CALGARY, July 22 /PRNewswire-FirstCall/ -- Canadian Pacific Railway
Limited (TSX/NYSE: CP) announced its second-quarter results today.
Net income in the second quarter was $155 million, a decrease of 40
per cent from $257 million in 2007, and diluted earnings per share
was $1.00, a decrease from $1.64 in the second quarter of 2007.
SUMMARY OF SECOND-QUARTER 2008 COMPARED WITH SECOND-QUARTER 2007 -
Total revenues were essentially flat at $1.22 billion - Income
before foreign exchange gains and losses on long-term debt and
other specified items decreased to $150 million from $175 million -
Adjusted diluted earnings per share decreased to $0.97 from $1.12 -
Operating ratio was 79.4 per cent compared with 74.7 per cent "This
was a tough quarter with the unprecedented rise in fuel prices, the
North American economic downturn, and prolonged flooding on our US
mainline," said Fred Green, President and CEO. "Combined, these had
a significant impact on CP's earnings." "We see the current
economic conditions continuing, and CP is taking aggressive steps
which should position us well for 2009," continued Mr. Green. "I
have accelerated a rigorous process to improve our productivity,
efficiency, and yield." Freight revenues increased almost two per
cent despite a decrease in traffic. This was mainly due to pricing,
inclusive of fuel recoveries. CP experienced strong growth in
industrial and consumer products of 17 per cent, intermodal of nine
per cent and coal of six per cent. This was offset by decreases in
forest products of 21 per cent, grain of nine per cent, sulphur and
fertilizers of five per cent, and automotive of two per cent.
Operating expenses increased seven per cent with fuel up 34 per
cent and purchased services and other, depreciation and
amortization and materials up from two to nine per cent. This was
offset by a decrease in equipment rents of 20 per cent and
compensation and benefits of four per cent. SUMMARY OF FIRST-HALF
2008 COMPARED WITH FIRST-HALF 2007 Net income for the first half of
2008 was $246 million compared with $385 million in 2007, a
decrease of 36 per cent. Diluted earnings per share was $1.59 down
from $2.46. Freight revenues increased two per cent to $2.3 billion
and operating expenses were up seven per cent to $1.9 billion.
EXCLUDING FOREIGN EXCHANGE GAINS AND LOSSES ON LONG-TERM DEBT AND
OTHER SPECIFIED ITEMS - Income decreased to $267 million from $297
million. - Diluted earnings per share were $1.72 down from $1.90. -
Operating ratio deteriorated 400 basis points to 81.0 per cent from
77.0 per cent. 2008 OUTLOOK "We continue to focus on driving
positive pricing gains and strengthening our fuel recovery and cost
management programs," said Mike Lambert, Chief Financial Officer.
"However, these will not be enough to offset the challenges we are
facing with the higher price of fuel and the slowing North American
economy. We are updating our guidance to reflect our substantially
higher fuel assumptions and the deteriorating economic conditions.
We now expect our full- year adjusted diluted earnings per
share to be in the range of $4.00 to $4.20, down from our previous
guidance of $4.40 to $4.60." The 2008 estimate assumes an average
currency exchange rate of the U.S. dollar at par with the Canadian
dollar. Crude oil prices are expected to average US $121 per barrel
for the year (versus the previous assumption of US $98 per barrel)
with the second half averaging roughly US $140 per barrel. Crack
spreads are expected to average US $23 per barrel for the year
(versus the previous assumption of US $20 per barrel) with the
second half averaging US $27 per barrel. The estimated average
all-in fuel price is expected to be between US $3.80 and $3.90 per
U.S. gallon for the year. CP strives to mitigate the impact of any
changes in WTI and crack margins through fuel recovery programs.
However, these programs do not completely offset the changes in
expense caused by changes in WTI and crack margins. The approximate
net annual impact on EPS of changes in WTI and crack margins given
CP's current portfolio of freight contracts is as follows: - A
change in WTI of US $2 per barrel impacts EPS by $0.01 - A change
in crack margins of US $1 per barrel impacts EPS by $0.02 These
sensitivities do not consider the impact of the lagged
implementation of changes in fuel surcharges from the timing of
actual expenses incurred. This lag is due to regulatory notice
requirements for rail price adjustments. CP expects to grow total
revenue by six to eight per cent in 2008, up from previous guidance
of four to six per cent due mostly to increased fuel recovery,
offset somewhat by volume declines. Total operating expenses are
expected to increase by 11 to 13 per cent, revised from the
previous guidance of six to eight per cent due principally to
higher fuel cost. CP expects its normalized tax rate to be between
26 per cent and 27 per cent, excluding the impact of the Dakota
Minnesota & Eastern Railroad (DM&E) equity pick-up, a
change from the previous outlook of 27 per cent to 29 per cent as a
result of decreasing Canadian provincial tax rates. CP expects free
cash to be approximately $150 million, adjusted downwards from the
previous outlook of approximately $200 million in 2008, due to
lower projected earnings. The 2008 outlook includes the projected
after tax earnings of the DM&E on an equity accounting basis
for the full year. FOREIGN EXCHANGE GAINS AND LOSSES ON LONG-TERM
DEBT AND OTHER SPECIFIED ITEMS CP had a foreign exchange gain on
long-term debt of $7 million ($5 million after tax) in the
second quarter of 2008, compared with a foreign exchange gain on
long-term debt of $89 million ($65 million after tax) in the second
quarter of 2007. There were no other specified items in the second
quarter of 2008. There was a future income tax benefit of $17
million in the second quarter of 2007 resulting from a reduction in
the Canadian federal income tax rate. For the first six months of
2008, CP had a foreign exchange loss on long- term debt of $10
million ($6 million after tax) compared with a foreign exchange
gain of $97 million ($71 million after tax) in the first half of
2007. At June 30, 2008 CP held investments in Canadian Non-Bank
Asset Backed Commercial Paper (ABCP) with an original cost of
approximately $144 million. In the third-quarter of 2007, CP
adjusted the estimated fair value of the investment and took a
charge of $21 million ($15 million after tax) and classified the
investments as long-term investments. In the first quarter of 2008,
in recognition of current market conditions impacting these
investments, CP further adjusted the estimated fair value of the
investments and took an additional charge of $21 million ($15
million after tax). The estimated fair value of the investments as
at June 30, 2008 was unchanged from the estimated fair value at
March 31, 2008. Continuing uncertainties regarding the value of the
assets which underlie the ABCP, the amount and timing of cash flows
and the outcome of the restructuring process could give rise to a
material change in the value of the Company's investments in ABCP
which would impact the Company's near-term earnings. In the first
quarter of 2008, the company recorded a $21 million
($15 million after tax) impairment of the company's investment
in ABCP. Other than the future income tax benefit of $17 million
mentioned above, there were no additional other specified items in
the first half of 2007. Presentation of non-GAAP earnings CP
presents non-GAAP earnings in this news release to provide a basis
for evaluating underlying earnings and liquidity trends in its
business that can be compared with prior periods' results of
operations. These non-GAAP earnings exclude foreign currency
translation impacts on long-term debt, which can be volatile and
short term, and other specified items, which are not among CP'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 and
losses 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. Diluted EPS, excluding foreign
exchange gains and losses on long-term debt and other specified
items, is also referred to in this news release as "adjusted
diluted EPS". Free cash is calculated as cash provided by operating
activities, less cash used in investing activities and dividends
paid, adjusted for the acquisition of the DM&E, and now
excluding changes in the accounts receivable securitization
program, which was terminated in the second quarter. Free cash is
adjusted for the DM&E acquisition, as it is not indicative of
normal day- to-day investments in the Company's asset base.
The securitization of accounts receivable is a financing-type
transaction, which is excluded to clarify the nature of the use of
free cash. Earnings that exclude the foreign exchange currency
translation impact on long-term debt and other specified items, and
free cash after dividends, 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. Other
specified items are material transactions that may include, but are
not limited to, restructuring and asset impairment charges, gains
and losses on non-routine sales of assets, unusual income tax
adjustments, and other items that do not typify normal business
activities. Note on forward-looking information This news release
contains certain forward-looking statements relating but not
limited to our operations, anticipated financial performance and
business prospects. Undue reliance should not be placed on
forward-looking information as actual results may differ
materially. By its nature, CP's forward-looking information
involves numerous assumptions, inherent risks and uncertainties,
including but not limited to the following factors: changes in
business strategies; general North American and global economic and
business conditions; risks in agricultural production such as
weather conditions and insect populations; the availability and
price of energy commodities; the effects of competition and pricing
pressures; industry capacity; shifts in market demand; changes in
laws and regulations, including regulation of rates; changes in
taxes and tax rates; potential increases in maintenance and
operating costs; uncertainties of litigation; labour disputes;
risks and liabilities arising from derailments; timing of
completion of capital and maintenance projects; currency and
interest rate fluctuations; effects of changes in market conditions
on the financial position of pension plans and investments; and
various events that could disrupt operations, including severe
weather conditions, security threats and governmental response to
them, and technological changes. There are factors that could cause
actual results to differ from those described in the
forward-looking statements contained in this news release. These
more specific factors are identified and discussed in the Outlook
section and elsewhere in this news release with the particular
forward-looking statement in question. Except as required by law,
CP undertakes no obligation to update publicly or otherwise revise
any forward-looking information, whether as a result of new
information, future events or otherwise. Canadian Pacific, through
the ingenuity of its employees located across Canada and in the
United States, remains committed to being the safest, most fluid
railway in North America. Our people are the key to delivering
innovative transportation solutions to our customers and to
ensuring the safe operation of our trains through the more than 900
communities where we operate. Our combined ingenuity makes CPR a
better place to work, rail a better way to ship, and North America
a better place to live. Come and visit us at http://www.cpr.ca/ to
see how we can put our ingenuity to work for you. Canadian Pacific
is proud to be the official rail freight services provider for the
Vancouver 2010 Olympic and Paralympic Winter Games. STATEMENT OF
CONSOLIDATED INCOME (in millions of Canadian dollars, except per
share data) For the three months ended June 30 2008 2007
------------------------- ------------------------- (unaudited)
Revenues Freight $ 1,193.1 $ 1,174.1 Other 27.2 41.4
------------------------- 1,220.3 1,215.5 Operating expenses
Compensation and benefits 315.5 329.8 Fuel 260.3 193.7 Materials
56.5 55.6 Equipment rents 46.1 57.3 Depreciation and amortization
124.7 119.1 Purchased services and other 166.1 152.3
------------------------- 969.2 907.8 -------------------------
Revenues less operating expenses 251.1 307.7 Other charges (Note 4)
4.9 8.2 Equity income in Dakota, Minnesota & Eastern Railroad
Corporation (Note 10) (13.4) - Foreign exchange gains on long-term
debt (6.8) (88.6) Interest expense (Note 5) 62.9 49.2 Income tax
expense (Note 6) 48.6 82.2 ------------------------- Net income $
154.9 $ 256.7 ------------------------- -------------------------
Basic earnings per share (Note 7) $ 1.01 $ 1.66
------------------------- ------------------------- Diluted
earnings per share (Note 7) $ 1.00 $ 1.64 -------------------------
------------------------- See notes to interim consolidated
financial statements. STATEMENT OF CONSOLIDATED INCOME (in millions
of Canadian dollars, except per share data) For the six months
ended June 30 2008 2007 -------------------------
------------------------- (unaudited) Revenues Freight $ 2,317.5 $
2,265.0 Other 49.7 66.4 ------------------------- 2,367.2 2,331.4
Operating expenses Compensation and benefits 643.8 662.3 Fuel 490.5
364.9 Materials 122.0 118.0 Equipment rents 92.0 112.8 Depreciation
