CALGARY, July 16, 2019
/PRNewswire/ - Canadian Pacific Railway Limited (TSX: CP) (NYSE:
CP) today announced record second-quarter revenues of $1.98 billion, an increase of 13 percent from
last year, and record earnings per share (EPS) with reported
diluted EPS of $5.17 or $4.30 on an adjusted diluted EPS basis.
"I commend the team for this record second-quarter performance,"
said CP President and Chief Executive Officer Keith Creel. "These results demonstrate the
strength of precision scheduled railroading and are a testament to
our collective commitment to deliver for our customers and the
broader economy."
SECOND-QUARTER HIGHLIGHTS
- Revenues increased by 13 percent to $1.98 billion from $1.75
billion last year
- Reported diluted EPS of $5.17, a
70 percent increase from $3.04 last
year, and adjusted diluted EPS of $4.30, a 36 percent increase from $3.16 last year
- Operating ratio was a second-quarter record 58.4 percent, a 580
basis point improvement over last year's second-quarter operating
ratio of 64.2 percent
"This quarter, we saw revenue growth across every line of
business, strong operating metrics, and our best-ever
second-quarter performance from a workload perspective, as measured
by Gross Ton-Miles," said Creel. "As has been proven time and
again, our operating model can perform well in all economic
conditions and we will remain disciplined in controlling our costs
and doing what we said we would do. Our strategy for sustainable,
profitable growth is working and we look forward to a strong finish
to 2019."
CP will discuss its results with the financial community in a
conference call beginning at 9:30 a.m.
eastern time (7:30 a.m. mountain
time) today.
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
investor.cpr.ca
A replay of the second-quarter conference call will be available
by phone through to July 30, 2019 at
416-849-0833 or toll-free 1-855-859-2056, password 8144989.
Non-GAAP Measures
For information regarding non-GAAP
measures, including reconciliations to the nearest GAAP measures,
see the attached supplementary schedule Non-GAAP Measures.
Note on forward-looking information
This news release
contains certain forward-looking information and forward-looking
statements (collectively, "forward-looking information") within the
meaning of applicable securities laws. Forward-looking information
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. This news release contains forward-looking information
relating, but not limited to, the success of our business, our
operations, priorities and plans, anticipated financial and
operational performance, business prospects, planned capital
expenditures, programs and strategies, including anticipated
sustainable, profitable growth in 2019 and our projected 2019
financial performance.
The forward-looking information contained in this news release
is based on current expectations, estimates, projections and
assumptions, having regard to CP's experience and its perception of
historical trends, and includes, but is not limited to,
expectations, estimates, projections and assumptions relating to:
foreign exchange rates, effective tax rates, land sales and pension
income; North American and global economic growth; commodity demand
growth; sustainable industrial and agricultural production;
commodity prices and interest rates; performance of our assets and
equipment; sufficiency of our budgeted capital expenditures in
carrying out our business plan; applicable laws, regulations and
government policies; the availability and cost of labour, services
and infrastructure; and the satisfaction by third parties of their
obligations to CP. Although CP believes the expectations,
estimates, projections and assumptions reflected in the
forward-looking information presented herein are reasonable as of
the date hereof, there can be no assurance that they will prove to
be correct.
Undue reliance should not be placed on forward-looking
information as actual results may differ materially from those
expressed or implied by forward-looking information. By its nature,
CP's forward-looking information involves 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: changes in business strategies; general
North American and global economic, credit and business conditions;
risks associated with 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,
regulations and government policies, including regulation of rates;
changes in taxes and tax rates; potential increases in maintenance
and operating costs; changes in fuel prices; 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; trade restrictions or other changes to international
trade arrangements; climate change; and various events that could
disrupt operations, including severe weather, such as droughts,
floods, avalanches and earthquakes, and cybersecurity attacks, 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 "Risk Factors"
and "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.
The forward-looking information contained in this news release
is made as of the date hereof. Except as required by law, CP
undertakes no obligation to update publicly or otherwise revise any
forward-looking information, or the foregoing assumptions and risks
affecting such 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
FINANCIAL STATEMENTS
INTERIM CONSOLIDATED STATEMENTS OF
INCOME
(unaudited)
|
For the three
months
ended June 30
|
For the six
months
ended June 30
|
(in millions of
Canadian dollars, except share and per share data)
|
2019
|
2018
|
2019
|
2018
|
Revenues (Note
3)
|
|
|
|
|
Freight
|
$
|
1,931
|
|
$
|
1,709
|
|
$
|
3,657
|
|
$
|
3,334
|
Non-freight
|
46
|
|
41
|
|
87
|
|
78
|
Total
revenues
|
1,977
|
|
1,750
|
|
3,744
|
|
3,412
|
Operating
expenses
|
|
|
|
|
Compensation and
benefits
|
383
|
|
351
|
|
789
|
|
725
|
Fuel
|
236
|
|
230
|
|
445
|
|
445
|
Materials
|
54
|
|
53
|
|
111
|
|
108
|
Equipment
rents
|
34
|
|
33
|
|
69
|
|
66
|
Depreciation and
amortization
|
183
|
|
172
|
|
343
|
|
342
|
Purchased services and
other
|
265
|
|
284
|
|
622
|
|
559
|
Total operating
expenses
|
1,155
|
|
1,123
|
|
2,379
|
|
2,245
|
|
|
|
|
|
Operating
income
|
822
|
|
627
|
|
1,365
|
|
1,167
|
Less:
|
|
|
|
|
Other (income) expense
(Note 5)
|
(40)
|
|
52
|
|
(87)
|
|
103
|
Other components of
net periodic benefit recovery (Note 13)
|
(98)
|
|
(95)
|
|
(195)
|
|
(191)
|
Net interest
expense
|
112
|
|
112
|
|
226
|
|
227
|
Income before
income tax expense
|
848
|
|
558
|
|
1,421
|
|
1,028
|
Income tax expense
(Note 6)
|
124
|
|
122
|
|
263
|
|
244
|
Net
income
|
$
|
724
|
|
$
|
436
|
|
$
|
1,158
|
|
$
|
784
|
|
|
|
|
|
Earnings per share
(Note 7)
|
|
|
|
|
Basic earnings per
share
|
$
|
5.19
|
|
$
|
3.05
|
|
$
|
8.28
|
|
$
|
5.46
|
Diluted earnings per
share
|
$
|
5.17
|
|
$
|
3.04
|
|
$
|
8.25
|
|
$
|
5.44
|
|
|
|
|
|
Weighted-average
number of shares (millions) (Note 7)
|
|
|
|
|
Basic
|
139.7
|
|
142.8
|
|
139.9
|
|
143.6
|
Diluted
|
140.2
|
|
143.2
|
|
140.4
|
|
144.0
|
|
|
|
|
|
Dividends declared
per share
|
$
|
0.8300
|
|
$
|
0.6500
|
|
$
|
1.4800
|
|
$
|
1.2125
|
|
See Notes to Interim
Consolidated Financial Statements.
|
INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME
(unaudited)
|
For the three
months
ended June 30
|
For the six
months
ended June 30
|
(in millions of
Canadian dollars)
|
2019
|
2018
|
2019
|
2018
|
Net income
|
$
|
724
|
|
$
|
436
|
|
$
|
1,158
|
|
$
|
784
|
Net gain (loss) in
foreign currency translation adjustments, net of hedging
activities
|
15
|
|
(16)
|
|
31
|
|
(36)
|
Change in derivatives
designated as cash flow hedges
|
4
|
|
14
|
|
6
|
|
35
|
Change in pension and
post-retirement defined benefit plans
|
21
|
|
29
|
|
41
|
|
58
|
Other comprehensive
income before income taxes
|
40
|
|
27
|
|
78
|
|
57
|
Income tax (expense)
recovery on above items
|
(22)
|
|
5
|
|
(44)
|
|
11
|
Other comprehensive
income (Note 4)
|
18
|
|
32
|
|
34
|
|
68
|
Comprehensive
income
|
$
|
742
|
|
$
|
468
|
|
$
|
1,192
|
|
$
|
852
|
|
See Notes to Interim
Consolidated Financial Statements.
|
INTERIM CONSOLIDATED BALANCE SHEETS AS
AT
(unaudited)
|
June
30
|
December
31
|
(in millions of
Canadian dollars)
|
2019
|
2018
|
Assets
|
|
|
Current
assets
|
|
|
Cash and cash
equivalents
|
$
|
45
|
|
$
|
61
|
Accounts receivable,
net
|
795
|
|
815
|
Materials and
supplies
|
195
|
|
173
|
Other current
assets
|
80
|
|
68
|
|
1,115
|
|
1,117
|
Investments
|
210
|
|
203
|
Properties (Note
9)
|
18,489
|
|
18,418
|
Goodwill and
intangible assets
|
193
|
|
202
|
Pension
asset
|
1,460
|
|
1,243
|
Other assets (Note
9)
|
466
|
|
71
|
Total
assets
|
$
|
21,933
|
|
$
|
21,254
|
Liabilities and
shareholders' equity
|
|
|
Current
liabilities
|
|
|
Accounts payable and
accrued liabilities (Note 9)
|
$
|
1,401
|
|
$
|
1,449
|
Long-term debt
maturing within one year (Note 8, 9, 11)
|
273
|
|
506
|
|
1,674
|
|
1,955
|
Pension and other
benefit liabilities
|
713
|
|
718
|
Other long-term
liabilities (Note 9)
|
598
|
|
237
|
Long-term debt (Note
8, 9, 11)
|
8,266
|
|
8,190
|
Deferred income
taxes
|
3,525
|
|
3,518
|
Total
liabilities
|
14,776
|
|
14,618
|
Shareholders'
equity
|
|
|
Share
capital
|
1,996
|
|
2,002
|
Additional paid-in
capital
|
45
|
|
42
|
Accumulated other
comprehensive loss (Note 4)
|
(2,009)
|
|
(2,043)
|
Retained
earnings
|
7,125
|
|
6,635
|
|
7,157
|
|
6,636
|
Total liabilities
and shareholders' equity
|
$
|
21,933
|
|
$
|
21,254
|
|
Contingencies (Note
14)
|
See Notes to Interim
Consolidated Financial Statements.
|
INTERIM CONSOLIDATED STATEMENTS OF CASH
FLOWS
(unaudited)
|
For the three
months
ended June 30
|
For the six
months
ended June 30
|
(in millions of
Canadian dollars)
|
2019
|
2018
|
2019
|
2018
|
Operating
activities
|
|
|
|
|
Net income
|
$
|
724
|
|
$
|
436
|
|
$
|
1,158
|
|
$
|
784
|
Reconciliation of net
income to cash provided by operating activities:
|
|
|
|
|
Depreciation and
amortization
|
183
|
|
172
|
|
343
|
|
342
|
Deferred income tax
(recovery) expense (Note 6)
|
(18)
|
|
37
|
|
20
|
|
78
|
Pension recovery and
funding (Note 13)
|
(89)
|
|
(82)
|
|
(177)
|
|
(154)
|
Foreign exchange
(gain) loss on debt and lease liabilities (Note 5)
|
(37)
|
|
44
|
|
(82)
|
|
93
|
Settlement of forward
starting swaps on debt issuance (Note 11)
|
—
|
|
(24)
|
|
—
|
|
(24)
|
Other operating
activities, net
|
18
|
|
4
|
|
63
|
|
(17)
|
Change in non-cash
working capital balances related to operations
|
(60)
|
|
124
|
|
(191)
|
|
6
|
Cash provided by
operating activities
|
721
|
|
711
|
|
1,134
|
|
1,108
|
Investing
activities
|
|
|
|
|
Additions to
properties
|
(459)
|
|
(413)
|
|
(683)
|
|
(654)
|
Proceeds from sale of
properties and other assets
|
8
|
|
5
|
|
14
|
|
9
|
Other
|
(4)
|
|
—
|
|
(5)
|
|
(1)
|
Cash used in
investing activities
|
(455)
|
|
(408)
|
|
(674)
|
|
(646)
|
Financing
activities
|
|
|
|
|
Dividends
paid
|
(91)
|
|
(81)
|
|
(182)
|
|
(163)
|
Issuance of CP Common
Shares
|
10
|
|
4
|
|
14
|
|
12
|
Purchase of CP Common
Shares (Note 10)
|
(257)
|
|
(261)
|
|
(464)
|
|
(559)
|
Issuance of long-term
debt, excluding commercial paper (Note 8)
|
—
|
|
638
|
|
397
|
|
638
|
Repayment of
long-term debt, excluding commercial paper (Note 8)
|
(480)
|
|
(734)
|
|
(485)
|
|
(739)
|
Net issuance of
commercial paper (Note 8)
|
246
|
|
53
|
|
246
|
|
53
|
Cash used in
financing activities
|
(572)
|
|
(381)
|
|
(474)
|
|
(758)
|
Effect of foreign
currency fluctuations on U.S. dollar-denominated cash and cash
equivalents
|
(1)
|
|
4
|
|
(2)
|
|
9
|
Cash
position
|
|
|
|
|
Decrease in cash and
cash equivalents
|
(307)
|
|
(74)
|
|
(16)
|
|
(287)
|
Cash and cash
equivalents at beginning of period
|
352
|
|
125
|
|
61
|
|
338
|
Cash and cash
equivalents at end of period
|
$
|
45
|
|
$
|
51
|
|
$
|
45
|
|
$
|
51
|
|
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
Income taxes
paid
|
$
|
108
|
|
$
|
52
|
|
$
|
257
|
|
$
|
156
|
Interest
paid
|
$
|
83
|
|
$
|
90
|
|
$
|
232
|
|
$
|
233
|
|
See Notes to Interim
Consolidated Financial Statements.
