CALGARY, Oct. 25 /PRNewswire-FirstCall/ -- Canadian Pacific Railway
(TSX/NYSE: CP) reported net income increased 15 per cent to $204
million, or $1.27 per diluted share in the third quarter of 2005,
compared with $177 million, or $1.11 per diluted share in the same
period of 2004. SUMMARY OF 3RD QUARTER 2005 COMPARED WITH 3RD
QUARTER 2004 Excluding foreign exchange gains on long-term debt and
other specified items: - Diluted earnings per share grew 29 per
cent to $0.84 from $0.65, driven largely by improved yield -
Operating income grew 14 per cent to $249 million - Operating ratio
improved 50 basis points to 77.4 per cent Rob Ritchie, President
and Chief Executive Officer of CPR, said: "CPR's ability to execute
our integrated operating plan was tested under conditions of high
demand for service and limitations caused by track work to expand
capacity in the west during the quarter. We met service commitments
to customers and handled a third-quarter record workload while
keeping the expansion on schedule and on budget. "The combination
of good service and tight capacity in a high-demand marketplace
continued to generate a positive yield environment. We capitalized
on this through CPR's quality revenue growth strategy, producing a
12 per cent increase in revenue per carload. "CPR is confident in
our full-year projections going into the home stretch of 2005.
Market conditions are solid and demand remains strong," Mr. Ritchie
said. "We also expect to see improved operating efficiency when our
western expansion work is complete in the fourth quarter and CPR
can take advantage of the new double track, longer sidings and
better signal systems." Revenue increased to $1,105 million, a
third-quarter record, from $990 million in third-quarter 2004.
There were double-digit growth rates in four of CPR's business
lines, led by coal at 35 per cent and intermodal at 13 per cent.
Operating expenses before other specified items were $855 million
in third-quarter 2005, compared with $771 million in the same
period of 2004. The increase was mainly due to higher fuel and
compensation and benefits costs. Fuel prices reached record highs,
however, CPR recovered almost all of the increase through revenue
from its surcharge mechanism, as well as hedging and fuel
efficiency measures. A rapid appreciation in CPR's share price
drove up stock-based incentive compensation, a large portion of
which is marked to market and accounts for almost half of the
increase in compensation and benefits costs. SUMMARY OF 1ST 9
MONTHS 2005 COMPARED WITH 1ST 9 MONTHS 2004 - Net income up 44 per
cent to $408 million, or $2.54 per diluted share, compared with
$284 million, or $1.79 per diluted share - Excluding foreign
exchange gains on long-term debt and other specified items, income
grew 47 per cent to $360 million, or $2.24 per diluted share from
$245 million, or $1.54 per diluted share - Excluding other
specified items, operating income increased 26 per cent to $699
million - Revenue was $3,225 million, compared with $2,881 million,
with growth in five of seven business lines - Operating expenses
excluding other specified items were $2,526 million, compared with
$2,326 million, with more than half the increase due to higher fuel
prices - Operating ratio improved by 240 basis points to 78.3 per
cent OUTLOOK FOR FULL-YEAR 2005 CPR expects to increase revenue in
the range of 12 per cent to 14 per cent in 2005. Diluted earnings
per share, excluding foreign exchange gains and losses on long-term
debt and other specified items, are expected to be in the range of
$3.15 to $3.25, assuming oil prices averaging US$55 per barrel and
an average exchange rate of $1.23 per U.S. dollar (US$0.81) for the
full year. FOREIGN EXCHANGE GAINS AND LOSSES ON LONG-TERM DEBT AND
OTHER SPECIFIED ITEMS In the third quarter of 2005, CPR had a
foreign exchange gain on long-term debt of $65 million ($48 million
after tax), compared with a gain of $71 million ($73 million after
tax) in the same period of 2004. There was one other specified item
in third-quarter 2005, as CPR booked a reduction of $34 million
($21 million after tax) to an accrual taken in fourth-quarter 2004
for environmental remediation of a property in the United States.
The reduction reflected a settlement of litigation related to
remediation of environmental contamination. There were no other
specified items in the third quarter of 2004. In the first nine
months of 2005, CPR had a foreign exchange gain on long-term debt
of $45 million ($27 million after tax), compared with a gain of $37
million ($39 million after tax) in the same period of 2004. Other
specified items consisted of the $34-million ($21 million after
tax) reduction to the accrual for environmental remediation of the
property in the U.S. There were no other specified items in the
first nine months of 2004. Presentation of non-GAAP earnings CPR
presents non-GAAP earnings in this news release to provide a basis
for evaluating underlying earnings trends in our business that can
be compared with prior periods' results of operations. These
non-GAAP earnings exclude foreign currency translation effects on
long-term debt, which can be volatile and short term, and other
specified items, which are not among CPR's normal ongoing revenues
and operating expenses. The impact of volatile short-term rate
fluctuations on foreign-denominated debt is only realized when
long-term debt matures or is settled. A reconciliation of income,
excluding foreign exchange gains on long-term debt and other
specified items, to net income as presented in the financial
statements is detailed in the attached Summary of Rail Data.
Earnings that exclude foreign exchange currency translation effects
on long-term debt and other specified items, as described in this
news release, have no standardized meanings and are not defined by
Canadian generally accepted accounting principles and, therefore,
are unlikely to be comparable to similar measures presented by
other companies. Note on forward-looking information This news
release contains forward-looking information. Actual future results
may differ materially. The risks, uncertainties and other factors
that could influence actual results are described in CPR's annual
report and annual information form, and may be updated in CPR's
consolidated interim financial statements and interim Management's
Discussion and Analysis, which are filed with securities regulators
from time to time. However, CPR undertakes no obligation to update
publicly or otherwise revise any forward-looking information,
whether as a result of new information, future events, or
otherwise. Financial results in this news release are reported in
Canadian dollars. Canadian Pacific Railway is a transcontinental
carrier operating in Canada and the U.S. Its 14,000-mile rail
network serves the principal centres of Canada, from Montreal to
Vancouver, and the U.S. Northeast and Midwest regions. CPR feeds
directly into America's heartland from the East and West coasts.
