CALGARY, AB, Oct. 20, 2020
/CNW/ - Canadian Pacific Railway Limited (TSX: CP) (NYSE: CP) today
announced third-quarter revenues of $1.86
billion, diluted earnings per share ("EPS") of $4.41, adjusted diluted EPS of $4.12 and an operating ratio of 58.2 percent.
"This quarter played out as we expected. Following our record Q2
performance, we steadily built momentum through the quarter and
finished strong," said Keith Creel,
CP President and Chief Executive Officer. "Thanks to our
industry-leading operating model and world-class employees, we have
persevered throughout 2020 and have significant momentum as we
approach 2021."
Third-quarter highlights
- Strong operational performance in average train weights and
average train lengths
- Revenues decreased by 6 percent to $1.86
billion from $1.98 billion
last year
- Reported diluted EPS of $4.41, a
1 percent decrease from $4.46 last
year, and adjusted diluted EPS of $4.12, an 11 percent decrease from $4.61 last year
- Operating ratio was 58.2 percent, a 210 basis point increase
over last year's third-quarter operating ratio of 56.1 percent
- Federal Railroad Administration ("FRA")-reportable personal
injuries declined 26 percent to 1.06 from 1.44 in Q3 2019, and CP's
FRA-reportable train accident frequency dropped 14 percent versus
Q3 2019 to 1.13 from 1.311
"Our third quarter highlighted the strength of our bulk
franchise and the power of our domestic intermodal and automotive
operations," Creel said. "Additionally, we built on our record
average train weights and train lengths from Q2 and carried that
through Q3. We remain committed to innovating and to making
incremental, sustainable gains."
Updated outlook
CP expects a low-single-digit decline
in revenue ton-miles in 2020 and at least mid-single-digit adjusted
diluted EPS growth2. CP continues to expect capital
expenditures of $1.6 billion in
2020.
CP's revised guidance assumes a full-year Canadian-to-U.S.
dollar exchange rate of 1.35, other components of net periodic
benefit recovery to decrease by approximately $40 million versus 2019 and an effective tax rate
of approximately 24.8 percent as a result of the accelerated
reduction of the Alberta corporate
tax rate as compared to 25.0 percent previously.
"We continue to deliver for our customers and for the North
American economy," Creel said. "With Q4 volumes up 8 percent
quarter to date and a strong outlook for the remainder of the year,
we have raised our guidance to at least mid-single-digit adjusted
diluted EPS growth. Given the strength of our operating model and
growing momentum across our business, I remain confident that the
best is yet to come."
1 FRA personal injuries per 200,000 employee-hours
for the three months ended September 30,
2019 was previously reported as 1.39, restated to 1.44 in
this Earnings Release. FRA train accidents per million train-miles
for the three months ended September 30,
2019 was previously reported as 1.10, restated to 1.31 in
this Earnings Release. These adjustments reflect new information
available within specified periods stipulated by the FRA but that
exceed the Company's financial reporting timeline.
2 CP's expectation for positive growth in 2020 adjusted
diluted EPS is relative to 2019's adjusted diluted EPS of
$16.44. CP's reported diluted EPS was
$17.52 in 2019.
Conference call details
CP will discuss its results
with the financial community in a conference call beginning at
9 a.m. ET (7
a.m. MT) today.
Conference call access
Toronto participants dial in number:
1-647-427-7450
Operator assisted toll free dial in number: 1-888-231-8191
Callers should dial in 10 minutes prior to the call.
Webcast
We encourage you to access the webcast and
presentation material in the Investors section of CP's website at
investor.cpr.ca.
A replay of the third-quarter conference call will be available
by phone through to October 27, 2020
at 416-849-0833 or toll free 1-855-859-2056, password 1771064.
Non-GAAP Measures
Although CP has provided a
forward-looking non-GAAP measure (adjusted diluted EPS), management
is unable to reconcile, without unreasonable efforts, the
forward-looking adjusted diluted EPS to the most comparable GAAP
measure (diluted EPS), due to unknown variables and uncertainty
related to future results. These unknown variables may include
unpredictable transactions of significant value. In past years, CP
has recognized significant asset impairment charges, management
transition costs related to senior executives and discrete tax
items. These or other similar, large unforeseen transactions affect
diluted EPS but may be excluded from CP's adjusted diluted EPS.
Additionally, the U.S.-to-Canadian dollar exchange rate is
unpredictable and can have a significant impact on CP's reported
results but may be excluded from CP's adjusted diluted EPS. In
particular, CP excludes the FX impact of translating the Company's
debt and lease liabilities, the impact from changes in income tax
rates and a provision for uncertain tax item from adjusted diluted
EPS. Please see Note on forward-looking information below for
further discussion.
For information regarding non-GAAP measures, including
reconciliations to the nearest GAAP measures, see the attached
supplementary schedule Non-GAAP Measures.
Note on forward-looking information
This news release
contains certain forward-looking information and forward-looking
statements (collectively, "forward-looking information") within the
meaning of applicable securities laws. Forward-looking information
includes, but is not limited to, statements concerning
expectations, beliefs, plans, goals, objectives, assumptions and
statements about possible future events, conditions, and results of
operations or performance. Forward-looking information may contain
statements with words or headings such as "financial expectations",
"key assumptions", "anticipate", "believe", "expect", "plan",
"will", "outlook", "should" or similar words suggesting future
outcomes. This news release contains forward-looking information
relating, but not limited to, statements concerning 2020 volume
including as measured in revenue ton-miles, EPS growth and adjusted
diluted EPS growth, capital program investments, the
U.S.-to-Canadian dollar exchange rate, annualized effective tax
rate, other components of net periodic benefit recovery, cost
control efforts, the success of our business, our operations,
priorities and plans, anticipated financial and operational
performance, business prospects, demand for our services and growth
opportunities.
The forward-looking information contained in this news release
is based on current expectations, estimates, projections and
assumptions, having regard to CP's experience and its perception of
historical trends, and includes, but is not limited to,
expectations, estimates, projections and assumptions relating to:
North American and global economic growth; commodity demand growth;
sustainable industrial and agricultural production; commodity
prices and interest rates; foreign exchange rates (as specified
herein); effective tax rates (as specified herein); performance of
our assets and equipment; sufficiency of our budgeted capital
expenditures in carrying out our business plan; geopolitical
conditions, applicable laws, regulations and government policies;
the availability and cost of labour, services and infrastructure;
the satisfaction by third parties of their obligations to CP; our
ability to realize upon business plans including cost control
efforts; and the continued impact of the novel strain of
coronavirus (and the disease known as COVID-19) on CP businesses,
operating results, cash flows and/or financial condition. Although
CP believes the expectations, estimates, projections and
assumptions reflected in the forward-looking information presented
herein are reasonable as of the date hereof, there can be no
assurance that they will prove to be correct. Current conditions,
economic and otherwise, render assumptions, although reasonable
when made, subject to greater uncertainty.
Undue reliance should not be placed on forward-looking
information as actual results may differ materially from those
expressed or implied by forward-looking information. By its nature,
CP's forward-looking information involves inherent risks and
uncertainties that could cause actual results to differ materially
from the forward-looking information, including, but not limited
to, the following factors: changes in business strategies; general
North American and global economic, credit and business conditions;
risks associated with agricultural production, such as weather
conditions and insect populations; the availability and price of
energy commodities; the effects of competition and pricing
pressures; industry capacity; shifts in market demand; changes in
commodity prices; uncertainty surrounding timing and volumes of
commodities being shipped via CP; inflation; geopolitical
instability; changes in laws, regulations and government policies,
including regulation of rates; changes in taxes and tax rates;
potential increases in maintenance and operating costs; changes in
fuel prices; uncertainties of investigations, proceedings or other
types of claims and litigation; labour disputes; risks and
liabilities arising from derailments; transportation of dangerous
goods; timing of completion of capital and maintenance projects;
currency and interest rate fluctuations; effects of changes in
market conditions and discount rates on the financial position of
pension plans and investments; trade restrictions or other changes
to international trade arrangements; climate change; various events
that could disrupt operations, including severe weather, such as
droughts, floods, avalanches and earthquakes, and cybersecurity
attacks, as well as security threats and governmental response to
them, and technological changes; and the pandemic created by the
outbreak of COVID-19 and resulting effects on economic conditions,
the demand environment for logistics requirements and energy
prices, restrictions imposed by public health authorities or
governments, fiscal and monetary policy responses by governments
and financial institutions, and disruptions to global supply
chains. The foregoing list of factors is not exhaustive. These and
other factors are detailed from time to time in reports filed by CP
with securities regulators in Canada and the
United States. Reference should be made to "Risk Factors"
and "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Forward-Looking Statements" in CP's
annual and interim reports on Form 10-K and 10-Q.
The forward-looking information contained in this news release
is made as of the date hereof. Except as required by law, CP
undertakes no obligation to update publicly or otherwise revise any
forward-looking information, or the foregoing assumptions and risks
affecting such forward-looking information, whether as a result of
new information, future events or otherwise.
About Canadian Pacific
Canadian Pacific is a
transcontinental railway in Canada
and the United States with direct
links to major ports on the west and east coasts. CP provides North
American customers a competitive rail service with access to key
markets in every corner of the globe. CP is growing with its
customers, offering a suite of freight transportation services,
logistics solutions and supply chain expertise. Visit cpr.ca to see
the rail advantages of CP. CP-IR
FINANCIAL STATEMENTS
INTERIM CONSOLIDATED STATEMENTS OF
INCOME
(unaudited)
|
For the three
months
ended September 30
|
For the nine
months
ended September 30
|
(in millions of
Canadian dollars, except share and per share data)
|
2020
|
2019
|
2020
|
2019
|
Revenues (Note
3)
|
|
|
|
|
Freight
|
$
|
1,821
|
$
|
1,932
|
$
|
5,573
|
$
|
5,589
|
Non-freight
|
42
|
47
|
125
|
134
|
Total
revenues
|
1,863
|
1,979
|
5,698
|
5,723
|
Operating
expenses
|
|
|
|
|
Compensation and
benefits
|
382
|
355
|
1,127
|
1,144
|
Fuel
|
140
|
210
|
483
|
655
|
Materials
|
53
|
50
|
162
|
161
|
Equipment
rents
|
39
|
33
|
108
|
102
|
Depreciation and
amortization
|
195
|
185
|
582
|
528
|
Purchased services
and other
|
275
|
277
|
853
|
899
|
Total operating
expenses
|
1,084
|
1,110
|
3,315
|
3,489
|
|
|
|
|
|
Operating
income
|
779
|
869
|
2,383
|
2,234
|
Less:
|
|
|
|
|
Other (income)
expense (Note 4)
|
(36)
|
29
|
89
|
(58)
|
Other components of
net periodic benefit recovery (Note 13)
|
(86)
|
(99)
|
(257)
|
(294)
|
Net interest
expense
|
114
|
110
|
346
|
336
|
Income before
income tax expense
|
787
|
829
|
2,205
|
2,250
|
Income tax expense
(Note 5)
|
189
|
211
|
563
|
474
|
Net
income
|
$
|
598
|
$
|
618
|
$
|
1,642
|
$
|
1,776
|
|
|
|
|
|
Earnings per share
(Note 6)
|
|
|
|
|
Basic earnings per
share
|
$
|
4.42
|
$
|
4.47
|
$
|
12.09
|
$
|
12.75
|
Diluted earnings per
share
|
$
|
4.41
|
$
|
4.46
|
$
|
12.04
|
$
|
12.70
|
|
|
|
|
|
Weighted-average
number of shares (millions) (Note 6)
|
|
|
|
|
Basic
|
135.2
|
138.1
|
135.9
|
139.3
|
Diluted
|
135.8
|
138.7
|
136.4
|
139.8
|
|
|
|
|
|
Dividends declared
per share
|
$
|
0.9500
|
$
|
0.8300
|
$
|
2.6100
|
$
|
2.3100
|
|
See Notes to Interim
Consolidated Financial Statements.
|
INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME
(unaudited)
|
For the three
months
ended September 30
|
For the nine
months
ended September
30
|
(in millions of
Canadian dollars)
|
2020
|
2019
|
2020
|
2019
|
Net income
|
$
|
598
|
$
|
618
|
$
|
1,642
|
$
|
1,776
|
Net gain (loss) in
foreign currency translation adjustments, net of hedging
activities
|
16
|
(8)
|
(18)
|
23
|
Change in derivatives
designated as cash flow hedges
|
3
|
2
|
6
|
8
|
Change in pension and
post-retirement defined benefit plans
|
44
|
20
|
134
|
61
|
Other comprehensive
income before income taxes
|
63
|
14
|
122
|
92
|
Income tax (expense)
recovery on above items
|
(29)
|
3
|
(16)
|
(41)
|
Other comprehensive
income (Note 7)
|
34
|
17
|
106
|
51
|
Comprehensive
income
|
$
|
632
|
$
|
635
|
$
|
1,748
|
$
|
1,827
|
|
See Notes to Interim
Consolidated Financial Statements.