|
INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY
(unaudited)
|
For the three
months ended June 30
|
(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 April
1, 2019
|
|
139.8
|
|
$
|
1,997
|
|
$
|
46
|
|
$
|
(2,027)
|
|
$
|
6,798
|
|
$
|
6,814
|
Net income
|
|
—
|
|
—
|
|
—
|
|
—
|
|
724
|
|
724
|
Other comprehensive
income (Note 4)
|
|
—
|
|
—
|
|
—
|
|
18
|
|
—
|
|
18
|
Dividends declared
($0.8300 per share)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(115)
|
|
(115)
|
Effect of stock-based
compensation expense
|
|
—
|
|
—
|
|
3
|
|
—
|
|
—
|
|
3
|
CP Common Shares
repurchased (Note 10)
|
|
(0.9)
|
|
(14)
|
|
—
|
|
—
|
|
(282)
|
|
(296)
|
Shares issued under
stock option plan
|
|
0.2
|
|
13
|
|
(4)
|
|
—
|
|
—
|
|
9
|
Balance at June
30, 2019
|
|
139.1
|
|
$
|
1,996
|
|
$
|
45
|
|
$
|
(2,009)
|
|
$
|
7,125
|
|
$
|
7,157
|
Balance at April 1,
2018
|
|
143.7
|
|
$
|
2,022
|
|
$
|
45
|
|
$
|
(1,705)
|
|
$
|
6,072
|
|
$
|
6,434
|
Net income
|
|
—
|
|
—
|
|
—
|
|
—
|
|
436
|
|
436
|
Other comprehensive
income (Note 4)
|
|
—
|
|
—
|
|
—
|
|
32
|
|
—
|
|
32
|
Dividends declared
($0.6500 per share)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(93)
|
|
(93)
|
Effect of stock-based
compensation expense
|
|
—
|
|
—
|
|
2
|
|
—
|
|
—
|
|
2
|
CP Common Shares
repurchased (Note 10)
|
|
(1.2)
|
|
(15)
|
|
—
|
|
—
|
|
(226)
|
|
(241)
|
Shares issued under
stock option plan
|
|
—
|
|
6
|
|
(2)
|
|
—
|
|
—
|
|
4
|
Balance at June 30,
2018
|
|
142.5
|
|
$
|
2,013
|
|
$
|
45
|
|
$
|
(1,673)
|
|
$
|
6,189
|
|
$
|
6,574
|
|
|
|
|
|
|
|
For the six months
ended June 30
|
(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
December 31, 2018, as previously reported
|
|
140.5
|
|
$
|
2,002
|
|
$
|
42
|
|
$
|
(2,043)
|
|
$
|
6,635
|
|
$
|
6,636
|
Impact of accounting
change (Note 2)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(5)
|
|
(5)
|
Balance at January
1, 2019, as restated
|
|
140.5
|
|
$
|
2,002
|
|
$
|
42
|
|
$
|
(2,043)
|
|
$
|
6,630
|
|
$
|
6,631
|
Net income
|
|
—
|
|
—
|
|
—
|
|
—
|
|
1,158
|
|
1,158
|
Other comprehensive
income (Note 4)
|
|
—
|
|
—
|
|
—
|
|
34
|
|
—
|
|
34
|
Dividends declared
($1.4800 per share)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(206)
|
|
(206)
|
Effect of stock-based
compensation expense
|
|
—
|
|
—
|
|
8
|
|
—
|
|
—
|
|
8
|
CP Common Shares
repurchased (Note 10)
|
|
(1.6)
|
|
(24)
|
|
—
|
|
—
|
|
(457)
|
|
(481)
|
Shares issued under
stock option plan
|
|
0.2
|
|
18
|
|
(5)
|
|
—
|
|
—
|
|
13
|
Balance at June
30, 2019
|
|
139.1
|
|
$
|
1,996
|
|
$
|
45
|
|
$
|
(2,009)
|
|
$
|
7,125
|
|
$
|
7,157
|
Balance at January 1,
2018
|
|
144.9
|
|
$
|
2,032
|
|
$
|
43
|
|
$
|
(1,741)
|
|
$
|
6,103
|
|
$
|
6,437
|
Net income
|
|
—
|
|
—
|
|
—
|
|
—
|
|
784
|
|
784
|
Other comprehensive
income (Note 4)
|
|
—
|
|
—
|
|
—
|
|
68
|
|
—
|
|
68
|
Dividends declared
($1.2125 per share)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(174)
|
|
(174)
|
Effect of stock-based
compensation expense
|
|
—
|
|
—
|
|
6
|
|
—
|
|
—
|
|
6
|
CP Common Shares
repurchased (Note 10)
|
|
(2.5)
|
|
(35)
|
|
—
|
|
—
|
|
(524)
|
|
(559)
|
Shares issued under
stock option plan
|
|
0.1
|
|
16
|
|
(4)
|
|
—
|
|
—
|
|
12
|
Balance at June 30,
2018
|
|
142.5
|
|
$
|
2,013
|
|
$
|
45
|
|
$
|
(1,673)
|
|
$
|
6,189
|
|
$
|
6,574
|
|
See Notes to Interim
Consolidated Financial Statements.
|
NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS
June 30,
2019
(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 2018 annual consolidated financial statements and notes
included in CP's 2018 Annual Report on Form 10-K. The accounting
policies used are consistent with the accounting policies used in
preparing the 2018 annual consolidated financial statements, except
for the newly adopted accounting policy 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 2019
Leases
On January 1, 2019, the Company
adopted the new Accounting Standards Update ("ASU") 2016-02, issued
by the Financial Accounting Standards Board ("FASB"), and all
related amendments under FASB Accounting Standards Codification
("ASC") Topic 842, Leases. Using the cumulative-effect adjustment
transition approach, the Company recognized a cumulative-effect
adjustment to the opening balance of retained earnings in the
period of adoption. Accordingly, comparative financial information
has not been restated and continues to be reported under the
accounting standards in effect for those periods.
In January 2019, the Company
implemented a lease management system to assist in delivering the
required accounting changes. To facilitate the transition, the
Company made policy choices to utilize available practical
expedients provided by the new standard, including the:
- Acceptance of the package of practical expedients, permitting
the Company not to reassess lease existence, classification, and
capitalization of initial direct costs previously determined for
all leases under Topic 840, Leases;
- Acceptance of the previous accounting treatment for land
easements where Topic 840 was not applied; and
- Use of hindsight at transition to determine lease term
length.
Operating leases with fixed terms and in-substance fixed terms
were transitioned by recognizing both an operating lease liability
and right-of-use ("ROU") asset. Operating lease liabilities and ROU
assets were calculated at the present value of remaining lease
payments using the Company's incremental borrowing interest rate as
at January 1, 2019. ROU assets were
further modified to include previously accrued balances for
prepayments and initial direct costs, but reduced for accrued lease
incentives. The Company did not recognize operating lease
liabilities or ROU assets for leases requiring variable payment not
dependent on an index or rate, or short term leases with a term of
12 months or less.
On adoption, the standard had a material impact on the Company's
consolidated balance sheet, but did not have a significant impact
on its consolidated statement of income. The most significant
impact was the recognition of operating lease ROU assets and
operating lease liabilities, while the Company's accounting for
finance leases remained substantially unchanged.
The impact of the adoption of ASC 842 as at January 1, 2019 was as follows:
(in millions of
Canadian dollars)
|
As reported
December 31, 2018
|
New lease
standard
cumulative-effect
|
As restated
January 1, 2019
|
Assets
|
|
|
|
Properties
|
$
|
18,418
|
|
$
|
(12)
|
|
$
|
18,406
|
Other
assets
|
71
|
|
399
|
|
470
|
Liabilities
|
|
|
|
Accounts
payable and accrued liabilities
|
$
|
1,449
|
|
$
|
58
|
|
$
|
1,507
|
Other
long-term liabilities
|
237
|
|
337
|
|
574
|
Deferred
income taxes
|
3,518
|
|
(3)
|
|
3,515
|
Shareholders'
equity
|
|
|
|
Retained
earnings
|
$
|
6,635
|
|
$
|
(5)
|
|
$
|
6,630
|
There was no significant impact to lessor accounting upon the
adoption of ASC 842.
3 Revenues
The following table disaggregates the Company's revenues from
contracts with customers by major source:
|
For the three
months
ended June 30
|
For the six
months
ended June 30
|
(in millions of
Canadian dollars)
|
2019
|
2018
|
2019
|
2018
|
Freight
|
|
|
|
|
Grain
|
$
|
422
|
|
$
|
372
|
|
$
|
802
|
|
$
|
729
|
Coal
|
173
|
|
164
|
|
331
|
|
315
|
Potash
|
136
|
|
116
|
|
250
|
|
228
|
Fertilizers and
sulphur
|
63
|
|
55
|
|
120
|
|
116
|
Forest
products
|
78
|
|
69
|
|
151
|
|
135
|
Energy, chemicals and
plastics
|
346
|
|
278
|
|
661
|
|
535
|
Metals, minerals and
consumer products
|
205
|
|
204
|
|
378
|
|
387
|
Automotive
|
104
|
|
91
|
|
180
|
|
162
|
Intermodal
|
404
|
|
360
|
|
784
|
|
727
|
Total freight
revenues
|
1,931
|
|
1,709
|
|
3,657
|
|
3,334
|
Non-freight excluding
leasing revenues
|
30
|
|
25
|
|
57
|
|
48
|
Revenues from
contracts with customers
|
1,961
|
|
1,734
|
|
3,714
|
|
3,382
|
Leasing
revenues
|
16
|
|
16
|
|
30
|
|
30
|
Total
revenues
|
$
|
1,977
|
|
$
|
1,750
|
|
$
|
3,744
|
|
$
|
3,412
|
Contract liabilities
(in millions of
Canadian dollars)
|
2019
|
2018
|
Balance at January
1
|
$
|
2
|
|
$
|
2
|
Balance at April
1
|
$
|
73
|
|
$
|
2
|
Balance at June
30
|
$
|
74
|
|
$
|
3
|
Contract liabilities represent payments received for performance
obligations not yet satisfied and relate to deferred revenue and
are presented as components of Accounts payable and accrued
liabilities and Other long-term liabilities on the Company's
Interim Consolidated Balance Sheets. Revenue recognized during
the three and six months ended June 30, 2019, included in
contract liabilities at the beginning of the periods, was
$3 million and $2 million, respectively (three and six months
ended June 30, 2018 - $2 million and $2
million, respectively). Increases in contract liabilities
arising from cash received net of amounts recognized as revenue on
satisfaction of performance obligations during the three and six
months ended June 30, 2019 were
$3 million and $74 million, respectively (three and six months
ended June 30, 2018 - $3 million and $3
million, respectively).
4 Changes in Accumulated other
comprehensive loss ("AOCL") by component
|
For the three
months ended June 30
|
(in millions of
Canadian dollars)
|
Foreign currency
net of hedging
activities(1)
|
|
Derivatives and
other(1)
|
|
Pension and post-
retirement defined
benefit plans(1)
|
|
Total(1)
|
Opening balance,
April 1, 2019
|
$
|
113
|
|
$
|
(61)
|
|
$
|
(2,079)
|
|
$
|
(2,027)
|
Other comprehensive
(loss) income before reclassifications
|
(1)
|
|
1
|
|
—
|
|
—
|
Amounts reclassified
from accumulated other comprehensive loss
|
—
|
|
2
|
|
16
|
|
18
|
Net other
comprehensive (loss) income
|
(1)
|
|
3
|
|
16
|
|
18
|
Closing balance,
June 30, 2019
|
$
|
112
|
|
$
|
(58)
|
|
$
|
(2,063)
|
|
$
|
(2,009)
|
Opening balance,
April 1, 2018
|
$
|
109
|
|
$
|
(74)
|
|
$
|
(1,740)
|
|
$
|
(1,705)
|
Other comprehensive
income before reclassifications
|
1
|
|
8
|
|
—
|
|
9
|
Amounts reclassified
from accumulated other comprehensive loss
|
—
|
|
2
|
|
21
|
|
23
|
Net other
comprehensive income
|
1
|
|
10
|
|
21
|
|
32
|
Closing balance,
June 30, 2018
|
$
|
110
|
|
$
|
(64)
|
|
$
|
(1,719)
|
|
$
|
(1,673)
|
(1)
Amounts are presented net of tax.
|
|
For the six months
ended June 30
|
(in millions of
Canadian dollars)
|
Foreign currency
net of hedging
activities(1)
|
|
Derivatives and
other(1)
|
|
Pension and post-
retirement defined
benefit plans(1)
|
|
Total(1)
|
Opening balance,
January 1, 2019
|
$
|
113
|
|
$
|
(62)
|
|
$
|
(2,094)
|
|
$
|
(2,043)
|
Other comprehensive
loss before reclassifications
|
(1)
|
|
—
|
|
(1)
|
|
(2)
|
Amounts reclassified
from accumulated other comprehensive loss
|
—
|
|
4
|
|
32
|
|
36
|
Net other
comprehensive (loss) income
|
(1)
|
|
4
|
|
31
|
|
34
|
Closing balance,
June 30, 2019
|
$
|
112
|
|
$
|
(58)
|
|
$
|
(2,063)
|
|
$
|
(2,009)
|
Opening balance,
January 1, 2018
|
$
|
109
|
|
$
|
(89)
|
|
$
|
(1,761)
|
|
$
|
(1,741)
|
Other comprehensive
income (loss) before reclassifications
|
1
|
|
21
|
|
(1)
|
|
21
|
Amounts reclassified
from accumulated other comprehensive loss
|
—
|
|
4
|
|
43
|
|
47
|
Net other
comprehensive income
|
1
|
|
25
|
|
42
|
|
68
|
Closing balance,
June 30, 2018
|
$
|
110
|
|
$
|
(64)
|
|
$
|
(1,719)
|
|
$
|
(1,673)
|
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 June 30
|
For the six
months
ended June 30
|
(in millions of
Canadian dollars)
|
2019
|
2018
|
2019
|
2018
|
Amortization of prior
service costs(1)
|
$
|
1
|
|
$
|
—
|
|
$
|
1
|
|
$
|
(1)
|
Recognition of net
actuarial loss(1)
|
20
|
|
29
|
|
41
|
|
59
|
Total before income
tax
|
21
|
|
29
|
|
42
|
|
58
|
Income tax
recovery
|
(5)
|
|
(8)
|
|
(10)
|
|
(15)
|
Total net of
income tax
|
$
|
16
|
|
$
|
21
|
|
$
|
32
|
|
$
|
43
|
(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 June 30
|
For the six
months
ended June 30
|
(in millions of
Canadian dollars)
|
2019
|
2018
|
2019
|
2018
|
Foreign exchange
(gain) loss on debt and lease liabilities
|
$
|
(37)
|
|
$
|
44
|
|
$
|
(82)
|
|
$
|
93
|
Other foreign
exchange (gains) losses
|
(4)
|
|
4
|
|
(6)
|
|
3
|
Other
|
1
|
|
4
|
|
1
|
|
7
|
Other (income)
expense
|
$
|
(40)
|
|
$
|
52
|
|
$
|
(87)
|
|
$
|
103
|
6 Income taxes
|
For the three
months
ended June 30
|
For the six
months
ended June 30
|
(in millions of
Canadian dollars)
|
2019
|
2018
|
2019
|
2018
|
Current income tax
expense
|
$
|
142
|
|
$
|
85
|
|
$
|
243
|
|
$
|
166
|
Deferred income tax
(recovery) expense
|
(18)
|
|
37
|
|
20
|
|
78
|
Income tax
expense
|
$
|
124
|
|
$
|
122
|
|
$
|
263
|
|
$
|
244
|
During the three months ended June 30,
2019, legislation was enacted to decrease the Alberta provincial corporate income tax rate.
As a result of this change, the Company recorded a deferred tax
recovery of $88 million in the second
quarter of 2019 related to the revaluation of its deferred income
tax balances as at January 1,
2019.
During the three months ended June 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 six months ended
June 30, 2019 were 14.63% and 18.50%,
respectively, compared to 21.88% and 23.73%, respectively for the
same periods in 2018.