Alliances with other carriers extend its market reach throughout
the U.S. and into Mexico. Canadian Pacific Logistics Solutions
provides logistics and supply chain expertise worldwide. For more
information, visit CPR's website at http://www.cpr.ca/. STATEMENT
OF CONSOLIDATED INCOME (in millions, except per share data) For the
three months ended September 30 2005 2004 (unaudited) (unaudited)
--------------------------- Revenues Freight $ 1,060.8 $ 949.0
Other 43.9 40.7 --------------------------- 1,104.7 989.7 Operating
expenses Compensation and benefits 344.9 305.7 Fuel 141.9 109.0
Materials 45.4 41.1 Equipment rents 53.8 52.4 Depreciation and
amortization 111.3 102.7 Purchased services and other 158.0 159.9
--------------------------- 855.3 770.8 ---------------------------
Operating income before the following: 249.4 218.9 Special charge
(reduction) for environmental remediation (Note 3) (33.9) -
--------------------------- Operating income 283.3 218.9 Other
charges (Note 4) 6.6 8.5 Foreign exchange gains on long-term debt
(65.4) (70.5) Interest expense (Note 5) 50.3 54.9 Income tax
expense 88.2 49.5 --------------------------- Net income $ 203.6 $
176.5 --------------------------- --------------------------- Basic
earnings per share (Note 6) $ 1.29 $ 1.11
--------------------------- --------------------------- Diluted
earnings per share (Note 6) $ 1.27 $ 1.11
--------------------------- --------------------------- See notes
to interim consolidated financial statements. STATEMENT OF
CONSOLIDATED INCOME (in millions, except per share data) For the
nine months ended September 30 2005 2004 (unaudited) (unaudited)
--------------------------- Revenues Freight (Note 2) $ 3,097.2 $
2,761.7 Other 127.5 119.3 --------------------------- 3,224.7
2,881.0 Operating expenses Compensation and benefits 998.2 932.8
Fuel 421.6 316.6 Materials 150.2 140.4 Equipment rents 157.0 171.9
Depreciation and amortization 331.5 305.0 Purchased services and
other 467.0 458.8 --------------------------- 2,525.5 2,325.5
--------------------------- Operating income before the following:
699.2 555.5 Special charge (reduction) for environmental
remediation (Note 3) (33.9) - --------------------------- Operating
income 733.1 555.5 Other charges (Note 4) 11.3 23.2 Foreign
exchange gains on long-term debt (45.3) (37.2) Interest expense
(Note 5) 155.1 166.0 Income tax expense 204.5 119.8
--------------------------- Net income $ 407.5 $ 283.7
--------------------------- --------------------------- Basic
earnings per share (Note 6) $ 2.57 $ 1.79
--------------------------- --------------------------- Diluted
earnings per share (Note 6) $ 2.54 $ 1.79
--------------------------- --------------------------- See notes
to interim consolidated financial statements. CONSOLIDATED BALANCE
SHEET (in millions) September 30 December 31 2005 2004 (unaudited)
(audited) --------------------------- Assets Current assets Cash
and short-term investments $ 86.6 $ 353.0 Accounts receivable and
other current assets 543.0 434.7 Materials and supplies 162.0 134.1
Future income taxes 69.0 70.2 --------------------------- 860.6
992.0 Investments 57.3 96.0 Net properties 8,683.7 8,393.5 Other
assets and deferred charges 1,033.1 1,018.3
--------------------------- Total assets $ 10,634.7 $ 10,499.8
--------------------------- --------------------------- Liabilities
and shareholders' equity Current liabilities Accounts payable and
accrued liabilities $ 1,045.3 $ 975.3 Income and other taxes
payable 28.6 16.2 Dividends payable 23.8 21.0 Long-term debt
maturing within one year 30.2 275.7 ---------------------------
1,127.9 1,288.2 Deferred liabilities 711.9 767.8 Long-term debt
2,974.2 3,075.3 Future income taxes 1,574.7 1,386.1 Shareholders'
equity Share capital (Note 8) 1,116.3 1,120.6 Contributed surplus
(Note 8) 238.8 300.4 Foreign currency translation adjustments 67.6
77.0 Retained income 2,823.3 2,484.4 ---------------------------
4,246.0 3,982.4 --------------------------- Total liabilities and
shareholders' equity $ 10,634.7 $ 10,499.8
--------------------------- --------------------------- Commitments
and contingencies (Note 12). See notes to interim consolidated
financial statements. STATEMENT OF CONSOLIDATED CASH FLOWS (in
millions) For the three months ended September 30 2005 2004
(unaudited) (unaudited) --------------------------- Operating
activities Net income $ 203.6 $ 176.5 Add (deduct) items not
affecting cash: Depreciation and amortization 111.3 102.7 Future
income taxes 86.7 42.6 Special charge (reduction) for environmental
remediation (30.9) - Foreign exchange gains on long-term debt
(65.4) (70.5) Amortization of deferred charges 5.2 5.7
Restructuring payments (16.3) (20.2) Other operating activities,
net (19.6) (27.0) Change in non-cash working capital balances
related to operations (0.7) 26.2 --------------------------- Cash
provided by operating activities 273.9 236.0
--------------------------- Investing activities Additions to
properties (232.1) (187.6) Other investments 0.5 (0.6) Net proceeds
from disposal of transportation properties 4.3 (7.4)
--------------------------- Cash used in investing activities
(227.3) (195.6) --------------------------- Financing activities
Dividends paid (23.8) (20.2) Issuance of shares (Note 8) 2.0 0.1
Purchase of shares (Note 8) (65.7) - Repayment of long-term debt
(4.2) (2.5) --------------------------- Cash used in financing
activities (91.7) (22.6) --------------------------- Cash position
(Decrease) increase in net cash (45.1) 17.8 Net cash at beginning
of period 131.7 305.4 --------------------------- Net cash at end
of period $ 86.6 $ 323.2 ---------------------------
--------------------------- Net cash is defined as: Cash and
short-term investments $ 86.6 $ 323.2 ---------------------------
--------------------------- See notes to interim consolidated
financial statements. STATEMENT OF CONSOLIDATED CASH FLOWS (in
millions) For the nine months ended September 30 2005 2004