|
INTERIM CONSOLIDATED BALANCE SHEETS AS
AT
(unaudited)
|
September
30
|
December
31
|
(in millions of
Canadian dollars)
|
2020
|
2019
|
Assets
|
|
|
Current
assets
|
|
|
Cash and cash
equivalents
|
$
|
183
|
$
|
133
|
Accounts receivable,
net (Note 8)
|
840
|
805
|
Materials and
supplies
|
185
|
182
|
Other current
assets
|
116
|
90
|
|
1,324
|
1,210
|
Investments (Note
9)
|
223
|
341
|
Properties
|
20,169
|
19,156
|
Goodwill and
intangible assets (Note 9)
|
284
|
206
|
Pension
asset
|
1,317
|
1,003
|
Other
assets
|
470
|
451
|
Total
assets
|
$
|
23,787
|
$
|
22,367
|
Liabilities and
shareholders' equity
|
|
|
Current
liabilities
|
|
|
Accounts payable and
accrued liabilities
|
$
|
1,380
|
$
|
1,693
|
Long-term debt
maturing within one year (Note 10, 11)
|
841
|
599
|
|
2,221
|
2,292
|
Pension and other
benefit liabilities
|
777
|
785
|
Other long-term
liabilities
|
576
|
562
|
Long-term debt (Note
10, 11)
|
8,945
|
8,158
|
Deferred income
taxes
|
3,689
|
3,501
|
Total
liabilities
|
16,208
|
15,298
|
Shareholders'
equity
|
|
|
Share
capital
|
1,978
|
1,993
|
Additional paid-in
capital
|
56
|
48
|
Accumulated other
comprehensive loss (Note 7)
|
(2,416)
|
(2,522)
|
Retained
earnings
|
7,961
|
7,550
|
|
7,579
|
7,069
|
Total liabilities
and shareholders' equity
|
$
|
23,787
|
$
|
22,367
|
|
See Contingencies
(Note 15) and Subsequent event (Note 16)
|
See Notes to Interim
Consolidated Financial Statements.
|
INTERIM CONSOLIDATED STATEMENTS OF CASH
FLOWS
(unaudited)
|
For the three
months
ended September 30
|
For the nine
months
ended September 30
|
|
(in millions of
Canadian dollars)
|
2020
|
2019
|
2020
|
2019
|
|
Operating
activities
|
|
|
|
|
|
Net income
|
$
|
598
|
$
|
618
|
$
|
1,642
|
$
|
1,776
|
|
Reconciliation of net
income to cash provided by operating activities:
|
|
|
|
|
|
Depreciation and
amortization
|
195
|
185
|
582
|
528
|
|
Deferred income tax
expense (Note 5)
|
45
|
96
|
133
|
116
|
|
Pension recovery and
funding (Note 13)
|
(65)
|
(94)
|
(192)
|
(271)
|
|
Foreign exchange
(gain) loss on debt and lease liabilities (Note 4)
|
(40)
|
25
|
89
|
(57)
|
|
Other operating
activities, net
|
56
|
24
|
11
|
87
|
|
Change in non-cash
working capital balances related to operations
|
(296)
|
(31)
|
(448)
|
(222)
|
|
Cash provided by
operating activities
|
493
|
823
|
1,817
|
1,957
|
|
Investing
activities
|
|
|
|
|
|
Additions to
properties
|
(484)
|
(464)
|
(1,341)
|
(1,147)
|
|
Investment in Central
Maine & Québec Railway (Note 9)
|
—
|
—
|
19
|
—
|
|
Proceeds from sale of
properties and other assets
|
2
|
4
|
9
|
18
|
|
Other
|
(1)
|
(1)
|
—
|
(6)
|
|
Cash used in
investing activities
|
(483)
|
(461)
|
(1,313)
|
(1,135)
|
|
Financing
activities
|
|
|
|
|
|
Dividends
paid
|
(113)
|
(116)
|
(339)
|
(298)
|
|
Issuance of CP Common
Shares
|
3
|
6
|
32
|
20
|
|
Purchase of CP Common
Shares (Note 12)
|
(400)
|
(500)
|
(945)
|
(964)
|
|
Issuance of long-term
debt, excluding commercial paper (Note 10)
|
—
|
—
|
958
|
397
|
|
Repayment of
long-term debt, excluding commercial paper
|
(49)
|
(6)
|
(74)
|
(491)
|
|
Net issuance
(repayment) of commercial paper (Note 10)
|
459
|
355
|
(114)
|
601
|
|
Net increase in
short-term borrowings (Note 10)
|
—
|
—
|
5
|
—
|
|
Other
|
—
|
(2)
|
11
|
(2)
|
|
Cash used in
financing activities
|
(100)
|
(263)
|
(466)
|
(737)
|
|
Effect of foreign
currency fluctuations on U.S. dollar-denominated
cash and cash equivalents
|
(4)
|
1
|
12
|
(1)
|
|
Cash
position
|
|
|
|
|
|
(Decrease) increase
in cash and cash equivalents
|
(94)
|
100
|
50
|
84
|
|
Cash and cash
equivalents at beginning of period
|
277
|
45
|
133
|
61
|
|
Cash and cash
equivalents at end of period
|
$
|
183
|
$
|
145
|
$
|
183
|
$
|
145
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
Income taxes
paid
|
$
|
311
|
$
|
122
|
$
|
455
|
$
|
379
|
|
Interest
paid
|
$
|
163
|
$
|
141
|
$
|
383
|
$
|
373
|
|
|
See Notes to Interim
Consolidated Financial Statements.
|
INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY
(unaudited)
|
|
|
|
|
|
|
|
|
For the three
months ended September 30
|
(in millions of
Canadian dollars except per share data)
|
|
Common
shares (in
millions)
|
|
Share
capital
|
Additional
paid-in
capital
|
Accumulated
other
comprehensive
loss
|
Retained
earnings
|
Total
shareholders'
equity
|
Balance at July 1,
2020
|
|
135.5
|
|
$
|
1,990
|
$
|
53
|
$
|
(2,450)
|
$
|
7,872
|
$
|
7,465
|
Net income
|
|
—
|
|
—
|
—
|
—
|
598
|
598
|
Other comprehensive
income (Note 7)
|
|
—
|
|
—
|
—
|
34
|
—
|
34
|
Dividends declared
($0.9500 per share)
|
|
—
|
|
—
|
—
|
—
|
(128)
|
(128)
|
Effect of stock-based
compensation expense
|
|
—
|
|
—
|
4
|
—
|
—
|
4
|
CP Common Shares
repurchased (Note 12)
|
|
(1.0)
|
|
(15)
|
—
|
—
|
(381)
|
(396)
|
Shares issued under
stock option plan
|
|
—
|
|
3
|
(1)
|
—
|
—
|
2
|
Balance at
September 30, 2020
|
|
134.5
|
|
$
|
1,978
|
$
|
56
|
$
|
(2,416)
|
$
|
7,961
|
$
|
7,579
|
Balance at July 1,
2019
|
|
139.1
|
|
$
|
1,996
|
$
|
45
|
$
|
(2,009)
|
$
|
7,125
|
$
|
7,157
|
Net income
|
|
—
|
|
—
|
—
|
—
|
618
|
618
|
Other comprehensive
income (Note 7)
|
|
—
|
|
—
|
—
|
17
|
—
|
17
|
Dividends declared
($0.8300 per share)
|
|
—
|
|
—
|
—
|
—
|
(114)
|
(114)
|
Effect of stock-based
compensation expense
|
|
—
|
|
—
|
3
|
—
|
—
|
3
|
CP Common Shares
repurchased (Note 12)
|
|
(1.6)
|
|
(22)
|
—
|
—
|
(449)
|
(471)
|
Shares issued under
stock option plan
|
|
—
|
|
8
|
(3)
|
—
|
—
|
5
|
Balance at September
30, 2019
|
|
137.5
|
|
$
|
1,982
|
$
|
45
|
$
|
(1,992)
|
$
|
7,180
|
$
|
7,215
|
|
|
|
|
|
|
|
|
|
For the nine
months ended September 30
|
(in millions of
Canadian dollars except per share data)
|
|
Common
shares (in
millions)
|
|
Share
capital
|
Additional
paid-in
capital
|
Accumulated
other
comprehensive
loss
|
Retained
earnings
|
Total
shareholders'
equity
|
Balance at
December 31, 2019, as previously reported
|
|
137.0
|
|
$
|
1,993
|
$
|
48
|
$
|
(2,522)
|
$
|
7,550
|
$
|
7,069
|
Impact of accounting
change (Note 2)
|
|
—
|
|
—
|
—
|
—
|
(1)
|
(1)
|
Balance at January
1, 2020, as restated
|
|
137.0
|
|
$
|
1,993
|
$
|
48
|
$
|
(2,522)
|
$
|
7,549
|
$
|
7,068
|
Net income
|
|
—
|
|
—
|
—
|
—
|
1,642
|
1,642
|
Other comprehensive
income (Note 7)
|
|
—
|
|
—
|
—
|
106
|
—
|
106
|
Dividends declared
($2.6100 per share)
|
|
—
|
|
—
|
—
|
—
|
(353)
|
(353)
|
Effect of stock-based
compensation expense
|
|
—
|
|
—
|
13
|
—
|
—
|
13
|
CP Common Shares
repurchased (Note 12)
|
|
(2.7)
|
|
(39)
|
—
|
—
|
(877)
|
(916)
|
Shares issued under
stock option plan
|
|
0.2
|
|
24
|
(5)
|
—
|
—
|
19
|
Balance at
September 30, 2020
|
|
134.5
|
|
$
|
1,978
|
$
|
56
|
$
|
(2,416)
|
$
|
7,961
|
$
|
7,579
|
Balance at January 1,
2019
|
|
140.5
|
|
$
|
2,002
|
$
|
42
|
$
|
(2,043)
|
$
|
6,630
|
$
|
6,631
|
Net income
|
|
—
|
|
—
|
—
|
—
|
1,776
|
1,776
|
Other comprehensive
income (Note 7)
|
|
—
|
|
—
|
—
|
51
|
—
|
51
|
Dividends declared
($2.3100 per share)
|
|
—
|
|
—
|
—
|
—
|
(320)
|
(320)
|
Effect of stock-based
compensation expense
|
|
—
|
|
—
|
11
|
—
|
—
|
11
|
CP Common Shares
repurchased (Note 12)
|
|
(3.2)
|
|
(46)
|
—
|
—
|
(906)
|
(952)
|
Shares issued under
stock option plan
|
|
0.2
|
|
26
|
(8)
|
—
|
—
|
18
|
Balance at September
30, 2019
|
|
137.5
|
|
$
|
1,982
|
$
|
45
|
$
|
(1,992)
|
$
|
7,180
|
$
|
7,215
|
|
See Notes to Interim
Consolidated Financial Statements.
|
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(unaudited)
1 Basis of presentation
These unaudited interim Consolidated Financial Statements of
Canadian Pacific Railway Limited ("CP", or "the Company"),
expressed in Canadian dollars, reflect management's estimates and
assumptions that are necessary for their fair presentation in
conformity with generally accepted accounting principles in
the United States of America
("GAAP"). They do not include all disclosures required under GAAP
for annual financial statements and should be read in conjunction
with the 2019 annual Consolidated Financial Statements and notes
included in CP's 2019 Annual Report on Form 10-K. The accounting
policies used are consistent with the accounting policies used in
preparing the 2019 annual Consolidated Financial Statements, except
for the newly adopted accounting policy discussed in Note 2.
CP's operations can be affected by seasonal fluctuations such as
changes in customer demand and weather-related issues. This
seasonality could impact quarter-over-quarter comparisons.
In management's opinion, the unaudited interim consolidated
financial statements include all adjustments (consisting of normal
and recurring adjustments) necessary to present fairly such
information. Interim results are not necessarily indicative of the
results expected for the fiscal year.
2 Accounting changes
Implemented in 2020
Financial Instruments - Credit Losses
On January 1, 2020, the Company
adopted the new Accounting Standards Update ("ASU") 2016-13, issued
by the Financial Accounting Standards Board ("FASB"), and all
related amendments under FASB Accounting Standards Codification
("ASC") Topic 326, Financial Instruments - Credit Losses. Using a
modified retrospective approach, the Company recognized a
cumulative-effect adjustment to its opening retained earnings
balance in the period of adoption. Accordingly, comparative
financial information has not been restated and continues to be
reported under the accounting standards in effect for those
periods.
The impact of the adoption of ASC 326 as at January 1, 2020 was an increase in the allowance
for credit losses of $1 million, with
the offsets to "Deferred income taxes" and "Retained earnings" on
the Company's Interim Consolidated Balance Sheet. See Note 8 for
further discussion of the current period credit loss.