For the three months ended June 30,
2019, the effective tax rate excluding the discrete items of
the foreign exchange ("FX") gain of $37
million on debt and lease liabilities and the $88 million deferred tax recovery on the
Alberta provincial corporate
income tax rate change, was 25.75%.
For the three months ended June 30,
2018, the effective tax rate excluding the discrete items of
the FX loss of $44 million on debt
and the $21 million deferred tax
recovery on the Iowa and
Missouri state corporate income
tax rate changes, was 24.75%.
For the six months ended June 30,
2019, the effective tax rate excluding the discrete items of
the FX gain of $82 million on debt
and lease liabilities and the $88
million deferred tax recovery on the Alberta provincial corporate income tax rate
change, was 25.75%.
For the six months ended June 30,
2018, the effective tax rate excluding the discrete items of
the FX loss of $93 million on debt
and the $21 million deferred tax
recovery on the Iowa and
Missouri state corporate income
tax rate changes, was 24.75%.
7 Earnings per share
At June 30, 2019, the number of CP Common Shares
outstanding was 139.1 million (June 30, 2018 - 142.5
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 June 30
|
For the six
months
ended June 30
|
(in
millions)
|
2019
|
2018
|
2019
|
2018
|
Weighted-average
basic shares outstanding
|
139.7
|
|
142.8
|
|
139.9
|
|
143.6
|
Dilutive effect of
stock options
|
0.5
|
|
0.4
|
|
0.5
|
|
0.4
|
Weighted-average
diluted shares outstanding
|
140.2
|
|
143.2
|
|
140.4
|
|
144.0
|
For the three months ended June 30,
2019, there were no options excluded from the computation of
diluted earnings per share (three months ended June 30, 2018 - 0.1 million). For the six months
ended June 30, 2019, there were 0.1 million options
excluded from the computation of diluted earnings per share because
their effects were not dilutive (six months ended June 30,
2018 - 0.2 million).
8 Debt
Retirement of long-term debt
During the three months ended June 30,
2019, the Company repaid U.S. $350
million 7.250% 10-year notes at maturity for a total of U.S.
$350 million ($471 million).
Issuance of long-term debt
During the three months ended March 31,
2019, the Company issued $400
million 3.150% 10-year notes due March 13, 2029 for net
proceeds of $397 million. These notes
pay interest semi-annually and are unsecured but carry a negative
pledge.
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 June 30, 2019, the Company had total
commercial paper borrowings of U.S. $185
million ($242 million),
presented in "Long-term debt maturing within one year" on the
Company's Interim Consolidated Balance Sheets (December 31, 2018 - $nil). The weighted-average
interest rate on these borrowings was 2.64%.
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 Leases
The Company has leases for rolling stock, buildings, vehicles,
railway equipment, and roadway machines. CP has entered into
rolling stock leases that are fully variable or contain both fixed
and variable components. Variable components are dependent on the
hours and miles that the underlying equipment has been used. Fixed
term, short-term, and variable operating lease costs are recorded
in Equipment rents and Purchased services and other on the
Company's Interim Consolidated Income Statements. Components of
finance lease costs are recorded in Depreciation and amortization
and Net interest expense on the Company's Interim Consolidated
Income Statements.
The Company determines lease existence and classification at the
lease inception date. Leases are identified when an agreement
conveys the right to control identified property for a period of
time in exchange for consideration. ROU assets represent our right
to use an underlying asset for the lease term and lease liabilities
represent our obligation to make lease payments arising from the
lease. Operating and finance lease ROU assets and liabilities are
recognized at the lease commencement date based on the present
value of lease payments over the lease term. Lease payments include
fixed and variable payments that are based on an index or a rate.
If the Company's leases do not provide a readily determinable
implicit interest rate, the Company uses internal incremental
secured borrowing rates for comparable tenor in the same currency
at the commencement date in determining the present value of lease
payments. Operating and finance lease ROU assets also include lease
prepayments and initial direct costs, but are reduced by lease
incentives. The lease term may include periods associated with
options to extend or exclude periods associated with options to
terminate the lease when it is reasonably certain that the Company
will exercise these options. The Company's leases have remaining
terms from one to 12 years, some of which include options to extend
for up to an additional 10 years and some of which include options
to terminate within one year.
The Company has short-term operating leases with terms of 12
months or less, some of which include options to purchase that the
Company is not reasonably certain to exercise. The Company has
elected to apply the recognition exemption and, as such, accounts
for leases with a term of 12 months or less off-balance sheet.
Therefore, lease payments on these short-term operating leases are
not included in operating lease ROU assets and liabilities, but are
recognized as an expense in the Company's Consolidated Statements
of Income on a straight-line basis over the term of the lease.
Further, the Company has elected to combine lease and non-lease
components for all leases, except for leases of roadway
machines.
Residual value guarantees are provided on certain rolling stock
and vehicle operating leases. Cumulatively, these guarantees are
limited to $2 million and are not
included in lease liabilities as it is not currently probable that
any amounts will be owed under these residual value guarantees.
The components of lease expense are as follows:
|
For the three
months
ended June 30
|
For the six
months
ended June 30
|
(in millions of
Canadian dollars)
|
2019
|
2019
|
Operating lease
cost
|
$
|
23
|
|
$
|
45
|
Short-term lease
cost
|
1
|
|
2
|
Variable lease
cost
|
5
|
|
6
|
Sublease
income
|
(1)
|
|
(1)
|
|
|
|
Finance Lease
Cost
|
|
|
Amortization of
right-of use-assets
|
3
|
|
5
|
Interest on lease
liabilities
|
2
|
|
5
|
Total lease
costs
|
$
|
33
|
|
$
|
62
|
Supplemental balance sheet information related to leases is as
follows:
|
|
As at June
30
|
(in millions of
Canadian dollars)
|
Classification
|
2019
|
Assets
|
|
|
Operating
|
Other
assets
|
$
|
381
|
Finance
|
Properties, net book
value
|
181
|
|
|
|
Liabilities
|
|
|
Current
|
|
|
Operating
|
Accounts payable and
accrued liabilities
|
72
|
Finance
|
Long-term debt
maturing within one year
|
7
|
Long-term
|
|
|
Operating
|
Other long-term
liabilities
|
303
|
Finance
|
Long-term
debt
|
148
|
The following table provides the Company's weighted average
remaining lease terms and discount rates:
|
As at June
30
|
(in millions of
Canadian dollars)
|
2019
|
Weighted Average
Remaining Lease Term
|
|
Operating
leases
|
8 years
|
Finance
leases
|
4 years
|
|
|
Weighted Average
Discount Rate
|
|
Operating
leases
|
3.50%
|
Finance
leases
|
7.03%
|
Supplemental information related to leases is as follows:
|
For the three
months
ended June 30
|
For the six
months
ended June 30
|
(in millions of
Canadian dollars)
|
2019
|
2019
|
Cash paid for amounts
included in measurement of lease liabilities
|
|
|
Operating cash
outflows from operating leases
|
$
|
18
|
|
$
|
46
|
Operating cash
outflows from finance leases
|
2
|
|
5
|
Financing cash
outflows from finance leases
|
1
|
|
2
|
|
|
|
Right-of-use assets
obtained in exchange for lease liabilities
|
|
|
Operating
leases
|
$
|
14
|
|
$
|
23
|
Finance
leases
|
4
|
|
4
|
Maturities of lease liabilities are as follows:
|
As at June 30,
2019
|
(in millions of
Canadian dollars)
|
Finance
Leases
|
Operating
Leases
|
2019
|
$
|
5
|
|
$
|
50
|
2020
|
11
|
|
72
|
2021
|
9
|
|
55
|
2022
|
109
|
|
47
|
2023
|
9
|
|
48
|
Thereafter
|
30
|
|
149
|
Total lease
payments
|
$
|
173
|
|
$
|
421
|
Less: Imputed
interest
|
18
|
|
46
|
Present value of
lease payments
|
$
|
155
|
|
$
|
375
|
10 Shareholders' equity
On October 19, 2018, the Company
announced a new normal course issuer bid ("NCIB"), commencing
October 24, 2018, to purchase up to
5.68 million of its Common Shares in the open market for
cancellation before October 23, 2019. As at June 30,
2019, the Company had purchased 3.85 million Common Shares for
$1,049 million under this NCIB
program.
On May 10, 2017, the Company
announced a new 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 June 30
|
For the six
months
ended June 30
|
|
2019
|
2018
|
2019
|
2018
|
Number of Common
Shares repurchased(1)
|
956,243
|
|
1,060,262
|
|
1,663,921
|
|
2,495,962
|
Weighted-average
price per share(2)
|
$
|
308.84
|
|
$
|
226.97
|
|
$
|
288.80
|
|
$
|
223.97
|
Amount of repurchase
(in millions)(2)
|
$
|
296
|
|
$
|
241
|
|
$
|
481
|
|
$
|
559
|
(1)
Includes shares repurchased but not yet canceled at quarter
end.
(2) Includes brokerage fees.
|
11 Financial instruments
A. Fair values of financial instruments
The Company categorizes its financial assets and liabilities
measured at fair value 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)
|
June 30,
2019
|
December 31,
2018
|
Long-term debt
(including current maturities):
|
|
|
Fair value
|
$
|
9,972
|
|
$
|
9,639
|
|
Carrying
value
|
8,539
|
|
8,696
|
|
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 ("U.S."). 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
six months ended June 30, 2019 was an unrealized FX gain of
$120 million and $240 million, respectively (three and six months
ended June 30, 2018 - unrealized FX loss of $122 million and $273
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 from forward starting swaps for the three and
six months ended June 30, 2019 was $nil (three and six months
ended June 30, 2018 - gain of $12
million and $31 million,
respectively). This was recorded in "Accumulated other
comprehensive loss", net of tax, and is being reclassified to "Net
interest expense" on the Interim Consolidated Statements of Income
until the underlying hedged notes are repaid.
For the three and six months ended June 30, 2019, a net
loss of $3 million and $5 million, respectively, related to settled
forward starting swap hedges have been amortized to "Net interest
expense" (three and six months ended June 30, 2018 - net loss
of $2 million and $5 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".
12 Stock-based compensation
At June 30, 2019, 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 six months ended
June 30, 2019 of $39 million and
$73 million, respectively (three and
six months ended June 30, 2018 - $18
million and $32 million,
respectively).
Stock option plan
In the six months ended June 30, 2019, under CP's stock
option plans, the Company issued 222,894 options at the
weighted-average price of $272.33 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 $14
million. The weighted-average fair value assumptions were
approximately:
|
For the six months
ended
June 30, 2019
|
Grant
price
|
$272.33
|
Expected option life
(years)(1)
|
5.00
|
Risk-free interest
rate(2)
|
2.23%
|
Expected stock price
volatility(3)
|
25.05%
|
Expected annual
dividends per share(4)
|
$2.6133
|
Expected forfeiture
rate(5)
|
6.00%
|
Weighted-average
grant date fair value per option granted during the
period
|
$63.67
|
(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 volatility of the Company's stock price 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 6, 2019, the Company announced an increase in
its quarterly dividend to $0.8300 per share, representing $3.3200
on an annual basis.
|
(5)
|
The Company estimates
forfeitures based on past experience. This rate is monitored on a
periodic basis.
|
Performance share unit plan
In the six months ended June 30, 2019, the Company issued
132,423 PSUs with a grant date fair value of approximately
$36 million. These units attract
dividend equivalents in the form of additional units based on the
dividends paid on the Company's Common Shares. PSUs vest and are
settled in cash or in CP Common Shares, approximately three years
after the grant date, contingent upon CP's performance
("performance factor"). The fair value of these PSUs is measured
periodically until settlement, using either a lattice-based
valuation model or a Monte Carlo
simulation model.
The performance period for 131,844 PSUs issued in the six months
ended June 30, 2019 is January 1, 2019 to December 31, 2021, and the performance factors
for these PSUs are Return on Invested Capital ("ROIC"), Total
Shareholder Return ("TSR") compared to the S&P/TSX 60 Index,
and TSR compared to Class I Railways. The performance factors for
the remaining 579 PSUs are annual revenue for the fiscal year 2020,
diluted EPS for the fiscal year 2020, and share price
appreciation.
The performance period for the PSUs issued in 2016 was
January 1, 2016 to December 31, 2018. 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 177% of the outstanding units multiplied by
the Company's average share price that was calculated using the
last 30 trading days preceding December 31,
2018. In the three months ended March
31, 2019, payouts occurred on the total outstanding awards,
including dividends reinvested, totaling $54
million on 117,228 outstanding awards.
Deferred share unit plan
In the six months ended June 30, 2019, the Company granted
15,179 DSUs with a grant date fair value of approximately
$4 million. DSUs vest over various
periods of up to 48 months and are only redeemable for a specified
period after employment is terminated. An expense to income for
DSUs is recognized over the vesting period for both the initial
subscription price and the change in value between reporting
periods.
13 Pension and other benefits
In the three months ended June 30, 2019, the Company made
contributions of $12 million (three
months ended June 30, 2018 - $11
million) to its defined benefit pension plans. In the six
months ended June 30, 2019, the Company made contributions of
$23 million (six months ended
June 30, 2018 - $12 million,
which is net of a $10 million refund
of plan surplus) to its defined benefit pension plans.
