CALGARY, AB, April 21, 2021 /CNW/ - Canadian Pacific Railway
Limited (TSX: CP) (NYSE: CP) today announced first-quarter
operating results, including revenues of $1.96 billion, an operating ratio ("OR") of 60.2
percent, adjusted OR of 58.5 percent, diluted earnings per share
("EPS") of $4.50 and adjusted diluted
EPS of $4.48.
"The strong demand environment, particularly across bulk,
merchandise and domestic intermodal, coupled with our commitment to
the foundations of precision scheduled railroading enabled our
success in the first quarter," said Keith
Creel, CP President and Chief Executive Officer. "The CP
family demonstrated resiliency through winter and delivered a
record March. Our 12,000-strong team continues to deliver, no
matter the obstacles, and I am extremely proud of their
efforts."
First-quarter highlights
- Revenues decreased by 4 percent to $1.96
billion from $2.04 billion
last year
- Reported diluted EPS was $4.50, a
51 percent increase from $2.98 last
year
- Adjusted diluted EPS was $4.48, a
1 percent increase from $4.42 last
year
- Reported OR increased by 100 basis points to 60.2 percent from
59.2 percent. The OR in the first quarter of 2021 includes a
$33 million expense related to Kansas
City Southern acquisition costs
- Adjusted OR, which excludes the acquisition-related charges,
improved 70 basis points to 58.5 percent
- Multiple carload, revenue and tonnage records were broken in
the first quarter:
-
- Record tonnage, volumes and revenue in Canadian grain
- Record revenue in automotive
- Record revenue and volumes in domestic intermodal
- March was an all-time record for GTMs and RTMs in any month
leading to a volume record for Q1
"The momentum we ended the first quarter with has enabled a
strong start to the second quarter and we remain committed to
delivering for our customers, employees, shareholders and
communities," Creel said. "We are excited about the unique
opportunities ahead in 2021 and the strong base demand
environment."
Full-year 2021 guidance1
- Double-digit adjusted diluted EPS growth relative to 2020's
adjusted diluted EPS of $17.67
- High-single digit volume growth, as measured in RTMs
- Capital expenditures of $1.55
billion
CP's guidance is based on the following key assumptions:
- Effective tax rate of 24.6 percent
- Other components of net periodic benefit recovery will increase
by approximately $40 million versus
2020
1 CP's 2021 guidance does not include any
potential impacts from the proposed Kansas City Southern
acquisition
Conference call details
CP will discuss its results
with the financial community in a conference call beginning at
4:30 p.m. ET (2:30 p.m. MT) 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 first-quarter conference call will be available
by phone through to April 28, 2021 at
416-849-0833 or toll free 1-855-859-2056, password 3518217.
Access to the webcast and audio file of the presentation will be
available at investor.cpr.ca.
Non-GAAP measures
Although CP has provided a
forward-looking non-GAAP measure (adjusted diluted EPS), management
is unable to reconcile, without unreasonable efforts, the
forward-looking adjusted diluted EPS to the most comparable GAAP
measure (diluted EPS), due to unknown variables and uncertainty
related to future results. These unknown variables may include
unpredictable transactions of significant value. In recent years,
CP has recognized acquisition-related costs, changes in income tax
rates and a change to an uncertain tax item. These or other
similar, large unforeseen transactions affect diluted EPS but may
be excluded from CP's adjusted diluted EPS. Additionally, the
U.S.-to-Canadian dollar foreign exchange (FX) 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 Note on
forward-looking information below for further discussion.
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
may contain 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 statements concerning 2021 volume
including as measured in RTMs, EPS growth and adjusted diluted EPS
growth, capital program investments, the U.S.-to-Canadian dollar
exchange rate, annualized effective tax rate, other components of
net periodic benefit recovery, cost control efforts, the success of
our business, our operations, priorities and plans, anticipated
financial and operational performance, business prospects and
demand for our services and growth opportunities.
The forward-looking information that may be 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:
North American and global economic growth; commodity demand growth;
sustainable industrial and agricultural production; commodity
prices and interest rates; foreign exchange rates (as specified
herein); effective tax rates (as specified herein); performance of
our assets and equipment; sufficiency of our budgeted capital
expenditures in carrying out our business plan; geopolitical
conditions, applicable laws, regulations and government policies;
the availability and cost of labour, services and infrastructure;
the satisfaction by third parties of their obligations to CP; and
the anticipated impacts of COVID-19 on CP businesses, operating
results, cash flows and/or financial condition. 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. Current conditions, economic and
otherwise, render assumptions, although reasonable when made,
subject to greater uncertainty.
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
Canadian, U.S., Mexican and global social, economic, political,
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, including competition from other
rail carriers, trucking companies and maritime shippers in
Canada, the U.S. and Mexico; industry capacity; shifts in market
demand; changes in commodity prices; uncertainty surrounding timing
and volumes of commodities being shipped via CP; inflation;
geopolitical instability; 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; disruption in fuel
supplies; uncertainties of investigations, proceedings or other
types of claims and litigation; compliance with environmental
regulations; labour disputes; changes in labour costs and labour
difficulties; risks and liabilities arising from derailments;
transportation of dangerous goods; timing of completion of capital
and maintenance projects; currency and interest rate fluctuations;
exchange rates; 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; the effects of current and future multinational
trade agreements on the level of trade among Canada, the U.S. and Mexico; climate change and the market and
regulatory responses to climate change; anticipated in-service
dates; success of hedging activities; operational performance and
reliability; customer, shareholder, regulatory and other
stakeholder approvals and support; regulatory and legislative
decisions and actions; the adverse impact of any termination or
revocation by the Mexican government of Kansas City Southern de
México, S.A. de C.V.'s Concession; public opinion; 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; acts of terrorism, war or other
acts of violence or crime or risk of such activities; insurance
coverage limitations; material adverse changes in economic and
industry conditions, including the availability of short and
long-term financing; the pandemic created by the outbreak of
COVID-19 and resulting effects on economic conditions, the demand
environment for logistics requirements and energy prices,
restrictions imposed by public health authorities or governments,
fiscal and monetary policy responses by governments and financial
institutions, and disruptions to global supply chains; the timing
and completion of the pending KCS transaction, including receipt of
regulatory and shareholder approvals and the satisfaction of other
conditions precedent; interloper risk to the pending KCS
transaction; the realization of anticipated benefits and synergies
of the transaction and the timing thereof; the success of
integration plans for KCS; the focus of management time and
attention on the pending KCS transaction and other disruptions
arising from the transaction; estimated future dividends; financial
strength and flexibility; debt and equity market conditions,
including the ability to access capital markets on favourable terms
or at all; cost of debt and equity capital; the previously
announced proposed share split of the Company's issued and
outstanding common shares and whether it will receive the requisite
regulatory approvals; potential changes in the Company's share
price which may negatively impact the value of consideration
offered to KCS shareholders; and the ability of the management of
the Company, its subsidiaries and affiliates to execute key
priorities, including those in connection with the pending KCS
transaction. 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 Statements" in CP's
annual and interim reports on Form 10-K and 10-Q.
Any 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
March 31
|
(in millions of
Canadian dollars, except share and per share data)
|
2021
|
2020
|
Revenues (Note
3)
|
|
|
Freight
|
$
|
1,918
|
$
|
2,000
|
Non-freight
|
41
|
43
|
Total
revenues
|
1,959
|
2,043
|
Operating
expenses
|
|
|
Compensation and
benefits
|
405
|
398
|
Fuel
|
206
|
212
|
Materials
|
59
|
59
|
Equipment
rents
|
33
|
36
|
Depreciation and
amortization
|
202
|
192
|
Purchased services and
other (Note 9, 10)
|
274
|
312
|
Total operating
expenses
|
1,179
|
1,209
|
|
|
|
Operating
income
|
780
|
834
|
Less:
|
|
|
Other (income) expense
(Note 4, 10)
|
(28)
|
211
|
Other components of net
periodic benefit recovery (Note 14)
|
(95)
|
(85)
|
Net interest
expense
|
110
|
114
|
Income before
income tax expense
|
793
|
594
|
Income tax expense
(Note 5)
|
191
|
185
|
Net
income
|
$
|
602
|
$
|
409
|
|
|
|
Earnings per share
(Note 6)
|
|
|
Basic earnings per
share
|
$
|
4.52
|
$
|
2.99
|
Diluted earnings per
share
|
$
|
4.50
|
$
|
2.98
|
|
|
|
Weighted-average
number of shares (millions) (Note 6)
|
|
|
Basic
|
133.3
|
136.7
|
Diluted
|
133.9
|
137.2
|
|
|
|
Dividends declared
per share
|
$
|
0.95
|
$
|
0.83
|
|
|
|
Earnings per share
- Pro forma post-split basis (Note 17)
|
|
|
Basic earnings per
share
|
$
|
0.90
|
$
|
0.60
|
Diluted earnings per
share
|
$
|
0.90
|
$
|
0.60
|
|
See Notes to Interim
Consolidated Financial Statements.