Simplification of Financial Disclosures about
Guarantors
During the second quarter of 2020, the Company early adopted the
Securities and Exchange Commission amendments to the financial
disclosure requirements for guarantors and issuers of guaranteed
securities, as specified in Rule 3-10 of Regulation S-X. The
amendments simplify disclosure requirements by replacing condensed
consolidating financial information ("CCFI") with summarized
financial information and expanded qualitative non-financial
disclosures about the guarantees, issuers, and guarantors. This
disclosure can be found in the Liquidity and Capital Resources
section of Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations in CP's Q3 2020
Quarterly Report on Form 10-Q.
3 Revenues
The following table disaggregates the Company's revenues from
contracts with customers by major source:
|
For the three
months
ended September 30
|
For the nine
months
ended September 30
|
(in millions of
Canadian dollars)
|
2020
|
2019
|
2020
|
2019
|
Freight
|
|
|
|
|
Grain
|
$
|
457
|
$
|
409
|
$
|
1,321
|
$
|
1,211
|
Coal
|
130
|
183
|
411
|
514
|
Potash
|
132
|
117
|
390
|
367
|
Fertilizers and
sulphur
|
65
|
66
|
212
|
186
|
Forest
products
|
85
|
78
|
244
|
229
|
Energy, chemicals and
plastics
|
321
|
382
|
1,153
|
1,043
|
Metals, minerals and
consumer products
|
152
|
201
|
474
|
579
|
Automotive
|
94
|
87
|
215
|
267
|
Intermodal
|
385
|
409
|
1,153
|
1,193
|
Total freight
revenues
|
1,821
|
1,932
|
5,573
|
5,589
|
Non-freight excluding
leasing revenues
|
27
|
32
|
80
|
89
|
Revenues from
contracts with customers
|
1,848
|
1,964
|
5,653
|
5,678
|
Leasing
revenues
|
15
|
15
|
45
|
45
|
Total
revenues
|
$
|
1,863
|
$
|
1,979
|
$
|
5,698
|
$
|
5,723
|
Contract liabilities
Contract liabilities represent payments received for performance
obligations not yet satisfied and relate to deferred revenue, and
are presented as components of "Accounts payable and accrued
liabilities" and "Other long-term liabilities" on the Company's
Interim Consolidated Balance Sheets.
The following table summarizes the changes in contract
liabilities:
|
For the three
months
ended September 30
|
For the nine
months
ended September 30
|
(in millions of
Canadian dollars)
|
2020
|
2019
|
2020
|
2019
|
Opening
balance
|
$
|
79
|
$
|
74
|
$
|
146
|
$
|
2
|
Revenue recognized
that was included in the contract liability balance at the
beginning of the period
|
(25)
|
(8)
|
(95)
|
(2)
|
Increase due to
consideration received, net of revenue recognized during the
period
|
5
|
4
|
8
|
70
|
Closing
balance
|
$
|
59
|
$
|
70
|
$
|
59
|
$
|
70
|
4 Other (income) expense
|
For the three
months
ended September 30
|
For the nine
months
ended September 30
|
(in millions of
Canadian dollars)
|
2020
|
2019
|
2020
|
2019
|
Foreign exchange
(gain) loss on debt and lease liabilities
|
$
|
(40)
|
$
|
25
|
$
|
89
|
$
|
(57)
|
Other foreign
exchange losses (gains)
|
2
|
2
|
(2)
|
(4)
|
Other
|
2
|
2
|
2
|
3
|
Other (income)
expense
|
$
|
(36)
|
$
|
29
|
$
|
89
|
$
|
(58)
|
5 Income taxes
|
For the three
months
ended September
30
|
For the nine
months
ended September 30
|
(in millions of
Canadian dollars)
|
2020
|
2019
|
2020
|
2019
|
Current income tax
expense
|
$
|
144
|
$
|
115
|
$
|
430
|
$
|
358
|
Deferred income tax
expense
|
45
|
96
|
133
|
116
|
Income tax
expense
|
$
|
189
|
$
|
211
|
$
|
563
|
$
|
474
|
The effective tax rates for the three and nine months ended
September 30, 2020 were 23.97% and 25.52%, respectively,
compared to 25.43% and 21.06%, respectively for the same periods of
2019.
For the three months ended September 30, 2020, the
effective tax rate was 25.00%, excluding the discrete item of the
foreign exchange ("FX") gain of $40
million on debt and lease liabilities.
For the three months ended September 30,
2019, the effective tax rate was 25.11%, excluding the
discrete item of the FX loss of $25
million on debt and lease liabilities.
For the nine months ended September 30,
2020, the effective tax rate was 25.00%, excluding the
discrete item of the FX loss of $89
million on debt and lease liabilities.
For the nine months ended September 30,
2019, the effective tax rate was 25.50%, excluding the
discrete items of the FX gain of $57
million on debt and lease liabilities and an $88 million deferred income tax recovery from the
revaluation of deferred income tax balances as at January 1, 2019 on the enactment of Alberta provincial corporate income tax rate
decrease.
6 Earnings per share
Basic earnings per share has been calculated using Net income
for the period divided by the weighted-average number of shares
outstanding during the period. The number of shares used in the
earnings per share calculations are reconciled as follows:
|
For the three
months
ended September 30
|
For the nine
months
ended September 30
|
(in
millions)
|
2020
|
2019
|
2020
|
2019
|
Weighted-average
basic shares outstanding
|
135.2
|
138.1
|
135.9
|
139.3
|
Dilutive effect of
stock options
|
0.6
|
0.6
|
0.5
|
0.5
|
Weighted-average
diluted shares outstanding
|
135.8
|
138.7
|
136.4
|
139.8
|
For the three months ended September 30,
2020, there were no options excluded from the computation of
diluted earnings per share (three months ended September 30,
2019 - nil). For the nine months ended September 30, 2020, there were 0.1 million
options excluded from the computation of diluted earnings per share
because their effects were not dilutive (nine months ended
September 30, 2019 - 0.1 million).
7 Changes in Accumulated other
comprehensive loss ("AOCL") by component
|
For the three
months ended September 30
|
(in millions of
Canadian dollars)
|
Foreign currency
net of hedging
activities(1)
|
Derivatives and
other(1)
|
Pension and post-
retirement defined
benefit plans(1)
|
Total(1)
|
Opening balance,
July 1, 2020
|
$
|
116
|
$
|
(52)
|
$
|
(2,514)
|
$
|
(2,450)
|
Other comprehensive
loss before reclassifications
|
(1)
|
—
|
—
|
(1)
|
Amounts reclassified
from accumulated other comprehensive loss
|
—
|
2
|
33
|
35
|
Net other
comprehensive (loss) income
|
(1)
|
2
|
33
|
34
|
Closing balance,
September 30, 2020
|
$
|
115
|
$
|
(50)
|
$
|
(2,481)
|
$
|
(2,416)
|
Opening balance, July
1, 2019
|
$
|
112
|
$
|
(58)
|
$
|
(2,063)
|
$
|
(2,009)
|
Other comprehensive
income before reclassifications
|
1
|
—
|
—
|
1
|
Amounts reclassified
from accumulated other comprehensive loss
|
—
|
1
|
15
|
16
|
Net other
comprehensive income
|
1
|
1
|
15
|
17
|
Closing balance,
September 30, 2019
|
$
|
113
|
$
|
(57)
|
$
|
(2,048)
|
$
|
(1,992)
|
(1) Amounts are presented net
of tax.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine
months ended September 30
|
(in millions of
Canadian dollars)
|
Foreign currency
net of hedging
activities(1)
|
Derivatives and
other(1)
|
Pension and post-
retirement defined
benefit plans(1)
|
Total(1)
|
Opening balance,
January 1, 2020
|
$
|
112
|
$
|
(54)
|
$
|
(2,580)
|
$
|
(2,522)
|
Other comprehensive
income (loss) before reclassifications
|
3
|
(2)
|
—
|
1
|
Amounts reclassified
from accumulated other comprehensive loss
|
—
|
6
|
99
|
105
|
Net other
comprehensive income
|
3
|
4
|
99
|
106
|
Closing balance,
September 30, 2020
|
$
|
115
|
$
|
(50)
|
$
|
(2,481)
|
$
|
(2,416)
|
Opening balance,
January 1, 2019
|
$
|
113
|
$
|
(62)
|
$
|
(2,094)
|
$
|
(2,043)
|
Other comprehensive
loss before reclassifications
|
—
|
—
|
(1)
|
(1)
|
Amounts reclassified
from accumulated other comprehensive loss
|
—
|
5
|
47
|
52
|
Net other
comprehensive income
|
—
|
5
|
46
|
51
|
Closing balance,
September 30, 2019
|
$
|
113
|
$
|
(57)
|
$
|
(2,048)
|
$
|
(1,992)
|
(1) Amounts are presented net
of tax.
|
|
|
|
|
|
|
|
|
Amounts in Pension and post-retirement defined benefit plans
reclassified from AOCL are as follows:
|
For the three
months
ended September
30
|
For the nine
months
ended September 30
|
(in millions of
Canadian dollars)
|
2020
|
2019
|
2020
|
2019
|
Amortization of prior
service costs(1)
|
$
|
(1)
|
$
|
(1)
|
$
|
(1)
|
$
|
—
|
Recognition of net
actuarial loss(1)
|
45
|
21
|
135
|
62
|
Total before income
tax
|
44
|
20
|
134
|
62
|
Income tax
recovery
|
(11)
|
(5)
|
(35)
|
(15)
|
Total net of income
tax
|
$
|
33
|
$
|
15
|
$
|
99
|
$
|
47
|
(1) Impacts "Other components
of net periodic benefit recovery" on the Interim Consolidated
Statements of Income
|
8 Accounts receivable, net
Accounts receivable from customers are recognized initially at
fair value and subsequently measured at amortized cost less
allowance for expected credit losses. Losses on accounts receivable
are estimated based on historical credit loss experience of
receivables with similar risk characteristics. Historical loss
experience is adjusted to reflect any management expectations that
current or future conditions will differ from conditions that
existed for the period over which historical information is
evaluated.
To determine expected credit losses, customer receivables are
disaggregated by credit characteristics, type of customer service,
customer line of business, and receivable aging.
|
For the three
months ended
September 30, 2020
|
For the nine
months ended
September 30, 2020
|
(in millions of
Canadian dollars)
|
Freight
|
Non-
freight
|
Total
|
Freight
|
Non-
freight
|
Total
|
Allowance for credit
losses, opening balance(1)
|
$
|
(26)
|
$
|
(14)
|
$
|
(40)
|
$
|
(27)
|
$
|
(16)
|
$
|
(43)
|
Current period credit
loss provision, net
|
—
|
—
|
—
|
1
|
2
|
3
|
Allowance for credit
losses, closing balance
|
$
|
(26)
|
$
|
(14)
|
$
|
(40)
|
$
|
(26)
|
$
|
(14)
|
$
|
(40)
|
(1) Opening balance at January
1, 2020 was restated as described in Note 2.
|
|
As at September
30, 2020
|
(in millions of
Canadian dollars)
|
Freight
|
Non-
freight
|
Total
|
Total accounts
receivable
|
$
|
705
|
$
|
175
|
$
|
880
|
Allowance for credit
losses
|
(26)
|
(14)
|
(40)
|
Total accounts
receivable, net
|
$
|
679
|
$
|
161
|
$
|
840
|
Receivables are considered to be in default and are written off
against the allowance for credit losses when it is probable that
all remaining contractual payments due will not be collected in
accordance with the terms of the customer contracts. Subsequent
recoveries of amounts previously written off are credited to
earnings in the period recovered.
9 Business combination
On December 30, 2019, CP purchased
100% of Central Maine & Québec
Railway Canada Inc. ("CMQ Canada") and Central Maine & Québec Railway U.S. ("CMQ
U.S.") (together "CMQ").
The acquisition of CMQ Canada did not require regulatory
approval and was accounted for as a business combination under the
acquisition method of accounting on December
30, 2019.
The acquisition of CMQ U.S. was subject to approval from the
United States Surface Transportation Board ("STB"). From the
December 30, 2019 date of purchase,
all purchased shares of CMQ U.S. were held in an independent voting
trust (the "Trust") pending the STB's approval of CP's application
for control of CMQ U.S. Approval was granted with an effective date
of June 3, 2020. Between December 30, 2019 and June
3, 2020, CP accounted for its acquisition of CMQ U.S. as an
equity method investment. During this time, CP paid additional
consideration for CMQ of $3 million,
representing changes from the finalization of previously estimated
closing date working capital.