Net periodic benefit costs for defined benefit pension plans and
other benefits recognized in the three and six months ended
June 30, 2019 and 2018 included the following components:
|
For the three
months ended June 30
|
|
Pensions
|
|
Other
benefits
|
(in millions of
Canadian dollars)
|
2019
|
2018
|
|
2019
|
2018
|
Current service cost
(benefits earned by employees)
|
$
|
27
|
|
$
|
30
|
|
|
$
|
3
|
|
$
|
3
|
|
Other components of
net periodic benefit (recovery) cost:
|
|
|
|
|
|
Interest cost on
benefit obligation
|
113
|
|
109
|
|
|
5
|
|
5
|
|
Expected return on
fund assets
|
(237)
|
|
(238)
|
|
|
—
|
|
—
|
|
Recognized net
actuarial loss
|
20
|
|
28
|
|
|
—
|
|
1
|
|
Amortization of prior
service costs
|
—
|
|
—
|
|
|
1
|
|
—
|
|
Total other
components of net periodic benefit (recovery) cost
|
(104)
|
|
(101)
|
|
|
6
|
|
6
|
|
Net periodic benefit
(recovery) cost
|
$
|
(77)
|
|
$
|
(71)
|
|
|
$
|
9
|
|
$
|
9
|
|
|
For the six months
ended June 30
|
|
Pensions
|
|
Other
benefits
|
(in millions of
Canadian dollars)
|
2019
|
2018
|
|
2019
|
2018
|
Current service cost
(benefits earned by employees)
|
$
|
54
|
|
$
|
60
|
|
|
$
|
6
|
|
$
|
6
|
|
Other components of
net periodic benefit (recovery) cost:
|
|
|
|
|
|
Interest cost on
benefit obligation
|
225
|
|
219
|
|
|
10
|
|
9
|
|
Expected return on
fund assets
|
(474)
|
|
(477)
|
|
|
—
|
|
—
|
|
Recognized net
actuarial loss
|
41
|
|
57
|
|
|
2
|
|
2
|
|
Amortization of prior
service costs
|
—
|
|
(1)
|
|
|
1
|
|
—
|
|
Total other
components of net periodic benefit (recovery) cost
|
(208)
|
|
(202)
|
|
|
13
|
|
11
|
|
Net periodic benefit
(recovery) cost
|
$
|
(154)
|
|
$
|
(142)
|
|
|
$
|
19
|
|
$
|
17
|
|
14 Contingencies
In the normal course of its operations, the Company becomes
involved in various legal actions, including claims relating to
injuries and damage to property. The Company maintains provisions
it considers to be adequate for such actions. While the final
outcome with respect to actions outstanding or pending at
June 30, 2019 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
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 and was negligent in
that custody and control. The province alleges that 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 2020, 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
commenced against CP in November 2014
in the Maine Bankruptcy Court by the MMAR U.S. estate
representative ("Estate Representative") accuses CP of failing to
abide by certain regulations (the "Adversary Proceeding"). The
Estate Representative alleges that CP knew or ought to have known
that the shipper had misclassified the petroleum crude oil and
therefore should have refused to transport it. 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
in June 2015 and wrongful death and
personal injury actions commenced in Illinois and Maine in June
2015 against CP were all removed and subsequently
transferred and consolidated in Federal District Court 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
lost crude and recover 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
District Court in North Dakota
dismissed the Carmack Claims on timeliness grounds. The WD Trustee
appealed this decision to the Eighth Circuit Court of Appeals
("8CCA"), who reversed that decision and remanded the matter back
to the District Court. CP sought reconsideration by the 8CCA, but
the 8CCA denied rehearing. CP filed a petition for judicial review
of this decision to the Supreme Court on February 13, 2019. The Supreme Court denied CP's
petition for judicial review on June 3,
2019 and the District Court set a trial date for
August 2020. CP is considering
applying for dismissal of the Carmack Claims on other grounds.
At this stage of the proceedings, any potential responsibility
and the quantum of potential losses cannot be determined.
Nevertheless, 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 six months ended June 30, 2019 was $1 million and $2
million, respectively (three and six months ended
June 30, 2018 - $1 million and
$2 million, respectively). Provisions
for environmental remediation costs are recorded in "Other
long-term liabilities", except for the current portion which is
recorded in "Accounts payable and accrued liabilities". The total
amount provided at June 30, 2019 was $79 million (December 31, 2018 -
$82 million). Payments are expected
to be made over 10 years through 2029.
15 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 June 30, 2019
(in millions of
Canadian dollars)
|
CPRL
(Parent
Guarantor)
|
|
CPRC
(Subsidiary
Issuer)
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments and
Eliminations
|
|
CPRL
Consolidated
|
Revenues
|
|
|
|
|
|
Freight
|
$
|
—
|
|
$
|
1,403
|
|
$
|
528
|
|
$
|
—
|
|
$
|
1,931
|
Non-freight
|
—
|
|
34
|
|
115
|
|
(103)
|
|
46
|
Total
revenues
|
—
|
|
1,437
|
|
643
|
|
(103)
|
|
1,977
|
Operating
expenses
|
|
|
|
|
|
Compensation and
benefits
|
—
|
|
257
|
|
125
|
|
1
|
|
383
|
Fuel
|
—
|
|
189
|
|
47
|
|
—
|
|
236
|
Materials
|
—
|
|
37
|
|
13
|
|
4
|
|
54
|
Equipment
rents
|
—
|
|
47
|
|
(13)
|
|
—
|
|
34
|
Depreciation and
amortization
|
—
|
|
110
|
|
73
|
|
—
|
|
183
|
Purchased services and
other
|
—
|
|
240
|
|
133
|
|
(108)
|
|
265
|
Total operating
expenses
|
—
|
|
880
|
|
378
|
|
(103)
|
|
1,155
|
Operating
income
|
—
|
|
557
|
|
265
|
|
—
|
|
822
|
Less:
|
|
|
|
|
|
Other (income)
expense
|
(5)
|
|
(38)
|
|
3
|
|
—
|
|
(40)
|
Other components of
net periodic benefit (recovery) expense
|
—
|
|
(100)
|
|
2
|
|
—
|
|
(98)
|
Net interest (income)
expense
|
(1)
|
|
120
|
|
(7)
|
|
—
|
|
112
|
Income before
income tax expense and
equity in net
earnings of subsidiaries
|
6
|
|
575
|
|
267
|
|
—
|
|
848
|
Less: Income tax
expense
|
2
|
|
113
|
|
9
|
|
—
|
|
124
|
Add: Equity in net
earnings of subsidiaries
|
720
|
|
258
|
|
—
|
|
(978)
|
|
—
|
Net
income
|
$
|
724
|
|
$
|
720
|
|
$
|
258
|
|
$
|
(978)
|
|
$
|
724
|
Interim Condensed Consolidating Statements of
Income
For the three months ended June 30, 2018
(in millions of
Canadian dollars)
|
CPRL
(Parent
Guarantor)
|
|
CPRC
(Subsidiary
Issuer)
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments and
Eliminations
|
|
CPRL
Consolidated
|
Revenues
|
|
|
|
|
|
Freight
|
$
|
—
|
|
$
|
1,196
|
|
$
|
513
|
|
$
|
—
|
|
$
|
1,709
|
Non-freight
|
—
|
|
31
|
|
90
|
|
(80)
|
|
41
|
Total
revenues
|
—
|
|
1,227
|
|
603
|
|
(80)
|
|
1,750
|
Operating
expenses
|
|
|
|
|
|
Compensation and
benefits
|
—
|
|
237
|
|
114
|
|
—
|
|
351
|
Fuel
|
—
|
|
178
|
|
52
|
|
—
|
|
230
|
Materials
|
—
|
|
38
|
|
12
|
|
3
|
|
53
|
Equipment
rents
|
—
|
|
30
|
|
3
|
|
—
|
|
33
|
Depreciation and
amortization
|
—
|
|
105
|
|
67
|
|
—
|
|
172
|
Purchased services and
other
|
—
|
|
205
|
|
162
|
|
(83)
|
|
284
|
Total operating
expenses
|
—
|
|
793
|
|
410
|
|
(80)
|
|
1,123
|
Operating
income
|
—
|
|
434
|
|
193
|
|
—
|
|
627
|
Less:
|
|
|
|
|
|
Other expense
(income)
|
5
|
|
79
|
|
(32)
|
|
—
|
|
52
|
Other components of
net periodic benefit
(recovery)
expense
|
—
|
|
(96)
|
|
1
|
|
—
|
|
(95)
|
Net interest (income)
expense
|
(2)
|
|
121
|
|
(7)
|
|
—
|
|
112
|
(Loss) income
before income tax expense
and equity in net
earnings of subsidiaries
|
(3)
|
|
330
|
|
231
|
|
—
|
|
558
|
Less: Income tax
(recovery) expense
|
(1)
|
|
99
|
|
24
|
|
—
|
|
122
|
Add: Equity in net
earnings of subsidiaries
|
438
|
|
207
|
|
—
|
|
(645)
|
|
—
|
Net
income
|
$
|
436
|
|
$
|
438
|
|
$
|
207
|
|
$
|
(645)
|
|
$
|
436
|
Interim Condensed Consolidating Statements of
Income
For the six months ended June 30, 2019
(in millions of
Canadian dollars)
|
CPRL
(Parent
Guarantor)
|
|
CPRC
(Subsidiary
Issuer)
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments and
Eliminations
|
|
CPRL
Consolidated
|
Revenues
|
|
|
|
|
|
Freight
|
$
|
—
|
|
$
|
2,647
|
|
$
|
1,010
|
|
$
|
—
|
|
$
|
3,657
|
Non-freight
|
—
|
|
63
|
|
229
|
|
(205)
|
|
87
|
Total
revenues
|
—
|
|
2,710
|
|
1,239
|
|
(205)
|
|
3,744
|
Operating
expenses
|
|
|
|
|
|
Compensation and
benefits
|
—
|
|
531
|
|
255
|
|
3
|
|
789
|
Fuel
|
—
|
|
354
|
|
91
|
|
—
|
|
445
|
Materials
|
—
|
|
75
|
|
28
|
|
8
|
|
111
|
Equipment
rents
|
—
|
|
80
|
|
(11)
|
|
—
|
|
69
|
Depreciation and
amortization
|
—
|
|
206
|
|
137
|
|
—
|
|
343
|
Purchased services and
other
|
—
|
|
518
|
|
320
|
|
(216)
|
|
622
|
Total operating
expenses
|
—
|
|
1,764
|
|
820
|
|
(205)
|
|
2,379
|
Operating
income
|
—
|
|
946
|
|
419
|
|
—
|
|
1,365
|
Less:
|
|
|
|
|
|
Other (income)
expense
|
(10)
|
|
(81)
|
|
4
|
|
—
|
|
(87)
|
Other components of
net periodic benefit (recovery) expense
|
—
|
|
(198)
|
|
3
|
|
—
|
|
(195)
|
Net interest (income)
expense
|
(2)
|
|
242
|
|
(14)
|
|
—
|
|
226
|
Income before
income tax expense
and equity in net
earnings of subsidiaries
|
12
|
|
983
|
|
426
|
|
—
|
|
1,421
|
Less: Income tax
expense
|
2
|
|
217
|
|
44
|
|
—
|
|
263
|
Add: Equity in net
earnings of subsidiaries
|
1,148
|
|
382
|
|
—
|
|
(1,530)
|
|
—
|
Net
income
|
$
|
1,158
|
|
$
|
1,148
|
|
$
|
382
|
|
$
|
(1,530)
|
|
$
|
1,158
|
Interim Condensed Consolidating Statements of
Income
For the six months ended June 30, 2018
(in millions of
Canadian dollars)
|
CPRL
(Parent
Guarantor)
|
|
CPRC
(Subsidiary
Issuer)
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments and
Eliminations
|
|
CPRL
Consolidated
|
Revenues
|
|
|
|
|
|
Freight
|
$
|
—
|
|
$
|
2,351
|
|
$
|
983
|
|
$
|
—
|
|
$
|
3,334
|
Non-freight
|
—
|
|
58
|
|
179
|
|
(159)
|
|
78
|
Total
revenues
|
—
|
|
2,409
|
|
1,162
|
|
(159)
|
|
3,412
|
Operating
expenses
|
|
|
|
|
|
Compensation and
benefits
|
—
|
|
494
|
|
229
|
|
2
|
|
725
|
Fuel
|
—
|
|
346
|
|
99
|
|
—
|
|
445
|
Materials
|
—
|
|
73
|
|
27
|
|
8
|
|
108
|
Equipment
rents
|
—
|
|
61
|
|
5
|
|
—
|
|
66
|
Depreciation and
amortization
|
—
|
|
209
|
|
133
|
|
—
|
|
342
|
Purchased services and
other
|
—
|
|
423
|
|
305
|
|
(169)
|
|
559
|
Total operating
expenses
|
—
|
|
1,606
|
|
798
|
|
(159)
|
|
2,245
|
Operating
income
|
—
|
|
803
|
|
364
|
|
—
|
|
1,167
|
Less:
|
|
|
|
|
|
Other expense
(income)
|
11
|
|
127
|
|
(35)
|
|
—
|
|
103
|
Other components of
net periodic benefit
(recovery) expense
|
—
|
|
(192)
|
|
1
|
|
—
|
|
(191)
|
Net interest expense
(income)
|
6
|
|
235
|
|
(14)
|
|
—
|
|
227
|
(Loss) income
before income tax expense
and equity in net
earnings of subsidiaries
|
(17)
|
|
633
|
|
412
|
|
—
|
|
1,028
|
Less: Income tax
(recovery) expense
|
(1)
|
|
185
|
|
60
|
|
—
|
|
244
|
Add: Equity in net
earnings of subsidiaries
|
800
|
|
352
|
|
—
|
|
(1,152)
|
|
—
|
Net
income
|
$
|
784
|
|
$
|
800
|
|
$
|
352
|
|
$
|
(1,152)
|
|
$
|
784
|
Interim Condensed Consolidating Statements of Comprehensive
Income
For the three months ended June 30, 2019
(in millions of
Canadian dollars)
|
CPRL (Parent
Guarantor)
|
|
CPRC
(Subsidiary
Issuer)
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments and
Eliminations
|
|
CPRL
Consolidated
|
Net income
|
$
|
724
|
|
$
|
720
|
|
$
|
258
|
|
$
|
(978)
|
|
$
|
724
|
Net gain (loss) in
foreign currency translation
adjustments, net of
hedging activities
|
—
|
|
121
|
|
(106)
|
|
—
|
|
15
|
Change in derivatives
designated as cash flow
hedges
|
—
|
|
4
|
|
—
|
|
—
|
|
4
|
Change in pension and
post-retirement defined
benefit plans
|
—
|
|
20
|
|
1
|
|
—
|
|
21
|
Other
comprehensive income (loss) before
income
taxes
|
—
|
|
145
|
|
(105)
|
|
—
|
|
40
|
Income tax expense on
above items
|
—
|
|
(22)
|
|
—
|
|
—
|
|
(22)
|
Equity accounted