|
INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME
(unaudited)
|
For the three
months ended
March 31
|
(in millions of
Canadian dollars)
|
2021
|
2020
|
Net income
|
$
|
602
|
$
|
409
|
Net gain (loss) in
foreign currency translation adjustments, net of hedging
activities
|
10
|
(65)
|
Change in derivatives
designated as cash flow hedges
|
25
|
2
|
Change in pension and
post-retirement defined benefit plans
|
53
|
45
|
Other comprehensive
income (loss) before income taxes
|
88
|
(18)
|
Income tax (expense)
recovery on above items
|
(30)
|
60
|
Other comprehensive
income (Note 7)
|
58
|
42
|
Comprehensive
income
|
$
|
660
|
$
|
451
|
|
See Notes to Interim
Consolidated Financial Statements.
|
INTERIM CONSOLIDATED BALANCE SHEETS AS
AT
(unaudited)
|
March
31
|
December
31
|
(in millions of
Canadian dollars)
|
2021
|
2020
|
Assets
|
|
|
Current
assets
|
|
|
Cash and cash
equivalents
|
$
|
360
|
$
|
147
|
Accounts receivable,
net (Note 8)
|
840
|
825
|
Materials and
supplies
|
213
|
208
|
Other current
assets
|
211
|
141
|
|
1,624
|
1,321
|
Investments
|
199
|
199
|
Properties
|
20,503
|
20,422
|
Goodwill and
intangible assets
|
371
|
366
|
Pension
asset
|
1,007
|
894
|
Other
assets
|
417
|
438
|
Total
assets
|
$
|
24,121
|
$
|
23,640
|
Liabilities and
shareholders' equity
|
|
|
Current
liabilities
|
|
|
Accounts payable and
accrued liabilities
|
$
|
1,418
|
$
|
1,467
|
Long-term debt
maturing within one year (Note 11, 12)
|
1,782
|
1,186
|
|
3,200
|
2,653
|
Pension and other
benefit liabilities
|
829
|
832
|
Other long-term
liabilities
|
537
|
585
|
Long-term debt (Note
11, 12)
|
7,958
|
8,585
|
Deferred income
taxes
|
3,731
|
3,666
|
Total
liabilities
|
16,255
|
16,321
|
Shareholders'
equity
|
|
|
Share
capital
|
1,993
|
1,983
|
Additional paid-in
capital
|
58
|
55
|
Accumulated other
comprehensive loss (Note 7)
|
(2,756)
|
(2,814)
|
Retained
earnings
|
8,571
|
8,095
|
|
7,866
|
7,319
|
Total liabilities
and shareholders' equity
|
$
|
24,121
|
$
|
23,640
|
|
See Contingencies
(Note 10, 16).
|
See Notes to Interim
Consolidated Financial Statements.
|
INTERIM CONSOLIDATED STATEMENTS OF CASH
FLOWS
(unaudited)
|
For the three
months ended
March 31
|
(in millions of
Canadian dollars)
|
2021
|
2020
|
Operating
activities
|
|
|
Net income
|
$
|
602
|
$
|
409
|
Reconciliation of net
income to cash provided by operating activities:
|
|
|
Depreciation and
amortization
|
202
|
192
|
Deferred income tax
expense (Note 5)
|
51
|
39
|
Pension recovery and
funding (Note 14)
|
(61)
|
(65)
|
Foreign exchange
(gain) loss on debt and lease liabilities (Note 4)
|
(33)
|
215
|
Other operating
activities, net
|
(88)
|
(72)
|
Change in non-cash
working capital balances related to operations
|
(91)
|
(229)
|
Cash provided by
operating activities
|
582
|
489
|
Investing
activities
|
|
|
Additions to
properties
|
(323)
|
(355)
|
Proceeds from sale of
properties and other assets
|
37
|
2
|
Other
|
—
|
(9)
|
Cash used in
investing activities
|
(286)
|
(362)
|
Financing
activities
|
|
|
Dividends
paid
|
(127)
|
(114)
|
Issuance of CP Common
Shares
|
8
|
24
|
Purchase of CP Common
Shares (Note 13)
|
—
|
(501)
|
Issuance of long-term
debt, excluding commercial paper
|
—
|
959
|
Repayment of
long-term debt, excluding commercial paper
|
(21)
|
(15)
|
Net issuance
(repayment) of commercial paper (Note 11)
|
93
|
(553)
|
Net increase in
short-term borrowings
|
—
|
145
|
Acquisition-related
financing fees (Note 10)
|
(33)
|
—
|
Other
|
—
|
11
|
Cash used in
financing activities
|
(80)
|
(44)
|
Effect of foreign
currency fluctuations on U.S. dollar-denominated cash and cash
equivalents
|
(3)
|
31
|
Cash
position
|
|
|
Increase in cash and
cash equivalents
|
213
|
114
|
Cash and cash
equivalents at beginning of period
|
147
|
133
|
Cash and cash
equivalents at end of period
|
$
|
360
|
$
|
247
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
Income taxes
paid
|
$
|
133
|
$
|
139
|
Interest
paid
|
$
|
155
|
$
|
157
|
|
See Notes to Interim
Consolidated Financial Statements.
|
INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY
(unaudited)
|
For the three
months ended March 31
|
(in millions of
Canadian dollars except per share data)
|
|
Common
Shares (in
millions)
|
|
Share
capital
|
Additional
paid-in
capital
|
Accumulated
other
comprehensive
loss
|
Retained
earnings
|
Total
shareholders'
equity
|
Balance at January
1, 2021
|
|
133.3
|
|
$
|
1,983
|
$
|
55
|
$
|
(2,814)
|
$
|
8,095
|
$
|
7,319
|
Net income
|
|
—
|
|
—
|
—
|
—
|
602
|
602
|
Other comprehensive
income (Note 7)
|
|
—
|
|
—
|
—
|
58
|
—
|
58
|
Dividends declared
($0.95 per share)
|
|
—
|
|
—
|
—
|
—
|
(126)
|
(126)
|
Effect of stock-based
compensation expense
|
|
—
|
|
—
|
5
|
—
|
—
|
5
|
Shares issued under
stock option plan
|
|
—
|
|
10
|
(2)
|
—
|
—
|
8
|
Balance at March
31, 2021
|
|
133.3
|
|
$
|
1,993
|
$
|
58
|
$
|
(2,756)
|
$
|
8,571
|
$
|
7,866
|
Balance at January 1,
2020
|
|
137.0
|
|
$
|
1,993
|
$
|
48
|
$
|
(2,522)
|
$
|
7,549
|
$
|
7,068
|
Net income
|
|
—
|
|
—
|
—
|
—
|
409
|
409
|
Other comprehensive
income (Note 7)
|
|
—
|
|
—
|
—
|
42
|
—
|
42
|
Dividends declared
($0.83 per share)
|
|
—
|
|
—
|
—
|
—
|
(112)
|
(112)
|
Effect of stock-based
compensation expense
|
|
—
|
|
—
|
5
|
—
|
—
|
5
|
CP Common Shares
repurchased (Note 13)
|
|
(1.6)
|
|
(21)
|
—
|
—
|
(447)
|
(468)
|
Shares issued under
stock option plan
|
|
0.2
|
|
13
|
(2)
|
—
|
—
|
11
|
Balance at March 31,
2020
|
|
135.6
|
|
$
|
1,985
|
$
|
51
|
$
|
(2,480)
|
$
|
7,399
|
$
|
6,955
|
|
See Notes to Interim
Consolidated Financial Statements.
|
NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS
March 31,
2021
(unaudited)
1 Basis of presentation
These unaudited Interim Consolidated Financial Statements
("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 2020 annual Consolidated
Financial Statements and notes included in CP's 2020 Annual Report
on Form 10-K. The accounting policies used are consistent with the
accounting policies used in preparing the 2020 annual Consolidated
Financial Statements.
CP's operations can be affected by seasonal fluctuations such as
changes in customer demand and weather-related issues. This
seasonality could impact quarter-over-quarter comparisons.
In management's opinion, the 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
Accounting pronouncements that became effective during the
period covered by the Interim Consolidated Financial Statements did
not have a material impact on the Company's Interim Consolidated
Balance Sheets, Interim Consolidated Statements of Income, or
Interim Consolidated Statements of Cash Flows. Likewise, accounting
pronouncements issued, but not effective until after March 31, 2021, are not expected to have a
material impact on the Company's Consolidated Balance Sheets,
Consolidated Statements of Income, or Consolidated Statements of
Cash Flows.
3 Revenues
The following table disaggregates the Company's revenues from
contracts with customers by major source:
|
For the three
months ended
March 31
|
(in millions of
Canadian dollars)
|
2021
|
2020
|
Freight
|
|
|
Grain
|
$
|
448
|
$
|
418
|
Coal
|
163
|
150
|
Potash
|
101
|
112
|
Fertilizers and
sulphur
|
77
|
70
|
Forest
products
|
80
|
78
|
Energy, chemicals and
plastics
|
388
|
491
|
Metals, minerals and
consumer products
|
159
|
189
|
Automotive
|
108
|
87
|
Intermodal
|
394
|
405
|
Total freight
revenues
|
1,918
|
2,000
|
Non-freight excluding
leasing revenues
|
24
|
29
|
Revenues from
contracts with customers
|
1,942
|
2,029
|
Leasing
revenues
|
17
|
14
|
Total
revenues
|
$
|
1,959
|
$
|
2,043
|
Contract
liabilities
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.