(unaudited) (unaudited) --------------------------- Operating
activities Net income $ 407.5 $ 283.7 Add (deduct) items not
affecting cash: Depreciation and amortization 331.5 305.0 Future
income taxes 195.6 108.2 Special charge (reduction) for
environmental remediation (30.9) - Foreign exchange gains on
long-term debt (45.3) (37.2) Amortization of deferred charges 15.2
18.6 Restructuring payments (42.6) (58.2) Other operating
activities, net (40.7) (50.2) Change in non-cash working capital
balances related to operations (78.9) 18.1
--------------------------- Cash provided by operating activities
711.4 588.0 --------------------------- Investing activities
Additions to properties (584.8) (516.6) Other investments 1.9 (3.0)
Net proceeds from disposal of transportation properties 9.8 1.2
--------------------------- Cash used in investing activities
(573.1) (518.4) --------------------------- Financing activities
Dividends paid (65.8) (60.7) Issuance of shares (Note 8) 7.7 0.8
Purchase of shares (Note 8) (78.3) - Issuance of long-term debt -
193.7 Repayment of long-term debt (268.3) (14.9)
--------------------------- Cash (used in) provided by financing
activities (404.7) 118.9 --------------------------- Cash position
(Decrease) increase in net cash (266.4) 188.5 Net cash at beginning
of period 353.0 134.7 --------------------------- Net cash at end
of period $ 86.6 $ 323.2 ---------------------------
--------------------------- Net cash is defined as: Cash and
short-term investments $ 86.6 $ 323.2 ---------------------------
--------------------------- See notes to interim consolidated
financial statements. STATEMENT OF CONSOLIDATED RETAINED INCOME (in
millions) For the nine months ended September 30 2005 2004
(unaudited) (unaudited) --------------------------- Balance,
January 1 $ 2,484.4 $ 2,153.9 Net income for the period 407.5 283.7
Dividends (68.6) (61.5) --------------------------- Balance,
September 30 $ 2,823.3 $ 2,376.1 ---------------------------
--------------------------- See notes to interim consolidated
financial statements. NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS SEPTEMBER 30, 2005 (unaudited) 1 Basis of presentation
These unaudited interim consolidated financial statements and notes
have been prepared using accounting policies that are consistent
with the policies used in preparing Canadian Pacific Railway
Limited's ("CPR", "the Company" or "Canadian Pacific Railway") 2004
annual consolidated financial statements. They do not include all
disclosures required under Generally Accepted Accounting Principles
for annual financial statements and should be read in conjunction
with the annual consolidated financial statements. 2 Change in
accounting estimate During the first half of the year, the Company
recorded a $23.4-million adjustment to increase revenues related to
the April 1-to-December 31 period of 2004. This adjustment reflects
a change in estimate as a result of a contract settlement with a
customer. 3 Special charge (reduction) for environmental
remediation In the third quarter, a settlement agreement was
reached with a responsible party in relation to portions of past
environmental contamination at a CPR-owned property in the U.S. As
a result, CPR was able to reduce accrued liabilities related to the
property, and recognized a total reduction of $33.9 million to a
special charge for environmental remediation recorded in 2004. 4
Other charges For the three months For the nine months ended
September 30 ended September 30 (in millions) 2005 2004 2005 2004
------------------------ ------------------------ Amortization of
discount on accruals recorded at present value $ 4.0 $ 4.5 $ 12.4 $
14.2 Other exchange losses (gains) - 5.9 (3.3) 5.5 Loss on sale of
accounts receivable 0.8 0.6 2.6 2.2 Losses (gains) on non-hedging
derivative instruments 0.1 (1.8) (6.5) (1.0) Other 1.7 (0.7) 6.1
2.3 ------------------------ ------------------------ Total other
charges $ 6.6 $ 8.5 $ 11.3 $ 23.2 ------------------------
------------------------ ------------------------
------------------------ 5 Interest expense For the three months
For the nine months ended September 30 ended September 30 (in
millions) 2005 2004 2005 2004 ------------------------
------------------------ Interest expense $ 51.2 $ 56.3 $ 161.6 $
170.0 Interest income (0.9) (1.4) (6.5) (4.0)
------------------------ ------------------------ Total interest
expense $ 50.3 $ 54.9 $ 155.1 $ 166.0 ------------------------
------------------------ ------------------------
------------------------ 6 Earnings per share At September 30,
2005, the number of shares outstanding was 157.3 million (September
30, 2004 - 158.7 million). Basic earnings per share have been
calculated using net income for the period divided by the weighted
average number of CPR shares outstanding during the period. Diluted
earnings per share have been calculated using the treasury stock
method, which gives effect to the dilutive value of outstanding
options. The number of shares used in earnings per share
calculations is reconciled as follows: For the three months For the
nine months ended September 30 ended September 30 (in millions)
2005 2004 2005 2004 ------------------------
------------------------ Weighted average shares outstanding 158.1
158.7 158.6 158.7 Dilutive effect of stock options 1.9 0.3 1.7 0.3
------------------------ ------------------------ Weighted average
diluted shares outstanding 160.0 159.0 160.3 159.0
------------------------ ------------------------
------------------------ ------------------------ (in dollars)
Basic earnings per share $ 1.29 $ 1.11 $ 2.57 $ 1.79 Diluted
earnings per share $ 1.27 $ 1.11 $ 2.54 $ 1.79
------------------------ ------------------------
------------------------ ------------------------ For the quarter
ended September 30, 2005, no options (quarter ended September 30,
2004 - 102,217 options) were excluded from the computation of
diluted earnings per share because their effects were not dilutive.