investments
|
18
|
|
(105)
|
|
—
|
|
87
|
|
—
|
Other
comprehensive income (loss)
|
18
|
|
18
|
|
(105)
|
|
87
|
|
18
|
Comprehensive
income
|
$
|
742
|
|
$
|
738
|
|
$
|
153
|
|
$
|
(891)
|
|
$
|
742
|
Interim Condensed Consolidating Statements of Comprehensive
Income
For the three months ended June 30, 2018
(in millions of
Canadian dollars)
|
CPRL
(Parent
Guarantor)
|
|
CPRC
(Subsidiary
Issuer)
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments and
Eliminations
|
|
CPRL
Consolidated
|
Net income
|
$
|
436
|
|
$
|
438
|
|
$
|
207
|
|
$
|
(645)
|
|
$
|
436
|
Net (loss) gain in
foreign currency translation adjustments, net of hedging activities
|
—
|
|
(123)
|
|
107
|
|
—
|
|
(16)
|
Change in derivatives
designated as cash flow
hedges
|
—
|
|
14
|
|
—
|
|
—
|
|
14
|
Change in pension and
post-retirement defined
benefit plans
|
—
|
|
27
|
|
2
|
|
—
|
|
29
|
Other
comprehensive (loss) income before income taxes
|
—
|
|
(82)
|
|
109
|
|
—
|
|
27
|
Income tax recovery
(expense) on above items
|
—
|
|
6
|
|
(1)
|
|
—
|
|
5
|
Equity accounted
investments
|
32
|
|
108
|
|
—
|
|
(140)
|
|
—
|
Other
comprehensive income
|
32
|
|
32
|
|
108
|
|
(140)
|
|
32
|
Comprehensive
income
|
$
|
468
|
|
$
|
470
|
|
$
|
315
|
|
$
|
(785)
|
|
$
|
468
|
Interim Condensed Consolidating Statements of Comprehensive
Income
For the six months ended June 30, 2019
(in millions of
Canadian dollars)
|
CPRL
(Parent
Guarantor)
|
|
CPRC
(Subsidiary
Issuer)
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments and
Eliminations
|
|
CPRL
Consolidated
|
Net income
|
$
|
1,158
|
|
$
|
1,148
|
|
$
|
382
|
|
$
|
(1,530)
|
|
$
|
1,158
|
Net gain (loss) in
foreign currency translation adjustments, net of hedging activities
|
—
|
|
241
|
|
(210)
|
|
—
|
|
31
|
Change in derivatives
designated as cash flow
hedges
|
—
|
|
6
|
|
—
|
|
—
|
|
6
|
Change in pension and
post-retirement defined
benefit plans
|
—
|
|
39
|
|
2
|
|
—
|
|
41
|
Other
comprehensive income (loss) before income taxes
|
—
|
|
286
|
|
(208)
|
|
—
|
|
78
|
Income tax expense on
above items
|
—
|
|
(44)
|
|
—
|
|
—
|
|
(44)
|
Equity accounted
investments
|
34
|
|
(208)
|
|
—
|
|
174
|
|
—
|
Other
comprehensive income (loss)
|
34
|
|
34
|
|
(208)
|
|
174
|
|
34
|
Comprehensive
income
|
$
|
1,192
|
|
$
|
1,182
|
|
$
|
174
|
|
$
|
(1,356)
|
|
$
|
1,192
|
Interim Condensed Consolidating Statements of Comprehensive
Income
For the six months ended June 30, 2018
(in millions of
Canadian dollars)
|
CPRL
(Parent
Guarantor)
|
|
CPRC
(Subsidiary
Issuer)
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments and
Eliminations
|
|
CPRL
Consolidated
|
Net income
|
$
|
784
|
|
$
|
800
|
|
$
|
352
|
|
$
|
(1,152)
|
|
$
|
784
|
Net (loss) gain in
foreign currency translation
adjustments, net of hedging activities
|
—
|
|
(273)
|
|
237
|
|
—
|
|
(36)
|
Change in derivatives
designated as cash flow
hedges
|
—
|
|
35
|
|
—
|
|
—
|
|
35
|
Change in pension and
post-retirement defined
benefit plans
|
—
|
|
55
|
|
3
|
|
—
|
|
58
|
Other
comprehensive (loss) income before income taxes
|
—
|
|
(183)
|
|
240
|
|
—
|
|
57
|
Income tax recovery
(expense) on above items
|
—
|
|
12
|
|
(1)
|
|
—
|
|
11
|
Equity accounted
investments
|
68
|
|
239
|
|
—
|
|
(307)
|
|
—
|
Other
comprehensive income
|
68
|
|
68
|
|
239
|
|
(307)
|
|
68
|
Comprehensive
income
|
$
|
852
|
|
$
|
868
|
|
$
|
591
|
|
$
|
(1,459)
|
|
$
|
852
|
Interim Condensed Consolidating Balance Sheets
As
at June 30, 2019
(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
|
$
|
—
|
|
$
|
20
|
|
$
|
25
|
|
$
|
—
|
|
$
|
45
|
Accounts receivable,
net
|
—
|
|
593
|
|
202
|
|
—
|
|
795
|
Accounts receivable,
intercompany
|
153
|
|
146
|
|
205
|
|
(504)
|
|
—
|
Short-term advances to
affiliates
|
—
|
|
1,197
|
|
4,910
|
|
(6,107)
|
|
—
|
Materials and
supplies
|
—
|
|
158
|
|
37
|
|
—
|
|
195
|
Other current
assets
|
—
|
|
61
|
|
19
|
|
—
|
|
80
|
|
153
|
|
2,175
|
|
5,398
|
|
(6,611)
|
|
1,115
|
Long-term advances to
affiliates
|
1,090
|
|
6
|
|
85
|
|
(1,181)
|
|
—
|
Investments
|
—
|
|
31
|
|
179
|
|
—
|
|
210
|
Investments in
subsidiaries
|
11,819
|
|
12,225
|
|
—
|
|
(24,044)
|
|
—
|
Properties
|
—
|
|
9,761
|
|
8,728
|
|
—
|
|
18,489
|
Goodwill and
intangible assets
|
—
|
|
—
|
|
193
|
|
—
|
|
193
|
Pension
asset
|
—
|
|
1,460
|
|
—
|
|
—
|
|
1,460
|
Other
assets
|
—
|
|
161
|
|
305
|
|
—
|
|
466
|
Deferred income
taxes
|
5
|
|
—
|
|
—
|
|
(5)
|
|
—
|
Total
assets
|
$
|
13,067
|
|
$
|
25,819
|
|
$
|
14,888
|
|
$
|
(31,841)
|
|
$
|
21,933
|
Liabilities and
shareholders' equity
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
Accounts payable and
accrued liabilities
|
$
|
156
|
|
$
|
872
|
|
$
|
373
|
|
$
|
—
|
|
$
|
1,401
|
Accounts payable,
intercompany
|
5
|
|
354
|
|
145
|
|
(504)
|
|
—
|
Short-term advances
from affiliates
|
5,749
|
|
356
|
|
2
|
|
(6,107)
|
|
—
|
Long-term debt
maturing within one year
|
—
|
|
273
|
|
—
|
|
—
|
|
273
|
|
5,910
|
|
1,855
|
|
520
|
|
(6,611)
|
|
1,674
|
Pension and other
benefit liabilities
|
—
|
|
638
|
|
75
|
|
—
|
|
713
|
Long-term advances
from affiliates
|
—
|
|
1,175
|
|
6
|
|
(1,181)
|
|
—
|
Other long-term
liabilities
|
—
|
|
234
|
|
364
|
|
—
|
|
598
|
Long-term
debt
|
—
|
|
8,213
|
|
53
|
|
—
|
|
8,266
|
Deferred income
taxes
|
—
|
|
1,885
|
|
1,645
|
|
(5)
|
|
3,525
|
Total
liabilities
|
5,910
|
|
14,000
|
|
2,663
|
|
(7,797)
|
|
14,776
|
Shareholders'
equity
|
|
|
|
|
|
Share
capital
|
1,996
|
|
537
|
|
6,071
|
|
(6,608)
|
|
1,996
|
Additional paid-in
capital
|
45
|
|
1,645
|
|
95
|
|
(1,740)
|
|
45
|
Accumulated other
comprehensive (loss) income
|
(2,009)
|
|
(2,009)
|
|
631
|
|
1,378
|
|
(2,009)
|
Retained
earnings
|
7,125
|
|
11,646
|
|
5,428
|
|
(17,074)
|
|
7,125
|
|
7,157
|
|
11,819
|
|
12,225
|
|
(24,044)
|
|
7,157
|
Total liabilities
and shareholders' equity
|
$
|
13,067
|
|
$
|
25,819
|
|
$
|
14,888
|
|
$
|
(31,841)
|
|
$
|
21,933
|
Condensed Consolidating Balance Sheets
As at
December 31,
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
|
$
|
—
|
|
$
|
42
|
|
$
|
19
|
|
$
|
—
|
|
$
|
61
|
Accounts receivable,
net
|
—
|
|
629
|
|
186
|
|
—
|
|
815
|
Accounts receivable,
intercompany
|
125
|
|
167
|
|
224
|
|
(516)
|
|
—
|
Short-term advances to
affiliates
|
—
|
|
1,602
|
|
4,651
|
|
(6,253)
|
|
—
|
Materials and
supplies
|
—
|
|
136
|
|
37
|
|
—
|
|
173
|
Other current
assets
|
—
|
|
39
|
|
29
|
|
—
|
|
68
|
|
125
|
|
2,615
|
|
5,146
|
|
(6,769)
|
|
1,117
|
Long-term advances to
affiliates
|
1,090
|
|
5
|
|
93
|
|
(1,188)
|
|
—
|
Investments
|
—
|
|
24
|
|
179
|
|
—
|
|
203
|
Investments in
subsidiaries
|
11,443
|
|
12,003
|
|
—
|
|
(23,446)
|
|
—
|
Properties
|
—
|
|
9,579
|
|
8,839
|
|
—
|
|
18,418
|
Goodwill and
intangible assets
|
—
|
|
—
|
|
202
|
|
—
|
|
202
|
Pension
asset
|
—
|
|
1,243
|
|
—
|
|
—
|
|
1,243
|
Other
assets
|
—
|
|
57
|
|
14
|
|
—
|
|
71
|
Deferred income
taxes
|
6
|
|
—
|
|
—
|
|
(6)
|
|
—
|
Total
assets
|
$
|
12,664
|
|
$
|
25,526
|
|
$
|
14,473
|
|
$
|
(31,409)
|
|
$
|
21,254
|
Liabilities and
shareholders' equity
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
Accounts payable and
accrued liabilities
|
$
|
115
|
|
$
|
1,017
|
|
$
|
317
|
|
$
|
—
|
|
$
|
1,449
|
Accounts payable,
intercompany
|
4
|
|
344
|
|
168
|
|
(516)
|
|
—
|
Short-term advances
from affiliates
|
5,909
|
|
341
|
|
3
|
|
(6,253)
|
|
—
|
Long-term debt
maturing within one year
|
—
|
|
506
|
|
—
|
|
—
|
|
506
|
|
6,028
|
|
2,208
|
|
488
|
|
(6,769)
|
|
1,955
|
Pension and other
benefit liabilities
|
—
|
|
639
|
|
79
|
|
—
|
|
718
|
Long-term advances
from affiliates
|
—
|
|
1,182
|
|
6
|
|
(1,188)
|
|
—
|
Other long-term
liabilities
|
—
|
|
120
|
|
117
|
|
—
|
|
237
|
Long-term
debt
|
—
|
|
8,135
|
|
55
|
|
—
|
|
8,190
|
Deferred income
taxes
|
—
|
|
1,799
|
|
1,725
|
|
(6)
|
|
3,518
|
Total
liabilities
|
6,028
|
|
14,083
|
|
2,470
|
|
(7,963)
|
|
14,618
|
Shareholders'
equity
|
|
|
|
|
|
Share
capital
|
2,002
|
|
538
|
|
5,946
|
|
(6,484)
|
|
2,002
|
Additional paid-in
capital
|
42
|
|
1,656
|
|
92
|
|
(1,748)
|
|
42
|
Accumulated other
comprehensive (loss) income
|
(2,043)
|
|
(2,043)
|
|
839
|
|
1,204
|
|
(2,043)
|
Retained
earnings
|
6,635
|
|
11,292
|
|
5,126
|
|
(16,418)
|
|
6,635
|
|
6,636
|
|
11,443
|
|
12,003
|
|
(23,446)
|
|
6,636
|
Total liabilities
and shareholders' equity
|
$
|
12,664
|
|
$
|
25,526
|
|
$
|
14,473
|
|
$
|
(31,409)
|
|
$
|
21,254
|
Interim Condensed Consolidating Statements of Cash
Flows
For the three months ended June 30,
2019
(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
|
|
$
|
565
|
|
$
|
235
|
|
$
|
(177)
|
|
$
|
721
|
Investing
activities
|
|
|
|
|
|
Additions to
properties
|
—
|
|
(316)
|
|
(143)
|
|
—
|
|
(459)
|
Proceeds from sale of
properties and other assets
|
—
|
|
8
|
|
—
|
|
—
|
|
8
|
Advances to
affiliates
|
—
|
|
—
|
|
(245)
|
|
245
|
|
—
|
Repayment of advances
to affiliates
|
—
|
|
5
|
|
19
|
|
(24)
|
|
—
|
Capital contributions
to affiliates
|
—
|
|
(125)
|
|
—
|
|
125
|
|
—
|
Other
|
—
|
|
1
|
|
(5)
|
|
—
|
|
(4)
|
Cash used in
investing activities
|
—
|
|
(427)
|
|
(374)
|
|
346
|
|
(455)
|
Financing
activities
|
|
|
|
|
|
Dividends
paid
|
(91)
|
|
(91)
|
|
(86)
|
|
177
|
|
(91)
|
Issuance of share
capital
|
—
|
|
—
|
|
125
|
|
(125)
|
|
—
|
Issuance of CP Common
Shares
|
10
|
|
—
|
|
—
|
|
—
|
|
10
|
Purchase of CP Common
Shares
|
(257)
|
|
—
|
|
—
|
|
—
|
|
(257)
|
Repayment of long-term
debt, excluding commercial paper
|
—
|
|
(480)
|
|
—
|
|
—
|
|
(480)
|
Net issuance of
commercial paper
|
—
|
|
246
|
|
—
|
|
—
|
|
246
|
Advances from
affiliates
|
245
|
|
—
|
|
—
|
|
(245)
|
|
—
|
Repayment of advances
from affiliates
|
(5)
|
|
(19)
|
|
—
|
|
24
|
|
—
|
Cash (used in)
provided by financing activities
|
(98)
|
|
(344)
|
|
39
|
|
(169)
|
|
(572)
|
Effect of foreign
currency fluctuations on U.S.
dollar-denominated
cash and cash equivalents
|
—
|
|
—
|
|
(1)
|
|
—
|
|
(1)
|
Cash
position
|
|
|
|
|
|
Decrease in cash and
cash equivalents
|
—
|
|
(206)
|
|
(101)
|
|
—
|
|
(307)
|
Cash and cash
equivalents at beginning of period
|
—
|
|
226
|
|
126
|
|
—
|
|
352
|
Cash and cash
equivalents at end of period
|
$
|
—
|
|
$
|
20
|
|
$
|
25
|
|
$
|
—
|
|
$
|
45
|
Interim Condensed Consolidating Statements of Cash
Flows
For the three months ended June 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
|
$
|
83
|
|
$
|
501
|
|
$
|
328
|
|
$
|
(201)
|
|
$
|
711
|
Investing
activities
|
|
|
|
|
|
Additions to
properties
|
—
|
|
(276)
|
|
(137)
|
|
—
|
|
(413)
|
Proceeds from sale of
properties and other assets
|
—
|
|
3
|
|
2
|
|
—
|
|
5
|
Advances to
affiliates
|
—
|
|
(255)
|
|
(7)
|
|
262
|
|
—
|
Repurchase of share
capital from affiliates
|
—
|
|
124
|
|
—
|
|
(124)
|
|
—
|
Cash used in
investing activities
|
—
|
|
(404)
|
|
(142)
|
|
138
|
|
(408)
|
Financing
activities
|
|
|
|
|
|
Dividends
paid
|
(81)
|
|
(81)
|
|
(120)
|
|
201
|
|
(81)
|
Return of share
capital to affiliates
|
|
—
|
|
(124)
|
|
124
|
|
—
|
Issuance of CP Common
Shares
|
4
|
|
—
|
|
—
|
|
—
|
|
4
|
Purchase of CP Common
Shares
|
(261)
|
|
—
|
|
—
|
|
—
|
|
(261)
|
Issuance of long-term
debt, excluding commercial paper
|
—
|
|
638
|
|
—
|
|
—
|
|
638
|
Repayment of long-term
debt, excluding commercial paper
|
—
|
|
(734)
|
|
—
|
|
—
|
|
(734)
|
Net issuance of
commercial paper
|
|
53
|
|
—
|
|
—
|
|
53
|
Advances from
affiliates
|
255
|
|
7
|
|
—
|
|
(262)
|
|
—
|
Cash used in
financing activities
|
(83)
|
|
(117)
|
|
(244)
|
|
63
|
|
(381)
|
Effect of foreign
currency fluctuations on U.S.