The following table summarizes the changes in contract
liabilities:
|
For the three
months ended
March 31
|
(in millions of
Canadian dollars)
|
2021
|
2020
|
Opening
balance
|
$
|
61
|
$
|
146
|
Revenue recognized
that was included in the contract liability balance at the
beginning of the period
|
(11)
|
(37)
|
Increase due to
consideration received, net of revenue recognized during the
period
|
64
|
3
|
Closing
balance
|
$
|
114
|
$
|
112
|
4 Other (income) expense
|
For the three
months ended
March 31
|
(in millions of
Canadian dollars)
|
2021
|
2020
|
Foreign exchange
(gain) loss on debt and lease liabilities(1)
|
$
|
(33)
|
$
|
215
|
Other foreign
exchange losses (gains)
|
1
|
(5)
|
Acquisition-related
costs (Note 10)
|
3
|
—
|
Other
|
1
|
1
|
Other (income)
expense
|
$
|
(28)
|
$
|
211
|
(1)
|
Includes unrealized
net loss on foreign exchange ("FX") forward contracts. Refer to
Note 12 Financial instruments.
|
5 Income taxes
|
For the three
months ended
March 31
|
(in millions of
Canadian dollars)
|
2021
|
2020
|
Current income tax
expense
|
$
|
140
|
$
|
146
|
Deferred income tax
expense
|
51
|
39
|
Income tax
expense
|
$
|
191
|
$
|
185
|
The effective tax rates including discrete items for the three
months ended March 31, 2021 was
24.05%, compared to 31.10% for the same period of 2020.
For the three months ended March 31,
2021, the effective tax rate was 24.60%, excluding the
discrete items of the acquisition-related costs of $36 million and the FX gain of $33 million on debt and lease liabilities.
For the three months ended March 31,
2020, the effective tax rate was 25.00%, excluding the
discrete item of the FX loss of $215
million on debt and lease liabilities.
6 Earnings per share
Basic earnings per share has 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 the
earnings per share calculations are reconciled as follows:
|
For the three
months ended
March 31
|
(in
millions)
|
2021
|
2020
|
Weighted-average
basic shares outstanding
|
133.3
|
136.7
|
Dilutive effect of
stock options
|
0.6
|
0.5
|
Weighted-average
diluted shares outstanding
|
133.9
|
137.2
|
For the three months ended March 31,
2021, there were no options excluded from the computation of
diluted earnings per share (three months ended March 31, 2020 - 0.1 million).
7 Changes in Accumulated other
comprehensive loss ("AOCL") by component
|
For the three
months ended March 31
|
(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, 2021
|
$
|
112
|
$
|
(48)
|
$
|
(2,878)
|
$
|
(2,814)
|
Other comprehensive
income before reclassifications
|
—
|
17
|
—
|
17
|
Amounts reclassified
from accumulated other comprehensive loss
|
—
|
2
|
39
|
41
|
Net other
comprehensive income
|
—
|
19
|
39
|
58
|
Closing balance,
March 31, 2021
|
$
|
112
|
$
|
(29)
|
$
|
(2,839)
|
$
|
(2,756)
|
Opening balance,
January 1, 2020
|
$
|
112
|
$
|
(54)
|
$
|
(2,580)
|
$
|
(2,522)
|
Other comprehensive
income before reclassifications
|
7
|
—
|
—
|
7
|
Amounts reclassified
from accumulated other comprehensive loss
|
—
|
2
|
33
|
35
|
Net other
comprehensive income
|
7
|
2
|
33
|
42
|
Closing balance,
March 31, 2020
|
$
|
119
|
$
|
(52)
|
$
|
(2,547)
|
$
|
(2,480)
|
(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
March 31
|
(in millions of
Canadian dollars)
|
2021
|
2020
|
Recognition of net
actuarial loss(1)
|
$
|
53
|
$
|
45
|
Income tax
recovery
|
(14)
|
(12)
|
Total net of income
tax
|
$
|
39
|
$
|
33
|
(1)
|
Impacts "Other
components of net periodic benefit recovery" on the Interim
Consolidated Statements of Income.
|
8 Accounts receivable, net
|
As at March 31,
2021
|
As at March 31,
2020
|
(in millions of
Canadian dollars)
|
Freight
|
Non-
freight
|
Total
|
Freight
|
Non-
freight
|
Total
|
Total accounts
receivable
|
$
|
681
|
$
|
198
|
$
|
879
|
$
|
724
|
$
|
202
|
$
|
926
|
Allowance for credit
losses
|
(24)
|
(15)
|
(39)
|
(27)
|
(14)
|
(41)
|
Total accounts
receivable, net
|
$
|
657
|
$
|
183
|
$
|
840
|
$
|
697
|
$
|
188
|
$
|
885
|
|
For the three
months ended
March 31, 2021
|
For the three
months ended
March 31, 2020
|
(in millions of
Canadian dollars)
|
Freight
|
Non-
freight
|
Total
|
Freight
|
Non-
freight
|
Total
|
Allowance for credit
losses, opening balance
|
$
|
(25)
|
$
|
(15)
|
$
|
(40)
|
$
|
(27)
|
$
|
(16)
|
$
|
(43)
|
Current period credit
loss provision, net
|
1
|
—
|
1
|
—
|
2
|
2
|
Allowance for credit
losses, closing balance
|
$
|
(24)
|
$
|
(15)
|
$
|
(39)
|
$
|
(27)
|
$
|
(14)
|
$
|
(41)
|
9 Property sale
Gain on exchange of property and easements in Chicago
During the first quarter of 2021, the Company exchanged property
and property easements in Chicago
with a government agency for proceeds of $103 million
including cash of $61 million and property assets at a fair
value of $42 million. Fair value was determined based on
comparable market transactions. The Company recorded a gain in the
first quarter within "Purchased services and other" of
$50 million ($38 million after tax) from the transaction,
and a deferred gain of $53 million which will be recognized in
income over the period of use of certain easements.
10 Business acquisition
Pending Kansas City Southern Transaction
On March 21, 2021, the Company
entered into an Agreement and Plan of Merger (the "Merger
Agreement") with Kansas City Southern ("KCS").
Upon the approval of the transaction by the shareholders of both
the Company and KCS, and satisfaction or waiver of customary
closing conditions, the shares of KCS will be deposited into a
voting trust subject to a voting trust agreement, pending final
approval of the transaction by the Surface Transportation Board
("STB"). This step is expected to be completed in the second half
of 2021.
Under the Merger Agreement, common shareholders of KCS will
receive 0.489 (exchange ratio) of a common share of the Company and
U.S. $90 in cash for each KCS common
share held. Preferred shareholders will receive U.S. $37.50 in cash for each KCS preferred share held.
The share split (see Note 17) will change the exchange ratio as
defined in the Merger Agreement to 2.445 CP shares for every KCS
common share.
As of the signing of the Merger Agreement, the transaction
represented an enterprise value of approximately U.S.
$29 billion, which includes the assumption of U.S.
$3.8 billion of outstanding KCS
debt. The actual value of the transaction may fluctuate based upon
changes in the price of the Company's common shares and the number
of shares of KCS common shares, preferred shares and equity awards
units outstanding on the closing date. Subject to final approval of
the transaction by the STB and other applicable regulatory
authorities, the transaction is expected to be completed by the
middle of 2022.
In the first quarter of 2021, the Company incurred
$36 million in acquisition-related expenses, of which
$33 million was recorded within "Purchased services and other"
and $3 million was recorded within "Other (income) expense"
including the amortization of financing fees associated with new
credit facilities (see Note 11). Certain additional
acquisition-related costs will become payable only upon closing of
the transaction into the voting trust. Total financing fees paid
during the first quarter of 2021 for the anticipated debt issuance
were $33 million, presented under Cash flow from financing
activities in the Company's Interim Consolidated Statements of Cash
Flows.
The Merger Agreement includes termination fees for both the
Company and KCS. The Company or KCS will be required to pay a
termination fee equal to U.S. $700 million if the Merger
Agreement is terminated in certain circumstances, including if the
Merger Agreement is terminated either because the Company's or KCS'
boards of directors have changed their recommendation,
respectively. The Company will be required to pay a termination fee
equal to U.S. $1 billion if the Merger Agreement is terminated
in certain circumstances, including (i) failure to obtain required
approval from the STB to close into voting trust or (ii) a final
non-appealable injunction or similar order that is issued under
applicable railroad laws or Section 721 of the United States
Defense Production Act of 1950 prohibiting the transaction.
11 Debt
Credit facility
Effective March 21, 2021, the
Company obtained commitments for a new U.S. $8.5 billion 364-day senior unsecured facility to
bridge financing requirements for the pending KCS transaction.
Effective April 9, 2021, the
Company amended the financial covenant within its existing
revolving credit facility to provide flexibility upon close of the
pending KCS transaction.
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. This commercial paper program is backed
by the U.S. $1.3 billion revolving
credit facility. As at March 31,
2021, the Company had total commercial paper borrowings of
U.S. $715 million (December 31, 2020 - U.S. $644 million). The weighted-average interest rate
on these borrowings was 0.21% (December 31,
2020 - 0.27%). 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.