For the nine months ended September 30, 2005, no options (nine
months ended September 30, 2004 - 843,907 options) were excluded
from the computation of diluted earnings per share because their
effects were not dilutive. 7 Restructuring and environmental
remediation At September 30, 2005, the provision for restructuring
and environmental remediation was $379.4 million (December 31, 2004
- $448.7 million). The restructuring provision primarily includes
labour liabilities for restructuring plans. Payments are expected
to continue in diminishing amounts until 2025. The environmental
remediation liability includes the cost of a multi-year soil
remediation program for various sites. Set out below is a
reconciliation of CPR's liabilities associated with restructuring
and environmental remediation programs: Three months ended
September 30, 2005 Opening Amortiza- Closing Balance tion Foreign
Balance July 1 Accrued of Exchange Sept. 30 (in millions) 2005 (1)
Payments Discount Impact 2005
---------------------------------------------------------- Labour
liability for termination plans $ 252.0 0.2 (11.6) 3.3 (2.4) $
241.5 Other non- labour liabilities for exit plans 6.1 - - - (0.3)
5.8 ----------------------------------------------------------
Total restructuring liability 258.1 0.2 (11.6) 3.3 (2.7) 247.3
----------------------------------------------------------
Environmental remediation program 171.8 (30.1) (4.7) - (4.9) 132.1
---------------------------------------------------------- Total
restructuring and environmental remediation liability $ 429.9
(29.9) (16.3) 3.3 (7.6) $ 379.4
----------------------------------------------------------
---------------------------------------------------------- (1) In
the third quarter, CPR established new restructuring initiatives to
be completed by 2007 to reduce labour costs, primarily in
administrative areas. These initiatives required the recording of a
new provision of $7.4 million. In addition, a reduction of $7.2
million of previously accrued initiatives was recorded due to
experience gains occurring in the third quarter. The adjustment to
the environmental remediation program is largely due to a
settlement agreement reached with another responsible party during
the quarter (see Note 3). Three months ended September 30, 2004
Opening Amortiza- Closing Balance tion Foreign Balance July 1 of
Exchange Sept. 30 (in millions) 2004 Accrued Payments Discount
Impact 2004
---------------------------------------------------------- Labour
liability for termination plans $ 336.9 (0.9) (12.8) 3.6 (3.9) $
322.9 Other non- labour liabilities for exit plans 8.3 0.6 (0.7) -
(0.3) 7.9
---------------------------------------------------------- Total
restructuring liability 345.2 (0.3) (13.5) 3.6 (4.2) 330.8
----------------------------------------------------------
Environmental remediation program 89.8 0.2 (6.7) - (1.9) 81.4
---------------------------------------------------------- Total
restructuring and environmental remediation liability $ 435.0 (0.1)
(20.2) 3.6 (6.1) $ 412.2
----------------------------------------------------------
---------------------------------------------------------- Nine
months ended September 30, 2005 Opening Amortiza- Closing Balance
tion Foreign Balance Jan. 1 Accrued of Exchange Sept. 30 (in
millions) 2005 (1) Payments Discount Impact 2005
---------------------------------------------------------- Labour
liability for termination plans $ 269.7 (1.8) (34.5) 9.6 (1.5) $
241.5 Other non- labour liabilities for exit plans 6.1 (0.1) (0.1)
0.1 (0.2) 5.8
---------------------------------------------------------- Total
restructuring liability 275.8 (1.9) (34.6) 9.7 (1.7) 247.3
----------------------------------------------------------
Environmental remediation program 172.9 (30.1) (8.0) - (2.7) 132.1
---------------------------------------------------------- Total
restructuring and environmental remediation liability $ 448.7
(32.0) (42.6) 9.7 (4.4) $ 379.4
----------------------------------------------------------
---------------------------------------------------------- (1) In
the third quarter, CPR established new restructuring initiatives to
be completed by 2007 to reduce labour costs, primarily in
administrative areas. These initiatives required the recording of a
new provision of $7.4 million. In addition, a reduction of $9.3
million of previously accrued initiatives was recorded due to
experience gains primarily occurring in the third quarter. The
adjustment to the environmental remediation program is largely due
to a settlement agreement reached with another responsible party
during the third quarter (see Note 3). Nine months ended September
30, 2004 Opening Amortiza- Closing Balance tion Foreign Balance
Jan. 1 of Exchange Sept. 30 (in millions) 2004 Accrued Payments
Discount Impact 2004
---------------------------------------------------------- Labour
liability for termination plans $ 358.2 (2.3) (43.6) 12.4 (1.8) $
322.9 Other non- labour liabilities for exit plans 9.2 0.5 (1.8)
0.1 (0.1) 7.9
---------------------------------------------------------- Total
restructuring liability 367.4 (1.8) (45.4) 12.5 (1.9) 330.8
----------------------------------------------------------
Environmental remediation program 94.8 0.3 (12.8) - (0.9) 81.4
---------------------------------------------------------- Total
restructuring and environmental remediation liability $ 462.2 (1.5)
(58.2) 12.5 (2.8) $ 412.2
----------------------------------------------------------
----------------------------------------------------------
Amortization of Discount is charged to income as "Other Charges"
and "Purchased Services and Other". 8 Shareholders' equity An
analysis of Common Share balances is as follows: For the three
months ended September 30 (in millions) 2005 2004 Number Amount
Number Amount --------------------------------------------------
Balance, July 1 158.6 $ 1,123.6 158.7 $ 1,118.8 Shares issued under
stock option plans 0.1 2.0 - 0.1 Stock compensation expense related
to shares issued under stock option plans - 0.1 - - Shares
repurchased (1.4) (9.4) - -
-------------------------------------------------- Balance,
September 30 157.3 $ 1,116.3 158.7 $ 1,118.9
--------------------------------------------------
-------------------------------------------------- For the nine
months ended September 30 (in millions) 2005 2004 Number Amount
Number Amount --------------------------------------------------
Balance, January 1 158.8 $ 1,120.6 158.7 $ 1,118.1 Shares issued
under stock option plans 0.3 7.7 - 0.8 Stock compensation expense
related to shares issued under stock option plans - 0.5 - - Shares
repurchased (1.8) (12.5) - -
-------------------------------------------------- Balance,
September 30 157.3 $ 1,116.3 158.7 $ 1,118.9
--------------------------------------------------
-------------------------------------------------- An analysis of
contributed surplus balances is as follows: For the three months
ended September 30 (in millions) 2005 2004 ------------------------
Balance, July 1 $ 288.9 $ 296.9 Stock compensation expense 2.3 1.7
Stock compensation expense related to shares issued under stock
option plans (0.1) - Shares repurchased (52.3) -
------------------------ Balance, September 30 $ 238.8 $ 298.6
------------------------ ------------------------ For the nine
months ended September 30 (in millions) 2005 2004
------------------------ Balance, January 1 $ 300.4 $ 294.6 Stock
compensation expense 7.0 4.0 Stock compensation expense related to
shares issued under stock option plans (0.5) - Shares repurchased
(68.1) - ------------------------ Balance, September 30 $ 238.8 $
298.6 ------------------------ ------------------------ In May
2005, the Company completed the necessary filings for a normal
course issuer bid to purchase, for cancellation, up to 2.5 million
of its outstanding Common Shares, representing 1.6% of the
approximately 159.0 million Common Shares outstanding just prior to
the filing date. Share purchases may be made during the 12-month
period beginning June 6, 2005, and ending June 5, 2006. The
purchases are made at the market price on the day of purchase, with
consideration allocated to share capital, up to the average
carrying amount of the shares, and any excess allocated to
contributed surplus. When shares are repurchased, it takes three
days before the transaction is settled and the shares are
cancelled. The cost of shares purchased in a given month and
settled in the following month is accrued in the month of purchase.