dollar-denominated
cash and cash equivalents
|
—
|
|
(3)
|
|
7
|
|
—
|
|
4
|
Cash
position
|
|
|
|
|
|
Decrease in cash and
cash equivalents
|
—
|
|
(23)
|
|
(51)
|
|
—
|
|
(74)
|
Cash and cash
equivalents at beginning of period
|
—
|
|
43
|
|
82
|
|
—
|
|
125
|
Cash and cash
equivalents at end of period
|
$
|
—
|
|
$
|
20
|
|
$
|
31
|
|
$
|
—
|
|
$
|
51
|
Interim Condensed Consolidating Statements of Cash
Flows
For the six months ended June 30, 2019
(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
|
$
|
785
|
|
$
|
763
|
|
$
|
454
|
|
$
|
(868)
|
|
$
|
1,134
|
Investing
activities
|
|
|
|
|
|
Additions to
properties
|
—
|
|
(457)
|
|
(226)
|
|
—
|
|
(683)
|
Proceeds from sale of
properties and other assets
|
—
|
|
12
|
|
2
|
|
—
|
|
14
|
Advances to
affiliates
|
—
|
|
(250)
|
|
(260)
|
|
510
|
|
—
|
Repayment of advances
to affiliates
|
—
|
|
648
|
|
4
|
|
(652)
|
|
—
|
Capital contributions
to affiliates
|
—
|
|
(125)
|
|
—
|
|
125
|
|
—
|
Other
|
—
|
|
1
|
|
(6)
|
|
—
|
|
(5)
|
Cash used in
investing activities
|
—
|
|
(171)
|
|
(486)
|
|
(17)
|
|
(674)
|
Financing
activities
|
|
|
|
|
|
Dividends
paid
|
(182)
|
|
(782)
|
|
(86)
|
|
868
|
|
(182)
|
Issuance of share
capital
|
—
|
|
—
|
|
125
|
|
(125)
|
|
—
|
Issuance of CP Common
Shares
|
14
|
|
—
|
|
—
|
|
—
|
|
14
|
Purchase of CP Common
Shares
|
(464)
|
|
—
|
|
—
|
|
—
|
|
(464)
|
Issuance of long-term
debt, excluding commercial paper
|
—
|
|
397
|
|
—
|
|
—
|
|
397
|
Repayment of long-term
debt, excluding commercial paper
|
—
|
|
(485)
|
|
—
|
|
—
|
|
(485)
|
Net issuance of
commercial paper
|
—
|
|
246
|
|
—
|
|
—
|
|
246
|
Advances from
affiliates
|
495
|
|
15
|
|
—
|
|
(510)
|
|
—
|
Repayment of advances
from affiliates
|
(648)
|
|
(4)
|
|
—
|
|
652
|
|
—
|
Cash (used in)
provided by financing activities
|
(785)
|
|
(613)
|
|
39
|
|
885
|
|
(474)
|
Effect of foreign
currency fluctuations on U.S.
dollar-denominated
cash and cash equivalents
|
—
|
|
(1)
|
|
(1)
|
|
—
|
|
(2)
|
Cash
position
|
|
|
|
|
|
(Decrease) increase in
cash and cash equivalents
|
—
|
|
(22)
|
|
6
|
|
—
|
|
(16)
|
Cash and cash
equivalents at beginning of year
|
—
|
|
42
|
|
19
|
|
—
|
|
61
|
Cash and cash
equivalents at end of year
|
$
|
—
|
|
$
|
20
|
|
$
|
25
|
|
$
|
—
|
|
$
|
45
|
Interim Condensed Consolidating Statements of Cash
Flows
For the six months ended June 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
|
$
|
148
|
|
$
|
893
|
|
$
|
463
|
|
$
|
(396)
|
|
$
|
1,108
|
Investing
activities
|
|
|
|
|
|
Additions to
properties
|
—
|
|
(398)
|
|
(256)
|
|
—
|
|
(654)
|
Proceeds from sale of
properties and other assets
|
—
|
|
6
|
|
3
|
|
—
|
|
9
|
Advances to
affiliates
|
—
|
|
(562)
|
|
—
|
|
562
|
|
—
|
Repayment of advances
to affiliates
|
—
|
|
—
|
|
495
|
|
(495)
|
|
—
|
Repurchase of share
capital from affiliates
|
—
|
|
547
|
|
—
|
|
(547)
|
|
—
|
Other
|
—
|
|
—
|
|
(1)
|
|
—
|
|
(1)
|
Cash (used in)
provided by investing activities
|
—
|
|
(407)
|
|
241
|
|
(480)
|
|
(646)
|
Financing
activities
|
|
|
|
|
|
Dividends
paid
|
(163)
|
|
(163)
|
|
(233)
|
|
396
|
|
(163)
|
Return of share
capital to affiliates
|
—
|
|
—
|
|
(547)
|
|
547
|
|
—
|
Issuance of CP Common
Shares
|
12
|
|
—
|
|
—
|
|
—
|
|
12
|
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
|
—
|
|
(739)
|
|
—
|
|
—
|
|
(739)
|
Net issuance of
commercial paper
|
—
|
|
53
|
|
—
|
|
—
|
|
53
|
Advances from
affiliates
|
562
|
|
—
|
|
—
|
|
(562)
|
|
—
|
Repayment of advances
from affiliates
|
—
|
|
(495)
|
|
—
|
|
495
|
|
—
|
Cash used in
financing activities
|
(148)
|
|
(706)
|
|
(780)
|
|
876
|
|
(758)
|
Effect of foreign
currency fluctuations on U.S.
dollar-denominated
cash and cash equivalents
|
—
|
|
(1)
|
|
10
|
|
—
|
|
9
|
Cash
position
|
|
|
|
|
|
Decrease in cash and
cash equivalents
|
—
|
|
(221)
|
|
(66)
|
|
—
|
|
(287)
|
Cash and cash
equivalents at beginning of year
|
—
|
|
241
|
|
97
|
|
—
|
|
338
|
Cash and cash
equivalents at end of year
|
$
|
—
|
|
$
|
20
|
|
$
|
31
|
|
$
|
—
|
|
$
|
51
|
Summary of Rail Data
|
Second
Quarter
|
|
Year-to-date
|
Financial
(millions, except per share data)
|
2019
|
2018
|
Total
Change
|
%
Change
|
|
2019
|
2018
|
Total
Change
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Freight
|
$
|
1,931
|
|
$
|
1,709
|
|
$
|
222
|
|
13
|
|
$
|
3,657
|
|
$
|
3,334
|
|
$
|
323
|
|
10
|
Non-freight
|
46
|
|
41
|
|
5
|
|
12
|
|
87
|
|
78
|
|
9
|
|
12
|
Total
revenues
|
1,977
|
|
1,750
|
|
227
|
|
13
|
|
3,744
|
|
3,412
|
|
332
|
|
10
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
Compensation and
benefits
|
383
|
|
351
|
|
32
|
|
9
|
|
789
|
|
725
|
|
64
|
|
9
|
Fuel
|
236
|
|
230
|
|
6
|
|
3
|
|
445
|
|
445
|
|
—
|
|
—
|
Materials
|
54
|
|
53
|
|
1
|
|
2
|
|
111
|
|
108
|
|
3
|
|
3
|
Equipment
rents
|
34
|
|
33
|
|
1
|
|
3
|
|
69
|
|
66
|
|
3
|
|
5
|
Depreciation and
amortization
|
183
|
|
172
|
|
11
|
|
6
|
|
343
|
|
342
|
|
1
|
|
—
|
Purchased services and
other
|
265
|
|
284
|
|
(19)
|
|
(7)
|
|
622
|
|
559
|
|
63
|
|
11
|
Total operating
expenses
|
1,155
|
|
1,123
|
|
32
|
|
3
|
|
2,379
|
|
2,245
|
|
134
|
|
6
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
822
|
|
627
|
|
195
|
|
31
|
|
1,365
|
|
1,167
|
|
198
|
|
17
|
|
|
|
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
Other (income)
expense
|
(40)
|
|
52
|
|
(92)
|
|
(177)
|
|
(87)
|
|
103
|
|
(190)
|
|
(184)
|
Other components of
net periodic benefit recovery
|
(98)
|
|
(95)
|
|
(3)
|
|
3
|
|
(195)
|
|
(191)
|
|
(4)
|
|
2
|
Net interest
expense
|
112
|
|
112
|
|
—
|
|
—
|
|
226
|
|
227
|
|
(1)
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Income before income
tax expense
|
848
|
|
558
|
|
290
|
|
52
|
|
1,421
|
|
1,028
|
|
393
|
|
38
|
|
|
|
|
|
|
|
|
|
|
Income tax
expense
|
124
|
|
122
|
|
2
|
|
2
|
|
263
|
|
244
|
|
19
|
|
8
|
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
724
|
|
$
|
436
|
|
$
|
288
|
|
66
|
|
$
|
1,158
|
|
$
|
784
|
|
$
|
374
|
|
48
|
Operating ratio
(%)
|
58.4
|
|
64.2
|
|
(5.8)
|
|
(580)
bps
|
|
63.5
|
|
65.8
|
|
(2.3)
|
|
(230)
bps
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per
share
|
$
|
5.19
|
|
$
|
3.05
|
|
$
|
2.14
|
|
70
|
|
$
|
8.28
|
|
$
|
5.46
|
|
$
|
2.82
|
|
52
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per
share
|
$
|
5.17
|
|
$
|
3.04
|
|
$
|
2.13
|
|
70
|
|
$
|
8.25
|
|
$
|
5.44
|
|
$
|
2.81
|
|
52
|
|
|
|
|
|
|
|
|
|
|
Shares
Outstanding
|
|
|
|
|
|
|
|
|
|
Weighted average
number of basic shares outstanding (millions)
|
139.7
|
|
142.8
|
|
(3.1)
|
|
(2)
|
|
139.9
|
|
143.6
|
|
(3.7)
|
|
(3)
|
Weighted average
number of diluted shares outstanding (millions)
|
140.2
|
|
143.2
|
|
(3.0)
|
|
(2)
|
|
140.4
|
|
144.0
|
|
(3.6)
|
|
(3)
|
|
|
|
|
|
|
|
|
|
|
Foreign
Exchange
|
|
|
|
|
|
|
|
|
|
Average foreign
exchange rate (US$/Canadian$)
|
0.75
|
|
0.78
|
|
(0.03)
|
|
(4)
|
|
0.75
|
|
0.78
|
|
(0.03)
|
|
(4)
|
Average foreign
exchange rate (Canadian$/US$)
|
1.34
|
|
1.29
|
|
0.05
|
|
4
|
|
1.33
|
|
1.28
|
|
0.05
|
|
4
|
Summary of Rail Data (Continued)
|
Second
Quarter
|
|
Year-to-date
|
Commodity
Data
|
2019
|
2018
|
Total
Change
|
%
Change
|
FX
Adjusted
%
Change(1)
|
|
2019
|
2018
|
Total
Change
|
%
Change
|
FX
Adjusted
%
Change(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Freight Revenues
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
- Grain
|
$
|
422
|
|
$
|
372
|
|
$
|
50
|
|
13
|
11
|
|
$
|
802
|
|
$
|
729
|
|
$
|
73
|
|
10
|
7
|
- Coal
|
173
|
|
164
|
|
9
|
|
5
|
5
|
|
331
|
|
315
|
|
16
|
|
5
|
4
|
- Potash
|
136
|
|
116
|
|
20
|
|
17
|
15
|
|
250
|
|
228
|
|
22
|
|
10
|
7
|
- Fertilizers and
sulphur
|
63
|
|
55
|
|
8
|
|
15
|
11
|
|
120
|
|
116
|
|
4
|
|
3
|
1
|
- Forest
products
|
78
|
|
69
|
|
9
|
|
13
|
8
|
|
151
|
|
135
|
|
16
|
|
12
|
8
|
- Energy, chemicals
and plastics
|
346
|
|
278
|
|
68
|
|
24
|
22
|
|
661
|
|
535
|
|
126
|
|
24
|
20
|
- Metals, minerals
and consumer products
|
205
|
|
204
|
|
1
|
|
—
|
(2)
|
|
378
|
|
387
|
|
(9)
|
|
(2)
|
(6)
|
-
Automotive
|
104
|
|
91
|
|
13
|
|
14
|
12
|
|
180
|
|
162
|
|
18
|
|
11
|
8
|
-
Intermodal
|
404
|
|
360
|
|
44
|
|
12
|
11
|
|
784
|
|
727
|
|
57
|
|
8
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Freight
Revenues
|
$
|
1,931
|
|
$
|
1,709
|
|
$
|
222
|
|
13
|
11
|
|
$
|
3,657
|
|
$
|
3,334
|
|
$
|
323
|
|
10
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
Freight Revenue
per Revenue Ton-Mile (RTM) (cents)
|
|
|
|
|
|
|
|
|
|
|
|
- Grain
|
4.46
|
|
4.16
|
|
0.30
|
|
7
|
5
|
|
4.50
|
|
4.12
|
|
0.38
|
|
9
|
7
|
- Coal
|
3.15
|
|
2.88
|
|
0.27
|
|
9
|
9
|
|
3.09
|
|
2.89
|
|
0.20
|
|
7
|
7
|
- Potash
|
2.59
|
|
2.61
|
|
(0.02)
|
|
(1)
|
(3)
|
|
2.55
|
|
2.58
|
|
(0.03)
|
|
(1)
|
(4)
|
- Fertilizers and
sulphur
|
6.70
|
|
6.12
|
|
0.58
|
|
9
|
7
|
|
6.51
|
|
5.91
|
|
0.60
|
|
10
|
7
|
- Forest
products
|
6.05
|
|
5.77
|
|
0.28
|
|
5
|
2
|
|
6.12
|
|
5.80
|
|
0.32
|
|
6
|
2
|
- Energy, chemicals
and plastics
|
4.96
|
|
4.34
|
|
0.62
|
|
14
|
12
|
|
4.96
|
|
4.26
|
|
0.70
|
|
16
|
13
|
- Metals, minerals
and consumer products
|
7.15
|
|
6.43
|
|
0.72
|
|
11
|
8
|
|
7.11
|
|
6.35
|
|
0.76
|
|
12
|
8
|
-
Automotive
|
23.69
|
|
22.73
|
|
0.96
|
|
4
|
2
|
|
23.26
|
|
22.99
|
|
0.27
|
|
1
|
(3)
|
-
Intermodal
|
5.67
|
|
5.62
|
|
0.05
|
|
1
|
—
|
|
5.70
|
|
5.65
|
|
0.05
|
|
1
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Freight Revenue
per RTM
|
4.85
|
|
4.55
|
|
0.30
|
|
7
|
5
|
|
4.82
|
|
4.51
|
|
0.31
|
|
7
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
Freight Revenue
per Carload
|
|
|
|
|
|
|
|
|
|
|
|
- Grain
|
$
|
3,731
|
|
$
|
3,406
|
|
$
|
325
|
|
10
|
7
|
|
$
|
3,895
|
|
$
|