12 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.
For non-exchange traded derivatives classified as 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 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 are classified as Level 2.
The Company's short-term financial instruments include cash and
cash equivalents, accounts receivable, accounts payable and accrued
liabilities, and short-term borrowings including commercial paper.
The carrying value of short-term financial instruments all
approximate their fair values.
The carrying value of the Company's debt and finance lease
liabilities do not approximate their fair value. Their estimated
fair value 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. All measurements are classified as Level
2. The Company's debt and finance lease liabilities, including
current maturities, with a carrying value of $8,841 million at March
31, 2021 (December 31, 2020 -
$8,951 million), had a fair value of
$10,609 million (December 31, 2020 - $11,597 million).
B. Financial risk management
FX management
Net investment hedge
The effect of the Company's net
investment hedge for the three months ended March 31, 2021 was an unrealized FX gain of
$76 million (three months ended
March 31, 2020 - an unrealized FX
loss of $555 million) recognized in
"Other comprehensive income".
FX forward contracts
During the first quarter of 2021,
the Company entered into various FX forward contracts totalling a
notional U.S. $800 million to fix the
FX rate and lock-in a portion of the amount of Canadian dollars it
may borrow to finance the U.S. dollar-denominated cash purchase
consideration of the pending KCS transaction. The changes in fair
value on the FX forward contracts were recorded in "Other (income)
expense" on the Company's Interim Consolidated Statements of
Income, with the offsetting unrealized gains and losses included in
"Other current assets" and "Accounts payable and accrued
liabilities" on the Company's Interim Consolidated Balance Sheets.
For the three months ended March 31,
2021, the change in fair value on the FX forward contracts
was negligible.
During April 2021, the Company
entered into additional FX forward contracts totalling a notional
U.S. $200 million to fix the FX rate and lock-in a portion of
the amount of Canadian dollars it may use to finance the pending
U.S. dollar-denominated KCS transaction.
Interest rate management
Forward starting swaps
During the first quarter of
2021, the Company entered into forward starting floating-to-fixed
interest rate swap agreements ("forward starting swaps") with terms
of up to 30 years, totalling a notional U.S. $1.8 billion to fix the benchmark rate on
cash flows associated with highly probable forecasted issuances of
long-term notes. The changes in fair value on the forward starting
swaps is recorded in "Accumulated other comprehensive loss", net of
tax, as cash flow hedges until the notes are issued. Subsequent to
the notes issuance, amounts in "Accumulated other comprehensive
loss" will be reclassified to "Net interest expense". As at
March 31, 2021, the unrealized fair
value gain derived from the forward starting swaps of
$20 million was included in "Other current assets" on the
Company's Interim Consolidated Balance Sheets, with the offset
reflected in "Other comprehensive income" on the Company's Interim
Consolidated Statements of Comprehensive Income.
During April 2021, the Company
entered into additional forward starting swaps with terms of up to
30 years, totalling a notional U.S. $600 million to fix the
benchmark rate on cash flows associated with highly probable
issuances of long-term notes.
Bond locks
During the first quarter of 2021, the
Company entered into 7-year interest rate bond locks totalling a
notional $600 million to fix the benchmark rate on cash flows
associated with highly probable forecasted issuance of long-term
notes. The changes in fair value on the bond locks is recorded in
"Accumulated other comprehensive loss", net of tax, as cash flow
hedges until the notes are issued. Subsequent to the notes
issuance, amounts in "Accumulated other comprehensive loss" will be
reclassified to "Net interest expense". As at March 31, 2021, the unrealized fair value gain
derived from the bond locks of $2 million was included in
"Other current assets" on the Company's Interim Consolidated
Balance Sheets, with the offset reflected in "Other comprehensive
income" on the Company's Interim Consolidated Statements of
Comprehensive Income.
13 Shareholders' equity
On January 27, 2021, the Company
announced a normal course issuer bid ("NCIB"), commencing
January 29, 2021, to purchase up to
3.33 million Common Shares in the open market for cancellation
on or before January 28, 2022. As at
March 31, 2021, the Company had not
purchased any Common Shares under this NCIB. As a result of the
pending KCS transaction, the Company does not plan to purchase any
Common Shares under this program.
On December 17, 2019, the Company
announced a NCIB, commencing December 20,
2019, to purchase up to 4.80 million Common Shares for
cancellation on or before December 19, 2020. Upon expiry of
this NCIB, the Company had purchased 4.27 million Common Shares for
$1,577 million.
All purchases were made in accordance with the respective NCIB
at prevailing market prices plus brokerage fees, or such other
prices that were permitted by the Toronto Stock Exchange ("TSX"),
with consideration allocated to "Share capital" up to the average
carrying amount of the shares and any excess allocated to "Retained
earnings".
The following table provides activities under the share
repurchase programs:
|
For the three
months ended
March 31
|
|
2021
|
2020
|
Number of Common
Shares repurchased(1)
|
—
|
1,455,854
|
Weighted-average
price per share(2)
|
$
|
—
|
$
|
321.71
|
Amount of repurchase
(in millions of Canadian dollars)(2)
|
$
|
—
|
$
|
468
|
(1)
|
Includes shares
repurchased but not yet cancelled at end of period.
|
(2)
|
Includes brokerage
fees.
|
14 Pension and other benefits
In the three months ended March 31,
2021, the Company made contributions of $4 million (three months ended March 31, 2020 - $9
million) to its defined benefit pension plans.
Net periodic benefit costs for defined benefit pension plans and
other benefits included the following components:
|
For the three
months ended March 31
|
|
Pensions
|
Other
benefits
|
(in millions of
Canadian dollars)
|
2021
|
2020
|
2021
|
2020
|
Current service cost
(benefits earned by employees)
|
$
|
43
|
$
|
35
|
$
|
3
|
$
|
3
|
Other components of
net periodic benefit (recovery) cost:
|
|
|
|
|
Interest cost on
benefit obligation
|
88
|
102
|
4
|
5
|
Expected return on
fund assets
|
(240)
|
(237)
|
—
|
—
|
Recognized net
actuarial loss
|
52
|
44
|
1
|
1
|
Total other
components of net periodic benefit (recovery) cost
|
(100)
|
(91)
|
5
|
6
|
Net periodic benefit
(recovery) cost
|
$
|
(57)
|
$
|
(56)
|
$
|
8
|
$
|
9
|
15 Stock-based compensation
At March 31, 2021, 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
months ended March 31, 2021 of
$24 million (three months ended
March 31, 2020 - expense of
$11 million).
Stock option plan
In the three months ended March 31,
2021, under CP's stock option plans, the Company issued
266,698 options at the weighted-average price of $437.94 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 grant date was approximately $25
million. The weighted-average fair value assumptions were
approximately:
|
For the three
months
ended March 31, 2021
|
Expected option life
(years)(1)
|
4.75
|
Risk-free interest
rate(2)
|
0.53%
|
Expected share price
volatility(3)
|
27.14%
|
Expected annual
dividends per share(4)
|
$3.80
|
Expected forfeiture
rate(5)
|
2.60%
|
Weighted-average
grant date fair value per option granted during the
period
|
$95.16
|
(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 share 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.
|
(5)
|
The Company estimates
forfeitures based on past experience. This rate is monitored on a
periodic basis.
|
Performance share unit plans
During the three months ended March 31,
2021, the Company issued 84,672 Performance Share Units
("PSUs") with a grant date fair value of approximately $36 million and 2,539 Performance Deferred Share
Units ("PDSUs") with a grant date fair value, including the value
of expected future matching units, of approximately $1 million. PSUs and PDSUs attract dividend
equivalents in the form of additional units based on dividends paid
on the Company's Common Shares, and vest approximately three years
after the grant date, contingent upon CP's performance
("performance factor"). The fair value of these PSUs and PDSUs is
measured periodically until settlement. Vested PSUs are settled in
cash. Vested PDSUs are settled in cash pursuant to the Deferred
Share Unit ("DSU") Plan and are eligible for a 25% match if the
holder has not exceeded their share ownership requirements, and are
paid out only when the holder ceases their employment with CP.
The performance period for PSUs and PDSUs issued in the three
months ended March 31, 2021 is
January 1, 2021 to December 31, 2023 and the performance factors 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 period for PSUs issued in 2018 was January 1, 2018 to December 31, 2020. The performance factors for
125,280 PSUs were ROIC, TSR compared to the S&P/TSX Capped
Industrial Index, and TSR compared to the S&P 1500 Road and
Rail Index. The resulting payout was 200% of the outstanding units
multiplied by the Company's average share price calculated using
the last 30 trading days preceding December
31, 2020. In the first quarter of 2021, payouts occurred on
114,014 total outstanding awards, including dividends reinvested,
totalling $98 million. The
performance factors for the remaining 36,975 PSUs were annual
revenue for the fiscal year 2020, diluted earnings per share for
the fiscal year 2020, and share price appreciation.
Deferred share unit plan
During the three months ended March 31,
2021, the Company granted 9,170 DSUs with a grant date fair
value of approximately $4 million.
DSUs vest over various periods of up to 36 months and are only
redeemable for a specified period after employment is terminated.
