prescribed by GAAP and, therefore, is
unlikely to be comparable to similar measures presented by other
companies. This measure is defined and reconciled in Non-GAAP
Measures of this Earnings Release.
|
(2)
|
2017 comparative
period figures have been restated for the retrospective adoption of
ASU 2017-07, discussed further in Note 2 Accounting changes in CP's
Interim Consolidated Financial Statements for the period ended
September 30, 2018.
|
Summary of Rail Data (Continued)
|
Third
Quarter
|
|
Year-to-date
|
|
2018
|
|
2017 (1)
|
|
Total
Change
|
|
%
Change
|
|
2018
|
|
2017 (1)
|
|
Total
Change
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations
Performance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross ton-miles
("GTMs") (millions)
|
70,469
|
|
62,311
|
|
8,158
|
|
13
|
|
202,575
|
|
186,899
|
|
15,676
|
|
8
|
Train miles
(thousands)
|
8,174
|
|
7,444
|
|
730
|
|
10
|
|
23,809
|
|
22,786
|
|
1,023
|
|
4
|
Average train
weight - excluding local traffic (tons)
|
9,195
|
|
8,990
|
|
205
|
|
2
|
|
9,082
|
|
8,775
|
|
307
|
|
3
|
Average train
length - excluding local traffic (feet)
|
7,345
|
|
7,301
|
|
44
|
|
1
|
|
7,297
|
|
7,193
|
|
104
|
|
1
|
Average terminal
dwell (hours)
|
6.9
|
|
6.6
|
|
0.3
|
|
5
|
|
7.1
|
|
6.5
|
|
0.6
|
|
9
|
Average train speed
(mph)(2)
|
21.6
|
|
23.1
|
|
(1.5)
|
|
(6)
|
|
21.2
|
|
22.9
|
|
(1.7)
|
|
(7)
|
Fuel
efficiency(3)
|
0.916
|
|
0.944
|
|
(0.028)
|
|
(3)
|
|
0.952
|
|
0.978
|
|
(0.026)
|
|
(3)
|
U.S. gallons of
locomotive fuel consumed (millions)(4)
|
64.6
|
|
58.4
|
|
6.2
|
|
11
|
|
192.9
|
|
181.4
|
|
11.5
|
|
6
|
Average fuel price
(U.S. dollars per U.S. gallon)
|
2.69
|
|
2.08
|
|
0.61
|
|
29
|
|
2.72
|
|
2.07
|
|
0.65
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Employees
and Workforce
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total employees
(average)(5)
|
12,941
|
|
12,149
|
|
792
|
|
7
|
|
12,623
|
|
11,990
|
|
633
|
|
5
|
Total employees (end
of period)(5)
|
13,000
|
|
12,135
|
|
865
|
|
7
|
|
13,000
|
|
12,135
|
|
865
|
|
7
|
Workforce (end of
period)(6)
|
13,029
|
|
12,219
|
|
810
|
|
7
|
|
13,029
|
|
12,219
|
|
810
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Safety
Indicators
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FRA personal injuries
per 200,000 employee-hours
|
1.49
|
|
1.56
|
|
(0.07)
|
|
(4)
|
|
1.49
|
|
1.64
|
|
(0.15)
|
|
(9)
|
FRA train accidents
per million train miles
|
1.12
|
|
0.99
|
|
0.13
|
|
13
|
|
1.11
|
|
1.01
|
|
0.10
|
|
10
|
|
|
(1)
|
Certain figures have
been revised to conform with current presentation or have been
updated to reflect new information as certain operating statistics
are estimated and can continue to be updated as actuals
settle.
|
(2)
|
Average train speed
is defined as a measure of the line-haul movement from origin to
destination including terminal dwell hours. It excludes delay time
related to customer or foreign railways, and also excludes the time
and distance travelled by: i) trains used in or around CP's yards;
ii) passenger trains; and iii) trains used for repairing
track.
|
(3)
|
Fuel efficiency is
defined as U.S. gallons of locomotive fuel consumed per 1,000 GTMs
– freight and yard.
|
(4)
|
Includes gallons of
fuel consumed from freight, yard and commuter service but excludes
fuel used in capital projects and other non-freight
activities.
|
(5)
|
An employee is
defined as an individual currently engaged in full-time or
part-time employment with CP.
|
(6)
|
Workforce is defined
as total employees plus contractors and consultants.
|
Non-GAAP Measures
The Company presents non-GAAP measures including cash flow
information to provide a basis for evaluating underlying earnings
and liquidity trends in the Company's 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 information to compare
profitability on a long-term basis, including assessing future
profitability, with that of the Company's peers.