3,521
|
|
$
|
374
|
|
11
|
8
|
- Coal
|
2,227
|
|
2,118
|
|
109
|
|
5
|
5
|
|
2,235
|
|
2,099
|
|
136
|
|
6
|
6
|
- Potash
|
3,063
|
|
3,051
|
|
12
|
|
—
|
(2)
|
|
3,038
|
|
3,031
|
|
7
|
|
—
|
(2)
|
- Fertilizers and
sulphur
|
4,468
|
|
4,228
|
|
240
|
|
6
|
3
|
|
4,317
|
|
4,146
|
|
171
|
|
4
|
1
|
- Forest
products
|
4,216
|
|
4,134
|
|
82
|
|
2
|
(1)
|
|
4,242
|
|
4,036
|
|
206
|
|
5
|
2
|
- Energy, chemicals
and plastics
|
3,959
|
|
3,509
|
|
450
|
|
13
|
10
|
|
3,977
|
|
3,489
|
|
488
|
|
14
|
11
|
- Metals, minerals
and consumer products
|
3,218
|
|
3,087
|
|
131
|
|
4
|
1
|
|
3,225
|
|
3,105
|
|
120
|
|
4
|
—
|
-
Automotive
|
3,302
|
|
3,006
|
|
296
|
|
10
|
7
|
|
3,180
|
|
2,908
|
|
272
|
|
9
|
5
|
-
Intermodal
|
1,517
|
|
1,449
|
|
68
|
|
5
|
4
|
|
1,529
|
|
1,453
|
|
76
|
|
5
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Freight Revenue
per Carload
|
$
|
2,694
|
|
$
|
2,519
|
|
$
|
175
|
|
7
|
5
|
|
$
|
2,704
|
|
$
|
2,511
|
|
$
|
193
|
|
8
|
5
|
(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)
|
Second
Quarter
|
|
Year-to-date
|
Commodity Data
(Continued)
|
2019
|
2018
|
Total
Change
|
%
Change
|
|
2019
|
2018
|
Total
Change
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
Millions of
RTM
|
|
|
|
|
|
|
|
|
|
- Grain
|
9,452
|
|
8,960
|
|
492
|
|
5
|
|
17,804
|
|
17,689
|
|
115
|
|
1
|
- Coal
|
5,492
|
|
5,675
|
|
(183)
|
|
(3)
|
|
10,724
|
|
10,893
|
|
(169)
|
|
(2)
|
- Potash
|
5,242
|
|
4,425
|
|
817
|
|
18
|
|
9,815
|
|
8,806
|
|
1,009
|
|
11
|
- Fertilizers and
sulphur
|
940
|
|
906
|
|
34
|
|
4
|
|
1,842
|
|
1,967
|
|
(125)
|
|
(6)
|
- Forest
products
|
1,289
|
|
1,211
|
|
78
|
|
6
|
|
2,468
|
|
2,333
|
|
135
|
|
6
|
- Energy, chemicals
and plastics
|
6,971
|
|
6,405
|
|
566
|
|
9
|
|
13,330
|
|
12,562
|
|
768
|
|
6
|
- Metals, minerals
and consumer products
|
2,867
|
|
3,164
|
|
(297)
|
|
(9)
|
|
5,315
|
|
6,088
|
|
(773)
|
|
(13)
|
-
Automotive
|
439
|
|
399
|
|
40
|
|
10
|
|
774
|
|
704
|
|
70
|
|
10
|
-
Intermodal
|
7,128
|
|
6,420
|
|
708
|
|
11
|
|
13,750
|
|
12,878
|
|
872
|
|
7
|
|
|
|
|
|
|
|
|
|
|
Total RTMs
|
39,820
|
|
37,565
|
|
2,255
|
|
6
|
|
75,822
|
|
73,920
|
|
1,902
|
|
3
|
|
|
|
|
|
|
|
|
|
|
Carloads
(thousands)
|
|
|
|
|
|
|
|
|
|
- Grain
|
113.1
|
|
109.4
|
|
3.7
|
|
3
|
|
205.9
|
|
207.1
|
|
(1.2)
|
|
(1)
|
- Coal
|
77.7
|
|
77.1
|
|
0.6
|
|
1
|
|
148.1
|
|
149.9
|
|
(1.8)
|
|
(1)
|
- Potash
|
44.4
|
|
37.8
|
|
6.6
|
|
17
|
|
82.3
|
|
75.1
|
|
7.2
|
|
10
|
- Fertilizers and
sulphur
|
14.1
|
|
13.2
|
|
0.9
|
|
7
|
|
27.8
|
|
28.1
|
|
(0.3)
|
|
(1)
|
- Forest
products
|
18.5
|
|
16.9
|
|
1.6
|
|
9
|
|
35.6
|
|
33.6
|
|
2.0
|
|
6
|
- Energy, chemicals
and plastics
|
87.4
|
|
79.1
|
|
8.3
|
|
10
|
|
166.2
|
|
153.3
|
|
12.9
|
|
8
|
- Metals, minerals
and consumer products
|
63.7
|
|
66.0
|
|
(2.3)
|
|
(3)
|
|
117.2
|
|
124.6
|
|
(7.4)
|
|
(6)
|
-
Automotive
|
31.5
|
|
30.1
|
|
1.4
|
|
5
|
|
56.6
|
|
55.6
|
|
1.0
|
|
2
|
-
Intermodal
|
266.4
|
|
249.2
|
|
17.2
|
|
7
|
|
512.7
|
|
500.6
|
|
12.1
|
|
2
|
|
|
|
|
|
|
|
|
|
|
Total
Carloads
|
716.8
|
|
678.8
|
|
38.0
|
|
6
|
|
1,352.4
|
|
1,327.9
|
|
24.5
|
|
2
|
|
Second
Quarter
|
|
Year-to-date
|
|
|
2019
|
2018
|
Total
Change
|
%
Change
|
FX
Adjusted %
Change(1)
|
|
2019
|
2018
|
Total
Change
|
%
Change
|
FX
Adjusted %
Change(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and
benefits
|
$
|
383
|
|
$
|
351
|
|
$
|
32
|
|
9
|
8
|
|
$
|
789
|
|
$
|
725
|
|
$
|
64
|
|
9
|
7
|
Fuel
|
236
|
|
230
|
|
6
|
|
3
|
—
|
|
445
|
|
445
|
|
—
|
|
—
|
(3)
|
Materials
|
54
|
|
53
|
|
1
|
|
2
|
—
|
|
111
|
|
108
|
|
3
|
|
3
|
2
|
Equipment
rents
|
34
|
|
33
|
|
1
|
|
3
|
—
|
|
69
|
|
66
|
|
3
|
|
5
|
—
|
Depreciation and
amortization
|
183
|
|
172
|
|
11
|
|
6
|
5
|
|
343
|
|
342
|
|
1
|
|
—
|
(1)
|
Purchased services
and other
|
265
|
|
284
|
|
(19)
|
|
(7)
|
(8)
|
|
622
|
|
559
|
|
63
|
|
11
|
9
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating
Expenses
|
$
|
1,155
|
|
$
|
1,123
|
|
$
|
32
|
|
3
|
1
|
|
$
|
2,379
|
|
$
|
2,245
|
|
$
|
134
|
|
6
|
4
|
(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)
|
Second
Quarter
|
|
Year-to-date
|
|
2019
|
2018(1)
|
Total
Change
|
%
Change
|
|
|
2019
|
2018(1)
|
Total
Change
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
Operations
Performance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross ton-miles
("GTMs") (millions)
|
72,717
|
|
67,695
|
|
5,022
|
|
7
|
|
|
137,571
|
|
132,106
|
|
5,465
|
|
4
|
|
Train miles
(thousands)
|
8,373
|
|
7,993
|
|
380
|
|
5
|
|
|
16,196
|
|
15,635
|
|
561
|
|
4
|
|
Average train
weight - excluding local traffic (tons)
|
9,295
|
|
9,056
|
|
239
|
|
3
|
|
|
9,088
|
|
9,023
|
|
65
|
|
1
|
|
Average train
length - excluding local traffic (feet)
|
7,523
|
|
7,312
|
|
211
|
|
3
|
|
|
7,350
|
|
7,272
|
|
78
|
|
1
|
|
Average terminal
dwell (hours)
|
6.4
|
|
6.7
|
|
(0.3)
|
|
(4)
|
|
|
7.1
|
|
7.3
|
|
(0.2)
|
|
(3)
|
|
Average train speed
(mph)(2)
|
22.4
|
|
21.4
|
|
1.0
|
|
5
|
|
|
21.8
|
|
21.0
|
|
0.8
|
|
4
|
|
Fuel
efficiency(3)
|
0.934
|
|
0.960
|
|
(0.026)
|
|
(3)
|
|
|
0.972
|
|
0.971
|
|
0.001
|
|
—
|
|
U.S. gallons of
locomotive fuel consumed (millions)(4)
|
67.9
|
|
64.5
|
|
3.4
|
|
5
|
|
|
133.7
|
|
127.4
|
|
6.3
|
|
5
|
|
Average fuel price
(U.S. dollars per U.S. gallon)
|
2.61
|
|
2.79
|
|
(0.18)
|
|
(6)
|
|
|
2.51
|
|
2.74
|
|
(0.23)
|
|
(8)
|
|
|
|
|
|
|
|
|
|
|
|
Total Employees
and Workforce
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total employees
(average)(5)
|
13,274
|
|
12,754
|
|
520
|
|
4
|
|
|
13,059
|
|
12,464
|
|
595
|
|
5
|
|
Total employees (end
of period)(5)
|
13,330
|
|
12,830
|
|
500
|
|
4
|
|
|
13,330
|
|
12,830
|
|
500
|
|
4
|
|
Workforce (end of
period)(6)
|
13,365
|
|
12,869
|
|
496
|
|
4
|
|
|
13,365
|
|
12,869
|
|
496
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
Safety
Indicators
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FRA personal injuries
per 200,000 employee-hours
|
1.00
|
|
1.43
|
|
(0.43)
|
|
(30)
|
|
|
1.47
|
|
1.49
|
|
(0.02)
|
|
(1)
|
|
FRA train accidents
per million train-miles
|
0.77
|
|
1.02
|
|
(0.25)
|
|
(25)
|
|
|
1.18
|
|
1.10
|
|
0.08
|
|
7
|
|
(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 Free cash 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 earnings results including Adjusted
income and Adjusted diluted earnings per share ("EPS") 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, the foreign
exchange ("FX") impact of translating the Company's debt and lease
liabilities, 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
six months of 2019, the twelve months of 2018, and the last six
months of 2017 include:
2019:
- in the second quarter, a deferred tax recovery of $88 million due to the change in the Alberta provincial corporate income tax rate
that favourably impacted Diluted EPS by 63
cents; and
- during the year to date, a net non-cash gain of $82 million ($76
million after deferred tax) due to FX translation of debt
and lease liabilities as follows:
-
- in the second quarter, a $37
million gain ($34 million
after deferred tax) that favourably impacted Diluted EPS by
24 cents; and
- in the first quarter, a $45
million gain ($42 million
after deferred tax) that favourably impacted Diluted EPS by
30 cents.
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
$168 million ($150 million after deferred tax) due to FX
translation of debt as follows:
-
- in the fourth quarter, a $113
million loss ($103 million
after deferred tax) that unfavourably impacted Diluted EPS by
72 cents;
- 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:
- during the last six months, a net deferred tax recovery of
$524 million as a result of changes
in income tax rates as follows:
-
- in the fourth quarter, a deferred tax recovery of $527 million, primarily due to the U.S. tax
reform, that favourably impacted Diluted EPS by $3.63;
- 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; and
- during the last six months, a net non-cash gain of $91 million ($79
million after deferred tax) due to FX translation of debt as
follows:
-
- in the fourth quarter, a $14
million loss ($12 million
after deferred tax) that unfavourably impacted Diluted EPS by
8 cents; and
- in the third quarter, a $105
million gain ($91 million
after deferred tax) that favourably impacted Diluted EPS by
62 cents.
2019 Outlook
As a result of a 2019 plan built on
sustainable, profitable, growth along with further productivity
improvement, CP expects mid-single digit revenue ton mile ("RTM")
growth and double-digit adjusted diluted EPS growth. CP
expectations for adjusted diluted EPS growth in 2019 are based on
adjusted diluted EPS of $14.51 in
2018. As CP continues to enhance the service, productivity and
safety of the network, the company plans to invest approximately
$1.6 billion in capital programs.
CP's outlook assumes a U.S.-to-Canadian dollar exchange rate of
approximately $1.30, an effective tax
rate of 25.5 to 26 percent, and no material land sales. CP
estimates other components of net periodic benefit recovery to
increase by approximately $9 million
versus 2018. Adjusted diluted EPS is defined and discussed further
below.
Although CP has provided a forward-looking non-GAAP measure, 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 and management transition costs related to
senior executives. 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 excludes the FX impact of
translating the Company's debt and lease liabilities from Adjusted
diluted EPS. Please see forward-looking Information in this
Earnings Release for further discussion.