and amortization 244.6 237.7 Purchased services and other 325.0
298.7 ------------------------- 1,917.9 1,794.4
------------------------- Revenues less operating expenses 449.3
537.0 Other charges (Note 4) 11.6 13.0 Equity income in Dakota,
Minnesota & Eastern Railroad Corporation (Note 10) (24.4) -
Change in estimated fair value of Canadian third party asset-backed
commercial paper (Note 10) 21.3 - Foreign exchange losses (gains)
on long-term debt 9.5 (97.2) Interest expense (Note 5) 122.8 96.0
Income tax expense (Note 6) 62.8 139.9 -------------------------
Net income $ 245.7 $ 385.3 -------------------------
------------------------- Basic earnings per share (Note 7) $ 1.60
$ 2.49 ------------------------- ------------------------- Diluted
earnings per share (Note 7) $ 1.59 $ 2.46 -------------------------
------------------------- See notes to interim consolidated
financial statements. CONSOLIDATED STATEMENT OF COMPREHENSIVE
INCOME (in millions of Canadian dollars) For the three months ended
June 30 2008 2007 -------------------------
------------------------- (unaudited) Comprehensive income Net
income $ 154.9 $ 256.7 Other comprehensive income Net change in
foreign currency translation adjustments, net of hedging activities
(1.1) (2.9) Net change in gains on derivatives designated as cash
flow hedges 16.7 (9.8) ------------------------- Other
comprehensive income (loss) before income taxes 15.6 (12.7) Income
tax expense (5.3) (2.0) ------------------------- Other
comprehensive income (loss) (Note 13) 10.3 (14.7)
------------------------- Comprehensive income $ 165.2 $ 242.0
------------------------- ------------------------- For the six
months ended June 30 2008 2007 -------------------------
------------------------- (unaudited) Comprehensive income Net
income $ 245.7 $ 385.3 Other comprehensive income Net change in
foreign currency translation adjustments, net of hedging activities
2.2 (3.2) Net change in gains on derivatives designated as cash
flow hedges 7.9 (13.0) ------------------------- Other
comprehensive income (loss) before income taxes 10.1 (16.2) Income
tax recovery (expense) 2.7 (1.3) ------------------------- Other
comprehensive income (loss) (Note 13) 12.8 (17.5)
------------------------- Comprehensive income $ 258.5 $ 367.8
------------------------- ------------------------- See notes to
interim consolidated financial statements. CONSOLIDATED BALANCE
SHEET (in millions of Canadian dollars) June 30 December 31 2008
2007 ------------------------- (unaudited) Assets Current assets
Cash and cash equivalents $ 80.9 $ 378.1 Accounts receivable and
other current assets (Note 9) 681.3 542.8 Materials and supplies
199.5 179.5 Future income taxes 66.7 67.3 -------------------------
1,028.4 1,167.7 Investments (Note 10) 1,717.6 1,668.6 Net
properties 9,464.2 9,293.1 Other assets and deferred charges (Note
15) 1,468.0 1,235.6 ------------------------- Total assets $
13,678.2 $ 13,365.0 -------------------------
------------------------- Liabilities and shareholders' equity
Current liabilities Short-term borrowing $ 255.0 $ 229.7 Accounts
payable and accrued liabilities 954.2 980.8 Income and other taxes
payable 50.7 68.8 Dividends payable 38.1 34.5 Long-term debt
maturing within one year 238.4 31.0 -------------------------
1,536.4 1,344.8 Deferred liabilities 717.2 714.6 Long-term debt
(Note 11) 4,016.8 4,146.2 Future income taxes 1,741.8 1,701.5
Shareholders' equity Share capital (Note 12) 1,216.9 1,188.6
Contributed surplus 39.8 42.4 Accumulated other comprehensive
income (Note 13) 52.4 39.6 Retained income 4,356.9 4,187.3
------------------------- 5,666.0 5,457.9 -------------------------
Total liabilities and shareholders' equity $ 13,678.2 $ 13,365.0
------------------------- ------------------------- Commitments and
contingencies (Note 19). See notes to interim consolidated
financial statements. STATEMENT OF CONSOLIDATED CASH FLOWS (in
millions of Canadian dollars) For the three months ended June 30
2008 2007 ------------------------- -------------------------
(unaudited) Operating activities Net income $ 154.9 $ 256.7 Add
(deduct) items not affecting cash: Depreciation and amortization
124.7 119.1 Future income taxes 32.4 57.7 Foreign exchange gains on
long-term debt (6.8) (88.6) Amortization of deferred charges 2.6
3.1 Equity income, net of cash received (11.4) - Restructuring and
environmental remediation payments (Note 8) (10.8) (12.0) Other
operating activities, net 29.9 0.9 Change in non-cash working
capital balances related to operations (Note 9) (132.5) 27.6
------------------------- Cash provided by operating activities
183.0 364.5 ------------------------- Investing activities
Additions to properties (237.3) (158.4) Additions to investments
and other assets (Note 15) (57.8) (11.4) Additions to investment in
Dakota, Minnesota & Eastern Railroad Corporation (Note 10)
(1.2) - Net (cost) proceeds from disposal of transportation
properties (0.1) (0.4) ------------------------- Cash used in
investing activities (296.4) (170.2) -------------------------
Financing activities Dividends paid (38.0) (34.7) Issuance of CP
Common Shares 4.8 15.0 Purchase of CP Common Shares - (212.0) Net
(decrease) increase in short-term borrowing 188.3 (77.7) Issuance
of long-term debt (Note 11) 1,068.7 485.1 Repayment of long-term
debt (1,069.9) (3.5) Settlement of treasury rate lock (Note 14)
(30.9) - ------------------------- Cash provided by financing
activities 123.0 172.2 ------------------------- Cash position
Increase in cash and cash equivalents 9.6 366.5 Cash and cash
equivalents at beginning of period 71.3 25.6
------------------------- Cash and cash equivalents at end of
period $ 80.9 $ 392.1 -------------------------
------------------------- See notes to interim consolidated
financial statements. STATEMENT OF CONSOLIDATED CASH FLOWS (in
millions of Canadian dollars) For the six months ended June 30 2008
2007 ------------------------- -------------------------
(unaudited) Operating activities Net income $ 245.7 $ 385.3 Add
(deduct) items not affecting cash: Depreciation and amortization
244.6 237.7 Future income taxes 27.9 96.2 Change in estimated fair
value of Canadian third party asset-backed commercial paper (Note
10) 21.3 - Foreign exchange losses (gains) on long-term debt 9.5
(97.2) Amortization of deferred charges 5.1 6.2 Equity income, net
of cash received (20.8) - Restructuring and environmental
remediation payments (Note 8) (24.5) (25.2) Other operating
activities, net 4.4 (1.8) Change in non-cash working capital
balances related to operations (Note 9) (170.2) (9.0)
------------------------- Cash provided by operating activities
343.0 592.2 ------------------------- Investing activities
Additions to properties (364.7) (362.6) Additions to investments
and other assets (Note 15) (192.5) (11.7) Additions to investment
in Dakota, Minnesota & Eastern Railroad Corporation (Note 10)
(7.5) - Net (cost) proceeds from disposal of transportation
properties (2.6) 8.5 ------------------------- Cash used in
investing activities (567.3) (365.8) -------------------------
Financing activities Dividends paid (72.5) (63.8) Issuance of CP
Common Shares 17.0 25.1 Purchase of CP Common Shares - (228.1) Net
(decrease) increase in short-term borrowing 25.3 - Issuance of
long-term debt (Note 11) 1,068.7 485.1 Repayment of long-term debt
(1,080.5) (176.9) Settlement of treasury rate lock (Note 14) (30.9)
- ------------------------- Cash (used in) provided by financing
activities (72.9) 41.4 ------------------------- Cash position
Increase (decrease) in cash and cash equivalents (297.2) 267.8 Cash
and cash equivalents at beginning of period 378.1 124.3
------------------------- Cash and cash equivalents at end of
period $ 80.9 $ 392.1 -------------------------
------------------------- See notes to interim consolidated
financial statements. CONSOLIDATED STATEMENT OF CHANGES IN
SHAREHOLDERS' EQUITY (in millions of Canadian dollars) For the
three months ended June 30 2008 2007 -------------------------
------------------------- (unaudited) Share capital Balance,
beginning of period $ 1,210.4 $ 1,182.9 Shares issued under stock
option plans 6.5 18.5 Shares purchased - (19.4)
------------------------- Balance, end of period 1,216.9 1,182.0
------------------------- Contributed surplus Balance, beginning of
period 38.5 37.1 Stock compensation expense 2.3 2.1 Stock
compensation expense related to shares issued under stock option
plans (1.0) (0.5) ------------------------- Balance, end of period
39.8 38.7 ------------------------- Accumulated other comprehensive
income Balance, beginning of period 42.1 77.6 Other comprehensive
income (loss) (Note 13) 10.3 (14.7) -------------------------
Balance, end of period 52.4 62.9 ------------------------- Retained
income Balance, beginning of period 4,240.1 3,641.7 Net income for
the period 154.9 256.7 Shares purchased - (168.6) Dividends (38.1)
(34.9) ------------------------- Balance, end of period 4,356.9
3,694.9 ------------------------- Total accumulated other
comprehensive income and retained income 4,409.3 3,757.8
------------------------- ------------------------- Shareholders'
equity, end of period $ 5,666.0 $ 4,978.5 -------------------------
------------------------- See notes to interim consolidated
financial statements. CONSOLIDATED STATEMENT OF CHANGES IN
SHAREHOLDERS' EQUITY (in millions of Canadian dollars) For the six
months ended June 30 2008 2007 -------------------------
------------------------- (unaudited) Share capital Balance,
beginning of period $ 1,188.6 $ 1,175.7 Shares issued under stock
option plans 28.3 30.8 Shares purchased - (24.5)
------------------------- Balance, end of period 1,216.9 1,182.0
------------------------- Contributed surplus Balance, beginning of
period 42.4 32.3 Stock compensation expense 6.8 7.4 Stock
compensation expense related to shares issued under stock option
plans (9.4) (1.0) ------------------------- Balance, end of period
39.8 38.7 ------------------------- Accumulated other comprehensive
income Balance, beginning of period 39.6 66.4 Adjustment for change
in accounting policy - 14.0 ------------------------- Adjusted
balance, beginning of period 39.6 80.4 Other comprehensive income
(loss) (Note 13) 12.8 (17.5) ------------------------- Balance, end
of period 52.4 62.9 ------------------------- Retained income
Balance, beginning of period 4,187.3 3,582.1 Adjustment for change
in accounting policy - 4.0 ------------------------- Adjusted
balance, beginning of period 4,187.3 3,586.1 Net income for the
period 245.7 385.3 Shares purchased - (206.6) Dividends (76.1)
(69.9) ------------------------- Balance, end of period 4,356.9
3,694.9 ------------------------- Total accumulated other
comprehensive income and retained income 4,409.3 3,757.8
------------------------- ------------------------- Shareholders'
equity, end of period $ 5,666.0 $ 4,978.5 -------------------------
------------------------- See notes to interim consolidated
financial statements. NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS JUNE 30, 2008 (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
("CP", "the Company" or "Canadian Pacific Railway") 2007 annual
consolidated financial statements, except as discussed below and in
Note 2 for the adoption of new accounting standards. 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. 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. 2 New accounting changes Financial Instrument and
Capital Disclosures The CICA has issued the following accounting
standards effective for fiscal years beginning on or after January
1, 2008: Section 3862 "Financial Instruments - Disclosures",
Section 3863 "Financial Instruments - Presentation", and Section
1535 "Capital Disclosures". Section 3862 "Financial Instruments -
Disclosures" and Section 3863 "Financial Instruments -
Presentation" replace Section 3861 "Financial Instruments -
Disclosure and Presentation", revising disclosures related to
financial instruments, including hedging instruments, and carrying
forward unchanged presentation requirements. Section 1535 "Capital
Disclosures" requires the Company to provide disclosures about the
Company's capital and how it is managed. The adoption of these new
accounting standards did not impact the amounts reported in the
Company's financial statements; however, it did result in expanded
note disclosure (see Note 14 and Note 20). Inventories Effective
January 1, 2008, the CICA has issued accounting standard Section
3031 "Inventories". Section 3031 "Inventories" provides guidance on
the method of determining the cost of the Company's materials and
supplies. The new accounting standard specifies that inventories
are to be valued at the lower of cost and net realizable value. The
standard requires the reversal of previously recorded write downs
to realizable value when there is clear evidence that net
realizable value has increased. The adoption of Section 3031
"Inventories" did not impact the Company's financial statements. 3
Future accounting changes In February 2008, the CICA issued
accounting standard Section 3064 "Goodwill and intangible assets",
replacing accounting standard Section 3062 "Goodwill and other
intangible assets" and accounting standard Section 3450 "Research
and development costs". The new Section will be applicable on a
retrospective basis with restatement to financial statements
relating to fiscal years beginning on or after October 1, 2008.