On June 3, 2020 the Trust was
dissolved and CP assumed control of CMQ U.S. At this time, CP
accounted for its acquisition in CMQ U.S. as a business combination
using the acquisition method of accounting. Accordingly, the
acquired tangible and intangible assets and assumed liabilities
were recorded at their estimated fair values as at June 3, 2020 and results from operations and cash
flows were consolidated prospectively. There was no material change
in the acquisition-date fair value of the equity interest held by
the Company in CMQ U.S. immediately before the acquisition date.
Fair values were determined primarily through the use of an income
approach.
The purchase price allocation was prepared on a preliminary
basis and is subject to change as additional information becomes
available concerning the fair value and tax bases of the net assets
acquired. Any adjustments to the purchase price allocation will be
made as soon as practicable but no later than one year from the
date of acquisition.
The following summarizes the estimated fair values of the
acquired assets and liabilities of CMQ U.S. at June 3, 2020:
(in millions of
Canadian dollars)
|
June 3,
2020
|
Fair value of net
assets acquired:
|
|
Cash and cash
equivalents
|
$
|
22
|
Accounts receivable,
net
|
2
|
Properties
|
54
|
Intangible
assets
|
27
|
Accounts payable and
accrued liabilities
|
(13)
|
Other long-term
liabilities
|
(5)
|
Total identifiable
assets and liabilities
|
$
|
87
|
Goodwill
|
51
|
|
$
|
138
|
Consideration:
|
|
Fair value of
previously held equity method investment
|
$
|
138
|
Goodwill of $51 million relates
primarily to expected operating business synergies between the
Company and CMQ U.S. The factors that contribute to the goodwill
are revenue growth from customers which are currently not served by
CP, access to new routes, and an assembled workforce. Goodwill
recognized is not deductible for tax purposes.
Intangible assets of $27 million
reflect customer lists acquired in the purchase of CMQ U.S., and
have amortization periods of 20 years.
Acquired cash and cash equivalents of $22
million is presented as a reduction of cash used in
investing activities in the Company's Interim Consolidated
Statement of Cash Flows for the nine months ended September 30, 2020, and is presented net of
finalized closing working capital adjustments for CMQ of
$3 million as described above.
CP has not provided pro forma information relating to the
pre-acquisition period as it is not material.
10 Debt
Issuance of long-term debt
During the three months ended March 31, 2020, the Company
issued U.S. $500 million 2.050%
10-year unsecured notes due March 5, 2030 for net proceeds of
U.S. $495 million ($662 million) and $300
million 3.050% 30-year unsecured notes due March 9,
2050 for net proceeds of $296
million. These notes pay interest semi-annually and carry a
negative pledge.
Credit facility
The Company's revolving credit facility consists of a U.S.
$1.0 billion tranche maturing
September 27, 2024 and a U.S.
$300 million tranche maturing
September 27, 2021. During the three
months ended March 31, 2020, the
Company drew U.S. $100 million from
the U.S. $300 million tranche of its
revolving credit facility. During the three months ended
June 30, 2020, the Company repaid
this amount in full. As at September 30, 2020, the revolving
credit facility was undrawn (December 31,
2019 - undrawn). The Company presents draws and repayments
on its revolving credit facility in the Company's Interim
Consolidated Statements of Cash Flows on a net basis.
Commercial paper program
The Company has a commercial paper program which enables it to
issue commercial paper up to a maximum aggregate principal amount
of U.S. $1.0 billion in the form of
unsecured promissory notes. This commercial paper program is backed
by the U.S. $1.3 billion revolving
credit facility. As at September 30, 2020, the Company had
total commercial paper borrowings of U.S. $345 million (December 31,
2019 - U.S. $397 million). The
weighted-average interest rate on these borrowings was 0.20%
(December 31, 2019 - 2.03%). The
Company presents issuances and repayments of commercial paper, all
of which have a maturity of less than 90 days, in the Company's
Interim Consolidated Statements of Cash Flows on a net basis.
11 Financial instruments
A. Fair values of financial instruments
The Company categorizes its financial assets and liabilities
measured at fair value into a three-level hierarchy established by
GAAP that prioritizes those inputs to valuation techniques used to
measure fair value based on the degree to which they are
observable. The three levels of the fair value hierarchy are as
follows: Level 1 inputs are quoted prices in active markets for
identical assets and liabilities; Level 2 inputs, other than quoted
prices included within Level 1, are observable for the asset or
liability either directly or indirectly; and Level 3 inputs are not
observable in the market.
The Company's short-term financial instruments include cash and
cash equivalents, accounts receivable, accounts payable and accrued
liabilities, and short-term borrowings including commercial paper.
The carrying value of short-term financial instruments all
approximate their fair values.
The carrying value of the Company's debt and finance lease
liabilities do not approximate their fair value. Their estimated
fair value has been determined based on market information where
available, or by discounting future payments of principal and
interest at estimated interest rates expected to be available to
the Company at period end. All measurements are classified as Level
2. The Company's debt and finance lease liabilities, including
current maturities, with a carrying value of $9,327 million at September 30, 2020
(December 31, 2019 - $8,241
million), had a fair value of $11,860
million (December 31, 2019 - $10,149 million).
B. Financial risk management
The effect of the Company's net investment hedge for the three
and nine months ended September 30, 2020 was an unrealized FX
gain of $135 million and an
unrealized FX loss of $156 million,
respectively (three and nine months ended September 30, 2019 - an unrealized FX loss of
$68 million and an unrealized FX gain
of $172 million, respectively)
recognized in "Other comprehensive income".
12 Shareholders' equity
On December 17, 2019, the Company
announced a normal course issuer bid ("NCIB"), commencing
December 20, 2019, to purchase up to
4.80 million Common Shares in the open market for cancellation on
or before December 19, 2020. As at September 30, 2020,
the Company had purchased 2.95 million Common Shares for
$1,016 million under this NCIB.
On October 19, 2018, the Company
announced a NCIB, commencing October 24,
2018, to purchase up to 5.68 million Common Shares for
cancellation on or before October 23, 2019. The Company
completed this NCIB on October 23,
2019.
All purchases were made in accordance with the respective NCIB
at prevailing market prices plus brokerage fees, or such other
prices that were permitted by the Toronto Stock Exchange, with
consideration allocated to "Share capital" up to the average
carrying amount of the shares and any excess allocated to "Retained
earnings".
The following table provides activities under the share
repurchase programs:
|
For the three
months ended
September 30
|
For the nine months
ended
September 30
|
|
2020
|
2019
|
2020
|
2019
|
Number of Common
Shares repurchased(1)
|
1,044,868
|
1,519,540
|
2,651,582
|
3,183,461
|
Weighted-average
price per share(2)
|
$
|
379.42
|
$
|
310.36
|
$
|
345.56
|
$
|
299.09
|
Amount of repurchase
(in millions of Canadian dollars)(2)
|
$
|
396
|
$
|
471
|
$
|
916
|
$
|
952
|
(1) Includes shares
repurchased but not yet cancelled at end of period.
|
(2) Includes brokerage
fees.
|
13 Pension and other benefits
In the three months ended September 30, 2020, the Company
made contributions of $9 million
(three months ended September 30,
2019 - $17 million) to its
defined benefit pension plans. In the nine months ended
September 30, 2020, the Company made contributions of
$24 million (nine months ended
September 30, 2019 - $40 million) to its defined benefit pension
plans.
Net periodic benefit costs for defined benefit pension plans and
other benefits included the following components:
|
For the three
months ended September 30
|
|
Pensions
|
Other
benefits
|
(in millions of
Canadian dollars)
|
2020
|
2019
|
2020
|
2019
|
Current service cost
(benefits earned by employees)
|
$
|
35
|
$
|
27
|
$
|
3
|
$
|
3
|
Other components of
net periodic benefit (recovery) cost:
|
|
|
|
|
Interest cost on
benefit obligation
|
102
|
113
|
4
|
4
|
Expected return on
fund assets
|
(236)
|
(236)
|
—
|
—
|
Recognized net
actuarial loss
|
44
|
20
|
1
|
1
|
Amortization of prior
service costs
|
(1)
|
(1)
|
—
|
—
|
Total other
components of net periodic benefit (recovery) cost
|
(91)
|
(104)
|
5
|
5
|
Net periodic benefit
(recovery) cost
|
$
|
(56)
|
$
|
(77)
|
$
|
8
|
$
|
8
|
|
|
|
|
|
For the nine
months ended September 30
|
|
Pensions
|
Other
benefits
|
(in millions of
Canadian dollars)
|
2020
|
2019
|
2020
|
2019
|
Current service cost
(benefits earned by employees)
|
$
|
105
|
$
|
81
|
$
|
9
|
$
|
9
|
Other components of
net periodic benefit (recovery) cost:
|
|
|
|
|
Interest cost on
benefit obligation
|
305
|
338
|
13
|
14
|
Expected return on
fund assets
|
(709)
|
(710)
|
—
|
—
|
Recognized net
actuarial loss
|
132
|
61
|
3
|
3
|
Amortization of prior
service costs
|
(1)
|
(1)
|
—
|
1
|
Total other
components of net periodic benefit (recovery) cost
|
(273)
|
(312)
|
16
|
18
|
Net periodic benefit
(recovery) cost
|
$
|
(168)
|
$
|
(231)
|
$
|
25
|
$
|
27
|
14 Stock-based compensation
At September 30, 2020, the Company had several stock-based
compensation plans including stock option plans, various
cash-settled liability plans, and an employee share purchase plan.
These plans resulted in an expense for the three and nine months
ended September 30, 2020 of $56
million and $110 million,
respectively (three and nine months ended September 30, 2019 - expense of $15 million and $88
million, respectively).
Stock option plan
In the nine months ended September 30, 2020, under CP's
stock option plans, the Company issued 215,943 options at the
weighted-average price of $350.65 per
share, based on the closing price on the grant date. Pursuant to
the employee plan, these options may be exercised upon vesting,
which is between 12 months and 48 months after the grant date, and
will expire after seven years.
Under the fair value method, the fair value of the stock options
at grant date was approximately $15
million. The weighted-average fair value assumptions were
approximately:
|
For the nine
months
ended September 30,
2020
|
Expected option life
(years)(1)
|
4.75
|
Risk-free interest
rate(2)
|
1.29%
|
Expected stock price
volatility(3)
|
23.11%
|
Expected annual
dividends per share(4)
|
$3.3200
|
Expected forfeiture
rate(5)
|
4.40%
|
Weighted-average
grant date fair value per option granted during the
period
|
$68.86
|
(1)
|
Represents the period
of time that awards are expected to be outstanding. Historical data
on exercise behaviour or, when available, specific expectations
regarding future exercise behaviour were used to estimate the
expected life of the option.
|
(2)
|
Based on the implied
yield available on zero-coupon government issues with an equivalent
term commensurate with the expected term of the option.
|
(3)
|
Based on the
historical volatility of the Company's stock price over a period
commensurate with the expected term of the option.
|
(4)
|
Determined by the
current annual dividend at the time of grant. The Company does not
employ different dividend yields throughout the contractual term of
the option. On July 21, 2020, the Company announced an increase in
its quarterly dividend to $0.9500 per share, representing $3.8000
on an annual basis.
|
(5)
|
The Company estimates
forfeitures based on past experience. This rate is monitored on a
periodic basis.
|
Performance share unit plans
During the nine months ended September 30, 2020, the
Company issued 97,710 Performance Share Units ("PSUs") with a grant
date fair value of approximately $34
million and 10,029 Performance Deferred Share Units
("PDSUs") with a grant date fair value, including value of expected
future matching units, of approximately $4
million. PSUs and PDSUs attract dividend equivalents in the
form of additional units based on dividends paid on the Company's
Common Shares, and vest approximately three years after the grant
date, contingent upon CP's performance ("performance factor"). The
fair value of these PSUs and PDSUs is measured periodically until
settlement. Vested PSUs are settled in cash. Vested PDSUs are
settled in cash pursuant to the Deferred Share Unit ("DSU") Plan
and are eligible for a 25% match if the holder has not exceeded
their share ownership requirements, and are paid out only when the
holder ceases their employment with CP.
The performance period for PSUs and PDSUs issued in the nine
months ended September 30, 2020 is January 1, 2020 to December 31, 2022 and the performance factors are
Return on Invested Capital ("ROIC"), Total Shareholder Return
("TSR") compared to the S&P/TSX 60 Index, and TSR compared to
Class I railways.
The performance period for PSUs issued in 2017 was January 1, 2017 to December 31, 2019, and the performance factors
for these PSUs were ROIC, TSR compared to the S&P/TSX Capped
Industrial Index, and TSR compared to S&P 1500 Road and Rail
Index. The resulting payout was 193% of the outstanding units
multiplied by the Company's average share price calculated using
the last 30 trading days preceding December
31, 2019. In the first quarter of 2020, payouts occurred on
the total outstanding awards, including dividends reinvested,
totalling $76 million on 121,225
outstanding awards.