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:
Adjusted income is calculated as Net income reported on a GAAP
basis adjusted for significant items.
|
For the three
months
ended June 30
|
For the six
months
ended June 30
|
For the twelve
months
ended December 31
|
(in
millions)
|
2019
|
2018
|
2019
|
2018
|
2018
|
Net income as
reported
|
$
|
724
|
|
$
|
436
|
|
$
|
1,158
|
|
$
|
784
|
|
$
|
1,951
|
Less significant
items (pre-tax):
|
|
|
|
|
|
Impact of FX
translation on debt and lease liabilities
|
37
|
|
(44)
|
|
82
|
|
(93)
|
|
(168)
|
Add:
|
|
|
|
|
|
Tax effect of
adjustments(1)
|
3
|
|
(6)
|
|
6
|
|
(13)
|
|
(18)
|
Income tax rate
changes
|
(88)
|
|
(21)
|
|
(88)
|
|
(21)
|
|
(21)
|
Adjusted
income
|
$
|
602
|
|
$
|
453
|
|
$
|
994
|
|
$
|
843
|
|
$
|
2,080
|
(1)
|
The tax effect of
adjustments was calculated as the pre-tax effect of the adjustments
multiplied by the applicable tax rate for the above items of 9.47%
and 7.82% for the three and six months ended June 30, 2019, 13.43%
and 13.43% for the three and six months ended June 30, 2018, and
10.64% for the twelve months ended December 31, 2018, 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 June 30
|
For the six
months
ended June 30
|
For the twelve
months
ended December 31
|
|
2019
|
2018
|
2019
|
2018
|
2018
|
Diluted earnings
per share as reported
|
$
|
5.17
|
|
$
|
3.04
|
|
$
|
8.25
|
|
$
|
5.44
|
|
$
|
13.61
|
Less significant
items (pre-tax):
|
|
|
|
|
|
Impact of FX
translation on debt and lease liabilities
|
0.27
|
|
(0.31)
|
|
0.58
|
|
(0.65)
|
|
(1.17)
|
Add:
|
|
|
|
|
|
Tax effect of
adjustments(1)
|
0.03
|
|
(0.04)
|
|
0.04
|
|
(0.09)
|
|
(0.12)
|
Income tax rate
changes
|
(0.63)
|
|
(0.15)
|
|
(0.63)
|
|
(0.15)
|
|
(0.15)
|
Adjusted diluted
earnings per share
|
$
|
4.30
|
|
$
|
3.16
|
|
$
|
7.08
|
|
$
|
5.85
|
|
$
|
14.51
|
(1)
|
The tax effect of
adjustments was calculated as the pre-tax effect of the adjustments
multiplied by the applicable tax rate for the above items of 9.47%
and 7.82% for the three and six months ended June 30, 2019, 13.43%
and 13.43% for the three and six months ended June 30, 2018, and
10.64% for the twelve months ended December 31, 2018, respectively.
The applicable tax rates reflect the taxable jurisdictions and
nature, being on account of capital or income, of the significant
items.
|
ROIC and Adjusted ROIC
ROIC is calculated as Operating income less Other (income)
expense and Other components of net periodic benefit recovery, tax
effected at the Company's annualized effective tax rate, divided by
Average invested capital. Average invested capital is defined as
the sum of total Shareholders' equity, Long-term debt, Long-term
debt maturing within one year and Short-term borrowing, as
presented in the Company's Consolidated Financial Statements,
averaged between the beginning and ending balance over a rolling
twelve-month period. Adjusted ROIC excludes significant items
reported in Operating income, Other (income) expense, and Other
components of net periodic benefit recovery in the Company's
Consolidated Financial Statements, as these significant items are
not considered indicative of future financial trends either by
nature or amount. Adjusted average invested capital is similarly
adjusted for the impact of these significant items, net of tax, on
closing balances as part of this average. ROIC and Adjusted ROIC
are performance measures that measure how productively the Company
uses its long-term capital investments, representing critical
indicators of good operating and investment decisions made by
management, and are important performance criteria in determining
certain elements of the Company's long-term incentive plan.
Calculation of ROIC and Adjusted ROIC
(in millions, except
for percentages)
|
For the twelve
months ended
June 30
2019
|
|
Operating income
as reported
|
$
|
3,029
|
|
Less:
|
|
Other
income
|
(16)
|
|
Other components of
net periodic benefit
recovery
|
(388)
|
|
Tax(1)
|
758
|
|
|
$
|
2,675
|
|
Average invested
capital
|
$
|
15,377
|
|
ROIC
|
17.4
|
%
|
(1)Tax was
calculated at the annualized effective tax rate of 22.08% for the
twelve months ended June 30, 2019.
|
(in millions, except
for percentages)
|
For the twelve
months ended
June 30
2019
|
|
Operating income
as reported
|
$
|
3,029
|
|
Less:
|
|
Other
income
|
(16)
|
|
Other components of
net periodic benefit recovery
|
(388)
|
|
Add significant items
(pre-tax):
|
|
Impact of FX
translation on debt and lease liabilities
|
(7)
|
|
Less:
|
|
Tax(1)
|
857
|
|
|
$
|
2,569
|
|
Average invested
capital
|
$
|
15,377
|
|
Add:
|
|
Impact of periodic
significant items net of tax on the above average
|
(44)
|
|
Adjusted average
invested capital
|
$
|
15,333
|
|
Adjusted
ROIC
|
16.8
|
%
|
(1) Tax was calculated at the
adjusted annualized effective tax rate of 25.03% for the twelve
months ended June 30, 2019.
|
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 June 30
|
For the six
months
ended June 30
|
(in
millions)
|
2019
|
2018
|
2019
|
2018
|
Cash provided by
operating activities
|
$
|
721
|
|
$
|
711
|
|
$
|
1,134
|
|
$
|
1,108
|
Cash used in
investing activities
|
(455)
|
|
(408)
|
|
(674)
|
|
(646)
|
Effect of foreign
currency fluctuations on U.S. dollar-denominated cash and cash
equivalents
|
(1)
|
|
4
|
|
(2)
|
|
9
|
Settlement of forward
starting swaps on debt issuance
|
—
|
|
24
|
|
—
|
|
24
|
Free
cash
|
$
|
265
|
|
$
|
331
|
|
$
|
458
|
|
$
|
495
|
Foreign Exchange Adjusted % Change
FX adjusted % change 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.
FX adjusted % changes in revenues are further used in
calculating FX adjusted % change in freight revenue per carload and
RTM. FX adjusted % changes in revenues are as
follows:
|
For the three
months ended June 30
|
(in
millions)
|
Reported
2019
|
Reported
2018
|
Variance
due to FX
|
FX Adjusted
2018
|
FX Adjusted
% Change
|
Freight revenues by
line of business
|
|
|
|
|
|
Grain
|
$
|
422
|
|
$
|
372
|
|
$
|
8
|
|
$
|
380
|
|
11
|
Coal
|
173
|
|
164
|
|
—
|
|
164
|
|
5
|
Potash
|
136
|
|
116
|
|
2
|
|
118
|
|
15
|
Fertilizers and
sulphur
|
63
|
|
55
|
|
2
|
|
57
|
|
11
|
Forest
products
|
78
|
|
69
|
|
3
|
|
72
|
|
8
|
Energy, chemicals and
plastics
|
346
|
|
278
|
|
6
|
|
284
|
|
22
|
Metals, minerals and
consumer products
|
205
|
|
204
|
|
6
|
|
210
|
|
(2)
|
Automotive
|
104
|
|
91
|
|
2
|
|
93
|
|
12
|
Intermodal
|
404
|
|
360
|
|
4
|
|
364
|
|
11
|
Freight
revenues
|
1,931
|
|
1,709
|
|
33
|
|
1,742
|
|
11
|
Non-freight
revenues
|
46
|
|
41
|
|
—
|
|
41
|
|
12
|
Total
revenues
|
$
|
1,977
|
|
$
|
1,750
|
|
$
|
33
|
|
$
|
1,783
|
|
11
|
|
For the six months
ended June 30
|
(in
millions)
|
Reported
2019
|
Reported
2018
|
Variance
due to FX
|
FX Adjusted
2018
|
FX Adjusted
% Change
|
Freight revenues by
line of business
|
|
|
|
|
|
Grain
|
$
|
802
|
|
$
|
729
|
|
$
|
18
|
|
$
|
747
|
|
7
|
Coal
|
331
|
|
315
|
|
2
|
|
317
|
|
4
|
Potash
|
250
|
|
228
|
|
6
|
|
234
|
|
7
|
Fertilizers and
sulphur
|
120
|
|
116
|
|
3
|
|
119
|
|
1
|
Forest
products
|
151
|
|
135
|
|
5
|
|
140
|
|
8
|
Energy, chemicals and
plastics
|
661
|
|
535
|
|
15
|
|
550
|
|
20
|
Metals, minerals and
consumer products
|
378
|
|
387
|
|
14
|
|
401
|
|
(6)
|
Automotive
|
180
|
|
162
|
|
5
|
|
167
|
|
8
|
Intermodal
|
784
|
|
727
|
|
9
|
|
736
|
|
7
|
Freight
revenues
|
3,657
|
|
3,334
|
|
77
|
|
3,411
|
|
7
|
Non-freight
revenues
|
87
|
|
78
|
|
—
|
|
78
|
|
12
|
Total
revenues
|
$
|
3,744
|
|
$
|
3,412
|
|
$
|
77
|
|
$
|
3,489
|
|
7
|
FX adjusted % changes in operating expenses are as follows:
|
For the three
months ended June 30
|
(in
millions)
|
Reported
2019
|
Reported
2018
|
Variance
due to FX
|
FX Adjusted
2018
|
FX Adjusted
% Change
|
Compensation and
benefits
|
$
|
383
|
|
$
|
351
|
|
$
|
4
|
|
$
|
355
|
|
8
|
Fuel
|
236
|
|
230
|
|
6
|
|
236
|
|
—
|
Materials
|
54
|
|
53
|
|
1
|
|
54
|
|
—
|
Equipment
rents
|
34
|
|
33
|
|
1
|
|
34
|
|
—
|
Depreciation and
amortization
|
183
|
|
172
|
|
2
|
|
174
|
|
5
|
Purchased services
and other
|
265
|
|
284
|
|
4
|
|
288
|
|
(8)
|
Total operating
expenses
|
$
|
1,155
|
|
$
|
1,123
|
|
$
|
18
|
|
$
|
1,141
|
|
1
|
|
For the six months
ended June 30
|
(in
millions)
|
Reported
2019
|
Reported
2018
|
Variance
due to FX
|
FX Adjusted
2018
|
FX Adjusted
% Change
|
Compensation and
benefits
|
$
|
789
|
|
$
|
725
|
|
$
|
10
|
|
$
|
735
|
|
7
|
Fuel
|
445
|
|
445
|
|
15
|
|
460
|
|
(3)
|
Materials
|
111
|
|
108
|
|
1
|
|
109
|
|
2
|
Equipment
rents
|
69
|
|
66
|
|
3
|
|
69
|
|
—
|
Depreciation and
amortization
|
343
|
|
342
|
|
4
|
|
346
|
|
(1)
|
Purchased services
and other
|
622
|
|
559
|
|
10
|
|
569
|
|
9
|
Total operating
expenses
|
$
|
2,379
|
|
$
|
2,245
|
|
$
|
43
|
|
$
|
2,288
|
|
4
|
FX adjusted % change in operating income is as follows:
|
For the three
months ended June 30
|
(in
millions)
|
Reported
2019
|
Reported
2018
|
Variance
due to FX
|
FX Adjusted
2018
|
FX Adjusted
% Change
|
Operating
income
|
$
|
822
|
|
$
|
627
|
|
$
|
15
|
|
$
|
642
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months
ended June 30
|
(in
millions)
|
Reported
2019
|
Reported
2018
|
Variance
due to FX
|
FX Adjusted
2018
|
FX Adjusted
% Change
|
Operating
income
|
$
|
1,365
|
|
$
|
1,167
|
|
$
|
34
|
|
$
|
1,201
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Net Income to EBIT, Adjusted EBIT and
Adjusted EBITDA
Earnings before interest and tax ("EBIT") is calculated as Net
income before Net interest expense and Income tax expense. Adjusted
EBIT excludes significant items reported in both Operating income
and Other (income) expense. Adjusted earnings before interest, tax,
depreciation and amortization ("EBITDA") is calculated as Adjusted
EBIT plus Other components of net periodic benefit recovery,
operating lease expense and Depreciation and amortization.
|
For the twelve
months ended
June 30
|
(in
millions)
|
2019
|
2018
|
Net income as
reported
|
$
|
2,325
|
|
$
|
2,278
|
Add:
|
|
|
Net interest
expense
|
452
|
|
458
|
Income tax
expense
|
656
|
|
51
|
EBIT
|
3,433
|
|
2,787
|
Less significant
items (pre-tax):
|
|
|
Impact of FX
translation on debt and lease liabilities
|
7
|
|
(2)
|
Adjusted
EBIT
|
3,426
|
|
2,789
|
Less:
|
|
|
Other components of
net periodic benefit recovery
|
388
|
|
330
|
Operating lease
expense
|
(102)
|
|
(88)
|
Depreciation and
amortization
|
(697)
|
|
(672)
|
Adjusted
EBITDA
|
$
|
3,837
|
|
$
|
3,219
|
Adjusted Net Debt to Adjusted EBITDA Ratio
Adjusted net debt is defined as Long-term debt, Long-term debt
maturing within one year, and Short-term borrowing as reported on
the Company's Consolidated Balance Sheets adjusted for pension
plans deficit, operating lease liabilities recognized on the
Company's Consolidated Balance Sheets, and Cash and cash
equivalents. Adjusted net debt to Adjusted EBITDA ratio is
calculated as Adjusted net debt divided by Adjusted EBITDA. The
Adjusted net debt to Adjusted EBITDA ratio is a key credit measure
used to assess the Company's financial capacity. The ratio provides
information on the Company's ability to service its debt and other
long-term obligations.
Reconciliation of Long-term Debt to Adjusted Net Debt
(in
millions)
|
2019
|
2018
|
Long-term debt
including long-term debt maturing within one year as at June
30
|
$
|
8,539
|
|
$
|
8,483
|
Less:
|
|
|
Pension plans
deficit(1)
|
(263)
|
|
(279)
|
Operating lease
liabilities(2)
|
(375)
|
|
(271)
|
Cash and cash
equivalents
|
45
|
|
51
|
Adjusted net debt
as at June 30
|
$
|
9,132
|
|
$
|
8,982
|
(1)
|
Pension plans deficit
is the total funded status of the Pension plans in deficit
only.
|
(2)
|
Current period amount
is as reported in compliance with GAAP following the adoption of
Accounting Standards Update ("ASU") 2016-02 under the
cumulative-effect adjustment transition approach. The comparative
period amount was calculated as the net present value of operating
leases discounted by the Company's effective interest rate for the
period presented.
|
Calculation of Adjusted Net Debt to Adjusted EBITDA Ratio
(in millions, except
for ratios)
|
2019
|
|
2018
|
Adjusted net debt as
at June 30
|
$
|
9,132
|
|
$
|
8,982
|
Adjusted EBITDA for
the year ended June 30
|
3,837
|
|
3,219
|
Adjusted net debt
to Adjusted EBITDA ratio
|
2.4
|
|
2.8
|
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content:http://www.prnewswire.com/news-releases/cp-reports-record-q2-revenues-of-1-98-billion-on-the-strength-of-operating-model-and-13-000-strong-cp-family-300885260.html
SOURCE Canadian Pacific