During the third quarter, 1,329,000 shares were purchased at an
average price of $46.49 (year-to-date, 1,761,000 shares have been
repurchased at an average price of $45.77). 9 Stock-based
compensation In 2005, under CPR's stock option plans, the Company
issued 1,548,400 options to purchase Common Shares at the weighted
average price of $42.05 per share, based on the closing price on
the day prior to the grant date. In tandem with these options,
508,200 stock appreciation rights were issued at the weighted
average exercise price of $42.05. Pursuant to the employee plan,
options may be exercised upon vesting, which is between 24 months
and 36 months after the grant date, and will expire after 10 years.
Some options vest after 48 months, unless certain performance
targets are achieved, in which case vesting is accelerated. These
options expire five years after the grant date. The following is a
summary of the Company's fixed stock option plans as of September
30 (including options granted under the Directors' Stock Option
Plan, which was suspended in 2003): 2005 2004 --------------------
-------------------- Weighted Weighted average average Number of
exercise Number of exercise options price options price
-------------------- -------------------- Outstanding, January 1
7,752,080 $ 29.32 6,226,674 $ 28.20 New options granted 1,548,400
42.05 1,741,400 32.50 Exercised (285,148) 27.00 (57,755) 13.85
Forfeited/cancelled (144,186) 29.21 (68,518) 22.26 ----------
---------- Outstanding, September 30 8,871,146 $ 31.62 7,841,801 $
29.31 -------------------- ----------------------
-------------------- ---------------------- Options exercisable at
September 30 2,033,516 $ 27.25 1,284,619 $ 24.35
-------------------- ---------------------- --------------------
---------------------- Compensation expense is recognized over the
vesting period for stock options issued since January 1, 2003,
based on their estimated fair values on the date of grants, as
determined by the Black-Scholes option pricing model. Had CPR used
the fair value method for options granted between January 1, 2002,
and December 31, 2002, CPR's pro forma basis net income and
earnings per share would have been as follows: For the three months
For the nine months ended September 30 ended September 30 2005 2004
2005 2004 ------------------------ ------------------------ Net
income (in millions) As reported $ 203.6 $ 176.5 $ 407.5 $ 283.7
Pro forma $ 203.4 $ 175.8 $ 406.9 $ 282.1 ------------------------
------------------------ ------------------------
------------------------ (in dollars) Basic earnings per share As
reported $ 1.29 $ 1.11 $ 2.57 $ 1.79 Pro forma $ 1.29 $ 1.11 $ 2.57
$ 1.78 ------------------------ ------------------------
------------------------ ------------------------ Diluted earnings
per share As reported $ 1.27 $ 1.11 $ 2.54 $ 1.79 Pro forma $ 1.27
$ 1.11 $ 2.54 $ 1.78 ------------------------
------------------------ ------------------------
------------------------ Under the fair value method, the fair
value of options at the grant date is $10.0 million for options
issued in the first nine months of 2005 (first nine months of 2004
- $9.5 million). The weighted average fair value assumptions were
approximately: For the nine months ended September 30 2005 2004
------------------------ Expected option life (years) 4.50 4.50
Risk-free interest rate 3.49% 3.36% Expected stock price volatility
24% 28% Expected annual dividends per share $ 0.53 $ 0.50 Weighted
average fair value of options granted during the year $ 9.65 $ 8.04
------------------------ 10 Pensions and other benefits The total
benefit cost for the Company's defined benefit pension plans,
defined contribution pension plans and post-retirement benefits for
the quarter ended September 30, 2005, was $21.0 million (quarter
ended September 30, 2004 - $14.3 million) and for the nine months
ended September 30, 2005, was $62.4 million (nine months ended
September 30, 2004 - $53.4 million). 11 Significant customers
During the first nine months of 2005, one customer comprised 14.8%
of total revenue (first nine months of 2004 - 11.4%). At September
30, 2005, one customer represented 7.6% of total accounts
receivable (September 30, 2004 - 8.1%). 12 Commitments and
contingencies In the normal course of its operations, the Company
becomes involved in various legal actions, including claims
relating to injuries and damages to property. The Company maintains
provisions it considers to be adequate for such actions. While the
final outcome with respect to actions outstanding or pending at
September 30, 2005, 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. Capital commitments At September 30, 2005,
CPR had multi-year capital commitments of $693.4 million, mainly
for locomotive overhaul agreements, in the form of signed
contracts. Payments for these commitments are due in 2005 through
2016. Operating lease commitments At September 30, 2005, minimum
payments under operating leases were estimated at $588.7 million in
aggregate, with annual payments in each of the next five years of:
remainder of 2005 - $38.6 million; 2006 - $136.4 million; 2007 -
$98.3 million; 2008 - $71.6 million; 2009 - $46.9 million.