These non-GAAP measures have no standardized meaning and are not
defined by GAAP and, therefore, may not be comparable to similar
measures presented by other companies. The presentation of these
non-GAAP measures is not intended to be considered in isolation
from, as a substitute for, or as superior to, the financial
information presented in accordance with GAAP.
Adjusted Performance Measures
The Company uses Adjusted income, Adjusted diluted earnings per
share, Adjusted operating income and Adjusted operating ratio to
evaluate the Company's operating performance and for planning and
forecasting future business operations and future profitability.
These non-GAAP measures provide meaningful supplemental information
regarding operating results because they exclude certain
significant items that are not considered indicative of future
financial trends either by nature or amount. As a result, these
items are excluded for management assessment of operational
performance, allocation of resources and preparation of annual
budgets. These significant items may include, but are not limited
to, restructuring and asset impairment charges, individually
significant gains and losses from sales of assets, and certain
items outside the control of management. These items may not be
non-recurring. However, excluding these significant items from GAAP
results allows for a consistent understanding of the Company's
consolidated financial performance when performing a multi-period
assessment including assessing the likelihood of future results.
Accordingly, these non-GAAP financial measures may provide insight
to investors and other external users of the Company's consolidated
financial information.
Significant items that impact reported earnings for the first
three and nine months of 2018 and 2017 include:
2018:
- in the second quarter, a deferred tax recovery of $21 million due to reductions in the Missouri and Iowa state tax rates that favourably impacted
Diluted EPS by 15 cents; and
- during the course of the year, a net non-cash loss of
$55 million ($47 million after deferred tax) due to FX
translation of the Company's U.S dollar-denominated debt as
follows:
-
- in the third quarter, a $38
million gain ($33 million after deferred tax) that
favourably impacted Diluted EPS by 23
cents;
- in the second quarter, a $44 million loss
($38 million after deferred tax) that unfavourably impacted
Diluted EPS by 27 cents; and
- in the first quarter, a $49
million loss ($42 million
after deferred tax) that unfavourably impacted Diluted EPS by
29 cents.
2017:
- in the second quarter, a charge on hedge roll and
de-designation of $13 million
($10 million after deferred tax) that
unfavourably impacted Diluted EPS by 7
cents;
- in the second quarter, an insurance recovery of a legal
settlement of $10 million
($7 million after current tax) that
favourably impacted Diluted EPS by 5
cents;
- in the first quarter, a management transition recovery of
$51 million related to the retirement
of Mr. E. Hunter Harrison as CEO of
CP ($39 million after deferred tax)
that favourably impacted Diluted EPS by 27
cents;
- during the course of the year, a net deferred tax recovery of
$14 million as a result of the change
in income tax rates as follows:
-
- in the third quarter, a deferred tax expense of $3 million as a result of the change in the
Illinois state corporate income
tax rate that unfavourably impacted Diluted EPS by 2 cents;
- in the second quarter, a deferred tax recovery of $17 million as a result of the change in the
Saskatchewan provincial corporate
income tax rate that favourably impacted Diluted EPS by
12 cents; and
- during the course of the year, a net non-cash gain of
$200 million ($174 million after deferred tax) due to FX
translation of the Company's U.S. dollar-denominated debt as
follows:
-
- in the third quarter, a $105
million gain ($91 million
after deferred tax) that favourably impacted Diluted EPS by
62 cents;
- in the second quarter, a $67
million gain ($59 million
after deferred tax) that favourably impacted Diluted EPS by
40 cents; and
- in the first quarter, a $28
million gain ($24 million
after deferred tax) that favourably impacted Diluted EPS by
16 cents.