Accordingly, the Company will adopt the new standards for its
fiscal year beginning January 1, 2009. Section 3064 establishes
standards for the recognition, measurement, presentation and
disclosure of goodwill subsequent to its initial recognition and of
intangible assets by profit-oriented enterprises. Standards
concerning goodwill are unchanged from the standards included in
the previous Section 3062. The Company is currently evaluating the
impact of the adoption of this new Section. 4 Other charges For the
three months For the six months ended June 30 ended June 30 (in
millions) 2008 2007 2008 2007 ------------------------
---------------------- Amortization of discount on accruals
recorded at present value $ 1.6 $ 2.2 $ 3.1 $ 4.2 Other exchange
losses 0.6 2.5 1.9 2.0 Loss on sale of accounts receivable 1.1 1.4
2.7 2.7 Gains on non-hedging derivative instruments (0.9) (0.1)
(0.9) (0.4) Other 2.5 2.2 4.8 4.5 ------------------------
---------------------- Total other charges $ 4.9 $ 8.2 $ 11.6 $
13.0 ------------------------ ----------------------
------------------------ ---------------------- 5 Interest expense
For the three months For the six months ended June 30 ended June 30
(in millions) 2008 2007 2008 2007 ------------------------
---------------------- Interest expense $ 64.8 $ 52.3 $ 129.5 $
101.1 Interest income (1.9) (3.1) (6.7) (5.1)
------------------------ ---------------------- Total interest
expense $ 62.9 $ 49.2 $ 122.8 $ 96.0 ------------------------
---------------------- ------------------------
---------------------- 6 Income taxes During the six months ended
June 30, 2008, legislation was substantively enacted to reduce
provincial income tax rates. As a result of these changes, the
Company recorded a $15.7 million benefit in future tax liability
and income tax expense for the six months ended June 30, 2008,
related to the revaluation of its future income tax balances as at
December 31, 2007. For the three months ended June 30, 2008, the
Company recorded a $5.1 million benefit in future income tax
liability and income tax expenses. Cash taxes paid for the quarter
ended June 30, 2008, was $13.2 million (three months ended June 30,
2007 - cash taxes refunded was $1.1 million). Cash taxes paid in
the six months ended June 30, 2008 was $57.9 million (six months
ended June 30, 2007 - $8.1 million). 7 Earnings per share At June
30, 2008, the number of shares outstanding was 153.8 million (June
30, 2007 - 153.1 million). Basic earnings per share have been
calculated using net income for the period divided by the weighted
average number of CP 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
six months ended June 30 ended June 30 (in millions) 2008 2007 2008
2007 ------------------------ ---------------------- Weighted
average shares outstanding 153.7 154.3 153.6 154.9 Dilutive effect
of stock options 1.4 1.8 1.4 1.5 ------------------------
---------------------- Weighted average diluted shares outstanding
155.1 156.1 155.0 156.4 ------------------------
---------------------- ------------------------
---------------------- (in dollars) Basic earnings per share $ 1.01
$ 1.66 $ 1.60 $ 2.49 Diluted earnings per share $ 1.00 $ 1.64 $
1.59 $ 2.46 ------------------------ ----------------------
------------------------ ---------------------- For the three and
six months ended June 30, 2008, 613,933 and 617,825 options were
excluded from the computation of diluted earnings per share because
their effects were not dilutive (three and six months ended June
30, 2007 - nil and 2,425). 8 Restructuring and environmental
remediation At June, 2008, the provision for restructuring and
environmental remediation was $217.2 million (December 31, 2007 -
$234.0 million). This 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. Set out below is a reconciliation of CP's
liabilities associated with restructuring and environmental
remediation programs: Three months ended June 30, 2008 Opening
Amorti- Closing Balance zation Foreign Balance April 1 of Exchange
June 30 (in millions) 2008 Accrued Payments Discount Impact 2008
------------------------------------------------------- Labour
liability for terminations and severances $ 118.9 1.5 (8.3) 1.1
(0.3) $ 112.9 Other non-labour liabilities for exit plans 0.6 - - -
- 0.6 ------------------------------------------------------- Total
restructuring liability 119.5 1.5 (8.3) 1.1 (0.3) 113.5
-------------------------------------------------------
Environmental remediation program 105.5 1.0 (2.5) - (0.3) 103.7
------------------------------------------------------- Total
restructuring and environmental remediation liability $ 225.0 2.5
(10.8) 1.1 (0.6) $ 217.2
-------------------------------------------------------
------------------------------------------------------- Three
months ended June 30, 2007 Opening Amorti- Closing Balance zation
Foreign Balance April 1 Accrued of Exchange June 30 (in millions)
2007 (reduced) Payments Discount Impact 2007
------------------------------------------------------- Labour
liability for terminations and severances $ 176.1 (2.1) (9.6) 1.7
(2.5) $ 163.6 Other non-labour liabilities for exit plans 1.3 - - -
(0.2) 1.1 -------------------------------------------------------
Total restructuring liability 177.4 (2.1) (9.6) 1.7 (2.7) 164.7
-------------------------------------------------------
Environmental remediation program 119.2 1.1 (2.4) - (5.2) 112.7
------------------------------------------------------- Total
restructuring and environmental remediation liability $ 296.6 (1.0)
(12.0) 1.7 (7.9) $ 277.4
-------------------------------------------------------
------------------------------------------------------- Six months
ended June 30, 2008 Opening Amorti- Closing Balance zation Foreign
Balance Jan. 1 of Exchange June 30 (in millions) 2008 Accrued
Payments Discount Impact 2008
------------------------------------------------------- Labour
liability for terminations and severances $ 129.2 1.5 (20.6) 2.2
0.6 $ 112.9 Other non-labour liabilities for exit plans 0.8 - (0.2)
- - 0.6 -------------------------------------------------------
Total restructuring liability 130.0 1.5 (20.8) 2.2 0.6 113.5
-------------------------------------------------------
Environmental remediation program 104.0 1.9 (3.7) - 1.5 103.7
------------------------------------------------------- Total
restructuring and environmental remediation liability $ 234.0 3.4
(24.5) 2.2 2.1 $ 217.2
-------------------------------------------------------
------------------------------------------------------- Six months
ended June 30, 2007 Opening Amorti- Closing Balance zation Foreign
Balance Jan. 1 Accrued of Exchange June 30 (in millions) 2007
(reduced) Payments Discount Impact 2007
------------------------------------------------------- Labour
liability for terminations and severances $ 187.4 (2.1) (22.1) 3.2
(2.8) $ 163.6 Other non-labour liabilities for exit plans 1.4 -
(0.1) - (0.2) 1.1
------------------------------------------------------- Total
restructuring liability 188.8 (2.1) (22.2) 3.2 (3.0) 164.7
-------------------------------------------------------
Environmental remediation program 120.2 1.3 (3.0) - (5.8) 112.7
------------------------------------------------------- Total
restructuring and environmental remediation liability $ 309.0 (0.8)
(25.2) 3.2 (8.8) $ 277.4
-------------------------------------------------------
-------------------------------------------------------
Amortization of Discount is charged to income as "Other Charges",
"Compensation and Benefits" and "Purchased Services and Other" as
applicable. New accruals and adjustments to previous accruals are
reflected in "Compensation and Benefits" and "Purchased Services
and Other" as applicable. 9 Accounts Receivable As at March 31,
2008, the Company had an accounts receivable securitization
program. Under the terms of the program, the Company sold an
undivided co-ownership interest in $120.0 million of eligible
freight receivables to an unrelated trust. In the second quarter of
2008, the Company's accounts receivable securitization program was
terminated. As a result of this termination, in the Company's
Consolidated balance sheet, Accounts receivable and other current
assets increased by $120.0 million and in the Statement of
consolidated cash flows the Change in non-cash working capital
balances related to operations reflected an outflow of $120.0
million. As well, the related servicing asset and liability which
had previously been recognized are no longer required to be
maintained and were settled as part of the termination. 10
Investments Dakota, Minnesota & Eastern Railroad Corporation
("DM&E") Effective October 4, 2007, the Company acquired all of
the issued and outstanding shares of DM&E. The Company is
currently accounting for the purchase by the equity method until
such time as the acquisition has been approved by the United States
Surface Transportation Board. The purchase price was $1.499 billion
cash payment, including a $6 million post closing adjustment in the
first quarter of 2008, and transaction costs of $22 million
incurred to June 30, 2008. Future contingent payments of up to
approximately US$1.05 billion may become payable up to December 31,
2025 upon achievement of certain milestones. The equity income from
the Company's investment in DM&E, which is recorded net of tax,
was $13.4 million during the three months ended June 30, 2008 and
$24.4 million during the six months ended June 30, 2008. The
difference between cost and the underlying net book value of
DM&E at the date of acquisition was US$983.5 million. For the
three months ended June 30, 2008 the equity income from the
Company's investment in DM&E was reduced by $3.4 million to
recognize additional depreciation expense based on the assigned
cost using fair values at that date of acquisition and $0.5 million
to recognize amortization of the fair value of intangible assets
acquired. For the six months ended June 30, 2008, the additional
depreciation expense was $6.8 million and the amortization of
intangible assets was $0.9 million. Canadian Third Party
Asset-backed Commercial Paper ("ABCP") At June 30, 2008, the
Company held ABCP issued by a number of trusts with an original
cost of $143.6 million. At the dates the Company acquired these
investments they were rated R1 (High) by DBRS Limited ("DBRS"), the
highest credit rating issued for commercial paper, and backed by R1
(High) rated assets and liquidity agreements. These investments
matured during the third quarter of 2007 but, as a result of
liquidity issues in the ABCP market, did not settle on maturity. As
a result, the Company has classified its ABCP as long-term
investments after initially classifying them as Cash and cash
equivalents. On August 16, 2007, an announcement was made by a
group representing banks, asset providers and major investors on an
agreement in principle to a long-term proposal and interim
agreement to convert the ABCP into long-term floating rate notes
maturing no earlier than the scheduled maturity of the underlying
assets. On September 6, 2007, a pan-Canadian restructuring
committee consisting of major investors was formed. The committee
was created to propose a solution to the liquidity problem
affecting the ABCP and has retained legal and financial advisors to
oversee the proposed restructuring process. The ABCP in which the
Company has invested has not traded in an active market since
mid-August 2007 and there are currently no market quotations
available. On March 17, 2008, a court order was obtained which
commenced the process of restructuring the ABCP under the
protection of the Companies' Creditors Arrangement Act ("CCAA"). A
vote of the holders of the ABCP approving the restructuring
occurred on April 25, 2008, and on June 25, 2008 a court order
sanctioning the restructuring of the ABCP was made pursuant to the
CCAA. The sanction order remains subject to appeals by certain of
the holders of ABCP, and the restructuring is not expected to be
implemented until all appeals have been finally resolved. On March
20, 2008, the pan-Canadian restructuring committee issued an
Information Statement containing details about the proposed
restructuring. Based on this and other public information it is
estimated that, of the $143.6 million of ABCP in which the Company
has invested: - $12.5 million is represented by traditional
securitized assets and the Company will, on restructuring, receive
replacement TA Tracking long-term floating rate notes with a
maturity of approximately eight and one half years. As the
underlying assets are primarily comprised of cash and Canadian
Lines of Credit which are subject to an offer to repurchase at par
value, the Company has assumed that these notes will be repaid in
full significantly in advance of maturity; - $117.7 million is
represented by a combination of leveraged collateralized debt,
synthetic assets and traditional securitized assets and the Company
will, on restructuring, receive replacement senior Class A-1 and
Class A-2 and subordinated Class B and Class C long-term floating
rate notes with maturities of approximately eight years and nine
months. The Company expects to receive replacement notes with par
values as follows: - Class A-1: $59.7 million - Class A-2: $46.5
million - Class B: $8.0 million - Class C: $3.5 million The
replacement senior notes are expected to obtain a AA rating while
the replacement subordinated notes are likely to be unrated; and -
$13.4 million is represented by assets that have an exposure to US
mortgages and sub-prime mortgages. On restructuring, the Company is
likely to receive IA Tracking long-term floating rate notes with