Deferred share unit plan
During the nine months ended September 30, 2020, the
Company granted 17,356 DSUs with a grant date fair value of
approximately $6 million. DSUs vest
over various periods of up to 36 months and are only redeemable for
a specified period after employment is terminated. During the nine
months ended September 30, 2020,
payouts totaling $8 million were made
in respect of 25,345 vested DSUs, including dividends reinvested.
The expense for DSUs is recognized over the vesting period for both
the initial subscription price and the change in value between
reporting periods.
15 Contingencies
In the normal course of its operations, the Company becomes
involved in various legal actions, including claims relating to
injuries and damage to property. The Company maintains provisions
it considers to be adequate for such actions. While the final
outcome with respect to actions outstanding or pending at
September 30, 2020 cannot be predicted with certainty, it is
the opinion of management that their resolution will not have a
material adverse effect on the Company's business, financial
position or results of operations.
Legal proceedings related to Lac-Mégantic rail
accident
On July 6, 2013, a train carrying
petroleum crude oil operated by Montréal Maine and Atlantic Railway ("MMAR") or a
subsidiary, Montréal Maine &
Atlantic Canada Co. ("MMAC" and collectively the "MMA Group"),
derailed in Lac-Mégantic, Québec. The derailment occurred on a
section of railway owned and operated by the MMA Group and while
the MMA Group exclusively controlled the train.
Following the derailment, MMAC sought court protection in
Canada under the Companies'
Creditors Arrangement Act and MMAR filed for bankruptcy in the
U.S. Plans of arrangement were approved in both Canada and the U.S. (the "Plans"), providing
for the distribution of approximately $440
million amongst those claiming derailment damages.
A number of legal proceedings, set out below, were commenced in
Canada and the U.S. against CP and
others:
(1) Québec's Minister of Sustainable Development,
Environment, Wildlife and Parks ordered various parties, including
CP, to remediate the derailment site (the "Cleanup Order") and
served CP with a Notice of Claim for $95
million for those costs. CP appealed the Cleanup Order and
contested the Notice of Claim with the Administrative Tribunal of
Québec. These proceedings are stayed pending determination of the
Attorney General of Québec ("AGQ") action (paragraph 2 below).
(2) The AGQ sued CP in the Québec Superior Court
claiming $409 million in damages,
which was amended and reduced to $315
million (the "AGQ Action"). The AGQ Action alleges that: (i)
CP was responsible for the petroleum crude oil from its point of
origin until its delivery to Irving Oil Ltd.; and (ii) CP is
vicariously liable for the acts and omissions of the MMA Group.
(3) A class action in the Québec Superior Court on
behalf of persons and entities residing in, owning or leasing
property in, operating a business in, or physically present in
Lac-Mégantic at the time of the derailment was certified against CP
on May 8, 2015 (the "Class Action").
Other defendants including MMAC and Mr. Thomas Harding ("Harding") were added to the
Class Action on January 25, 2017. The
Class Action seeks unquantified damages, including for wrongful
death, personal injury, property damage, and economic loss.
(4) Eight subrogated insurers sued CP in the Québec
Superior Court claiming approximately $16
million in damages, which was amended and reduced to
approximately $15 million (the
"Promutuel Action"), and two additional subrogated insurers sued CP
claiming approximately $3 million in
damages (the "Royal Action"). Both actions contain similar
allegations as the AGQ Action. The actions do not identify the
subrogated parties. As such, the extent of any overlap between the
damages claimed in these actions and under the Plans is unclear.
The Royal Action is stayed pending determination of the
consolidated proceedings described below.
On December 11, 2017, the AGQ
Action, the Class Action and the Promutuel Action were
consolidated. These consolidated claims are currently scheduled for
a joint liability trial commencing on or around September 13, 2021, followed by a damages trial,
if necessary.
(5) Forty-eight plaintiffs (all individual claims
joined in one action) sued CP, MMAC, and Harding in the Québec
Superior Court claiming approximately $5
million in damages for economic loss and pain and suffering,
and asserting similar allegations as in the Class Action and the
AGQ Action. The majority of the plaintiffs opted-out of the Class
Action and all but two are also plaintiffs in litigation against
CP, described in paragraph 7 below. This action is stayed pending
determination of the consolidated claims described above.
(6) The MMAR U.S. bankruptcy estate representative
commenced an action against CP in November
2014 in the Maine Bankruptcy Court claiming that CP failed
to abide by certain regulations and seeking approximately U.S.
$30 million in damages for MMAR's
loss in business value according to a recent report. This action
asserts that CP knew or ought to have known that the shipper
misclassified the petroleum crude oil and therefore should have
refused to transport it.
(7) The class and mass tort action commenced against
CP in June 2015 in Texas (on behalf of Lac-Mégantic residents and
wrongful death representatives) and the wrongful death and personal
injury actions commenced against CP in June
2015 in Illinois and
Maine, were all transferred and
consolidated in Federal District Court in Maine (the "Maine Actions"). The Maine Actions
allege that CP negligently misclassified and improperly packaged
the petroleum crude oil. On CP's motion, the Maine Actions were
dismissed. The plaintiffs are appealing the dismissal decision,
which is pending.
(8) The trustee for the wrongful death trust
commenced Carmack Amendment claims against CP in North Dakota
Federal Court, seeking to recover approximately U.S. $6 million for damaged rail cars and lost crude
and reimbursement for the settlement paid by the consignor and the
consignee under the Plans (alleged to be U.S. $110 million and U.S. $60
million, respectively). The Court issued an Order on
August 6, 2020 granting and denying
in parts the parties' summary judgment motions, which Order is now
subject to further review based on pending motions by the parties.
This action is scheduled for trial on March
23, 2021.
At this stage of the proceedings, any potential responsibility
and the quantum of potential losses cannot be determined.
Nevertheless, CP denies liability and is vigorously defending these
proceedings.
Environmental liabilities
Environmental remediation accruals, recorded on an undiscounted
basis unless a reliable, determinable estimate as to an amount and
timing of costs can be established, cover site-specific remediation
programs.
The accruals for environmental remediation represent CP's best
estimate of its probable future obligation and include both
asserted and unasserted claims, without reduction for anticipated
recoveries from third parties. Although the recorded accruals
include CP's best estimate of all probable costs, CP's total
environmental remediation costs cannot be predicted with certainty.
Accruals for environmental remediation may change from time to time
as new information about previously untested sites becomes known,
and as environmental laws and regulations evolve and advances are
made in environmental remediation technology. The accruals may also
vary as the courts decide legal proceedings against outside parties
responsible for contamination. These potential charges, which
cannot be quantified at this time, may materially affect income in
the particular period in which a charge is recognized. Costs
related to existing, but as yet unknown, or future contamination
will be accrued in the period in which they become probable and
reasonably estimable.
The expense included in "Purchased services and other" for the
three and nine months ended September 30, 2020 was
$2 million and $6 million, respectively (three and nine months
ended September 30, 2019 - $2
million and $4 million,
respectively). Provisions for environmental remediation costs are
recorded in "Other long-term liabilities", except for the current
portion which is recorded in "Accounts payable and accrued
liabilities". The total amount provided at September 30, 2020
was $81 million (December 31,
2019 - $77 million). Payments are
expected to be made over 10 years through 2029.
16 Subsequent event
On October 15, 2020, CP and OMERS
Infrastructure Management Inc. ("OMERS") entered into a purchase
agreement whereby CP will acquire the 83.5 percent ownership of the
Detroit River Tunnel Partnership, currently held by certain
affiliates of OMERS. CP currently owns the remaining 16.5 percent.
The purchase price for the transaction is approximately U.S.
$312 million subject to customary
closing adjustments. The acquisition is currently expected to
close at the end of 2020 and is subject to customary closing
conditions, including regulatory approvals.
Summary of Rail Data
|
Third
Quarter
|
|
Year-to-date
|
Financial
(millions, except per share data)
|
2020
|
2019
|
Total
Change
|
%
Change
|
|
2020
|
2019
|
Total
Change
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Freight
|
$
|
1,821
|
$
|
1,932
|
$
|
(111)
|
(6)
|
|
$
|
5,573
|
$
|
5,589
|
$
|
(16)
|
—
|
Non-freight
|
42
|
47
|
(5)
|
(11)
|
|
125
|
134
|
(9)
|
(7)
|
Total
revenues
|
1,863
|
1,979
|
(116)
|
(6)
|
|
5,698
|
5,723
|
(25)
|
—
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
Compensation and
benefits
|
382
|
355
|
27
|
8
|
|
1,127
|
1,144
|
(17)
|
(1)
|
Fuel
|
140
|
210
|
(70)
|
(33)
|
|
483
|
655
|
(172)
|
(26)
|
Materials
|
53
|
50
|
3
|
6
|
|
162
|
161
|
1
|
1
|
Equipment
rents
|
39
|
33
|
6
|
18
|
|
108
|
102
|
6
|
6
|
Depreciation and
amortization
|
195
|
185
|
10
|
5
|
|
582
|
528
|
54
|
10
|
Purchased services
and other
|
275
|
277
|
(2)
|
(1)
|
|
853
|
899
|
(46)
|
(5)
|
Total operating
expenses
|
1,084
|
1,110
|
(26)
|
(2)
|
|
3,315
|
3,489
|
(174)
|
(5)
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
779
|
869
|
(90)
|
(10)
|
|
2,383
|
2,234
|
149
|
7
|
|
|
|
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
Other (income)
expense
|
(36)
|
29
|
(65)
|
(224)
|
|
89
|
(58)
|
147
|
(253)
|
Other components of
net periodic benefit recovery
|
(86)
|
(99)
|
13
|
(13)
|
|
(257)
|
(294)
|
37
|
(13)
|
Net interest
expense
|
114
|
110
|
4
|
4
|
|
346
|
336
|
10
|
3
|
|
|
|
|
|
|
|
|
|
|
Income before income
tax expense
|
787
|
829
|
(42)
|
(5)
|
|
2,205
|
2,250
|
(45)
|
(2)
|
|
|
|
|
|
|
|
|
|
|
Income tax
expense
|
189
|
211
|
(22)
|
(10)
|
|
563
|
474
|
89
|
19
|
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
598
|
$
|
618
|
$
|
(20)
|
(3)
|
|
$
|
1,642
|
$
|
1,776
|
$
|
(134)
|
(8)
|
Operating ratio
(%)
|
58.2
|
56.1
|
2.1
|
210
bps
|
|
58.2
|
61.0
|
(2.8)
|
(280)
bps