2018 Outlook
Adjusted diluted EPS is defined and discussed further below.
Although CP has provided a forward-looking non-GAAP measure,
adjusted diluted EPS, it is not practicable to provide a
reconciliation to a forward-looking reported diluted EPS, the most
comparable GAAP measure, due to unknown variables and uncertainty
related to future results. These unknown variables may include
unpredictable transactions of significant value. In past years, CP
has recognized significant asset impairment charges, management
transition costs related to senior executives and charges or
recoveries resulting from tax rate changes. These or other similar,
large unforeseen transactions affect diluted EPS but may be
excluded from CP's adjusted diluted EPS. Additionally, the
Canadian-to-U.S. dollar exchange rate is unpredictable and can have
a significant impact on CP's reported results but may be excluded
from CP's adjusted diluted EPS. In particular, CP's 2018 adjusted
diluted EPS excludes FX impact of translating the Company's U.S.
dollar denominated long-term debt and a deferred income tax
recovery from changes in Iowa and
Missouri corporate income tax
rates.
Reconciliation of GAAP Performance Measures to Non-GAAP
Performance Measures
The following tables reconcile the most directly comparable
measures presented in accordance with GAAP to the non-GAAP measures
for the three and nine months ended September 30, 2018 and 2017:
Adjusted income is calculated as Net income reported on a GAAP
basis less significant items.
|
For the three
months
ended September 30
|
|
For the nine
months
ended September 30
|
(in
millions)
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Net income as
reported
|
$
|
622
|
|
$
|
510
|
|
$
|
1,406
|
|
$
|
1,421
|
Less significant
items (pretax):
|
|
|
|
|
|
|
|
Insurance recovery of
legal settlement
|
—
|
|
—
|
|
—
|
|
10
|
Charge on hedge roll
and de-designation
|
—
|
|
—
|
|
—
|
|
(13)
|
Management transition
recovery
|
—
|
|
—
|
|
—
|
|
51
|
Impact of FX
translation on U.S. dollar-denominated debt
|
38
|
|
105
|
|
(55)
|
|
200
|
Add:
|
|
|
|
|
|
|
|
Tax effect of
adjustments(1)
|
5
|
|
14
|
|
(8)
|
|
38
|
Income tax rate
change
|
—
|
|
3
|
|
(21)
|
|
(14)
|
Adjusted
income
|
$
|
589
|
|
$
|
422
|
|
$
|
1,432
|
|
$
|
1,197
|
(1)
|
The tax effect of
adjustments was calculated as the pretax effect of the adjustments
multiplied by the applicable tax rate for the above items of 13.43%
for the three and nine months ended September 30, 2018, and 13.28%
and 15.16% for the three and nine months ended September 30, 2017,
respectively. The applicable tax rates reflect the taxable
jurisdictions and nature, being on account of capital or income, of
the significant items.
|
Adjusted diluted earnings per share is calculated using Adjusted
income, as defined above, divided by the weighted-average diluted
shares outstanding during the period as determined in accordance
with GAAP.
|
For the three
months
ended September 30
|
|
For the nine
months
ended September 30
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Diluted earnings
per share as reported
|
$
|
4.35
|
|
$
|
3.50
|
|
$
|
9.78
|
|
$
|
9.70
|
Less significant
items (pretax):
|
|
|
|
|
|
|
|
Insurance recovery of
legal settlement
|
—
|
|
—
|
|
—
|
|
0.07
|
Charge on hedge roll
and de-designation
|
—
|
|
—
|
|
—
|
|
(0.09)
|
Management transition
recovery
|
—
|
|
—
|
|
—
|
|
0.35
|
Impact of FX
translation on U.S. dollar-denominated debt
|
0.27
|
|
0.72
|
|
(0.38)
|
|
1.36
|
Add:
|
|
|
|
|
|
|
|
Tax effect of
adjustments(1)
|
0.04
|
|
0.10
|
|
(0.04)
|
|
0.26
|
Income tax rate
change
|
—
|
|
0.02
|
|
(0.15)
|
|
(0.10)
|
Adjusted diluted
earnings per share
|
$
|
4.12
|
|
$
|
2.90
|
|
$
|
9.97
|
|
$
|
8.17
|
(1)
|
The tax effect of
adjustments was calculated as the pretax effect of the adjustments
multiplied by the applicable tax rate for the above items of 13.43%
for the three and nine months ended September 30, 2018, and 13.28%
and 15.16% for the three and nine months ended September 30, 2017,
respectively. The applicable tax rates reflect the taxable
jurisdictions and nature, being on account of capital or income, of
the significant items.