maturities of approximately between five years and three months and
eight years and seven months. These notes may be rated, although at
this time the pan-Canadian restructuring committee has provided no
indication of the rating these notes may receive. The valuation
technique used by the Company to estimate the fair value of its
investment in ABCP at June 30, 2008, incorporates probability
weighted discounted cash flows considering the best available
public information regarding market conditions and other factors
that a market participant would consider for such investments. The
assumptions used in determining the estimated fair value reflect
the details included in the Information Statement issued by the
pan-Canadian restructuring committee and the risks associated with
the long-term floating rate notes. The interest rates and
maturities of the various long-term floating rate notes, discount
rates and credit losses modelled are: Probability weighted average
interest rate 3.2 per cent Weighted average discount rate 7.4 per
cent Maturity of long-term floating rate notes five to nine years
Credit losses rated notes(1): nil to 25 percent unrated notes(2):
15 to 100 percent (1) TA Tracking, Class A-1 and Class A-2 senior
notes and IA Tracking notes. (2) Class B and Class C subordinated
notes. Interest rates and credit losses vary by each of the
different replacement long-term floating rate notes to be issued as
each has different credit ratings and risks. Interest rates and
credit losses also vary by the different probable cash flow
scenarios that have been modelled. Discount rates vary dependent
upon the credit rating of the replacement long-term floating rate
notes. Discount rates have been estimated using Government of
Canada benchmark rates plus expected spreads for similarly rated
instruments with similar maturities and structure. An increase in
the estimated discount rates of 1 percent would reduce the
estimated fair value of the Company's investment in ABCP by
approximately $5 million. Maturities vary by different replacement
long-term floating rate notes as a result of the expected maturity
of the underlying assets. One of the cash flow scenarios modelled
is a liquidation scenario whereby, if the restructuring is not
successfully completed, recovery of the Company's investment is
through the liquidation of the underlying assets of the ABCP
trusts. In addition, while the likelihood is remote, there remains
a possibility that a liquidation scenario may occur even with a
successful approval of the restructuring plan. In addition,
assumptions have also been made as to the amount of restructuring
costs that the Company will bear. The probability weighted
discounted cash flows resulted in an estimated fair value of the
Company's ABCP of $100.8 million at June 30, 2008. This was
unchanged from the estimated fair value at March 31, 2008. However,
it represents a reduction from the estimated fair value at December
31, 2007 of $122.1 million. A charge to income of $21.3 million
before tax ($15.0 million after tax) was recorded in the first
quarter of 2008. This first quarter charge represents 15 percent of
the original value, bringing the aggregate write-down to a total of
approximately 30 percent of the original value. Sensitivity
analysis is presented below for key assumptions: (in millions)
Change in fair value of ABCP ------------------------- Probability
of successful restructuring 1 percent increase $ 0.4 1 percent
decrease $ (0.4) Interest rate 50 basis point increase $ 2.9 50
basis point decrease $ (2.9) Discount rate 50 basis point increase
$ (2.4) 50 basis point decrease $ 2.5 -------------------------
Continuing uncertainties regarding the value of the assets which
underlie the ABCP, the amount and timing of cash flows and the
outcome of the restructuring process could give rise to a further
material change in the value of the Company's investment in ABCP
which could impact the Company's near term earnings. 11 Long-term
debt During the second quarter of 2008, the Company issued US$400
million 5.75% 5-year notes, US$300 million 6.50% 10-year notes and
CDN$375 million 6.25% 10-year notes. Net proceeds from these
offerings were CDN$1,068.7 million. The notes are unsecured, but
carry a negative pledge. The proceeds from these offerings were
used to partially repay the bridge financing. 12 Shareholders'
equity An analysis of Common Share balances is as follows: For the
three months For the six months ended June 30 ended June 30 (in
millions) 2008 2007 2008 2007 ------------------------
---------------------- Share capital, beginning of period 153.6
155.2 153.3 155.5 Shares issued under stock option plans 0.2 0.4
0.5 0.8 Shares purchased - (2.5) - (3.2) ------------------------
---------------------- Share capital, end of period 153.8 153.1
153.8 153.1 ------------------------ ----------------------
------------------------ ---------------------- For the six months
ended June 30, 2008, there were no shares purchased (2.5 million
shares were purchased during the three months ended June 30, 2007
at an average price per share of $74.16 and for the six months
ended June 30, 2007 3.2 million shares were purchased at an average
price per share of $73.64). 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 retained earnings. When shares are purchased,
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. 13 Other comprehensive income and accumulated other
comprehensive income Components of other comprehensive income and
the related tax effects are as follows: For the three months ended
June 30 (in millions) 2008 Income Before tax Net of tax (expense)
tax amount recovery amount ---------------------------------
Unrealized foreign exchange gain on translation of U.S.
dollar-denominated long-term debt designated as a hedge of the net
investment in U.S. subsidiaries $ 8.0 $ (1.1) $ 6.9 Unrealized
foreign exchange loss on translation of the net investment in U.S.
subsidiaries (9.1) - (9.1) Realized gain on cash flow hedges
settled in the period (6.0) 1.9 (4.1) Decrease in unrealized
holding losses on cash flow hedges 21.0 (6.6) 14.4 Realized loss on
cash flow hedges settled in prior periods 1.7 0.5 2.2
--------------------------------- Other comprehensive income (loss)
$ 15.6 $ (5.3) $ 10.3 ---------------------------------
--------------------------------- For the three months ended June
30 (in millions) 2007 Income Before tax Net of tax (expense) tax
amount recovery amount --------------------------------- Unrealized
foreign exchange gain on translation of U.S. dollar-denominated
long-term debt designated as a hedge of the net investment in U.S.
subsidiaries $ 33.8 $ (5.2) $ 28.6 Unrealized foreign exchange loss
on translation of the net investment in U.S. subsidiaries (36.7) -
(36.7) Realized gain on cash flow hedges settled in the period
(4.8) 1.5 (3.3) Decrease in unrealized holding gains on cash flow
hedges (6.6) 2.2 (4.4) Realized loss on cash flow hedges settled in
prior periods 1.6 (0.5) 1.1 --------------------------------- Other
comprehensive loss $ (12.7) $ (2.0) $ (14.7)
--------------------------------- ---------------------------------
For the six months ended June 30 (in millions) 2008 Income Before
tax Net of tax (expense) tax amount recovery amount
--------------------------------- Unrealized foreign exchange loss
on translation of U.S. dollar-denominated long-term debt designated
as a hedge of the net investment in U.S. subsidiaries $ (35.0) $
4.7 $ (30.3) Unrealized foreign exchange gain on translation of the
net investment in U.S. subsidiaries 37.2 - 37.2 Realized gain on
cash flow hedges settled in the period (8.9) 3.6 (5.3) Decrease in
unrealized holding losses on cash flow hedges 15.2 (6.1) 9.1
Realized loss on cash flow hedges settled in prior periods 1.6 0.5
2.1 --------------------------------- Other comprehensive income $
10.1 $ 2.7 $ 12.8 ---------------------------------
--------------------------------- For the six months ended June 30
(in millions) 2007 Income Before tax Net of tax (expense) tax
amount recovery amount --------------------------------- Unrealized
foreign exchange gain on translation of U.S. dollar-denominated
long-term debt designated as a hedge of the net investment in U.S.
subsidiaries $ 37.7 $ (5.8) $ 31.9 Unrealized foreign exchange loss
on translation of the net investment in U.S. subsidiaries (40.9) -
(40.9) Realized gain on cash flow hedges settled in the period
(8.1) 2.8 (5.3) Decrease in unrealized holding gains on cash flow
hedges (6.5) 2.2 (4.3) Realized loss on cash flow hedges settled in
prior periods 1.6 (0.5) 1.1 --------------------------------- Other
comprehensive loss $ (16.2) $ (1.3) $ (17.5)
--------------------------------- ---------------------------------
Changes in the balances of each classification within Accumulated
other comprehensive income are as follows: Three months ended June
30, 2008 Opening Closing Balance, Balance, (in millions) Apr. 1,
Period June 30, 2008 change 2008 ---------------------------------
Foreign exchange gain on U.S. dollar debt designated as a hedge of
the net investment in U.S. subsidiaries $ 259.4 $ 6.9 $ 266.3
Foreign exchange loss on net investment in U.S. subsidiaries
(200.6) (9.1) (209.7) Unrealized effective losses on cash flow
hedges (12.7) 10.3 (2.4) Deferred loss on settled hedge instruments
(4.0) 2.2 (1.8) --------------------------------- Accumulated other
comprehensive income $ 42.1 $ 10.3 $ 52.4
--------------------------------- ---------------------------------
Three months ended June 30, 2007 Opening Closing Balance, Balance,
(in millions) Apr. 1, Period June 30, 2007 change 2007
--------------------------------- Foreign exchange gain on U.S.
dollar debt designated as a hedge of the net investment in U.S.
subsidiaries $ 238.6 $ 28.6 $ 267.2 Foreign exchange loss on net
investment in U.S. subsidiaries (172.7) (36.7) (209.4) Unrealized
effective gains on cash flow hedges 17.0 (7.7) 9.3 Deferred loss on
settled hedge instruments (5.3) 1.1 (4.2)
--------------------------------- Accumulated other comprehensive
income $ 77.6 $ (14.7) $ 62.9 ---------------------------------
--------------------------------- Six months ended June 30, 2008
Opening Closing Balance, Balance, (in millions) Jan. 1, Period June
30, 2008 change 2008 --------------------------------- Foreign
exchange gain on U.S. dollar debt designated as a hedge of the net
investment in U.S. subsidiaries $ 296.6 $ (30.3) $ 266.3 Foreign
exchange loss on net investment in U.S. subsidiaries (246.9) 37.2
(209.7) Unrealized effective losses on cash flow hedges (6.2) 3.8
(2.4) Deferred loss on settled hedge instruments (3.9) 2.1 (1.8)
--------------------------------- Accumulated other comprehensive
income $ 39.6 $ 12.8 $ 52.4 ---------------------------------
--------------------------------- Six months ended June 30, 2007
Adjustment Adjusted Opening for Opening Closing Balance, change in
Balance, Balance, (in millions) Jan. 1, accounting Jan. 1, Period
June 30, 2007 policy 2007 change 2007
------------------------------------------------------ Foreign
exchange gain on U.S. dollar debt designated as a hedge of the net
investment in U.S. subsidiaries $ 234.9 $ 0.4 $ 235.3 $ 31.9 $
267.2 Foreign exchange loss on net investment in U.S. subsidiaries
(168.5) - (168.5) (40.9) (209.4) Unrealized effective gains of cash
flow hedges - 18.9 18.9 (9.6) 9.3 Deferred loss on settled hedge
instruments - (5.3) (5.3) 1.1 (4.2)
------------------------------------------------------ Accumulated
other comprehensive income $ 66.4 $ 14.0 $ 80.4 $ (17.5) $ 62.9
------------------------------------------------------
------------------------------------------------------ During the
next twelve months, the Company expects $15.9 million of unrealized
holding gains on derivative instruments to be realized and
recognized in the Statement of Consolidated Income. Existing
derivative instruments designated as cash flow hedges will be fully
matured by December 31, 2009. 14 Financial instruments The fair
value of a financial instrument is the amount of consideration that
would be agreed upon in an arm's length transaction between willing
parties. The Company uses the following methods and assumptions to
estimate fair value of each class of financial instruments for
which carrying amounts are included in the Consolidated Balance
Sheet as follows: Loans and receivables ---------------------
Accounts receivable and other current assets - The carrying amounts
approximate fair value because of the short maturity of these
instruments. Investments - Long-term receivable balances are
carried at amortized cost based on an initial fair value as
determined at the time using discounted cash flow analysis and
observable market based inputs. Financial liabilities
--------------------- Accounts payable and accrued liabilities,
short-term borrowings, and deferred liabilities - The carrying
amounts approximate fair value because of the short maturity of
these instruments. Long-term debt - The carrying amount of
long-term debt is at amortized cost based on an initial fair value
as determined at the time using the quoted market prices for the
same or similar debt instruments. Available for sale
------------------ Investments - Certain equity investments which
are recorded on a cost basis have a carrying value that equals cost
as fair value cannot be reliably established as there are no quoted
prices in an active market for these investments. Held for trading
---------------- Derivative instruments that are designated as
hedging instruments are measured at fair value determined using the
quoted market prices for the same or similar instruments.