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per
share
|
$
|
4.42
|
$
|
4.47
|
$
|
(0.05)
|
(1)
|
|
$
|
12.09
|
$
|
12.75
|
$
|
(0.66)
|
(5)
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per
share
|
$
|
4.41
|
$
|
4.46
|
$
|
(0.05)
|
(1)
|
|
$
|
12.04
|
$
|
12.70
|
$
|
(0.66)
|
(5)
|
|
|
|
|
|
|
|
|
|
|
Shares
Outstanding
|
|
|
|
|
|
|
|
|
|
Weighted average
number of basic shares outstanding (millions)
|
135.2
|
138.1
|
(2.9)
|
(2)
|
|
135.9
|
139.3
|
(3.4)
|
(2)
|
Weighted average
number of diluted shares outstanding (millions)
|
135.8
|
138.7
|
(2.9)
|
(2)
|
|
136.4
|
139.8
|
(3.4)
|
(2)
|
|
|
|
|
|
|
|
|
|
|
Foreign
Exchange
|
|
|
|
|
|
|
|
|
|
Average foreign
exchange rate (US$/Canadian$)
|
0.75
|
0.76
|
(0.01)
|
(1)
|
|
0.74
|
0.75
|
(0.01)
|
(1)
|
Average foreign
exchange rate (Canadian$/US$)
|
1.33
|
1.32
|
0.01
|
1
|
|
1.35
|
1.33
|
0.02
|
2
|
Summary of Rail Data (Continued)
|
Third
Quarter
|
|
Year-to-date
|
Commodity
Data
|
2020
|
2019
|
Total
Change
|
%
Change
|
FX
Adjusted %
Change(1)
|
|
2020
|
2019
|
Total
Change
|
%
Change
|
FX
Adjusted %
Change(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Freight Revenues
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
- Grain
|
$
|
457
|
$
|
409
|
$
|
48
|
12
|
11
|
|
$
|
1,321
|
$
|
1,211
|
$
|
110
|
9
|
8
|
- Coal
|
130
|
183
|
(53)
|
(29)
|
(29)
|
|
411
|
514
|
(103)
|
(20)
|
(20)
|
- Potash
|
132
|
117
|
15
|
13
|
13
|
|
390
|
367
|
23
|
6
|
5
|
- Fertilizers and
sulphur
|
65
|
66
|
(1)
|
(2)
|
(3)
|
|
212
|
186
|
26
|
14
|
12
|
- Forest
products
|
85
|
78
|
7
|
9
|
8
|
|
244
|
229
|
15
|
7
|
5
|
- Energy, chemicals
and plastics
|
321
|
382
|
(61)
|
(16)
|
(16)
|
|
1,153
|
1,043
|
110
|
11
|
10
|
- Metals, minerals
and consumer products
|
152
|
201
|
(49)
|
(24)
|
(25)
|
|
474
|
579
|
(105)
|
(18)
|
(19)
|
-
Automotive
|
94
|
87
|
7
|
8
|
7
|
|
215
|
267
|
(52)
|
(19)
|
(21)
|
-
Intermodal
|
385
|
409
|
(24)
|
(6)
|
(6)
|
|
1,153
|
1,193
|
(40)
|
(3)
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Freight
Revenues
|
$
|
1,821
|
$
|
1,932
|
$
|
(111)
|
(6)
|
(6)
|
|
$
|
5,573
|
$
|
5,589
|
$
|
(16)
|
—
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Freight Revenue
per Revenue Ton-Mile (RTM) (cents)
|
|
|
|
|
|
|
|
|
|
|
|
- Grain
|
4.33
|
4.57
|
(0.24)
|
(5)
|
(5)
|
|
4.44
|
4.53
|
(0.09)
|
(2)
|
(3)
|
- Coal
|
2.93
|
3.18
|
(0.25)
|
(8)
|
(8)
|
|
3.11
|
3.12
|
(0.01)
|
—
|
—
|
- Potash
|
2.62
|
2.79
|
(0.17)
|
(6)
|
(6)
|
|
2.66
|
2.62
|
0.04
|
2
|
1
|
- Fertilizers and
sulphur
|
6.14
|
6.41
|
(0.27)
|
(4)
|
(6)
|
|
6.26
|
6.48
|
(0.22)
|
(3)
|
(5)
|
- Forest
products
|
5.81
|
6.10
|
(0.29)
|
(5)
|
(6)
|
|
6.01
|
6.11
|
(0.10)
|
(2)
|
(3)
|
- Energy, chemicals
and plastics
|
6.95
|
5.05
|
1.90
|
38
|
37
|
|
6.41
|
4.99
|
1.42
|
28
|
27
|
- Metals, minerals
and consumer products
|
6.60
|
6.91
|
(0.31)
|
(4)
|
(5)
|
|
6.82
|
7.04
|
(0.22)
|
(3)
|
(5)
|
-
Automotive
|
24.10
|
24.79
|
(0.69)
|
(3)
|
(4)
|
|
25.41
|
23.73
|
1.68
|
7
|
5
|
-
Intermodal
|
5.63
|
5.74
|
(0.11)
|
(2)
|
(2)
|
|
5.54
|
5.71
|
(0.17)
|
(3)
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Freight Revenue
per RTM
|
4.96
|
4.93
|
0.03
|
1
|
—
|
|
4.99
|
4.86
|
0.13
|
3
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
Freight Revenue
per Carload
|
|
|
|
|
|
|
|
|
|
|
|
- Grain
|
$
|
3,671
|
$
|
3,837
|
$
|
(166)
|
(4)
|
(5)
|
|
$
|
3,846
|
$
|
3,875
|
$
|
(29)
|
(1)
|
(2)
|
- Coal
|
2,047
|
2,254
|
(207)
|
(9)
|
(10)
|
|
2,201
|
2,242
|
(41)
|
(2)
|
(2)
|
- Potash
|
3,028
|
3,223
|
(195)
|
(6)
|
(6)
|
|
3,071
|
3,094
|
(23)
|
(1)
|
(2)
|
- Fertilizers and
sulphur
|
4,676
|
4,459
|
217
|
5
|
3
|
|
4,639
|
4,366
|
273
|
6
|
5
|
- Forest
products
|
4,749
|
4,216
|
533
|
13
|
11
|
|
4,561
|
4,233
|
328
|
8
|
6
|
- Energy, chemicals
and plastics
|
5,047
|
4,207
|
840
|
20
|
19
|
|
5,053
|
4,058
|
995
|
25
|
24
|
- Metals, minerals
and consumer products
|
2,992
|
3,196
|
(204)
|
(6)
|
(7)
|
|
3,076
|
3,215
|
(139)
|
(4)
|
(6)
|
-
Automotive
|
3,013
|
2,979
|
34
|
1
|
—
|
|
3,015
|
3,112
|
(97)
|
(3)
|
(5)
|
-
Intermodal
|
1,540
|
1,506
|
34
|
2
|
2
|
|
1,496
|
1,521
|
(25)
|
(2)
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Freight Revenue
per Carload
|
$
|
2,763
|
$
|
2,714
|
$
|
49
|
2
|
1
|
|
$
|
2,814
|
$
|
2,707
|
$
|
107
|
4
|
3
|
|
|
(1)
|
This earnings measure
has no standardized meaning prescribed by GAAP and, therefore, is
unlikely to be comparable to similar measures presented by other
companies. This measure is defined and reconciled in Non-GAAP
Measures of this Earnings Release.
|
Summary of Rail Data (Continued)
|
Third
Quarter
|
|
Year-to-date
|
Commodity Data
(Continued)
|
2020
|
2019
|
Total
Change
|
%
Change
|
|
2020
|
2019
|
Total
Change
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
Millions of
RTM
|
|
|
|
|
|
|
|
|
|
- Grain
|
10,549
|
8,953
|
1,596
|
18
|
|
29,734
|
26,757
|
2,977
|
11
|
- Coal
|
4,437
|
5,761
|
(1,324)
|
(23)
|
|
13,209
|
16,485
|
(3,276)
|
(20)
|
- Potash
|
5,036
|
4,188
|
848
|
20
|
|
14,664
|
14,003
|
661
|
5
|
- Fertilizers and
sulphur
|
1,059
|
1,030
|
29
|
3
|
|
3,387
|
2,872
|
515
|
18
|
- Forest
products
|
1,463
|
1,278
|
185
|
14
|
|
4,059
|
3,746
|
313
|
8
|
- Energy, chemicals
and plastics
|
4,620
|
7,571
|
(2,951)
|
(39)
|
|
17,981
|
20,901
|
(2,920)
|
(14)
|
- Metals, minerals
and consumer products
|
2,303
|
2,910
|
(607)
|
(21)
|
|
6,951
|
8,225
|
(1,274)
|
(15)
|
-
Automotive
|
390
|
351
|
39
|
11
|
|
846
|
1,125
|
(279)
|
(25)
|
-
Intermodal
|
6,833
|
7,130
|
(297)
|
(4)
|
|
20,804
|
20,880
|
(76)
|
—
|
|
|
|
|
|
|
|
|
|
|
Total RTMs
|
36,690
|
39,172
|
(2,482)
|
(6)
|
|
111,635
|
114,994
|
(3,359)
|
(3)
|
|
|
|
|
|
|
|
|
|
|
Carloads
(thousands)
|
|
|
|
|
|
|
|
|
|
- Grain
|
124.5
|
106.6
|
17.9
|
17
|
|
343.5
|
312.5
|
31.0
|
10
|
- Coal
|
63.5
|
81.2
|
(17.7)
|
(22)
|
|
186.7
|
229.3
|
(42.6)
|
(19)
|
- Potash
|
43.6
|
36.3
|
7.3
|
20
|
|
127.0
|
118.6
|
8.4
|
7
|
- Fertilizers and
sulphur
|
13.9
|
14.8
|
(0.9)
|
(6)
|
|
45.7
|
42.6
|
3.1
|
7
|
- Forest
products
|
17.9
|
18.5
|
(0.6)
|
(3)
|
|
53.5
|
54.1
|
(0.6)
|
(1)
|
- Energy, chemicals
and plastics
|
63.6
|
90.8
|
(27.2)
|
(30)
|
|
228.2
|
257.0
|
(28.8)
|
(11)
|
- Metals, minerals
and consumer products
|
50.8
|
62.9
|
(12.1)
|
(19)
|
|
154.1
|
180.1
|
(26.0)
|
(14)
|
-
Automotive
|
31.2
|
29.2
|
2.0
|
7
|
|
71.3
|
85.8
|
(14.5)
|
(17)
|
-
Intermodal
|
250.0
|
271.6
|
(21.6)
|
(8)
|
|
770.6
|
784.3
|
(13.7)
|
(2)
|
|
|
|
|
|
|
|
|
|
|
Total
Carloads
|
659.0
|
711.9
|
(52.9)
|
(7)
|
|
1,980.6
|
2,064.3
|
(83.7)
|
(4)
|
|
Third
Quarter
|
|
Year-to-date
|
|
2020
|
2019
|
Total
Change
|
%
Change
|
FX
Adjusted %
Change(1)
|
|
2020
|
2019
|
Total
Change
|
%
Change
|
FX
Adjusted %
Change(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and
benefits
|
$
|
382
|
$
|
355
|
$
|
27
|
8
|
7
|
|
$
|
1,127
|
$
|
1,144
|
$
|
(17)
|
(1)
|
(2)
|
Fuel
|
140
|
210
|
(70)
|
(33)
|
(34)
|
|
483
|
655
|
(172)
|
(26)
|
(27)
|
Materials
|
53
|
50
|
3
|
6
|
6
|
|
162
|
161
|
1
|
1
|
1
|
Equipment
rents
|
39
|
33
|
6
|
18
|
15
|
|
108
|
102
|
6
|
6
|
4
|
Depreciation and
amortization
|
195
|
185
|
10
|
5
|
5
|
|
582
|
528
|
54
|
10
|
10
|
Purchased services
and other
|
275
|
277
|
(2)
|
(1)
|
(1)
|
|
853
|
899
|
(46)
|
(5)
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating
Expenses
|
$
|
1,084
|
$
|
1,110
|
$
|
(26)
|
(2)
|
(3)
|
|
$
|
3,315
|
$
|
3,489
|
$
|
(174)
|
(5)
|
(6)
|
|
|
(1)
|
This earnings measure
has no standardized meaning prescribed by GAAP and, therefore, is
unlikely to be comparable to similar measures presented by other
companies. This measure is defined and reconciled in Non-GAAP
Measures of this Earnings Release.
|
Summary of Rail Data (Continued)
|
Third
Quarter
|
|
Year-to-date
|
|
2020
|
2019
|
Total
Change
|
%
Change
|
|
2020
|
2019
|
Total
Change
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
Operations
Performance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross ton-miles
("GTMs") (millions)
|
65,997
|
71,658
|
(5,661)
|
(8)
|
|
200,383
|
209,229
|
(8,846)
|
(4)
|
Train miles
(thousands)
|
7,247
|
8,354
|
(1,107)
|
(13)
|
|
22,479
|
24,550
|
(2,071)
|
(8)
|
Average train
weight - excluding local traffic (tons)
|
9,857
|
9,173
|
684
|
7
|
|
9,644
|
9,117
|
527
|
6
|
Average train
length - excluding local traffic (feet)
|
8,082
|
7,446
|
636
|
9
|
|
7,831
|
7,382
|
449
|
6
|
Average terminal
dwell (hours)
|
6.7
|
5.8
|
0.9
|
16
|
|
6.5
|
6.7
|
(0.2)
|
(3)
|
Average train speed
(miles per hour, or "mph")(1)
|
22.5
|
22.7
|
(0.2)
|
(1)
|
|
22.1
|
22.1
|
—
|
—
|
Locomotive
productivity (GTMs / operating horsepower)(2)
|
207
|
208
|
(1)
|
—
|
|
207
|
200
|
7
|
4
|
Fuel
efficiency(3)
|
0.926
|
0.927
|
(0.001)
|
—
|
|
0.940
|
0.956
|
(0.016)
|
(2)
|
U.S. gallons of
locomotive fuel consumed (millions)(4)
|
61.1
|
66.4
|
(5.3)
|
(8)
|
|
188.5
|
200.1
|
(11.6)
|
(6)
|
Average fuel price
(U.S. dollars per U.S. gallon)
|
1.72
|
2.41
|
(0.69)
|
(29)
|
|
1.90
|
2.48
|
(0.58)
|
(23)
|
|
|
|
|
|
|
|
|
|
|
Total Employees
and Workforce
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total employees
(average)(5)
|
12,156
|
13,203
|
(1,047)
|
(8)
|
|
12,214
|
13,107
|
(893)
|
(7)
|
Total employees (end
of period)(5)
|
12,166
|
13,104
|
(938)
|
(7)
|
|
12,166
|
13,104
|
(938)
|
(7)
|
Workforce (end of
period)(6)
|
12,185
|
13,134
|
(949)
|
(7)
|
|
12,185
|
13,134
|
(949)
|
(7)
|
|
|
|
|
|
|
|
|
|
|
Safety
Indicators(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FRA personal injuries
per 200,000 employee-hours
|
1.06
|
1.44
|
(0.38)
|
(26)
|
|
1.13
|
1.45
|
(0.32)
|
(22)
|
FRA train accidents
per million train-miles
|
1.13
|
1.31
|
(0.18)
|
(14)
|
|
1.06
|
1.29
|
(0.23)
|
(18)
|
|
|
(1)
|
Average train speed
is defined as a measure of the line-haul movement from origin to
destination including terminal dwell hours. It is calculated by
dividing the total train miles travelled by the total train hours
operated. This calculation does not include delay time related to
customers or foreign railroads and excludes the time and distance
travelled by: i) trains used in or around CP's yards; ii) passenger
trains; and iii) trains used for repairing track.
|
(2)
|
Locomotive
productivity is defined as daily GTMs divided by daily average
operating horsepower. Operating horsepower excludes units offline,
tied up or in storage, or in use on other railways, and includes
foreign units online.
|
(3)
|
Fuel efficiency is
defined as U.S. gallons of locomotive fuel consumed per 1,000
GTMs.
|
(4)
|
Includes gallons of
fuel consumed from freight, yard and commuter service but excludes
fuel used in capital projects and other non-freight
activities.
|
(5)
|
An employee is
defined as an individual currently engaged in full-time, part-time,
or seasonal employment with CP.
|
(6)
|
Workforce is defined
as total employees plus contractors and consultants.
|
(7)
|
FRA personal injuries
per 200,000 employee-hours for the three and nine months ended
September 30, 2019 were previously reported as 1.39 and 1.44,
restated to 1.44 and 1.45, respectively in this Earnings Release.