The expense for DSUs is recognized over the vesting period for both
the initial subscription price and the change in value between
reporting periods.
16 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
March 31, 2021 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
business, 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 Montréal Maine and Atlantic Railway ("MMAR") or a
subsidiary, Montréal 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 and while
the MMA Group exclusively controlled the train.
Following the derailment, MMAC sought court protection in
Canada under the Companies'
Creditors Arrangement Act and MMAR filed for bankruptcy in the
U.S. Plans of arrangement were approved in both Canada and the U.S. (the "Plans"), providing
for the distribution of approximately $440
million amongst those claiming derailment damages.
A number of legal proceedings, set out below, were commenced in
Canada and the U.S. against CP and
others:
(1) Québec's Minister of Sustainable Development, Environment,
Wildlife and Parks ordered various parties, including CP, to
remediate the derailment site (the "Cleanup Order") and served CP
with a Notice of Claim for $95
million for those costs. CP appealed the Cleanup Order and
contested the Notice of Claim with the Administrative Tribunal of
Québec. These proceedings are stayed pending determination of the
Attorney General of Québec ("AGQ") action (paragraph 2 below).
(2) The AGQ sued CP in the Québec Superior Court claiming
$409 million in damages, which was
amended and reduced to $315 million
(the "AGQ Action"). The AGQ Action alleges that: (i) CP was
responsible for the petroleum crude oil from its point of origin
until its delivery to Irving Oil Ltd.; and (ii) CP is vicariously
liable for the acts and omissions of the MMA Group.
(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 was certified against CP on May 8, 2015 (the "Class Action"). Other
defendants including MMAC and Mr. Thomas
Harding ("Harding") were added to the Class Action on
January 25, 2017. The Class Action
seeks unquantified damages, including for wrongful death, personal
injury, property damage, and economic loss.
(4) Eight subrogated insurers sued CP in the Québec Superior
Court claiming approximately $16
million in damages, which was amended and reduced to
approximately $15 million (the
"Promutuel Action"), and two additional subrogated insurers sued CP
claiming approximately $3 million in
damages (the "Royal Action"). Both actions contain similar
allegations as the AGQ Action. The actions do not identify the
subrogated parties. As such, the extent of any overlap between the
damages claimed in these actions and under the Plans is unclear.
The Royal Action is stayed pending determination of the
consolidated proceedings described below.
On December 11, 2017, the AGQ
Action, the Class Action and the Promutuel Action were
consolidated. These consolidated claims are currently scheduled for
a joint liability trial commencing on or around September 13, 2021, followed by a damages trial,
if necessary.
(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, and asserting
similar allegations as in the Class Action and the AGQ Action. The
majority of the plaintiffs opted-out of the Class Action and all
but two are also plaintiffs in litigation against CP, described in
paragraph 7 below. This action is stayed pending determination of
the consolidated claims described above.
(6) The MMAR U.S. bankruptcy estate representative commenced an
action against CP in November 2014 in
the Maine Bankruptcy Court claiming that CP failed to abide by
certain regulations and seeking approximately U.S. $30 million in damages for MMAR's loss in
business value according to a recent report. This action asserts
that CP knew or ought to have known that the shipper misclassified
the petroleum crude oil and therefore should have refused to
transport it.
(7) The class and mass tort action commenced against CP in
June 2015 in Texas (on behalf of Lac-Mégantic residents and
wrongful death representatives) and the wrongful death and personal
injury actions commenced against CP in June
2015 in Illinois and
Maine, were all transferred and
consolidated in Federal District Court in Maine (the "Maine Actions"). The Maine Actions
allege that CP negligently misclassified and improperly packaged
the petroleum crude oil. On CP's motion, the Maine Actions were
dismissed. The plaintiffs are appealing the dismissal decision,
which is pending.
(8) The trustee for the wrongful death trust commenced Carmack
Amendment claims against CP in North Dakota Federal Court, seeking
to recover approximately U.S. $6
million for damaged rail cars and lost crude and
reimbursement for the settlement paid by the consignor and the
consignee under the Plans (alleged to be U.S. $110 million and U.S. $60
million, respectively). The Court issued an Order on
August 6, 2020 granting and denying
in parts the parties' summary judgment motions which has been
reviewed and confirmed following motions by the parties for
clarification and reconsideration. This action is scheduled for
trial on September 21, 2021.
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 these
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 months ended March 31, 2021 was
$2 million (three months ended
March 31, 2020 - $1 million). Provisions for environmental
remediation costs are recorded in "Other long-term liabilities",
except for the current portion which is recorded in "Accounts
payable and accrued liabilities". The total amount provided at
March 31, 2021 was $81 million (December 31,
2020 - $80 million). Payments
are expected to be made over 10 years through 2030.
17 Subsequent event
On April 21, 2021, the Company's
shareholders approved a five-for-one share split of the Company's
issued and outstanding Common Shares such that, as a result of the
share split, each Common Share will become five Common Shares. The
record date for the share split will be May
5, 2021 and the shareholders of record as of the record date
will receive, on the payment date of May 13,
2021, four additional shares for every one Common Share
held. Proportional adjustments will also be made to outstanding
awards under the Company's stock-based compensation plans in order
to reflect the share split. Pro forma earnings per share amounts
are disclosed in the Company's Interim Consolidated Statements of
Income to show the effect of the share split.
Summary of Rail Data
|
First
Quarter
|
Financial
(millions, except per share data)
|
2021
|
2020
|
Total
Change
|
%
Change
|
|
|
|
|
|
Revenues
|
|
|
|
|
Freight
|
$
|
1,918
|
$
|
2,000
|
$
|
(82)
|
(4)
|
Non-freight
|
41
|
43
|
(2)
|
(5)
|
Total
revenues
|
1,959
|
2,043
|
(84)
|
(4)
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
Compensation and
benefits
|
405
|
398
|
7
|
2
|
Fuel
|
206
|
212
|
(6)
|
(3)
|
Materials
|
59
|
59
|
—
|
—
|
Equipment
rents
|
33
|
36
|
(3)
|
(8)
|
Depreciation and
amortization
|
202
|
192
|
10
|
5
|
Purchased services and
other
|
274
|
312
|
(38)
|
(12)
|
Total operating
expenses
|
1,179
|
1,209
|
(30)
|
(2)
|
|
|
|
|
|
Operating
income
|
780
|
834
|
(54)
|
(6)
|
|
|
|
|
|
Less:
|
|
|
|
|
Other (income)
expense
|
(28)
|
211
|
(239)
|
(113)
|
Other components of
net periodic benefit recovery
|
(95)
|
(85)
|
(10)
|
12
|
Net interest
expense
|
110
|
114
|
(4)
|
(4)
|
|
|
|
|
|
Income before income
tax expense
|
793
|
594
|
199
|
34
|
|
|
|
|
|
Income tax
expense
|
191
|
185
|
6
|
3
|
|
|
|
|
|
Net income
|
$
|
602
|
$
|
409
|
$
|
193
|
47
|
Operating ratio