Derivative instruments that are not designated in hedging
relationships are classified as held for trading and measured at
fair value determined by using quoted market prices for similar
instruments and changes in fair values of such derivatives are
recognized in net income as they arise. Cash and cash equivalents -
The carrying amounts approximate fair value because of the short
maturity of these instruments. Investments - Canadian third party
asset-backed commercial paper (ABCP) is carried at fair value,
which has been determined using valuation techniques that
incorporate probability weighted discounted future cash flows
reflecting market conditions and other factors that a market
participant would consider (see Note 10). The table below
reconciles carrying value positions of the Company's financial
instruments with Consolidated Balance Sheet categories: (in
millions) June 30, 2008 -----------------------------------
Carrying Carrying Value of Value of Financial Other Balance Assets/
Assets/ Sheet Liabilities Liabilities Amount
----------------------------------- Assets Cash and cash
equivalents $ 80.9 $ - $ 80.9 -----------------------------------
Accounts receivable and other current assets Accounts receivable
603.5 - Current portion of crude oil swaps 17.5 - Current portion
of interest rate swaps 2.6 - Total return swap 2.3 - Other - 55.4
----------------------------------- 625.9 55.4 681.3
----------------------------------- Investments Equity investments
at cost 1.2 - Long-term receivables at amortized cost 11.3 - ABCP
100.8 - Other - 1,604.3 ----------------------------------- 113.3
1,604.3 1,717.6 ----------------------------------- Other assets
and deferred charges Long-term portion of crude oil swaps 9.0 -
Long-term portion of interest rate swaps 3.5 - Other - 1,455.5
----------------------------------- 12.5 1,455.5 1,468.0
----------------------------------- Liabilities Short-term
borrowings 255.0 - 255.0 -----------------------------------
Accounts payable and accrued liabilities Accounts payable and
accrued liabilities 782.9 - Current portion of foreign exchange
contracts on fuel 1.3 - Current portion of treasury rate lock - -
Current portion of interest rate swaps - - Other - 170.0
----------------------------------- 784.2 170.0 954.2
----------------------------------- Long-term debt maturing within
one year $ 238.4 $ - $ 238.4 -----------------------------------
Deferred liabilities Long-term portion of foreign exchange
contracts on fuel 0.7 - Long-term portion of currency forward 11.5
- Long-term portion of interest rate swaps - - Total return swap -
- Long-term portion of Accounts payable and accrued liabilities
42.6 - Other - 662.4 ----------------------------------- 54.8 662.4
717.2 ----------------------------------- Long-term debt 4,016.8 -
4,016.8 ----------------------------------- (in millions) December
31, 2007 ----------------------------------- Carrying Carrying
Value of Value of Financial Other Balance Assets/ Assets/ Sheet
Liabilities Liabilities Amount -----------------------------------
Assets Cash and cash equivalents $ 378.1 $ - $ 378.1
----------------------------------- Accounts receivable and other
current assets Accounts receivable 483.0 - Current portion of crude
oil swaps 12.9 - Current portion of interest rate swaps - - Total
return swap - - Other - 46.9 -----------------------------------
495.9 46.9 542.8 ----------------------------------- Investments
Equity investments at cost 1.3 - Long-term receivables at amortized
cost 17.5 - ABCP 122.1 - Other - 1,527.7
----------------------------------- 140.9 1,527.7 1,668.6
----------------------------------- Other assets and deferred
charges Long-term portion of crude oil swaps 8.5 - Long-term
portion of interest rate swaps - - Other - 1,227.1
----------------------------------- 8.5 1,227.1 1,235.6
----------------------------------- Liabilities Short-term
borrowings 229.7 - 229.7 -----------------------------------
Accounts payable and accrued liabilities Accounts payable and
accrued liabilities 750.6 - Current portion of foreign exchange
contracts on fuel 2.1 - Current portion of treasury rate lock 30.6
- Current portion of interest rate swaps (1.0) - Other - 198.5
----------------------------------- 782.3 198.5 980.8
----------------------------------- Long-term debt maturing within
one year $ 31.0 $ - $ 31.0 -----------------------------------
Deferred liabilities Long-term portion of foreign exchange
contracts on fuel 1.5 - Long-term portion of currency forward 15.7
- Long-term portion of interest rate swaps (4.5) - Total return
swap 3.8 - Long-term portion of Accounts payable and accrued
liabilities 41.9 - Other - 656.2
----------------------------------- 58.4 656.2 714.6
----------------------------------- Long-term debt 4,146.2 -
4,146.2 ----------------------------------- Carrying value and fair
value of financial instruments
------------------------------------------------------ The carrying
values of financial instruments equal or approximate their fair
values with the exception of long-term debt which has a carrying
value of approximately $4,255.2 million (December 31, 2007 -
$4,177.2 million) and a fair value of approximately $4,240.0
million at June 30, 2008 (December 31, 2007 - $4,302.6 million).
The fair value of publicly traded long-term debt is determined
based on market prices at June 30, 2008 and December 31, 2007,
respectively. The fair value of other long-term debt is estimated
based on rates currently available to the Company for long-term
borrowings, with terms and conditions similar to those borrowings
in place at the applicable Consolidated Balance Sheet date.
Financial risk management ------------------------- In the normal
course of operations, the Company is exposed to various market
risks such as foreign exchange risk, interest rate risk, other
price risk, as well as credit risk and liquidity risk. To manage
these risks, the Company utilizes a Financial Risk Management (FRM)
framework. The FRM goals and strategy are outlined below: FRM
objectives: - Maintaining sound financial condition as an ongoing
entity; - Optimizing earnings per share and cash flow; - Financing
operations of the group of CP companies at the optimal cost of
capital; and - Ensuring liquidity to all Canadian and U.S.
operations. In order to satisfy the objectives above, the Company
has adopted the following strategies: - Prepare multi-year planning
and budget documents at prevailing market rates to ensure clear,
corporate alignment to performance management and achievement of
targets; - Measure the extent of operating risk within the
business; - Identify the magnitude of the impact of market risk
factors on the overall risk of the business and take advantage of
natural risk reductions that arise from these relationships; and -
Utilize financial instruments, including derivatives to manage the
remaining residual risk to levels that fall within the risk
tolerance of the Company. Under the governance structure
established by the Company and approved by the Audit, Finance and
Financial Risk Management Committee ("Audit Committee"), the Board
of Directors has the authority to approve the Financial Risk
Management Policies of the Company. The Board has delegated to the
Audit Committee the accountability for ensuring a structure is in
place to ensure compliance with the individual Corporate Risk
Management Policies across the Company's operations. The policy
objective with respect to the utilization of derivative financial
instruments is to selectively mitigate the impact of fluctuations
in foreign exchange ("FX") rates, interest rates, fuel price, and
share price. The use of any derivative instruments is carried out
in accordance with approved trading limits and authorized
counterparties as specified in the policy and/or mandate. It is not
the Company's intent to use financial derivatives or commodity
instruments for trading or speculative purposes. Risk factors
------------ The following is a discussion of market, credit and
liquidity risks and related mitigation strategies that have been
identified through the FRM framework. This not an exhaustive list
of all risks, nor will the mitigation strategies eliminate all
risks listed. Risks related to the Company's investment in ABCP are
discussed in more detail in Note 10. Foreign exchange risk
--------------------- This risk refers to the fluctuation of
financial commitments, assets, liabilities, income or cash flows
due to changes in FX rates. The Company conducts business
transactions and owns assets in both Canada and the United States;
as a result, revenues and expenses are incurred in both Canadian
dollars and U.S. dollars. The Company's income is exposed to FX
risk largely in the following ways: - Translation of U.S. dollar
denominated revenues and expenses into Canadian dollars - When the
Canadian dollar changes relative to the U.S. dollar, income
reported in Canadian dollars will change. The impact of a
strengthening Canadian dollar on U.S. dollar revenues and expenses
will reduce net income because the Company has more U.S. dollar
revenues than expenses. This impact is excluded from the
sensitivity in the table below; and - Translation of U.S. dollar
denominated debt and other monetary items - A strengthening
Canadian dollar will reduce the Company's U.S. dollar denominated
debt in Canadian dollar terms and generate a FX gain on long-term
debt, which is recorded in income. The Company calculates FX on
long-term debt using the difference in FX rates at the beginning
and at the end of each reporting period. Other U.S. dollar
denominated monetary items will also be impacted by changes in FX
rates. Foreign exchange management In terms of net income,
excluding FX on long-term debt, mitigation of U.S. dollar FX
exposure is provided primarily through offsets created by revenues
and expenses incurred in the same currency. Where appropriate the
Company negotiates with U.S. customers and suppliers to reduce the
net exposure. The Company may from time to time reduce residual
exposure by hedging revenues through FX forward contracts. The
Company had no revenue forward sales of U.S. dollars outstanding at
June 30, 2008. The FX gains and losses on long-term debt are mainly
unrealized and can only be realized when U.S. dollar denominated
long-term debt matures or is settled. The Company also has long
term FX exposure on its investment in U.S. affiliates. A portion of
the Company's U.S. dollar denominated long-term debt has been
designated as a hedge of the net investment in self-sustaining
foreign subsidiaries. This designation has the effect of mitigating
volatility on net income by offsetting long-term FX gains and
losses on long-term debt. In addition, for long-term debt
denominated in U.S. dollars in Canada, the Company may enter into
currency forwards to hedge debt that is denominated in U.S.
dollars. Occasionally the Company will enter into short-term FX
forward contracts as part of its cash management strategy. The
table below depicts the quarterly impact to net income and other
comprehensive income of long-term debt had the exchange rate
increased or decreased by one cent. The impact on other U.S. dollar
denominated monetary items is not considered to be material. Three
months ended (in millions) June 30, 2008 -----------------------
Impact to Other compre- Impact to hensive Net income income
----------------------- 1 cent strengthening in Canadian dollar $
(1.1) $ (2.1) 1 cent weakening in Canadian dollar 1.1 2.1
----------------------- ----------------------- Note: All variables
excluding FX are held constant. Impact to net income would be
decreased by $10.9 million and to other comprehensive income would
be increased by $10.9 million if the net investment hedge was not
included in the above table. Foreign exchange forward contracts In
June 2007, the Company entered into a currency forward to fix the
exchange rate on US$400 million 6.250% Notes due 2011. This
derivative guarantees the amount of Canadian dollars that the
Company will repay when its US$400 million 6.25% note matures in
October 2011. During the three months ended June 30, 2008, the
Company recorded a loss of $9.7 million and a gain of $4.2 million
for the first half of 2008 to "Foreign exchange (gain) loss on
long-term debt". For the same periods in 2007, the Company recorded
a loss of $2.0 million. At June 30, 2008, the unrealized loss on
the forward was $11.5 million (December 31, 2007 - $15.7 million).
Interest rate risk ------------------ This refers to the risk that
the fair value or income and future cash flows of a financial
instrument will vary as a result of changes in market interest
rates. In order to manage funding needs or capital structure goals,
the Company enters into debt or capital lease agreements that are
subject to either fixed market interest rates set at the time of
issue or floating rates determined by on-going market conditions.
Debt subject to variable interest rates exposes the Company to
variability in interest expense, while debt subject to fixed
interest rates exposes the Company to variability in the fair value
of the debt. The table below depicts the floating and fixed
maturities for all financial assets and liabilities: (in millions)
June 30, 2008 ---------------------- At At floating fixed interest
interest rates rates ---------------------- Financial assets Cash
and short-term investments $ 80.9 $ - ABCP 100.8 - Financial
liabilities Short-term borrowings 255.0 - Long-term debt (1) 553.9
3,701.3 -------------------- -------------------- (1) Includes
impact of interest rate swaps Interest rate management To manage
interest rate exposure, the Company accesses diverse sources of
financing and manages borrowings in line with a targeted range of
capital structure, debt ratings, liquidity needs, maturity
schedule, and currency and interest rate profiles. In anticipation
of future debt issuance, the Company may enter into forward rate
agreements such as treasury rate locks, bond forwards or forward
starting swaps to substantially lock in all or a portion of the
effective future interest expense. The Company may also enter into
swap agreements to manage the mix of fixed and floating rate debt.