FRA train accidents per million train-miles for the three and nine
months ended September 30, 2019 were previously reported as 1.10
and 1.19, restated to 1.31 and 1.29, respectively in this Earnings
Release. These restatements reflect new information available
within specified periods stipulated by the FRA but that exceed the
Company's financial reporting timeline.
|
Non-GAAP Measures
The Company presents Non-GAAP measures to provide a basis for
evaluating underlying earnings and liquidity trends in the
Company's business that can be compared with the results of
operations in prior periods. In addition, these Non-GAAP measures
facilitate a multi-period assessment of long-term profitability,
allowing management and other external users of the Company's
consolidated financial information to compare profitability on a
long-term basis, including assessing future profitability, with
that of the Company's peers.
These Non-GAAP measures have no standardized meaning and are not
defined by accounting principles generally accepted in the United States of America ("GAAP") and,
therefore, may not be comparable to similar measures presented by
other companies. The presentation of these Non-GAAP measures is not
intended to be considered in isolation from, as a substitute for,
or as superior to the financial information presented in accordance
with GAAP.
Non-GAAP Performance Measures
The Company uses adjusted earnings results including Adjusted
income and Adjusted diluted earnings per share ("EPS") to evaluate
the Company's operating performance and for planning and
forecasting future business operations and future profitability.
These Non-GAAP measures provide meaningful supplemental information
regarding operating results because they exclude certain
significant items that are not considered indicative of future
financial trends either by nature or amount. As a result, these
items are excluded for management assessment of operational
performance, allocation of resources and preparation of annual
budgets. These significant items may include, but are not limited
to, restructuring and asset impairment charges, individually
significant gains and losses from sales of assets, the foreign
exchange ("FX") impact of translating the Company's debt and lease
liabilities (including borrowings under the credit facility),
discrete tax items, and certain items outside the control of
management. These items may not be non-recurring. However,
excluding these significant items from GAAP results allows for a
consistent understanding of the Company's consolidated financial
performance when performing a multi-period assessment including
assessing the likelihood of future results. Accordingly, these
Non-GAAP financial measures may provide insight to investors and
other external users of the Company's consolidated financial
information.
Significant items that impact reported earnings for the first
nine months of 2020, the twelve months of 2019, and the last three
months of 2018 include:
2020:
- during the year to date, a non-cash loss of $89 million ($78
million after deferred tax) due to FX translation of debt
and lease liabilities that unfavourably impacted Diluted EPS by
58 cents as follows:
-
- in the third quarter, a $40
million gain ($38 million
after deferred tax) that favourably impacted Diluted EPS by
29 cents;
- in the second quarter, an $86
million gain ($82 million
after deferred tax) that favourably impacted Diluted EPS by
59 cents; and
- in the first quarter, a $215
million loss ($198 million
after deferred tax) that unfavourably impacted Diluted EPS by
$1.44.
2019:
- in the fourth quarter, a deferred tax expense of $24 million as a result of a provision for an
uncertain tax item of a prior period that unfavourably impacted
Diluted EPS by 17 cents;
- in the second quarter, a deferred tax recovery of $88 million due to the change in the Alberta provincial corporate income tax rate
that favourably impacted Diluted EPS by 63
cents; and
- during the course of the year, a net non-cash gain of
$94 million ($86 million after deferred tax) due to FX
translation of debt and lease liabilities that unfavourably
impacted Diluted EPS by 62 cents as
follows:
-
- in the fourth quarter, a $37
million gain ($32 million
after deferred tax) that favourably impacted Diluted EPS by
22 cents;
- in the third quarter, a $25
million loss ($22 million
after deferred tax) that unfavourably impacted Diluted EPS by
15 cents;
- in the second quarter, a $37
million gain ($34 million
after deferred tax) that favourably impacted Diluted EPS by
24 cents; and
- in the first quarter, a $45
million gain ($42 million
after deferred tax) that favourably impacted Diluted EPS by
30 cents.
2018:
- in the fourth quarter, a non-cash loss of $113 million ($103
million after deferred tax) due to FX translation of debt
that unfavourably impacted Diluted EPS by 72
cents.
2020 Outlook
Based on the strength of the Company's performance to date, on
October 20, 2020, CP updated the
outlook for 2020 that CP had previously updated on July 22, 2020. The Company now expects to deliver
at least mid-single digit Adjusted diluted EPS growth year over
year based on Adjusted diluted EPS of $16.44 in 2019. CP now expects volume, as
measured in RTMs, to be down low-single digits and continues to
expect capital expenditures of $1.6
billion. CP's revised earnings guidance assumes an FX rate
of $1.35 CAD/USD, other components of
net periodic benefit recovery to decrease by approximately
$40 million as compared to 2019 and
an effective tax rate of approximately 24.8 percent as a result of
the accelerated reduction of the Alberta corporate tax rate as compared to 25.0
percent previously. Adjusted diluted EPS is defined and discussed
further below.
Although CP has provided a forward-looking Non-GAAP measure
(Adjusted diluted EPS), management is unable to reconcile, without
unreasonable efforts, the forward-looking Adjusted diluted EPS to
the most comparable GAAP measure, due to unknown variables and
uncertainty related to future results. These unknown variables may
include unpredictable transactions of significant value. In past
years, CP has recognized significant asset impairment charges,
management transition costs related to senior executives and
discrete tax items. These or other similar, large unforeseen
transactions affect diluted EPS but may be excluded from CP's
Adjusted diluted EPS. Additionally, the U.S.-to-Canadian dollar
exchange rate is unpredictable and can have a significant impact on
CP's reported results but may be excluded from CP's Adjusted
diluted EPS. In particular, CP excludes the FX impact of
translating the Company's debt and lease liabilities, the impact
from changes in income tax rates and a provision for uncertain tax
item from Adjusted diluted EPS. Please see Note on Forward-Looking
Information in this Earnings Release for further discussion.
Reconciliation of GAAP Performance Measures to Non-GAAP
Performance Measures
The following tables reconcile the most directly comparable
measures presented in accordance with GAAP to the Non-GAAP
measures:
Adjusted income is calculated as Net income reported on a GAAP
basis adjusted for significant items.
|
For the three
months
ended September 30
|
For the nine
months
ended September 30
|
For the twelve
months
ended December 31
|
(in
millions)
|
2020
|
2019
|
2020
|
2019
|
2019
|
Net income as
reported
|
$
|
598
|
$
|
618
|
$
|
1,642
|
$
|
1,776
|
$
|
2,440
|
Less significant
items (pre-tax):
|
|
|
|
|
|
Impact of FX
translation gain (loss) on debt and lease liabilities
|
40
|
(25)
|
(89)
|
57
|
94
|
Add:
|
|
|
|
|
|
Tax effect of
adjustments(1)
|
2
|
(3)
|
(11)
|
3
|
8
|
Income tax rate
changes
|
—
|
—
|
—
|
(88)
|
(88)
|
Provision for
uncertain tax item
|
—
|
—
|
—
|
—
|
24
|
Adjusted
income
|
$
|
560
|
$
|
640
|
$
|
1,720
|
$
|
1,634
|
$
|
2,290
|
(1)
|
The tax effect of
adjustments was calculated as the pre-tax effect of the adjustments
multiplied by the applicable tax rate for the above items of 4.82%
and 12.15% for the three and nine months ended September 30, 2020,
respectively, 14.23% and 5.05% for the three and nine months ended
September 30, 2019, respectively, and 8.55% for the twelve months
ended December 31, 2019. The applicable tax rates reflect the
taxable jurisdictions and nature, being on account of capital or
income, of the significant items.
|
Adjusted diluted earnings per share is calculated using Adjusted
income, as defined above, divided by the weighted-average diluted
number of Common Shares outstanding during the period as determined
in accordance with GAAP.
|
For the three
months
ended September 30
|
For the nine
months
ended September 30
|
For the twelve
months
ended December 31
|
|
2020
|
2019
|
2020
|
2019
|
2019
|
Diluted earnings
per share as reported
|
$
|
4.41
|
$
|
4.46
|
$
|
12.04
|
$
|
12.70
|
$
|
17.52
|
Less significant
items (pre-tax):
|
|
|
|
|
|
Impact of FX
translation gain (loss) on debt and lease liabilities
|
0.30
|
(0.18)
|
(0.65)
|
0.41
|
0.67
|
Add:
|
|
|
|
|
|
Tax effect of
adjustments(1)
|
0.01
|
(0.03)
|
(0.07)
|
0.02
|
0.05
|
Income tax rate
changes
|
—
|
—
|
—
|
(0.63)
|
(0.63)
|
Provision for
uncertain tax item
|
—
|
—
|
—
|
—
|
0.17
|
Adjusted diluted
earnings per share
|
$
|
4.12
|
$
|
4.61
|
$
|
12.62
|
$
|
11.68
|
$
|
16.44
|
(1)
|
The tax effect of
adjustments was calculated as the pre-tax effect of the adjustments
multiplied by the applicable tax rate for the above items of 4.82%
and 12.15% for the three and nine months ended September 30, 2020,
respectively, 14.23% and 5.05% for the three and nine months ended
September 30, 2019, respectively, and 8.55% for the twelve months
ended December 31, 2019. The applicable tax rates reflect the
taxable jurisdictions and nature, being on account of capital or
income, of the significant items.
|
Adjusted Return on Invested Capital ("Adjusted ROIC")
Adjusted ROIC is calculated as Adjusted return divided by
Adjusted average invested capital. Adjusted return is defined as
Net income adjusted for interest expense, tax effected at the
Company's adjusted annualized effective tax rate, and significant
items in the Company's Consolidated Financial Statements, tax
effected at the applicable tax rate. Adjusted average invested
capital is defined as the sum of total Shareholders' equity,
Long-term debt, and Long-term debt maturing within one year, as
presented in the Company's Consolidated Financial Statements, each
averaged between the beginning and ending balance over a rolling
12-month period, adjusted for the impact of significant items, tax
effected at the applicable tax rate, on closing balances as part of
this average. Adjusted ROIC excludes significant items reported in
the Company's Consolidated Financial Statements, as these
significant items are not considered indicative of future financial
trends either by nature or amount, and excludes interest expense,
net of tax, to incorporate returns on the Company's overall
capitalization. Adjusted ROIC is a performance measure that
measures how productively the Company uses its long-term capital
investments, representing critical indicators of good operating and
investment decisions made by management, and is an important
performance criteria in determining certain elements of the
Company's long-term incentive plan. Adjusted ROIC is reconciled
below from Return on average shareholders' equity, the most
comparable measure calculated in accordance with GAAP.
Beginning in the first quarter of 2020, CP aligned the
reconciliation sequence for Adjusted ROIC to start with Net income,
with no change to the calculated Adjusted return.