(%)
|
60.2
|
59.2
|
1.0
|
100
bps
|
|
|
|
|
|
Basic earnings per
share
|
$
|
4.52
|
$
|
2.99
|
$
|
1.53
|
51
|
|
|
|
|
|
Diluted earnings per
share
|
$
|
4.50
|
$
|
2.98
|
$
|
1.52
|
51
|
|
|
|
|
|
Earnings per share
- Pro forma post-split basis
|
|
|
|
|
Basic earnings per
share
|
$
|
0.90
|
$
|
0.60
|
$
|
0.30
|
51
|
|
|
|
|
|
Diluted earnings per
share
|
$
|
0.90
|
$
|
0.60
|
$
|
0.30
|
51
|
|
|
|
|
|
Shares
Outstanding
|
|
|
|
|
Weighted average
number of basic shares outstanding (millions)
|
133.3
|
136.7
|
(3.4)
|
(2)
|
Weighted average
number of diluted shares outstanding (millions)
|
133.9
|
137.2
|
(3.3)
|
(2)
|
|
|
|
|
|
Foreign
Exchange
|
|
|
|
|
Average foreign
exchange rate (US$/Canadian$)
|
0.79
|
0.75
|
0.04
|
5
|
Average foreign
exchange rate (Canadian$/US$)
|
1.27
|
1.34
|
(0.07)
|
(5)
|
Summary of Rail Data (Continued)
|
First
Quarter
|
Commodity
Data
|
2021
|
2020
|
Total
Change
|
%
Change
|
FX
Adjusted
%
Change(1)
|
|
|
|
|
|
|
Freight Revenues
(millions)
|
|
|
|
|
|
- Grain
|
$
|
448
|
$
|
418
|
$
|
30
|
7
|
10
|
- Coal
|
163
|
150
|
13
|
9
|
9
|
- Potash
|
101
|
112
|
(11)
|
(10)
|
(7)
|
- Fertilizers and
sulphur
|
77
|
70
|
7
|
10
|
15
|
- Forest
products
|
80
|
78
|
2
|
3
|
8
|
- Energy, chemicals
and plastics
|
388
|
491
|
(103)
|
(21)
|
(19)
|
- Metals, minerals
and consumer products
|
159
|
189
|
(30)
|
(16)
|
(12)
|
-
Automotive
|
108
|
87
|
21
|
24
|
32
|
-
Intermodal
|
394
|
405
|
(11)
|
(3)
|
(2)
|
|
|
|
|
|
|
|
|
|
Total Freight
Revenues
|
$
|
1,918
|
$
|
2,000
|
$
|
(82)
|
(4)
|
(2)
|
|
|
|
|
|
|
Freight Revenue
per Revenue Ton-Mile ("RTM") (cents)
|
|
|
|
|
|
- Grain
|
4.16
|
4.64
|
(0.48)
|
(10)
|
(8)
|
- Coal
|
3.09
|
3.38
|
(0.29)
|
(9)
|
(8)
|
- Potash
|
2.67
|
2.71
|
(0.04)
|
(1)
|
2
|
- Fertilizers and
sulphur
|
6.07
|
6.39
|
(0.32)
|
(5)
|
(1)
|
- Forest
products
|
5.87
|
6.11
|
(0.24)
|
(4)
|
1
|
- Energy, chemicals
and plastics
|
5.43
|
5.55
|
(0.12)
|
(2)
|
1
|
- Metals, minerals
and consumer products
|
6.36
|
6.82
|
(0.46)
|
(7)
|
(3)
|
-
Automotive
|
21.26
|
26.69
|
(5.43)
|
(20)
|
(15)
|
-
Intermodal
|
5.92
|
5.54
|
0.38
|
7
|
8
|
|
|
|
|
|
|
Total Freight Revenue
per RTM
|
4.88
|
5.10
|
(0.22)
|
(4)
|
(2)
|
|
|
|
|
|
|
Freight Revenue
per Carload
|
|
|
|
|
|
- Grain
|
$
|
3,849
|
$
|
4,155
|
$
|
(306)
|
(7)
|
(5)
|
- Coal
|
2,264
|
2,351
|
(87)
|
(4)
|
(3)
|
- Potash
|
2,936
|
3,077
|
(141)
|
(5)
|
(2)
|
- Fertilizers and
sulphur
|
4,724
|
4,636
|
88
|
2
|
6
|
- Forest
products
|
4,571
|
4,309
|
262
|
6
|
12
|
- Energy, chemicals
and plastics
|
4,450
|
4,823
|
(373)
|
(8)
|
(5)
|
- Metals, minerals
and consumer products
|
2,855
|
3,247
|
(392)
|
(12)
|
(8)
|
-
Automotive
|
3,234
|
3,085
|
149
|
5
|
11
|
-
Intermodal
|
1,524
|
1,509
|
15
|
1
|
2
|
|
|
|
|
|
|
|
|
|
Total Freight Revenue
per Carload
|
$
|
2,774
|
$
|
2,896
|
$
|
(122)
|
(4)
|
(2)
|
(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)
|
First
Quarter
|
Commodity Data
(Continued)
|
2021
|
2020
|
Total
Change
|
%
Change
|
|
|
|
|
|
Millions of
RTM
|
|
|
|
|
- Grain
|
10,773
|
9,016
|
1,757
|
19
|
- Coal
|
5,280
|
4,435
|
845
|
19
|
- Potash
|
3,786
|
4,138
|
(352)
|
(9)
|
- Fertilizers and
sulphur
|
1,269
|
1,095
|
174
|
16
|
- Forest
products
|
1,363
|
1,277
|
86
|
7
|
- Energy, chemicals
and plastics
|
7,142
|
8,849
|
(1,707)
|
(19)
|
- Metals, minerals and
consumer products
|
2,499
|
2,771
|
(272)
|
(10)
|
-
Automotive
|
508
|
326
|
182
|
56
|
-
Intermodal
|
6,653
|
7,311
|
(658)
|
(9)
|
|
|
|
|
|
Total RTMs
|
39,273
|
39,218
|
55
|
—
|
|
|
|
|
|
Carloads
(thousands)
|
|
|
|
|
- Grain
|
116.4
|
100.6
|
15.8
|
16
|
- Coal
|
72.0
|
63.8
|
8.2
|
13
|
- Potash
|
34.4
|
36.4
|
(2.0)
|
(5)
|
- Fertilizers and
sulphur
|
16.3
|
15.1
|
1.2
|
8
|
- Forest
products
|
17.5
|
18.1
|
(0.6)
|
(3)
|
- Energy, chemicals
and plastics
|
87.2
|
101.8
|
(14.6)
|
(14)
|
- Metals, minerals and
consumer products
|
55.7
|
58.2
|
(2.5)
|
(4)
|
-
Automotive
|
33.4
|
28.2
|
5.2
|
18
|
-
Intermodal
|
258.5
|
268.4
|
(9.9)
|
(4)
|
|
|
|
|
|
Total
Carloads
|
691.4
|
690.6
|
0.8
|
—
|
|
First
Quarter
|
|
2021
|
2020
|
Total
Change
|
%
Change
|
FX Adjusted
% Change(1)
|
|
|
|
|
|
|
Operating Expenses
(millions)
|
|
|
|
|
|
Compensation and
benefits
|
$
|
405
|
$
|
398
|
$
|
7
|
2
|
3
|
Fuel
|
206
|
212
|
(6)
|
(3)
|
1
|
Materials
|
59
|
59
|
—
|
—
|
2
|
Equipment
rents
|
33
|
36
|
(3)
|
(8)
|
(3)
|
Depreciation and
amortization
|
202
|
192
|
10
|
5
|
7
|
Purchased services and
other
|
274
|
312
|
(38)
|
(12)
|
(10)
|
|
|
|
|
|
|
Total Operating
Expenses
|
$
|
1,179
|
$
|
1,209
|
$
|
(30)
|
(2)
|
—
|
(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)
|
First
Quarter
|
|
2021
|
2020
|
Total
Change
|
%
Change
|
|
|
|
|
|
Operations
Performance
|
|
|
|
|
|
|
|
|
|
Gross ton-miles
("GTMs") (millions)
|
71,326
|
71,309
|
17
|
—
|
Train miles
(thousands)
|
7,803
|
8,367
|
(564)
|
(7)
|
Average train
weight - excluding local traffic (tons)
|
9,795
|
9,188
|
607
|
7
|
Average train
length - excluding local traffic (feet)
|
7,972
|
7,409
|
563
|
8
|
Average terminal
dwell (hours)
|
7.4
|
6.2
|
1.2
|
19
|
Average train speed
(miles per hour, or "mph")(1)
|
20.9
|
21.6
|
(0.7)
|
(3)
|
Locomotive
productivity (GTMs / operating horsepower)(2)
|
201
|
201
|
—
|
—
|
Fuel
efficiency(3)
|
0.958
|
0.971
|
(0.013)
|
(1)
|
U.S. gallons of
locomotive fuel consumed (millions)(4)
|
68.3
|
69.3
|
(1.0)
|
(1)
|
Average fuel price
(U.S. dollars per U.S. gallon)
|
2.39
|
2.33
|
0.06
|
3
|
|
|
|
|
|
Total Employees
and Workforce
|
|
|
|
|
|
|
|
|
|
Total employees
(average)(5)
|
12,061
|
12,486
|
(425)
|
(3)
|
Total employees (end
of period)(5)
|
12,398
|
12,330
|
68
|
1
|
Workforce (end of
period)(6)
|
12,426
|
12,366
|
60
|
—
|
|
|
|
|
|
Safety
Indicators(7)
|
|
|
|
|
|
|
|
|
|
FRA personal injuries
per 200,000 employee-hours
|
1.20
|
1.13
|
0.07
|
6
|
FRA train accidents
per million train-miles
|
1.28
|
0.87
|
0.41
|
47
|
(1)
|
Average train speed
is defined as a measure of the line-haul movement from origin to
destination including terminal dwell hours. It is calculated by
dividing the total train miles travelled by the total train hours
operated. This calculation does not include delay time related to
customers or foreign railroads and 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.
|
(2)
|
Locomotive
productivity is defined as daily GTMs divided by daily average
operating horsepower. Operating horsepower excludes units offline,
tied up or in storage, or in use on other railways, and includes
foreign units online.
|
(3)
|
Fuel efficiency is
defined as U.S. gallons of locomotive fuel consumed per 1,000
GTMs.
|
(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, part-time,
or seasonal employment with CP.
|
(6)
|
Workforce is defined
as total employees plus contractors and consultants.
|
(7)
|
Federal Railroad
Administration ("FRA") personal injuries per 200,000 employee-hours
for the three months ended March 31, 2020, previously reported as
1.20, was restated to 1.13 in this Earnings Release. FRA train
accidents per million train-miles for the three months ended March
31, 2020, previously reported as 0.99, was restated to 0.87 in this
Earnings Release. These restatements reflect new information
available within specified periods stipulated by the FRA but that
exceed the Company's financial reporting timeline.
|
Non-GAAP Measures
The Company presents Non-GAAP measures 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 accounting principles generally accepted in the United States of America ("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.