The table below depicts the quarterly impact to net income and
other comprehensive income had interest rates increased or
decreased by 50 basis points. Typically, as rates increase, net
income decreases. Three months ended (in millions) June 30, 2008
-------------------- Impact to Net income -------------------- 50
basis point increase in rates $ (0.5) 50 basis point decrease in
rates 0.5 -------------------- -------------------- Note: All
variables excluding interest rates are held constant. At June 30,
2008, the Company had outstanding interest rate swap agreements,
classified as a fair value hedge, for a notional amount of US$200
million or $203.9 million. The swap agreements convert a portion of
the Company's fixed-interest-rate liability into a variable-rate
liability for the 6.250% Notes. During the three months ended June
30, 2008, the Company recorded a gain of $0.9 million (three months
ended June 30, 2007 - losses of $0.3 million) to "Interest
expense". For the six months ended June 30, 2008 this gain was $1.1
million (six months ended June 30, 2007 - losses of $0.8 million).
At June 30, 2008, the unrealized gain, derived from the fair value
of the swap, was $6.1 million (December 31, 2007 - $5.5 million).
The following table discloses the terms of the swap agreements at
June 30, 2008: Expiration October 15, 2011 Notional amount of
principal (in CDN$ millions) $ 203.9 Fixed receiving rate 6.250%
Variable paying rate - YTD 4.859%
---------------------------------------------------------------------
Based on U.S. three-month LIBOR. During 2007, the Company entered
into derivative agreements, which were designated as cash flow
hedges, that established the benchmark rate on $350.0 million of 30
year debt that was expected to be issued. These hedges were de-
designated on May 13, 2008 when it was no longer probable that the
Company would issue 30 year debt. On May 23, 2008, the fair value
of these instruments was a loss of $30.9 million at the time of the
issuance of the debt and the settlement of the derivative
instrument. A gain of $1.3 million from the date of de-designation
to the date of settlement of the derivative instrument was recorded
in net income. Losses of $0.2 and $1.1 million due to some
ineffectiveness were recognized and recorded in net income during
the 3 months and six months ended June 30, 2008, respectively.
Effective hedge losses of $28.7 million will be deferred in
accumulated other comprehensive income and will be amortized in
earnings as an adjustment to interest expense. Stock-based
compensation risk ----------------------------- This risk refers to
the probability of increased compensation expense due to the
increase in the Company's share price. The Company's compensation
expense is subject to volatility due to the movement of share price
and its impact on the value of certain management and director
stock-based compensation programs. These programs, as described in
the management proxy circular, include deferred share units,
restricted share units, performance share units and share
appreciation rights. As the share price appreciates, these
instruments are marked to market increasing compensation expense.
Stock-based compensation expense management To minimize the
volatility to compensation expense created by changes in share
price, the Company entered into a Total Return Swap ("TRS") to
reduce the volatility and total cost to the Company over time of
the four types of stock-based compensation programs noted above.
These are derivatives that provide price appreciation and
dividends, in return for a charge by the counterparty. The swaps
minimize volatility to compensation expense by providing a gain to
substantially offset increased compensation expense as the share
price increases and a loss to offset reduced compensation expense
when the share price falls. If stock-based compensation share units
fall out of the money after entering the program, the loss
associated with the swap would no longer be offset by any
compensation expense reductions. The table below depicts the
quarterly impact to net income as a result of the TRS had the share
price increased or decreased $1 from the closing share price on
June 30, 2008. Three months ended (in millions) June 30, 2008
-------------------- Impact to Net income -------------------- $1
increase in share price $ 1.7 $1 decrease in share price (1.7)
-------------------- -------------------- Note: All variables
excluding share price are held constant. During the three months
ended June 30, 2008, Compensation and benefits expense decreased by
$3.3 million (three months ended June 30, 2007 - $16.5 million) and
$6.0 million for the six months ended June 30, 2008 (six months
ended June 30, 2007 - $22.8 million) due to unrealized gains for
these swaps. At June 30, 2008, the unrealized gain on the swap was
$2.3 million (December 31, 2007 - unrealized loss of $3.8 million).
Commodity risk -------------- The Company is exposed to commodity
risk related to purchases of diesel fuel and the potential
reduction in net income due to increases in the price of diesel.
Because fuel expense constitutes a large portion of the Company's
operating costs, volatility in diesel fuel prices can have a
significant impact on the Company's income. Items affecting
volatility in diesel prices include, but are not limited to,
fluctuations in world markets for crude oil and distillate fuels,
which can be affected by supply disruptions and geopolitical
events. Fuel price management The impact of variable fuel expense
is mitigated substantially through fuel recovery programs which
apportion incremental changes in fuel prices to shippers through
price indices, tariffs, and, by contract, within agreed upon
guidelines. While these programs provide effective and meaningful
coverage, residual exposure remains as the fuel expense risk cannot
be completely recovered from shippers due to timing and volatility
in the market. The Company continually monitors residual exposure,
and where appropriate, may enter into derivative instruments.
Derivative instruments used by the Company to manage fuel expense
risk may include, but are not limited to, swaps and options for
crude oil and diesel. In addition, the Company may combine FX
forward contracts with fuel derivatives to effectively hedge the
risk associated with FX variability on fuel purchases and commodity
hedges. The table below depicts the quarterly impact to net income
(excluding recoveries through pricing mechanisms) and other
comprehensive income as a result of our crude forward contracts had
the price of West Texas Intermediate ("WTI") changed by $1 for the
three months ended June 30, 2008: Three months ended (in millions)
June 30, 2008 --------------------------- Impact to Other Impact to
Comprehensive Net income income --------------------------- $1
increase in price per barrel $ 0.1 $ 0.2 $1 decrease in price per
barrel (0.1) (0.2) ---------------------------
--------------------------- Note: All variables excluding WTI per
barrel are held constant. At June 30, 2008, the Company had crude
forwards contracts, which are accounted for as cash flow hedges, to
purchase approximately 258,000 barrels over the 2008-2009 period at
average quarterly prices ranging from US$35.17 to US$38.19 per
barrel. This represents approximately 2% of estimated fuel
purchases in 2008 and 2009. At June 30, 2008, the unrealized gain
on these forward contracts was $26.6 million (December 31, 2007 -
$21.4 million). At June 30, 2008, the Company had FX forward
contracts (in conjunction with the crude purchases above), which
are accounted for as cash flow hedges, totalling US$9.4 million
over the 2008-2009 period at exchange rates ranging from 1.2276 to
1.2611. At June 30, 2008, the unrealized loss on these forward
contracts was $1.9 million (December 31, 2007 - $3.5 million). For
the three months ended June 30, 2008, fuel expense was reduced by
$5.2 million (three months ended June 30, 2007 - $4.8 million) as a
result of $5.8 million in realized gains (three months ended June
30, 2007 - $5.6 million) arising from settled swaps, partially
offset by $0.7 million in realized losses (three months ended June
30, 2007 - $0.8 million) arising from the settled FX forward
contracts. For the six months ended June 30, 2008, fuel expense was
reduced by $8.8 million (six months ended June 30, 2007 - $9.4
million) as a result of $10.1 million in realized gains (six months
ended June 30, 2007 - $10.5 million) arising from settled swaps,
partially offset by $1.3 million in realized losses (six months
ended June 30, 2007 - $1.1 million) arising from settled FX forward
contracts. Credit risk ----------- Credit risk refers to the
possibility that a customer or counterparty will fail to fulfil its
obligations under a contract and as a result, create a financial
loss for the Company. The Company's credit risk regarding its
investment in ABCP are discussed in more detail in Note 10. Credit
risk management The railway industry services predominantly
financially established customers and the Company has experienced
limited financial loss with respect to credit risk. The credit
worthiness of customers is assessed using credit scores supplied by
a third party, and through direct monitoring of their financial
well-being on a continual basis. The Company establishes guidelines
for customer credit limits and should thresholds in these areas be
reached, appropriate precautions are taken to improve
collectibility. Pursuant to their respective terms, accounts
receivable are aged as follows at June 30, 2008: (in millions) Up
to date $ 463.7 Under 30 days past due 81.0 30-60 days past due
22.3 61-90 days past due 8.6 Over 91 days past due 27.9
------------ $ 603.5 ------------ ------------ Counterparties to
financial instruments expose the Company to credit losses in the
event of non-performance. Counterparties for derivative and cash
transactions are limited to high credit quality financial
institutions, which are monitored on an ongoing basis. Counterparty
credit assessments are based on the financial health of the
institutions and their credit ratings from external agencies. With
exception of ABCP, the Company does not anticipate non-performance
that would materially impact the Company's financial statements.
With the exception of ABCP, the Company believes there are no
significant concentrations of credit risk. The maximum exposure to
credit risk can be taken from our financial assets values reported
in the table reconciling the carrying value positions of the
Company's financial instruments with Consolidated Balance Sheet
categories and as discussed in Note 19 under guarantees. Liquidity
risk -------------- The Company monitors and manages its liquidity
risk to ensure access to sufficient funds to meet operational and
investing requirements. Liquidity risk management The Company has
long-term debt ratings of Baa3, BBB, and BBB from Moody's Investors
Service, Inc. ("Moody's"), Standard and Poor's Corporation
("S&P"), and DBRS respectively. The S&P rating has a
negative outlook, while the ratings of Moody's and DBRS have a
stable outlook. The Company intends to manage its capital structure
and liquidity at levels that sustain an investment grade rating.
The Company has a five year revolving credit facility of $945
million, with an accordion feature to $1.15 billion, of which $351
million was available on June 30, 2008. This facility is arranged
with a core group of highly rated international financial
institutions and they incorporate pre-agreed pricing. The revolving
credit facility is available on next day terms. The Company plans
to access both Canadian and U.S. capital markets to secure long
term financing for the temporary credit facility. Market conditions
allowing, the Company will access debt capital markets in various
maturities periodically prior to the expiry of the temporary credit
facility in order to minimize risk and optimize pricing. It is the
Company's intention to manage its long term financing structure to
maintain its investment grade rating. The Company may decide to
enter certain derivative instruments to reduce interest rate and
foreign exchange exposure in advance of these issuances. Surplus
cash is invested into a range of short dated money market
instruments meeting or exceeding the parameters of the Company's
investment policy. The table below reflects the contractual
maturity of the Company's undiscounted cash flows for its financial
liabilities and derivatives: (in millions) As at June 30, 2008
------------------------------------------- 2009- 2008 2011 2012+
Total ------------------------------------------- Financial
liabilities Short-term borrowings $ 255.0 $ - $ - $ 255.0 Accounts
payable and accrued liabilities 782.9 42.6 - 825.5 Foreign exchange
contracts on fuel 0.7 1.3 - 2.0 Currency forward - 13.0 - 13.0
Long-term debt 32.5 1,193.9 3,642.4 4,868.8
-------------------------------------------
------------------------------------------- 15 Additions to
investments and other assets Additions to investment and other
assets includes the acquisition of locomotives and freight car
assets of $57.4 million and $192.1 million for the three and six
months ended June 30, 2008, respectively, (three and six months
ended June 30, 2007 - $12.0 million). These assets were purchased
in anticipation of a sale and lease back arrangement with a
financial institution. 16 Stock-based compensation In 2008, under
CP's stock option plans, the Company issued 1,360,400 options to
purchase Common Shares at the weighted average price of $71.59 per
share, based on the closing price on the grant date. In tandem with
these options, 425,650 stock appreciation rights were issued at the
weighted average exercise price of $71.54. 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.