Guarantees The Company had residual value guarantees on operating
lease commitments of $221.6 million at September 30, 2005. The
maximum amount that could be payable under these and all of the
Company's other guarantees cannot be reasonably estimated due to
the nature of certain of the guarantees. All or a portion of
amounts paid under certain guarantees could be recoverable from
other parties or through insurance. The Company has accrued for all
guarantees that it expects to pay. At September 30, 2005, these
accruals, which do not include any amounts for residual value
guarantees, amounted to $9.3 million. Summary of Rail Data
-------------------- Third Quarter
------------------------------------------ 2005 2004 Variance %
---------- ---------- ---------- --------- Financial (millions,
except --------------------------- per share data) ---------------
Revenues -------- Freight revenue $ 1,060.8 $ 949.0 $ 111.8 11.8
Other revenue Other Intermodal revenues 18.3 15.8 2.5 15.8
Non-freight and switching revenues 25.6 24.9 0.7 2.8 ----------
---------- ---------- Total other revenue 43.9 40.7 3.2 7.9
---------- ---------- ---------- 1,104.7 989.7 115.0 11.6
---------- ---------- ---------- Expenses(1) -----------
Compensation and benefits 344.9 305.7 39.2 12.8 Fuel 141.9 109.0
32.9 30.2 Materials 45.4 41.1 4.3 10.5 Equipment rents 53.8 52.4
1.4 2.7 Depreciation and amortization 111.3 102.7 8.6 8.4 Purchased
services and other 158.0 159.9 (1.9) (1.2) ---------- ----------
---------- 855.3 770.8 84.5 11.0 ---------- ---------- ----------
Operating income before other specified item(2) 249.4 218.9 30.5
13.9 Other charges 6.6 8.5 (1.9) (22.4) Interest expense 50.3 54.9
(4.6) (8.4) Income tax expense before foreign exchange gains on
long-term debt and other specified item(2) 57.6 51.7 5.9 11.4
---------- ---------- ---------- Income before foreign exchange
gains on long-term debt and other specified item(2) 134.9 103.8
31.1 30.0 ---------- ---------- ---------- Foreign exchange gains
on ------------------------- long-term debt (FX on LTD)
-------------------------- FX on LTD 65.4 70.5 (5.1) - Income tax
on FX on LTD (17.3) 2.2 (19.5) - ---------- ---------- ----------
FX on LTD (net of tax) 48.1 72.7 (24.6) - Other specified item
-------------------- Special (charge) reduction for environmental
remediation 33.9 - 33.9 - Income tax on environmental remediation
(13.3) - (13.3) - ---------- ---------- ---------- Environmental
(charge) reduction (net of tax) 20.6 - 20.6 - ---------- ----------
---------- Net income $ 203.6 $ 176.5 $ 27.1 15.4 ----------
---------- ---------- ---------- ---------- ---------- Earnings per
share (EPS) ------------------------ Basic earnings per share $
1.29 $ 1.11 $ 0.18 16.2 Diluted earnings per share $ 1.27 $ 1.11 $
0.16 14.4 EPS before FX on LTD and other
------------------------------ specified item(2) -----------------
Basic earnings per share $ 0.85 $ 0.65 $ 0.20 30.8 Diluted earnings
per share $ 0.84 $ 0.65 $ 0.19 29.2 Weighted average number of
shares outstanding (millions) 158.1 158.7 (0.6) (0.4) Operating
ratio before other specified item(2)(3) (%) 77.4 77.9 (0.5) - ROCE
before FX on LTD and other specified item (after tax)(2)(3) (%) 8.7
7.4 1.3 - Net debt to net debt plus equity (%) 40.7 44.8 (4.1) -
EBIT before FX on LTD and other specified item(2)(3) (millions) $
242.8 $ 210.4 $ 32.4 15.4 EBITDA before FX on LTD and other
specified item(2)(3) (millions) $ 354.1 $ 313.1 $ 41.0 13.1
Year-to-Date ------------------------------------------ 2005 2004
Variance % ---------- ---------- ---------- --------- Financial
(millions, except --------------------------- per share data)
--------------- Revenues -------- Freight revenue $ 3,097.2 $
2,761.7 $ 335.5 12.1 Other revenue Other Intermodal revenues 44.7
42.0 2.7 6.4 Non-freight and switching revenues 82.8 77.3 5.5 7.1
---------- ---------- ---------- Total other revenue 127.5 119.3
8.2 6.9 ---------- ---------- ---------- 3,224.7 2,881.0 343.7 11.9
---------- ---------- ---------- Expenses(1) -----------
Compensation and benefits 998.2 932.8 65.4 7.0 Fuel 421.6 316.6
105.0 33.2 Materials 150.2 140.4 9.8 7.0 Equipment rents 157.0
171.9 (14.9) (8.7) Depreciation and amortization 331.5 305.0 26.5
8.7 Purchased services and other 467.0 458.8 8.2 1.8 ----------
---------- ---------- 2,525.5 2,325.5 200.0 8.6 ----------
---------- ---------- Operating income before other specified
item(2) 699.2 555.5 143.7 25.9 Other charges 11.3 23.2 (11.9)
(51.3) Interest expense 155.1 166.0 (10.9) (6.6) Income tax expense
before foreign exchange gains on long-term debt and other specified
item(2) 173.3 121.2 52.1 43.0 ---------- ---------- ----------
Income before foreign exchange gains on long-term debt and other
specified item(2) 359.5 245.1 114.4 46.7 ---------- ----------
---------- Foreign exchange gains on -------------------------
long-term debt (FX on LTD) -------------------------- FX on LTD
45.3 37.2 8.1 - Income tax on FX on LTD (17.9) 1.4 (19.3) -
---------- ---------- ---------- FX on LTD (net of tax) 27.4 38.6
(11.2) - Other specified item -------------------- Special (charge)
reduction for environmental remediation 33.9 - 33.9 - Income tax on
environmental remediation (13.3) - (13.3) - ---------- ----------
---------- Environmental (charge) reduction (net of tax) 20.6 -
20.6 - ---------- ---------- ---------- Net income $ 407.5 $ 283.7
$ 123.8 43.6 ---------- ---------- ---------- ---------- ----------
---------- Earnings per share (EPS) ------------------------ Basic
earnings per share $ 2.57 $ 1.79 $ 0.78 43.6 Diluted earnings per
share $ 2.54 $ 1.79 $ 0.75 41.9 EPS before FX on LTD and other
------------------------------ specified item(2) -----------------
Basic earnings per share $ 2.27 $ 1.54 $ 0.73 47.4 Diluted earnings
per share $ 2.24 $ 1.54 $ 0.70 45.5 Weighted average number of
shares outstanding (millions) 158.6 158.7 (0.1) (0.1) Operating
ratio before other specified item(2)(3) (%) 78.3 80.7 (2.4) - ROCE
before FX on LTD and other specified item (after tax)(2)(3) (%) 8.7
7.4 1.3 - Net debt to net debt plus equity (%) 40.7 44.8 (4.1) -
EBIT before FX on LTD and other specified item(2)(3) (millions) $
687.9 $ 532.3 $ 155.6 29.2 EBITDA before FX on LTD and other
specified item(2)(3) (millions) $ 1,019.4 $ 837.3 $ 182.1 21.7 (1)
Before other specified item. (2) These are earnings measures that
are not in accordance with GAAP and may not be comparable to
similar measures of other companies. See note on non-GAAP earnings
measures attached to commentary. (3) EBIT: Earnings before interest
and taxes. EBITDA: Earnings before interest, taxes, and
depreciation and amortization. ROCE (after tax): Return on capital
employed (after tax) equals earnings before interest (last 12
months) divided by average net debt plus equity. Operating ratio:
Operating expenses divided by revenues.