Non-GAAP Performance Measures
The Company uses adjusted earnings results including Adjusted
income, Adjusted diluted earnings per share, Adjusted operating
income and Adjusted operating ratio to evaluate the Company's
operating performance and for planning and forecasting future
business operations and future profitability. These Non-GAAP
measures provide meaningful supplemental information regarding
operating results because they exclude certain significant items
that are not considered indicative of future financial trends
either by nature or amount. As a result, these items are excluded
for management assessment of operational performance, allocation of
resources and preparation of annual budgets. These significant
items may include, but are not limited to, restructuring and asset
impairment charges, individually significant gains and losses from
sales of assets, acquisition-related costs, the foreign exchange
("FX") impact of translating the Company's debt and lease
liabilities (including borrowings under the credit facility and
foreign exchange forward contracts), discrete tax items, changes in
income tax rates, changes to an uncertain tax item, and certain
items outside the control of management. These items may not be
non-recurring. However, excluding these significant items from GAAP
results allows for a consistent understanding of the Company's
consolidated financial performance when performing a multi-period
assessment including assessing the likelihood of future results.
Accordingly, these Non-GAAP financial measures may provide insight
to investors and other external users of the Company's consolidated
financial information.
Significant items that impact reported earnings for the first
three months of 2021, the twelve months of 2020, and the last nine
months of 2019 include:
2021:
- Acquisition-related costs of $36
million associated with the pending Kansas City
Southern ("KCS") transaction ($27
million after current and deferred taxes), including an
expense of $33 million recognized in
Purchased services and other and $3
million recognized in Other (income) expense, that
unfavourably impacted Diluted EPS by 20
cents; and
- a non-cash gain of $33 million
($29 million after deferred tax) due
to FX translation of debt and lease liabilities that favourably
impacted Diluted EPS by 22
cents.
2020:
- in the fourth quarter, a deferred tax recovery of $29 million due to a change relating to a tax
return filing election for the state of North Dakota that favourably impacted Diluted
EPS by 22 cents; and
- during the course of the year, a net non-cash gain of
$14 million ($12 million after deferred tax) due to FX
translation of debt and lease liabilities that favourably impacted
Diluted EPS by 9 cents as
follows:
-
- in the fourth quarter, a $103
million gain ($90 million
after deferred tax) that favourably impacted Diluted EPS by
67 cents;
- in the third quarter, a $40
million gain ($38 million after deferred tax) that
favourably impacted Diluted EPS by 29
cents;
- in the second quarter, an $86
million gain ($82 million after deferred tax) that
favourably impacted Diluted EPS by 59
cents; and
- in the first quarter, a $215
million loss ($198 million after deferred tax) that
unfavourably impacted Diluted EPS by $1.44.
2019:
- in the fourth quarter, a deferred tax expense of $24 million as a result of a provision for an
uncertain tax item of a prior period that unfavourably impacted
Diluted EPS by 17 cents;
- 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
- a net non-cash gain of $49
million ($44 million after
deferred tax) due to FX translation of debt and lease liabilities
that favourably impacted Diluted EPS by 31
cents as follows:
-
- in the fourth quarter, a $37
million gain ($32 million
after deferred tax) that favourably impacted Diluted EPS by
22 cents;
- in the third quarter, a $25
million loss ($22 million
after deferred tax) that unfavourably impacted Diluted EPS by
15 cents; and
- in the second quarter, a $37
million gain ($34 million
after deferred tax) that favourably impacted Diluted EPS by
24 cents.
2021 Outlook
With a 2021 plan that encompasses profitable sustainable growth,
CP expects high single-digit RTM growth and double-digit Adjusted
diluted EPS growth. CP's expectations for Adjusted diluted EPS
growth in 2021 are based on Adjusted diluted EPS of $17.67 in 2020. For the purposes of this outlook,
CP assumes an effective tax rate of 24.6 percent. CP estimates
other components of net periodic benefit recovery to increase by
approximately $40 million versus
2020. As CP continues to invest in service, productivity and
safety, the Company plans to invest approximately $1.55 billion in capital programs in 2021.
CP's 2021 guidance does not include any potential impacts from the
pending KCS transaction.
Although CP has provided a forward-looking Non-GAAP measure
(Adjusted diluted EPS), management is unable to reconcile, without
unreasonable efforts, the forward-looking Adjusted diluted EPS to
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 recent
years, CP has recognized acquisition-related costs, changes in
income tax rates and a change to an uncertain tax item. These or
other similar, large unforeseen transactions affect diluted EPS but
may be excluded from CP's Adjusted diluted EPS. Additionally, the
U.S.-to-Canada 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, the impact from changes in
income tax rates and a provision for uncertain tax item from
Adjusted diluted EPS. Please see Note on 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 March 31
|
For the twelve
months
ended December 31
|
(in millions of
Canadian dollars)
|
2021
|
2020
|
2020
|
Net income as
reported
|
$
|
602
|
$
|
409
|
$
|
2,444
|
Less significant
items (pre-tax):
|
|
|
|
Acquisition-related
costs
|
(36)
|
—
|
—
|
Impact of FX
translation gain (loss) on debt and lease liabilities
|
33
|
(215)
|
14
|
Add:
|
|
|
|
Tax effect of
adjustments(1)
|
(5)
|
(17)
|
2
|
Income tax rate
changes
|
—
|
—
|
(29)
|
Adjusted
income
|
$
|
600
|
$
|
607
|
$
|
2,403
|
(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
223.54% for the three months ended March 31, 2021, 8.17% for
the three months ended March 31, 2020, and 13.58% for the
twelve months ended December 31, 2020, 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
number of Common Shares outstanding during the period as determined
in accordance with GAAP.
|
For the three
months
ended March 31
|
For the twelve
months
ended December 31
|
|
2021
|
2020
|
2020
|
Diluted earnings
per share as reported
|
$
|
4.50
|
$
|
2.98
|
$
|
17.97
|
Less significant
items (pre-tax):
|
|
|
|
Acquisition-related
costs
|
(0.27)
|
—
|
—
|
Impact of FX
translation gain (loss) on debt and lease liabilities
|
0.25
|
(1.57)
|
0.10
|
Add:
|
|
|
|
Tax effect of
adjustments(1)
|
(0.04)
|
(0.13)
|
0.01
|
Income tax rate
changes
|
—
|
—
|
(0.21)
|
Adjusted diluted
earnings per share
|
$
|
4.48
|
$
|
4.42
|
$
|
17.67
|
(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
223.54% for the three months ended March 31, 2021, 8.17% for
the three months ended March 31, 2020, and 13.58% for the
twelve months ended December 31, 2020, respectively. The applicable
tax rates reflect the taxable jurisdictions and nature, being on
account of capital or income, of the significant items.
|
Adjusted operating income is calculated as Operating income
reported on a GAAP basis less significant items.
|
For the three
months ended
March 31
|
(in millions of
Canadian dollars)
|
2021
|
2020
|
Operating income
as reported
|
$
|
780
|
$
|
834
|
Less significant
item:
|
|
|
Acquisition-related
costs
|
(33)
|
—
|
Adjusted operating
income
|
$
|
813
|
$
|
834
|
Adjusted operating ratio excludes those significant items that
are reported within operating income.
|
For the three
months ended
March 31
|
|
2021
|
2020
|
Operating ratio as
reported
|
60.2%
|
59.2%
|
Less significant
item:
|
|
|
Acquisition-related
costs
|
1.7%
|
—%
|
Adjusted operating
ratio
|
58.5%
|
59.2%
|
Adjusted Return on Invested Capital ("Adjusted ROIC")
Adjusted ROIC is calculated as Adjusted return divided by
Adjusted average invested capital. Adjusted return is defined as
Net income adjusted for interest expense, tax effected at the
Company's adjusted annualized effective tax rate, and significant
items in the Company's Consolidated Financial Statements, tax
effected at the applicable tax rate. Adjusted average invested
capital is defined as the sum of total Shareholders' equity,
Long-term debt, and Long-term debt maturing within one year, as
presented in the Company's Consolidated Financial Statements, each
averaged between the beginning and ending balance over a rolling
12-month period, adjusted for the impact of significant items, tax
effected at the applicable tax rate, on closing balances as part of
this average. Adjusted ROIC excludes significant items reported in
the Company's Consolidated Financial Statements, as these
significant items are not considered indicative of future financial
trends either by nature or amount, and excludes interest expense,
net of tax, to incorporate returns on the Company's overall
capitalization. Adjusted ROIC is a performance measure that
measures how productively the Company uses its long-term capital
investments, representing critical indicators of good operating and
investment decisions made by management, and is an important
performance criteria in determining certain elements of the
Company's long-term incentive plan. Adjusted ROIC is reconciled
below from Return on average shareholders' equity, the most
comparable measure calculated in accordance with GAAP.