Other options only vest if certain performance targets are achieved
and expire approximately five years after the grant date. The
following is a summary of the Company's fixed stock option plans as
of June 30 (including options granted under the Directors' Stock
Option Plan, which was suspended in 2003): 2008 2007
-------------------------- -------------------------- Weighted
Weighted average average Number of exercise Number of exercise
options price options price --------------------------
-------------------------- Outstanding, January 1 6,981,108 43.97
6,815,494 $ 38.50 New options granted 1,360,400 71.59 1,302,700
62.59 Exercised (493,460) 34.40 (811,856) 31.78 Forfeited/
cancelled (85,050) 47.09 (111,725) 39.38 ------------ ------------
Outstanding, June 30 7,762,998 49.39 7,194,613 $ 43.61
-------------------------- --------------------------
-------------------------- -------------------------- Options
exercisable at June 30 4,637,348 38.33 4,239,713 $ 34.01
-------------------------- --------------------------
-------------------------- -------------------------- 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. Under the fair value method, the fair value of
options at the grant date was $14.1 million for options issued in
the first six months of 2008 (first six months of 2007 - $11.3
million). The weighted average fair value assumptions were
approximately: For the six months ended June 30 2008 2007
------------------------- Expected option life (years) 4.39 4.00
Risk-free interest rate 3.54% 3.90% Expected stock price volatility
22% 22% Expected annual dividends per share $ 0.99 $ 0.90 Weighted
average fair value of options granted during the year $ 15.12 $
12.96 ------------------------- ------------------------- 17
Pensions and other benefits The total benefit cost for the
Company's defined benefit pension plans and post-retirement
benefits for the three months ended June 30, 2008, was $19.9
million (three months ended June 30, 2007 - $27.1 million) and for
the six months ended June 30, 2008, was $39.0 million (six months
ended June 30, 2007 - $54.5 million). 18 Significant customers
During the first six months of 2008, one customer comprised 12.3%
of total revenue (first six months of 2007 - 11.7%). At June 30,
2008, that same customer represented 5.4% of total accounts
receivable (June 30, 2007 - 5.2%). 19 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 June 30,
2008, 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. During the quarter ended March 31, 2008, the Canadian
Transportation Agency announced a Decision directing a downward
adjustment of the railway maximum revenue entitlement for movement
of regulated grain under the Canada Transportation Act, for the
period from August 1, 2007 to July 31, 2008. The Company has
applied to the Federal Court of Appeal for leave to appeal the
decision. A provision considered adequate by management is
maintained for the prospective adjustment. The retroactive
component of the adjustment, which is estimated to be $23 million,
is not considered to be legally supportable and as such a provision
has not been made. Capital commitments At June 30, 2008, the
Company had multi-year capital commitments of $566.5 million,
mainly for locomotive overhaul agreements, in the form of signed
contracts. Payments for these commitments are due in 2008 through
2022. Operating lease commitments At June 30, 2008, minimum
payments under operating leases were estimated at $707.7 million in
aggregate, with annual payments in each of the next five years of:
2008 - $71.1 million; 2009 - $114.5 million; 2010 - $92.6 million;
2011 - $81.9 million; 2012 - $76.8 million. Guarantees At June 30,
2008, the Company had residual value guarantees on operating lease
commitments of $246.9 million and certain guarantees related to the
Company's investment in the DM&E, which include minimum lease
payments of $58.5 million, residual value guarantees of $11.6
million, and a line of credit of US$25 million. 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 June 30, 2008, these accruals amounted to
$6.0 million. 20 Capital disclosures The Company's objectives when
managing its capital are: - to maintain a flexible capital
structure which optimizes the cost of capital at acceptable risk
while providing an appropriate return to its shareholders; - to
manage capital in a manner which balances the interests of equity
and debt holders; - to manage capital in a manner that will
maintain compliance with its financial covenants; - to manage its
long term financing structure to maintain its investment grade
rating; and - to maintain a strong capital base so as to maintain
investor, creditor and market confidence and to sustain future
development of the business. The Company defines its capital as
follows: - shareholders' equity; - long-term debt, including the
current portion; and - short-term borrowing. The Company manages
its capital structure and makes adjustments to it in accordance
with the aforementioned objectives, as well as in the light of
changes in economic conditions and the risk characteristics of the
underlying assets. In order to maintain or adjust its capital
structure, the Company may adjust the amount of dividends paid to
shareholders, purchase shares for cancellation pursuant to normal
course issuer bids, issue new shares, issue new debt, and/or issue
new debt to replace existing debt with different characteristics.
The Company monitors capital using a number of key financial
metrics, including: - net-debt to net-debt-plus-equity; and -
interest coverage ratio: earnings before interest and taxes
("EBIT") to interest expense. Both of these metrics have no
standardized meanings prescribed by GAAP and, therefore, are
unlikely to be comparable to similar measures of other companies.
The calculations for the aforementioned key financial metrics are
as follows: Net-debt to net-debt-plus-equity
-------------------------------- Net debt, which is a non-GAAP
measure, is the sum of long-term debt, long-term debt maturing
within one year and short-term borrowing, less cash and short-term
investments. This sum is divided by total net debt plus total
shareholders' equity as presented on our Consolidated Balance
Sheet. Interest coverage ratio ----------------------- EBIT, which
is a non-GAAP measure that is calculated, on a twelve month rolling
basis, as revenues less operating expenses, less change in
estimated fair value of ABCP, other income and charges, and equity
income in DM&E, divided by interest expense. The following
table illustrates the financial metrics and their corresponding
guidelines currently in place:
---------------------------------------------------------------------
June 30, June 30, (in millions) Guidelines 2008 2007
---------------------------------------------------------------------
Long-term debt $ 4,016.8 $ 3,046.6 Long-term debt maturing within
one year 238.4 30.6 Short-term borrowing 255.0 - Less: Cash and
cash equivalents (80.9) (392.1)
---------------------------------------------------------------------
Net Debt(1) $ 4,429.3 $ 2,685.1
---------------------------------------------------------------------
---------------------------------------------------------------------
Shareholders' equity $ 5,666.0 $ 4,978.5 Net debt 4,429.3 2,685.1
---------------------------------------------------------------------
Net Debt plus Equity(1) $ 10,095.3 $ 7,663.6
---------------------------------------------------------------------
---------------------------------------------------------------------
Revenues less operating expenses $ 1,076.5 $ 1,156.2 Less: ABCP
(42.8) - Other income and charges (28.2) (26.3) Equity income in
DM&E 36.7 -
---------------------------------------------------------------------
EBIT(1)(2) $ 1,042.2 $ 1,129.9
---------------------------------------------------------------------
---------------------------------------------------------------------
Net debt $ 4,429.3 $ 2,685.1 Net debt plus equity $ 10,095.3 $
7,663.6
---------------------------------------------------------------------
Net-debt to Net-debt- plus-equity(1) No more than 50.0% 43.9% 35.0%
---------------------------------------------------------------------
---------------------------------------------------------------------
EBIT $ 1,042.2 $ 1,129.9 Interest expense $ 231.1 $ 194.6
---------------------------------------------------------------------
Interest Coverage Ratio(1)(2) No less than 4.0 4.5 5.8
---------------------------------------------------------------------
---------------------------------------------------------------------
(1) These earnings measures have no standardized meanings
prescribed by GAAP and, therefore, are unlikely to be comparable to
similar measures of other companies. (2) The balance is calculated
on a rolling twelve month basis. The Company's financial objectives
and strategy as described above have remained substantially
unchanged over the last two fiscal years. The objectives are
reviewed on an annual basis and financial metrics and their
guidelines are monitored on a quarterly basis. The Company believes
that adherence to these guidelines increases its ability to access
to capital at a reasonable cost and maintain credit ratings of an
investment grade. The Company believes that these ratios are within
reasonable limits, in light of the relative size of the Company and
its capital management objectives. The Company is also subject to
financial covenants in the bridge financing agreement obtained for
the acquisition of DM&E and revolver loan agreements. Net-debt
to net-debt-plus-equity and interest coverage ratio are two
financial metrics that provide indicators as to whether the Company
will be in compliance with its financial covenants. The Company is
in compliance with all financial covenants. Summary of Rail Data
-------------------- Second Quarter
------------------------------------------- 2008 2007 Variance %
---------- ---------- ---------- ---------- Financial (millions,
except --------------------------- per share data and ratios)
-------------------------- Revenues -------- Freight revenue
$1,193.1 $1,174.1 $ 19.0 1.6 Other revenue 27.2 41.4 (14.2) (34.3)
---------- ---------- ---------- 1,220.3 1,215.5 4.8 0.4 ----------
---------- ---------- Operating expenses ------------------
Compensation and benefits 315.5 329.8 (14.3) (4.3) Fuel 260.3 193.7
66.6 34.4 Materials 56.5 55.6 0.9 1.6 Equipment rents 46.1 57.3
(11.2) (19.5) Depreciation and amortization 124.7 119.1 5.6 4.7
Purchased services and other 166.1 152.3 13.8 9.1 ----------
---------- ---------- 969.2 907.8 61.4 6.8 ---------- ----------
---------- Operating income 251.1 307.7 (56.6) (18.4) Equity income
(net of tax) in Dakota, Minnesota & Eastern Railroad
Corporation (DM&E) (13.4) - (13.4) - Other charges 4.9 8.2
(3.3) (40.2) Interest expense 62.9 49.2 13.7 27.8 Income tax
expense before foreign exchange (gains) losses on long-term debt
and other specified items(1) 46.3 75.5 (29.2) (38.7) ----------
---------- ---------- Income before foreign exchange (gains) losses
on long-term debt and other specified items(1) 150.4 174.8 (24.4)
(14.0) ---------- ---------- ---------- Foreign exchange (gains)
losses ------------------------------- on long-term debt (FX on
LTD) ----------------------------- FX on LTD (6.8) (88.6) 81.8 -
Income tax on FX on LTD(2) 2.3 23.8 (21.5) - ---------- ----------
---------- FX on LTD (net of tax) (4.5) (64.8) 60.3 - Other
specified items --------------------- Change in estimated fair
value of Canadian third party asset-backed commercial paper (ABCP)
- - - - Income tax on special charges - - - - ---------- ----------
---------- Change in estimated fair value of ABCP (net of tax) - -
- - Income tax benefits due to rate reductions on opening future
income tax balances - (17.1) 17.1 - ---------- ----------
---------- Net income $ 154.9 $ 256.7 $ (101.8) (39.7) ----------
---------- ---------- ---------- ---------- ---------- Earnings per
share (EPS) ------------------------ Basic earnings per share $
1.01 $ 1.66 $ (0.65) (39.2) Diluted earnings per share $ 1.00 $
1.64 $ (0.64) (39.0) EPS before FX on LTD and
------------------------ other specified items(1)
------------------------ Basic earnings per share $ 0.98 $ 1.13 $
(0.15) (13.3) Diluted earnings per share $ 0.97 $ 1.12 $ (0.15)
(13.4) Weighted average (avg) number of shares outstanding
(millions) 153.7 154.3 (0.6) (0.4) Weighted avg number of diluted
shares outstanding (millions) 155.1 156.1 (1.0) (0.6) Operating
ratio(1)(3)(%) 79.4 74.7 4.7 - ROCE before FX on LTD and other
specified items (after tax)(1)(3)(%) 9.2 10.3 (1.1) - Net debt to
net debt plus equity (%) 43.9 35.0 8.9 - EBIT before FX on LTD and
other specified items(1)(3) (millions) $ 259.6 $ 299.5 $ (39.9)
(13.3) EBITDA before FX on LTD and other specified items(1)(3)
(millions) $ 384.3 $ 418.6 $ (34.3) (8.2) Year-to-date
------------------------------------------- 2008 2007 Variance %
---------- ---------- ---------- ---------- Financial (millions,
except --------------------------- per share data and ratios)
-------------------------- Revenues -------- Freight revenue
$2,317.5 $2,265.0 $ 52.5 2.3 Other revenue 49.7 66.4 (16.7) (25.2)
---------- ---------- ---------- 2,367.2 2,331.4 35.8 1.5
---------- ---------- ---------- Operating expenses
------------------ Compensation and benefits 643.8 662.3 (18.5)
(2.8) Fuel 490.5 364.9 125.6 34.4 Materials 122.0 118.0 4.0 3.4
Equipment rents 92.0 112.8 (20.8) (18.4) Depreciation and
amortization 244.6 237.7 6.9 2.9 Purchased services and other 325.0
298.7 26.3 8.8 ---------- ---------- ---------- 1,917.9 1,794.4
123.5 6.9 ---------- ---------- ---------- Operating income 449.3
537.0 (87.7) (16.3) Equity income (net of tax) in Dakota, Minnesota
& Eastern Railroad Corporation (DM&E) (24.4) - (24.4) -
Other charges 11.6 13.0 (1.4) (10.8) Interest expense 122.8 96.0
26.8 27.9 Income tax expense before foreign exchange (gains) losses
on long-term debt and other specified items(1) 72.5 130.6 (58.1)
(44.5) ---------- ---------- ---------- Income before foreign
exchange (gains) losses on long-term debt and other specified
items(1) 266.8 297.4 (30.6) (10.3) ---------- ---------- ----------
Foreign exchange (gains) losses ------------------------------- on
long-term debt (FX on LTD) ----------------------------- FX on LTD
9.5 (97.2) 106.7 - Income tax on FX on LTD(2) (3.4) 26.4 (29.8) -
---------- ---------- ---------- FX on LTD (net of tax) 6.1 (70.8)
76.9 - Other specified items --------------------- Change in
estimated fair value of Canadian third party asset-backed
commercial paper (ABCP) 21.3 - 21.3 - Income tax on special charges
(6.3) - (6.3) - ---------- ---------- ---------- Change in
estimated fair value of ABCP (net of tax) 15.0 - 15.0 - Income tax
benefits due to rate reductions on opening future income tax
balances - (17.1) 17.1 - ---------- ---------- ---------- Net
income $ 245.7 $ 385.3 $ (139.6) (36.2) ---------- ----------
---------- ---------- ---------- ---------- Earnings per share
(EPS) ------------------------ Basic earnings per share $ 1.60 $
2.49 $ (0.89) (35.7) Diluted earnings per share $ 1.59 $ 2.46 $
(0.87) (35.4) EPS before FX on LTD and ------------------------
other specified items(1) ------------------------ Basic earnings
per share $ 1.74 $ 1.92 $ (0.18) (9.4) Diluted earnings per share $
1.72 $ 1.90 $ (0.18) (9.5) Weighted average (avg) number of shares
outstanding (millions) 153.6 154.9 (1.3) (0.8) Weighted avg number
of diluted shares outstanding (millions) 155.0 156.4 (1.4) (0.9)
Operating ratio(1)(3)(%) 81.0 77.0 4.0 - ROCE before FX on LTD and
other specified items (after tax)(1)(3)(%) 9.2 10.3 (1.1) - Net
debt to net debt plus equity (%) 43.9 35.0 8.9 - EBIT before FX on
LTD and other specified items(1)(3) (millions) $ 462.1 $ 524.0 $
(61.9) (11.8) EBITDA before FX on LTD and other specified
items(1)(3) (millions) $ 706.7 $ 761.7 $ (55.0) (7.2) (1) These
earnings measures have no standardized meanings prescribed by GAAP
and may not be comparable to similar measures of other companies.