-------------------------------------------------------------------------
Third Quarter ------------------------------------------ 2005 2004
Variance % ---------- ---------- ---------- --------- Commodity
Data -------------- Freight Revenues (millions) - Grain $ 190.8 $
171.6 $ 19.2 11.2 - Coal 185.9 138.1 47.8 34.6 - Sulphur and
fertilizers 108.3 109.5 (1.2) (1.1) - Forest products 85.9 86.6
(0.7) (0.8) - Industrial products 124.7 112.6 12.1 10.7 -
Automotive 67.6 67.8 (0.2) (0.3) - Intermodal (including food and
consumer) 297.6 262.8 34.8 13.2 ---------- ---------- ----------
Total Freight Revenues $ 1,060.8 $ 949.0 $ 111.8 11.8 ----------
---------- ---------- Intermodal (including food and consumer) -
Intermodal 283.9 249.2 34.7 13.9 - Food and consumer 13.7 13.6 0.1
0.7 Millions of Revenue Ton-Miles (RTM) - Grain 6,357 5,728 629
11.0 - Coal 6,238 6,392 (154) (2.4) - Sulphur and fertilizers 4,601
4,869 (268) (5.5) - Forest products 2,420 2,745 (325) (11.8) -
Industrial products 3,613 3,587 26 0.7 - Automotive 531 536 (5)
(0.9) - Intermodal (including food and consumer) 7,065 6,722 343
5.1 ---------- ---------- ---------- Total RTMs 30,825 30,579 246
0.8 ---------- ---------- ---------- Intermodal (including food and
consumer) - Intermodal 6,738 6,367 371 5.8 - Food and consumer 327
355 (28) (7.9) Freight Revenue per RTM (cents) - Grain 3.00 3.00 -
- - Coal 2.98 2.16 0.82 38.0 - Sulphur and fertilizers 2.35 2.25
0.10 4.4 - Forest products 3.55 3.15 0.40 12.7 - Industrial
products 3.45 3.14 0.31 9.9 - Automotive 12.73 12.65 0.08 0.6 -
Intermodal 4.21 3.91 0.30 7.7 Freight Revenue per RTM 3.44 3.10
0.34 11.0 Carloads (thousands) - Grain 86.4 78.3 8.1 10.3 - Coal
91.0 100.2 (9.2) (9.2) - Sulphur and fertilizers 46.2 49.8 (3.6)
(7.2) - Forest products 37.8 41.3 (3.5) (8.5) - Industrial products
71.5 71.4 0.1 0.1 - Automotive 37.7 40.9 (3.2) (7.8) - Intermodal
(including food and consumer) 300.0 289.5 10.5 3.6 ----------
---------- ---------- Total Carloads 670.6 671.4 (0.8) (0.1)
---------- ---------- ---------- Intermodal (including food and
consumer) - Intermodal 292.9 281.8 11.1 3.9 - Food and consumer 7.1
7.7 (0.6) (7.8) Freight Revenue per Carload - Grain $ 2,208 $ 2,192
$ 16 0.7 - Coal 2,043 1,378 665 48.3 - Sulphur and fertilizers
2,344 2,199 145 6.6 - Forest products 2,272 2,097 175 8.3 -
Industrial products 1,744 1,577 167 10.6 - Automotive 1,793 1,658
135 8.1 - Intermodal 992 908 84 9.3 Freight Revenue per Carload $
1,582 $ 1,413 $ 169 12.0 Year-to-Date
------------------------------------------ 2005 2004 Variance %
---------- ---------- ---------- --------- Commodity Data
-------------- Freight Revenues (millions) - Grain $ 529.9 $ 468.7
$ 61.2 13.1 - Coal 550.2 387.6 162.6 42.0 - Sulphur and fertilizers
344.5 351.3 (6.8) (1.9) - Forest products 253.1 243.0 10.1 4.2 -
Industrial products 357.6 321.5 36.1 11.2 - Automotive 219.2 221.9
(2.7) (1.2) - Intermodal (including food and consumer) 842.7 767.7
75.0 9.8 ---------- ---------- ---------- Total Freight Revenues $
3,097.2 $ 2,761.7 $ 335.5 12.1 ---------- ---------- ----------
Intermodal (including food and consumer) - Intermodal 803.8 728.7
75.1 10.3 - Food and consumer 38.9 39.0 (0.1) (0.3) Millions of
Revenue Ton-Miles (RTM) - Grain 18,654 16,992 1,662 9.8 - Coal
18,176 18,737 (561) (3.0) - Sulphur and fertilizers 15,480 15,674
(194) (1.2) - Forest products 7,606 7,963 (357) (4.5) - Industrial
products 10,629 10,644 (15) (0.1) - Automotive 1,759 1,753 6 0.3 -
Intermodal (including food and consumer) 21,023 20,261 762 3.8
---------- ---------- ---------- Total RTMs 93,327 92,024 1,303 1.4
---------- ---------- ---------- Intermodal (including food and
consumer) - Intermodal 19,965 19,224 741 3.9 - Food and consumer
1,058 1,037 21 2.0 Freight Revenue per RTM (cents) - Grain 2.84
2.76 0.08 2.9 - Coal 3.03 2.07 0.96 46.4 - Sulphur and fertilizers
2.23 2.24 (0.01) (0.4) - Forest products 3.33 3.05 0.28 9.2 -
Industrial products 3.36 3.02 0.34 11.3 - Automotive 12.46 12.66
(0.20) (1.6) - Intermodal 4.01 3.79 0.22 5.8 Freight Revenue per
RTM 3.32 3.00 0.32 10.7 Carloads (thousands) - Grain 241.9 228.5
13.4 5.9 - Coal 267.9 297.6 (29.7) (10.0) - Sulphur and fertilizers
155.7 160.5 (4.8) (3.0) - Forest products 117.5 121.8 (4.3) (3.5) -
Industrial products 216.5 213.2 3.3 1.5 - Automotive 124.3 131.2
(6.9) (5.3) - Intermodal (including food and consumer) 868.8 870.2
(1.4) (0.2) ---------- ---------- ---------- Total Carloads 1,992.6