|
Adjusted operating income is calculated as Operating income
reported on a GAAP basis less significant items.
|
For the three
months
ended September 30
|
|
For the nine
months
ended September 30
|
(in
millions)
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Operating income
as reported(1)
|
$
|
790
|
|
$
|
622
|
|
$
|
1,957
|
|
$
|
1,837
|
Less significant
item:
|
|
|
|
|
|
|
|
Management transition
recovery
|
—
|
|
—
|
|
—
|
|
51
|
Adjusted operating
income(1)
|
$
|
790
|
|
$
|
622
|
|
$
|
1,957
|
|
$
|
1,786
|
(1)
|
2017 comparative
period figures have been restated for the retrospective adoption of
ASU 2017-07, discussed further in Note 2 Accounting changes in CP's
Interim Consolidated Financial Statements for the period ended
September 30, 2018.
|
Adjusted operating ratio excludes those significant items that
are reported within Operating income.
|
For the three
months
ended September 30
|
|
For the nine
months
ended September 30
|
|
2018
|
2017
|
|
2018
|
2017
|
Operating ratio as
reported(1)
|
58.3
|
%
|
61.0
|
%
|
|
63.1
|
%
|
62.1
|
%
|
Less significant
item:
|
|
|
|
|
|
Management transition
recovery
|
—
|
|
—
|
|
|
—
|
|
(1.0)
|
|
Adjusted operating
ratio(1)
|
58.3
|
%
|
61.0
|
%
|
|
63.1
|
%
|
63.1
|
%
|
(1)
|
2017 comparative
period figures have been restated for the retrospective adoption of
ASU 2017-07, discussed further in Note 2 Accounting changes in CP's
Interim Consolidated Financial Statements for the period ended
September 30, 2018.
|
Free Cash
Free cash is calculated as Cash provided by operating
activities, less Cash used in investing activities, adjusted for
changes in cash and cash equivalents balances resulting from FX
fluctuations, and the cash settlement of hedges settled upon
issuance of debt. Free cash is a measure that management considers
to be an indicator of liquidity. Free cash is useful to investors
and other external users of the consolidated financial statements
as it assists with the evaluation of the Company's ability to
generate cash from its operations without incurring additional
external financing. The cash settlement of forward starting swaps
that occurred in the second quarter of 2018 in conjunction with the
issuance of long-term debt is not an indicator of CP's ongoing cash
generating ability and therefore has been excluded from free cash.
Positive Free cash indicates the amount of cash available for
reinvestment in the business, or cash that can be returned to
investors through dividends, stock repurchase programs, debt
retirements or a combination of these. Conversely, negative Free
cash indicates the amount of cash that must be raised from
investors through new debt or equity issues, reduction in available
cash balances or a combination of these. Free cash should be
considered in addition to, rather than as a substitute for, Cash
provided by operating activities.