See note on non-GAAP earnings measures attached to commentary. (2)
Income tax on FX on LTD is discussed in the MD&A in the "Other
Income Statement Items" section - "Income Taxes". (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) = earnings before
after-tax interest expense (last 12 months) divided by average net
debt plus equity. Operating ratio: Operating expenses divided by
revenues. Second Quarter
------------------------------------------- 2008 2007 Variance %
---------- ---------- ---------- ---------- Commodity Data
-------------- Freight Revenues (millions) - Grain $ 203.0 $ 224.0
$ (21.0) (9.4) - Coal 172.4 162.4 10.0 6.2 - Sulphur and
fertilizers 137.9 144.5 (6.6) (4.6) - Forest products 58.4 74.3
(15.9) (21.4) - Industrial and consumer products 185.3 158.8 26.5
16.7 - Automotive 86.7 88.5 (1.8) (2.0) - Intermodal 349.4 321.6
27.8 8.6 ---------- ---------- ---------- Total Freight Revenues
$1,193.1 $1,174.1 $ 19.0 1.6 ---------- ---------- ----------
Millions of Revenue Ton-Miles (RTM) - Grain 6,775 7,309 (534) (7.3)
- Coal 6,118 5,834 284 4.9 - Sulphur and fertilizers 5,552 6,106
(554) (9.1) - Forest products 1,438 2,019 (581) (28.8) - Industrial
and consumer products 4,655 4,177 478 11.4 - Automotive 645 659
(14) (2.1) - Intermodal 7,296 7,424 (128) (1.7) ----------
---------- ---------- Total RTMs 32,479 33,528 (1,049) (3.1)
---------- ---------- ---------- Freight Revenue per RTM (cents) -
Grain 3.00 3.06 (0.06) (2.0) - Coal 2.82 2.78 0.04 1.4 - Sulphur
and fertilizers 2.48 2.37 0.11 4.6 - Forest products 4.06 3.68 0.38
10.3 - Industrial and consumer products 3.98 3.80 0.18 4.7 -
Automotive 13.44 13.43 0.01 0.1 - Intermodal 4.79 4.33 0.46 10.6
Freight Revenue per RTM 3.67 3.50 0.17 4.9 Carloads (thousands) -
Grain 87.7 91.2 (3.5) (3.8) - Coal 77.2 75.0 2.2 2.9 - Sulphur and
fertilizers 53.4 61.3 (7.9) (12.9) - Forest products 23.1 29.9
(6.8) (22.7) - Industrial and consumer products 86.4 79.2 7.2 9.1 -
Automotive 40.1 45.7 (5.6) (12.3) - Intermodal 315.1 311.9 3.2 1.0
---------- ---------- ---------- Total Carloads 683.0 694.2 (11.2)
(1.6) ---------- ---------- ---------- Freight Revenue per Carload
- Grain $ 2,315 $ 2,456 $ (141) (5.7) - Coal 2,233 2,165 68 3.1 -
Sulphur and fertilizers 2,582 2,357 225 9.5 - Forest products 2,528
2,485 43 1.7 - Industrial and consumer products 2,145 2,005 140 7.0
- Automotive 2,162 1,937 225 11.6 - Intermodal 1,109 1,031 78 7.6
Freight Revenue per Carload $ 1,747 $ 1,691 $ 56 3.3 Year-to-date
------------------------------------------- 2008 2007 Variance %
---------- ---------- ---------- ---------- Commodity Data
-------------- Freight Revenues (millions) - Grain $ 435.4 $ 443.6
$ (8.2) (1.8) - Coal 312.5 293.7 18.8 6.4 - Sulphur and fertilizers
268.6 266.9 1.7 0.6 - Forest products 116.4 146.3 (29.9) (20.4) -
Industrial and consumer products 352.7 310.7 42.0 13.5 - Automotive
158.8 170.6 (11.8) (6.9) - Intermodal 673.1 633.2 39.9 6.3
---------- ---------- ---------- Total Freight Revenues $2,317.5
$2,265.0 $ 52.5 2.3 ---------- ---------- ---------- Millions of
Revenue Ton-Miles (RTM) - Grain 14,273 14,793 (520) (3.5) - Coal
11,204 10,417 787 7.6 - Sulphur and fertilizers 10,982 11,090 (108)
(1.0) - Forest products 2,963 4,019 (1,056) (26.3) - Industrial and
consumer products 9,142 8,310 832 10.0 - Automotive 1,193 1,284
(91) (7.1) - Intermodal 14,264 14,350 (86) (0.6) ----------
---------- ---------- Total RTMs 64,021 64,263 (242) (0.4)
---------- ---------- ---------- Freight Revenue per RTM (cents) -
Grain 3.05 3.00 0.05 1.7 - Coal 2.79 2.82 (0.03) (1.1) - Sulphur
and fertilizers 2.45 2.41 0.04 1.7 - Forest products 3.93 3.64 0.29
8.0 - Industrial and consumer products 3.86 3.74 0.12 3.2 -
Automotive 13.31 13.29 0.02 0.2 - Intermodal 4.72 4.41 0.31 7.0
Freight Revenue per RTM 3.62 3.52 0.10 2.8 Carloads (thousands) -
Grain 180.0 180.5 (0.5) (0.3) - Coal 142.0 133.5 8.5 6.4 - Sulphur
and fertilizers 105.7 111.5 (5.8) (5.2) - Forest products 47.6 60.0
(12.4) (20.7) - Industrial and consumer products 167.3 154.9 12.4
8.0 - Automotive 76.4 88.1 (11.7) (13.3) - Intermodal 611.8 599.5
12.3 2.1 ---------- ---------- ---------- Total Carloads 1,330.8
1,328.0 2.8 0.2 ---------- ---------- ---------- Freight Revenue
per Carload - Grain $ 2,419 $ 2,458 $ (39) (1.6) - Coal 2,201 2,200
1 - - Sulphur and fertilizers 2,541 2,394 147 6.1 - Forest products
2,445 2,438 7 0.3 - Industrial and consumer products 2,108 2,006
102 5.1 - Automotive 2,079 1,936 143 7.4 - Intermodal 1,100 1,056
44 4.2 Freight Revenue per Carload $ 1,741 $ 1,706 $ 35 2.1 Second
Quarter ------------------------------------------- 2008 2007
Variance % ---------- ---------- ---------- ---------- Operations
and Productivity --------------------------- Freight gross
ton-miles (GTM) (millions) 62,397 64,481 (2,084) (3.2) Revenue
ton-miles (RTM) (millions) 32,479 33,528 (1,049) (3.1) Average
number of active employees 16,223 15,878 345 2.2 Number of
employees at end of period 16,407 15,720 687 4.4 FRA personal
injuries per 200,000 employee-hours(1) 1.11 2.09 (0.98) (46.9) FRA
train accidents per million train-miles(1) 1.11 2.11 (1.00) (47.4)
Total operating expenses per RTM (cents) 2.98 2.71 0.27 10.0 Total
operating expenses per GTM (cents) 1.55 1.41 0.14 9.9 Compensation
and benefits expense per GTM (cents) 0.51 0.51 - - GTMs per average
active employee (000) 3,846 4,061 (215) (5.3) Miles of road
operated at end of period(2) 13,199 13,260 (61) (0.5) Average train
speed - AAR definition (mph) 24.1 23.5 0.6 2.6 Terminal dwell time
- AAR definition (hours) 21.6 21.7 (0.1) (0.5) Car miles per car
day 147.3 147.5 (0.2) (0.1) Average daily total cars on-line - AAR
definition (000) 83.7 81.5 2.2 2.7 Average daily active cars
on-line (000) 55.7 59.0 (3.3) (5.6) U.S. gallons of locomotive fuel
per 1,000 GTMs - freight & yard 1.19 1.19 - - U.S. gallons of
locomotive fuel consumed - total (millions)(3) 73.6 76.8 (3.2)
(4.2) Average foreign exchange rate (US$/Canadian$) 0.991 0.901
0.090 10.0 Average foreign exchange rate (Canadian$/US$) 1.009
1.111 (0.102) (9.2) Year-to-date
------------------------------------------- 2008 2007 Variance %
---------- ---------- ---------- ---------- Operations and
Productivity --------------------------- Freight gross ton-miles
(GTM) (millions) 122,258 122,041 217 0.2 Revenue ton-miles (RTM)
(millions) 64,021 64,263 (242) (0.4) Average number of active
employees 15,648 15,381 267 1.7 Number of employees at end of
period 16,407 15,720 687 4.4 FRA personal injuries per 200,000
employee-hours(1) 1.25 1.95 (0.70) (35.9) FRA train accidents per
million train-miles(1) 1.65 2.06 (0.41) (19.9) Total operating
expenses per RTM (cents) 3.00 2.79 0.21 7.5 Total operating
expenses per GTM (cents) 1.57 1.47 0.10 6.8 Compensation and
benefits expense per GTM (cents) 0.53 0.54 (0.01) (1.9) GTMs per
average active employee (000) 7,813 7,935 (122) (1.5) Miles of road
operated at end of period(2) 13,199 13,260 (61) (0.5) Average train
speed - AAR definition (mph) 23.7 23.3 0.4 1.7 Terminal dwell time
- AAR definition (hours) 22.8 22.8 - - Car miles per car day 142.7
141.0 1.7 1.2 Average daily total cars on-line - AAR definition
(000) 83.2 81.4 1.8 2.2 Average daily active cars on-line (000)
56.4 59.0 (2.6) (4.4) U.S. gallons of locomotive fuel per 1,000
GTMs - freight & yard 1.24 1.22 0.02 1.6 U.S. gallons of
locomotive fuel consumed - total (millions)(3) 149.9 149.1 0.8 0.5
Average foreign exchange rate (US$/Canadian$) 0.999 0.877 0.122
13.9 Average foreign exchange rate (Canadian$/US$) 1.001 1.141
(0.140) (12.3) (1) Certain prior period figures have been revised
to conform with current presentation or have been updated to
reflect new information. (2) Excludes track on which CP has haulage
rights. (3) Includes gallons of fuel consumed from freight, yard
and commuter service but excludes fuel used in capital projects and
other non- freight activities. DATASOURCE: Canadian Pacific Railway
CONTACT: Media, Leslie Pidcock, Tel.: (403) 319-6878, email: ;
Investment Community, Janet Weiss, Assistant Vice-President,
Investor Relations, Tel.: (403) 319-3591, email:
Copyright