Calculation of Return on average shareholders' equity
|
For the twelve
months
ended September 30
|
(in millions, except
for percentages)
|
2020
|
2019
|
Net income as
reported
|
$
|
2,306
|
$
|
2,321
|
Average shareholders'
equity
|
$
|
7,397
|
$
|
7,172
|
Return on average
shareholders' equity
|
31.2%
|
32.4%
|
Reconciliation of Net income to Adjusted return
|
For the twelve
months
ended September 30
|
(in
millions)
|
2020
|
2019
|
Net income as
reported
|
$
|
2,306
|
$
|
2,321
|
Add:
|
|
|
Net interest
expense
|
458
|
450
|
Tax on
interest(1)
|
(114)
|
(115)
|
Significant
items:
|
|
|
Impact of FX
translation loss on debt and lease liabilities (pre-tax)
|
52
|
56
|
Tax on
significant items(2)
|
(6)
|
(7)
|
Income tax recovery
from income tax rate changes
|
—
|
(88)
|
Provision for
uncertain tax item
|
24
|
—
|
Adjusted
return
|
$
|
2,720
|
$
|
2,617
|
(1)
|
Tax was calculated at
the adjusted annualized effective tax rate of 24.67% and 25.12% for
the twelve months ended September 30, 2020 and 2019,
respectively.
|
(2)
|
Tax was calculated as
the pre-tax effect of the adjustments multiplied by the applicable
tax rate for the above items of 11.22% and 13.64% for the twelve
months ended September 30, 2020 and 2019, respectively.
|
Reconciliation of Average shareholders' equity to Adjusted
average invested capital
|
For the twelve
months
ended September 30
|
(in
millions)
|
2020
|
2019
|
Average
shareholders' equity
|
$
|
7,397
|
$
|
7,172
|
Average Long-term
debt, including long-term debt maturing within one year
|
9,385
|
8,634
|
|
$
|
16,782
|
$
|
15,806
|
Less:
|
|
|
Income tax recovery
from income tax rate changes
|
—
|
44
|
Provision for
uncertain tax item
|
(12)
|
—
|
Adjusted average
invested capital
|
$
|
16,794
|
$
|
15,762
|
Calculation of Adjusted ROIC
|
For the twelve
months
ended September 30
|
(in millions, except
for percentages)
|
2020
|
2019
|
Adjusted
return
|
$
|
2,720
|
$
|
2,617
|
Adjusted average
invested capital
|
$
|
16,794
|
$
|
15,762
|
Adjusted
ROIC
|
16.2%
|
16.6%
|
Free Cash
Free cash is calculated as Cash provided by operating
activities, less Cash used in investing activities, adjusted for
changes in cash and cash equivalents balances resulting from FX
fluctuations, and the acquisition of Central Maine and Québec Railway ("CMQ"). Free
cash is a measure that management considers to be an indicator of
liquidity. Free cash is useful to investors and other external
users of the Company's Consolidated Financial Statements as it
assists with the evaluation of the Company's ability to generate
cash from its operations without incurring additional external
financing. The acquisition of CMQ is not indicative of investment
trends and has also been excluded from Free cash. Positive Free
cash indicates the amount of cash available for reinvestment in the
business, or cash that can be returned to investors through
dividends, stock repurchase programs, debt retirements or a
combination of these. Conversely, negative Free cash indicates the
amount of cash that must be raised from investors through new debt
or equity issues, reduction in available cash balances or a
combination of these. Free cash should be considered in addition
to, rather than as a substitute for, Cash provided by operating
activities.
Reconciliation of Cash Provided by Operating Activities to Free
Cash
|
For the three
months
ended September 30
|
For the nine
months
ended September 30
|
(in
millions)
|
2020
|
2019
|
2020
|
2019
|
Cash provided by
operating activities
|
$
|
493
|
$
|
823
|
$
|
1,817
|
$
|
1,957
|
Cash used in
investing activities
|
(483)
|
(461)
|
(1,313)
|
(1,135)
|
Effect of foreign
currency fluctuations on U.S. dollar-denominated cash
and cash equivalents
|
(4)
|
1
|
12
|
(1)
|
Less:
|
|
|
|
|
Investment in Central
Maine and Québec Railway
|
—
|
—
|
19
|
—
|
Free
cash
|
$
|
6
|
$
|
363
|
$
|
497
|
$
|
821
|
Foreign Exchange Adjusted % Change
FX adjusted % change allows certain financial results to be
viewed without the impact of fluctuations in foreign currency
exchange rates, thereby facilitating period-to-period comparisons
in the analysis of trends in business performance. Financial result
variances at constant currency are obtained by translating the
comparable period of the prior year results denominated in U.S.
dollars at the foreign exchange rates of the current period.
FX adjusted % changes in revenues are further used in
calculating FX adjusted % change in freight revenue per carload and
RTM. FX adjusted % changes in revenues are as follows:
|
For the three
months ended September 30
|
(in
millions)
|
Reported
2020
|
Reported
2019
|
Variance
due to FX
|
FX Adjusted
2019
|
FX Adjusted
% Change
|
Freight revenues by
line of business
|
|
|
|
|
|
Grain
|
$
|
457
|
$
|
409
|
$
|
1
|
$
|
410
|
11
|
Coal
|
130
|
183
|
1
|
184
|
(29)
|
Potash
|
132
|
117
|
—
|
117
|
13
|
Fertilizers and
sulphur
|
65
|
66
|
1
|
67
|
(3)
|
Forest
products
|
85
|
78
|
1
|
79
|
8
|
Energy, chemicals and
plastics
|
321
|
382
|
2
|
384
|
(16)
|
Metals, minerals and
consumer products
|
152
|
201
|
1
|
202
|
(25)
|
Automotive
|
94
|
87
|
1
|
88
|
7
|
Intermodal
|
385
|
409
|
1
|
410
|
(6)
|
Freight
revenues
|
1,821
|
1,932
|
9
|
1,941
|
(6)
|
Non-freight
revenues
|
42
|
47
|
—
|
47
|
(11)
|
Total
revenues
|
$
|
1,863
|
$
|
1,979
|
$
|
9
|
$
|
1,988
|
(6)
|
|
For the nine
months ended September 30
|
(in
millions)
|
Reported
2020
|
Reported
2019
|
Variance
due to FX
|
FX Adjusted
2019
|
FX Adjusted
% Change
|
Freight revenues by
line of business
|
|
|
|
|
|
Grain
|
$
|
1,321
|
$
|
1,211
|
$
|
11
|
$
|
1,222
|
8
|
Coal
|
411
|
514
|
1
|
515
|
(20)
|
Potash
|
390
|
367
|
3
|
370
|
5
|
Fertilizers and
sulphur
|
212
|
186
|
3
|
189
|
12
|
Forest
products
|
244
|
229
|
4
|
233
|
5
|
Energy, chemicals and
plastics
|
1,153
|
1,043
|
8
|
1,051
|
10
|
Metals, minerals and
consumer products
|
474
|
579
|
9
|
588
|
(19)
|
Automotive
|
215
|
267
|
5
|
272
|
(21)
|
Intermodal
|
1,153
|
1,193
|
6
|
1,199
|
(4)
|
Freight
revenues
|
5,573
|
5,589
|
50
|
5,639
|
(1)
|
Non-freight
revenues
|
125
|
134
|
—
|
134
|
(7)
|
Total
revenues
|
$
|
5,698
|
$
|
5,723
|
$
|
50
|
$
|
5,773
|
(1)
|
FX adjusted % changes in operating expenses are as follows:
|
For the three
months ended September 30
|
(in
millions)
|
Reported
2020
|
Reported
2019
|
Variance
due to FX
|
FX Adjusted
2019
|
FX Adjusted
% Change
|
Compensation and
benefits
|
$
|
382
|
$
|
355
|
$
|
1
|
$
|
356
|
7
|
Fuel
|
140
|
210
|
1
|
211
|
(34)
|
Materials
|
53
|
50
|
—
|
50
|
6
|
Equipment
rents
|
39
|
33
|
1
|
34
|
15
|
Depreciation and
amortization
|
195
|
185
|
1
|
186
|
5
|
Purchased services
and other
|
275
|
277
|
1
|
278
|
(1)
|
Total operating
expenses
|
$
|
1,084
|
$
|
1,110
|
$
|
5
|
$
|
1,115
|
(3)
|
|
For the nine
months ended September 30
|
(in
millions)
|
Reported
2020
|
Reported
2019
|
Variance
due to FX
|
FX Adjusted
2019
|
FX Adjusted
% Change
|
Compensation and
benefits
|
$
|
1,127
|
$
|
1,144
|
$
|
7
|
$
|
1,151
|
(2)
|
Fuel
|
483
|
655
|
10
|
665
|
(27)
|
Materials
|
162
|
161
|
—
|
161
|
1
|
Equipment
rents
|
108
|
102
|
2
|
104
|
4
|
Depreciation and
amortization
|
582
|
528
|
3
|
531
|
10
|
Purchased services
and other
|
853
|
899
|
8
|
907
|
(6)
|
Total operating
expenses
|
$
|
3,315
|
$
|
3,489
|
$
|
30
|
$
|
3,519
|
(6)
|
FX adjusted % change in operating income is as follows:
|
For the three
months ended September 30
|
(in
millions)
|
Reported
2020
|
Reported
2019
|
Variance
due to FX
|
FX Adjusted
2019
|
FX Adjusted
% Change
|
Operating
income
|
$
|
779
|
$
|
869
|
$
|
4
|
$
|
873
|
(11)
|
|
For the nine
months ended September 30
|
(in
millions)
|
Reported
2020
|
Reported
2019
|
Variance
due to FX
|
FX Adjusted
2019
|
FX Adjusted
% Change
|
Operating
income
|
$
|
2,383
|
$
|
2,234
|
$
|
20
|
$
|
2,254
|
6
|
Adjusted Net Debt to Adjusted EBITDA Ratio
Adjusted net debt to Adjusted earnings before interest, tax,
depreciation and amortization ("EBITDA") ratio is calculated as
Adjusted net debt divided by Adjusted EBITDA. The Adjusted net debt
to Adjusted EBITDA ratio is a key credit measure used to assess the
Company's financial capacity. The ratio provides information on the
Company's ability to service its debt and other long-term
obligations. The Adjusted net debt to Adjusted EBITDA ratio is
reconciled below from the Long-term debt to Net income ratio, the
most comparable measure calculated in accordance with GAAP.
Calculation of Long-term Debt to Net Income Ratio
(in millions, except
for ratios)
|
2020
|
2019
|
Long-term debt
including long-term debt maturing within one year as at September
30
|
$
|
9,786
|
$
|
8,983
|
Net income for the
twelve months ended September 30
|
$
|
2,306
|
$
|
2,321
|
Long-term debt to
Net income ratio
|
4.2
|
3.9
|
Reconciliation of Long-term Debt to Adjusted Net Debt
Adjusted net debt is defined as Long-term debt, Long-term debt
maturing within one year and Short-term borrowing as reported on
the Company's Consolidated Balance Sheets adjusted for pension
plans deficit, operating lease liabilities recognized on the
Company's Consolidated Balance Sheets, and Cash and cash
equivalents.
(in
millions)
|
2020
|
2019
|
Long-term debt
including long-term debt maturing within one year as at September
30
|
$
|
9,786
|
$
|
8,983
|
Add:
|
|
|
Pension plans
deficit(1)
|
287
|
260
|
Operating lease
liabilities
|
325
|
370
|
Less:
|
|
|
Cash and cash
equivalents
|
183
|
145
|
Adjusted net debt
as at September 30
|
$
|
10,215
|
$
|
9,468
|
(1)
|
Pension plans deficit
is the total funded status of the Pension plans in deficit
only.
|
Reconciliation of Net Income to EBIT, Adjusted EBIT and Adjusted
EBITDA
Earnings before interest and tax ("EBIT") is calculated as Net
income before Net interest expense and Income tax expense. Adjusted
EBIT excludes significant items reported in both Operating income
and Other (income) expense. Adjusted EBITDA is calculated as
Adjusted EBIT plus operating lease expense and Depreciation and
amortization, less Other components of net periodic benefit
recovery.
|
For the twelve
months
ended September 30
|
(in
millions)
|
2020
|
2019
|
Net income as
reported
|
$
|
2,306
|
$
|
2,321
|
Add:
|
|
|
Net interest
expense
|
458
|
450
|
Income tax
expense
|
795
|
668
|
EBIT
|
3,559
|
3,439
|
Less significant
items (pre-tax):
|
|
|
Impact of FX
translation loss on debt and lease liabilities
|
(52)
|
(56)
|
Adjusted
EBIT
|
3,611
|
3,495
|
Add:
|
|
|
Operating lease
expense
|
79
|
99
|
Depreciation and
amortization
|
760
|
708
|
Less:
|
|
|
Other components of
net periodic benefit recovery
|
344
|
391
|
Adjusted
EBITDA
|
$
|
4,106
|
$
|
3,911
|
Calculation of Adjusted Net Debt to Adjusted EBITDA Ratio
(in millions, except
for ratios)
|
2020
|
2019
|
Adjusted net debt as
at September 30
|
$
|
10,215
|
$
|
9,468
|
Adjusted EBITDA for
the twelve months ended September 30
|
$
|
4,106
|
$
|
3,911
|
Adjusted net debt
to Adjusted EBITDA ratio
|
2.5
|
2.4
|
View original
content:http://www.prnewswire.com/news-releases/on-strength-of-service-and-operating-model-cp-reports-sub-60-operating-ratio-and-revenues-of-1-86b-301155834.html
SOURCE Canadian Pacific