Calculation of Return on average shareholders' equity
|
For the twelve
months ended
March 31
|
(in millions of
Canadian dollars, except for percentages)
|
2021
|
2020
|
Net income as
reported
|
$
|
2,637
|
$
|
2,415
|
Average shareholders'
equity
|
$
|
7,411
|
$
|
6,884
|
Return on average
shareholders' equity
|
35.6%
|
35.1%
|
Reconciliation of Net income to Adjusted return
|
For the twelve
months
ended March 31
|
(in millions of
Canadian dollars)
|
2021
|
2020
|
Net income as
reported
|
$
|
2,637
|
$
|
2,415
|
Add:
|
|
|
Net interest
expense
|
454
|
448
|
Tax on
interest(1)
|
(112)
|
(112)
|
Significant items
(pre-tax):
|
|
|
Acquisition-related
costs
|
36
|
—
|
Impact of FX
translation (gain) loss on debt and lease liabilities
|
(262)
|
166
|
Tax on
significant items(2)
|
14
|
(12)
|
Income tax rate
changes
|
(29)
|
(88)
|
Provision for uncertain
tax item
|
—
|
24
|
Adjusted
return
|
$
|
2,738
|
$
|
2,841
|
(1)
|
Tax was calculated at
the adjusted annualized effective tax rate of 24.55% and 24.85% for
the twelve months ended March 31, 2021 and 2020,
respectively.
|
(2)
|
Tax was calculated as
the pre-tax effect of the adjustments multiplied by the applicable
tax rate for the above items of 5.92% and 7.61% for the twelve
months ended March 31, 2021 and 2020, respectively. The applicable
tax rates reflect the taxable jurisdictions and nature, being on
account of capital or income, of the significant items.
|
Reconciliation of Average shareholders' equity to Adjusted
average invested capital
|
For the twelve
months
ended March 31
|
(in millions of
Canadian dollars)
|
2021
|
2020
|
Average
shareholders' equity
|
$
|
7,411
|
$
|
6,884
|
Average Long-term
debt, including long-term debt maturing within one year
|
9,905
|
9,497
|
|
$
|
17,316
|
$
|
16,381
|
Less:
|
|
|
Significant item
(pre-tax):
|
|
|
Acquisition-related
costs
|
(18)
|
—
|
Tax on
significant item(1)
|
4
|
—
|
Income tax rate
changes
|
15
|
44
|
Provision for
uncertain tax item
|
—
|
(12)
|
Adjusted average
invested capital
|
$
|
17,315
|
$
|
16,349
|
(1)
|
Tax was calculated at
the pre-tax effect of the adjustment multiplied by the applicable
tax rate of 26.13% for the twelve months ended March 31, 2021. The
applicable tax rate reflects the taxable jurisdiction and nature,
being on account of capital or income, of the significant
item.
|
Calculation of Adjusted ROIC
|
For the twelve
months ended March 31
|
(in millions of
Canadian dollars, except for percentages)
|
2021
|
2020
|
Adjusted
return
|
$
|
2,738
|
$
|
2,841
|
Adjusted average
invested capital
|
$
|
17,315
|
$
|
16,349
|
Adjusted
ROIC
|
15.8%
|
17.4%
|
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 acquisition-related transaction costs paid in
cash related to the pending KCS transaction. Free cash is a measure
that management considers to be a valuable indicator of liquidity.
Free cash is useful to investors and other external users of the
Company's Consolidated Financial Statements as it assists with the
evaluation of the Company's ability to generate cash to satisfy
debt obligations and discretionary activities such as dividends,
share repurchase programs, and other strategic opportunities. The
acquisition-related transaction costs paid in cash related to the
pending KCS transaction are not indicative of investment trends and
have also been excluded from Free cash. 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 March 31
|
(in millions of
Canadian dollars)
|
2021
|
2020
|
Cash provided by
operating activities
|
$
|
582
|
$
|
489
|
Cash used in
investing activities
|
(286)
|
(362)
|
Effect of foreign
currency fluctuations on U.S. dollar-denominated cash and cash
equivalents
|
(3)
|
31
|
Less:
|
|
|
Acquisition-related
costs
|
(3)
|
—
|
Free
cash
|
$
|
296
|
$
|
158
|
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 March 31
|
(in millions of
Canadian dollars)
|
Reported
2021
|
Reported
2020
|
Variance
due to FX
|
FX Adjusted
2020
|
FX Adjusted %
Change
|
Freight revenues by
line of business
|
|
|
|
|
|
Grain
|
$
|
448
|
$
|
418
|
$
|
(10)
|
$
|
408
|
10
|
Coal
|
163
|
150
|
(1)
|
149
|
9
|
Potash
|
101
|
112
|
(3)
|
109
|
(7)
|
Fertilizers and
sulphur
|
77
|
70
|
(3)
|
67
|
15
|
Forest
products
|
80
|
78
|
(4)
|
74
|
8
|
Energy, chemicals and
plastics
|
388
|
491
|
(13)
|
478
|
(19)
|
Metals, minerals and
consumer products
|
159
|
189
|
(8)
|
181
|
(12)
|
Automotive
|
108
|
87
|
(5)
|
82
|
32
|
Intermodal
|
394
|
405
|
(5)
|
400
|
(2)
|
Freight
revenues
|
1,918
|
2,000
|
(52)
|
1,948
|
(2)
|
Non-freight
revenues
|
41
|
43
|
—
|
43
|
(5)
|
Total
revenues
|
$
|
1,959
|
$
|
2,043
|
$
|
(52)
|
$
|
1,991
|
(2)
|
FX adjusted % changes in operating expenses are as follows:
|
For the three
months ended March 31
|
(in millions of
Canadian dollars)
|
Reported
2021
|
Reported
2020
|
Variance
due to FX
|
FX Adjusted
2020
|
FX Adjusted %
Change
|
Compensation and
benefits
|
$
|
405
|
$
|
398
|
$
|
(5)
|
$
|
393
|
3
|
Fuel
|
206
|
212
|
(8)
|
204
|
1
|
Materials
|
59
|
59
|
(1)
|
58
|
2
|
Equipment
rents
|
33
|
36
|
(2)
|
34
|
(3)
|
Depreciation and
amortization
|
202
|
192
|
(3)
|
189
|
7
|
Purchased services
and other
|
274
|
312
|
(8)
|
304
|
(10)
|
Total operating
expenses
|
$
|
1,179
|
$
|
1,209
|
$
|
(27)
|
$
|
1,182
|
—
|
FX adjusted % change in operating income is as follows:
|
For the three
months ended March 31
|
(in millions of
Canadian dollars)
|
Reported
2021
|
Reported
2020
|
Variance
due to FX
|
FX Adjusted
2020
|
FX Adjusted %
Change
|
Operating
income
|
$
|
780
|
$
|
834
|
$
|
(25)
|
$
|
809
|
(4)
|
|
|
|
|
|
|
|
|
|
|
Adjusted Net Debt to Adjusted EBITDA Ratio
Adjusted net debt to Adjusted earnings before interest, tax,
depreciation and amortization ("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. The Adjusted net debt to Adjusted EBITDA ratio is
reconciled below from the Long-term debt to Net income ratio, the
most comparable measure calculated in accordance with GAAP.
Calculation of Long-term Debt to Net Income Ratio
(in millions of
Canadian dollars, except for ratios)
|
2021
|
2020
|
Long-term debt
including long-term debt maturing within one year as at March
31
|
$
|
9,740
|
$
|
10,070
|
Net income for the
twelve months ended March 31
|
2,637
|
2,415
|
Long-term debt to
Net income ratio
|
3.7
|
4.2
|
Reconciliation of Long-term Debt to Adjusted Net Debt
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.
(in millions of
Canadian dollars)
|
2021
|
2020
|
Long-term debt
including long-term debt maturing within one year as at March
31
|
$
|
9,740
|
$
|
10,070
|
Add:
|
|
|
Pension plans
deficit(1)
|
327
|
300
|
Operating lease
liabilities
|
284
|
365
|
Less:
|
|
|
Cash and cash
equivalents
|
360
|
247
|
Adjusted net debt
as at March 31
|
$
|
9,991
|
$
|
10,488
|
(1)
|
Pension plans deficit
is the total funded status of the Pension plans in deficit
only.
|
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 EBITDA is calculated as
Adjusted EBIT plus operating lease expense and Depreciation and
amortization, less Other components of net periodic benefit
recovery.
|
For the twelve
months
ended March 31
|
(in millions of
Canadian dollars)
|
2021
|
2020
|
Net income as
reported
|
$
|
2,637
|
$
|
2,415
|
Add:
|
|
|
Net interest
expense
|
454
|
448
|
Income tax
expense
|
764
|
752
|
EBIT
|
3,855
|
3,615
|
Less significant
items (pre-tax):
|
|
|
Acquisition-related
costs
|
(36)
|
—
|
Impact of FX
translation gain (loss) on debt and lease liabilities
|
262
|
(166)
|
Adjusted
EBIT
|
3,629
|
3,781
|
Add:
|
|
|
Operating lease
expense
|
76
|
83
|
Depreciation and
amortization
|
789
|
738
|
Less:
|
|
|
Other components of
net periodic benefit recovery
|
352
|
369
|
Adjusted
EBITDA
|
$
|
4,142
|
$
|
4,233
|
Calculation of Adjusted Net Debt to Adjusted EBITDA Ratio
(in millions of
Canadian dollars, except for ratios)
|
2021
|
2020
|
Adjusted net debt as
at March 31
|
$
|
9,991
|
$
|
10,488
|
Adjusted EBITDA for
the twelve months ended March 31
|
4,142
|
4,233
|
Adjusted net debt
to Adjusted EBITDA ratio
|
2.4
|
2.5
|
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SOURCE Canadian Pacific