Reconciliation of Cash Provided by Operating Activities to
Free Cash
|
For the three
months
ended September 30
|
|
For the nine
months
ended September 30
|
(in
millions)
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Cash provided by
operating activities
|
$
|
673
|
|
$
|
527
|
|
$
|
1,781
|
|
$
|
1,449
|
Cash used in
investing activities
|
(423)
|
|
(306)
|
|
(1,069)
|
|
(861)
|
Effect of foreign
currency fluctuations on U.S. dollar-denominated cash and cash
equivalents
|
(5)
|
|
(7)
|
|
4
|
|
(13)
|
Settlement of forward
starting swaps upon debt issuance
|
—
|
|
—
|
|
24
|
|
—
|
Free
cash
|
$
|
245
|
|
$
|
214
|
|
$
|
740
|
|
$
|
575
|
FX Adjusted Variance
FX adjusted 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 result
variances at constant currency are obtained by translating the
comparable period of the prior year results denominated in U.S.
dollars at the foreign exchange rates of the current period.
|
For the three
months ended September 30
|
(in
millions)
|
Reported
2018
|
|
Reported
2017
|
|
Variance
due to FX
|
|
FX Adjusted
2017
|
|
FX Adjusted
% Change
|
Freight
revenues
|
$
|
1,854
|
|
$
|
1,547
|
|
$
|
32
|
|
$
|
1,579
|
|
17
|
Non-freight
revenues
|
44
|
|
48
|
|
1
|
|
49
|
|
(10)
|
Total
revenues
|
1,898
|
|
1,595
|
|
33
|
|
1,628
|
|
17
|
Compensation and
benefits(1)
|
365
|
|
324
|
|
4
|
|
328
|
|
11
|
Fuel
|
226
|
|
150
|
|
5
|
|
155
|
|
46
|
Materials
|
47
|
|
45
|
|
—
|
|
45
|
|
4
|
Equipment
rents
|
33
|
|
35
|
|
2
|
|
37
|
|
(11)
|
Depreciation and
amortization
|
174
|
|
162
|
|
2
|
|
164
|
|
6
|
Purchased services
and other
|
263
|
|
257
|
|
5
|
|
262
|
|
—
|
Total operating
expenses(1)
|
1,108
|
|
973
|
|
18
|
|
991
|
|
12
|
Operating
income(1)
|
$
|
790
|
|
$
|
622
|
|
$
|
15
|
|
$
|
637
|
|
24
|
(1)
|
2017 comparative
period figures have been restated for the retrospective adoption of
ASU 2017-07, discussed further in Note 2 Accounting changes in CP's
Interim Consolidated Financial Statements for the period ended
September 30, 2018.
|
|
For the nine
months ended September 30
|
(in
millions)
|
Reported
2018
|
|
Reported
2017
|
|
Variance
due to FX
|
|
FX
Adjusted
2017
|
|
FX Adjusted
% Change
|
Freight
revenues
|
$
|
5,188
|
|
$
|
4,708
|
|
$
|
(39)
|
|
$
|
4,669
|
|
11
|
Non-freight
revenues
|
122
|
|
133
|
|
—
|
|
133
|
|
(8)
|
Total
revenues
|
5,310
|
|
4,841
|
|
(39)
|
|
4,802
|
|
11
|
Compensation and
benefits(1)
|
1,090
|
|
969
|
|
(5)
|
|
964
|
|
13
|
Fuel
|
671
|
|
480
|
|
(6)
|
|
474
|
|
42
|
Materials
|
155
|
|
142
|
|
(1)
|
|
141
|
|
10
|
Equipment
rents
|
99
|
|
108
|
|
(1)
|
|
107
|
|
(7)
|
Depreciation and
amortization
|
516
|
|
493
|
|
(2)
|
|
491
|
|
5
|
Purchased services
and other
|
822
|
|
812
|
|
(7)
|
|
805
|
|
2
|
Total operating
expenses(1)
|
3,353
|
|
3,004
|
|
(22)
|
|
2,982
|
|
12
|
Operating
income(1)
|
$
|
1,957
|
|
$
|
1,837
|
|
$
|
(17)
|
|
$
|
1,820
|
|
8
|
(1)
|
2017 comparative
period figures have been restated for the retrospective adoption of
ASU 2017-07, discussed further in Note 2 Accounting changes in CP's
Interim Consolidated Financial Statements for the period ended
September 30, 2018.
|
View original
content:http://www.prnewswire.com/news-releases/cp-reports-record-quarter-on-strength-of-industry-leading-team-and-foundations-of-precision-scheduled-railroading-model-300733911.html
SOURCE Canadian Pacific