2,023.0 (30.4) (1.5) ---------- ---------- ---------- Intermodal
(including food and consumer) - Intermodal 845.2 845.9 (0.7) (0.1)
- Food and consumer 23.6 24.3 (0.7) (2.9) Freight Revenue per
Carload - Grain $ 2,191 $ 2,051 $ 140 6.8 - Coal 2,054 1,302 752
57.8 - Sulphur and fertilizers 2,213 2,189 24 1.1 - Forest products
2,154 1,995 159 8.0 - Industrial products 1,652 1,508 144 9.5 -
Automotive 1,763 1,691 72 4.3 - Intermodal 970 882 88 10.0 Freight
Revenue per Carload $ 1,554 $ 1,365 $ 189 13.8
-------------------------------------------------------------------------
Third Quarter ------------------------------------------ 2005
2004(1) Variance % ---------- ---------- ---------- ---------
Operations and Productivity --------------------------- Freight
gross ton-miles (GTM) (millions) 59,510 59,196 314 0.5 Revenue
ton-miles (RTM) (millions) 30,825 30,579 246 0.8 Train-miles
(thousands) 10,730 10,388 342 3.3 FRA personal injuries per 200,000
employee-hours 2.5 2.7 (0.2) (7.4) FRA train accidents per million
train-miles 1.8 1.9 (0.1) (5.3) Freight revenue per RTM (cents)
3.44 3.10 0.34 11.0 Total operating expenses per RTM(2) (cents)
2.77 2.52 0.25 9.9 Total operating expenses per GTM(2) (cents) 1.44
1.30 0.14 10.8 Total operating expenses per train-mile(2) (dollars)
79.71 74.20 5.51 7.4 Average train weights (tons) 5,546 5,698 (152)
(2.7) Average train length (feet) 3,899 3,988 (89) (2.2) Average
train speed - AAR definition (mph) 21.5 23.2 (1.7) (7.3) Number of
active employees at end of period 16,880 16,419 461 2.8 Average
number of active employees 16,959 16,528 431 2.6 Miles of road
operated at end of period(3) 13,827 13,848 (21) (0.2) GTMs per
average active employee (000) 3,509 3,582 (73) (2.0) GTMs per mile
of road operated(3) (000) 4,304 4,275 29 0.7 GTMs per active
locomotive per day (000) 648 670 (22) (3.3) U.S. gallons of fuel
per 1,000 GTMs 1.13 1.13 - - Average fuel price excluding
provincial fuel taxes (U.S. dollar per U.S. gallon) 1.62 1.12 0.50
44.6 Diesel fuel consumed - freight & yard (million U.S.
gallons) 67.0 66.9 0.1 0.1 WTI (US$/bbl - average lagged 1 month,
unhedged) 60.15 41.25 18.90 45.8 Average foreign exchange rate
(Canadian$/US$) 1.212 1.325 (0.113) - Average foreign exchange rate
(US$/Canadian$) 0.825 0.755 0.070 - Year-to-Date
------------------------------------------ 2005 2004(1) Variance %
---------- ---------- ---------- --------- Operations and
Productivity --------------------------- Freight gross ton-miles
(GTM) (millions) 180,210 175,960 4,250 2.4 Revenue ton-miles (RTM)
(millions) 93,327 92,024 1,303 1.4 Train-miles (thousands) 32,358
30,750 1,608 5.2 FRA personal injuries per 200,000 employee-hours
2.4 2.8 (0.4) (14.3) FRA train accidents per million train-miles
2.0 2.1 (0.1) (4.8) Freight revenue per RTM (cents) 3.32 3.00 0.32
10.7 Total operating expenses per RTM(2) (cents) 2.71 2.53 0.18 7.1
Total operating expenses per GTM(2) (cents) 1.40 1.32 0.08 6.1
Total operating expenses per train-mile(2) (dollars) 78.05 75.63
2.42 3.2 Average train weights (tons) 5,569 5,722 (153) (2.7)
Average train length (feet) 3,936 4,053 (117) (2.9) Average train
speed - AAR definition (mph) 21.7 22.3 (0.6) (2.7) Number of active
employees at end of period 16,880 16,419 461 2.8 Average number of
active employees 16,369 16,063 306 1.9 Miles of road operated at
end of period(3) 13,827 13,848 (21) (0.2) GTMs per average active
employee (000) 11,009 10,955 54 0.5 GTMs per mile of road
operated(3) (000) 13,033 12,707 326 2.6 GTMs per active locomotive
per day (000) 654 667 (13) (1.9) U.S. gallons of fuel per 1,000
GTMs 1.18 1.20 (0.02) (1.7) Average fuel price excluding provincial
fuel taxes (U.S. dollar per U.S. gallon) 1.49 1.04 0.45 43.3 Diesel
fuel consumed - freight & yard (million U.S. gallons) 212.6
210.7 1.9 0.9 WTI (US$/bbl - average lagged 1 month, unhedged)
52.92 37.58 15.34 40.8 Average foreign exchange rate
(Canadian$/US$) 1.226 1.331 (0.105) - Average foreign exchange rate
(US$/Canadian$) 0.816 0.751 0.065 - (1) Certain prior period
figures have been revised to conform with current presentation or
have been updated to reflect new information. (2) Before other
specified item. (3) Excludes track on which CPR has haulage rights.
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DATASOURCE: Canadian Pacific Railway CONTACT: Media, Len
Cocolicchio, Tel.: (403) 319-7591, ; Investment Community, Paul
Bell, Vice-President, Investor Relations, Tel.: (403) 319-3591,
Copyright