"The third quarter presented challenges across the supply chain, but the CP team's commitment to the foundations of precision scheduled railroading enabled us to respond quickly and effectively to changing environments," said
Third-quarter highlights
- Revenues increased by 4 percent to
$1.94 billion , from$1.86 billion last year - Reported diluted EPS of
$0.70 , a 20 percent decrease from$0.88 last year, and adjusted diluted EPS of$0.88 , a 7 percent increase from$0.82 last year - Reported OR, which includes Kansas City Southern ("KCS") acquisition-related costs, increased by 200 basis points to 60.2 percent from 58.2 percent
- Adjusted OR, which excludes the KCS acquisition-related costs, increased 120 basis points to 59.4 percent over last year's third-quarter OR of 58.2 percent
Updated outlook
CP now expects low single-digit volume growth in 2021, as measured in revenue ton-miles, compared to 2020. CP remains confident that it will deliver full-year double-digit adjusted diluted EPS growth2,3 in 2021.
CP's revised guidance continues to assume other components of net periodic benefit recovery to increase by approximately
"Despite global supply chain issues and a challenging Canadian grain crop, we remain confident in our ability to deliver full-year double-digit adjusted diluted EPS growth," said Creel. "The underlying demand environment remains strong, and our commitment to generate sustainable, profitable growth will not be distracted by elements outside our control."
Additionally, CP will continue its work preparing to create the first single-line rail network linking the
"The transitory issues over the past year have only reinforced the need for enhanced competition and optionality for North American shippers," Creel said. "Our excitement about the opportunities ahead with the combined companies continues to grow."
1 These measures have no standardized meanings prescribed by accounting principles generally accepted in
2 CP's expectation for full year double-digit adjusted diluted EPS growth in 2021 is relative to 2020's adjusted diluted EPS of
3 Although CP has provided a forward-looking non-GAAP measure (adjusted diluted EPS), management is unable to reconcile, without unreasonable efforts, the forward-looking adjusted diluted EPS to the most comparable GAAP measure (diluted EPS), due to unknown variables and uncertainty related to future results. These unknown variables may include unpredictable transactions of significant value. In recent years, CP has recognized acquisition-related costs (including legal, consulting and financing fees, and fair value gain or loss on foreign exchange (FX) forward contracts and interest rate hedges), the merger termination payment received, changes in income tax rates and a change to an uncertain tax item. These or other similar, large unforeseen transactions affect diluted EPS but may be excluded from CP's adjusted diluted EPS. Additionally, the
For information regarding non-GAAP measures, including reconciliations to the most comparable GAAP measures, see the attached supplementary schedule Non-GAAP Measures.
Conference call details
CP will discuss its results with the financial community in a conference call beginning at
Conference call access
Operator assisted toll free dial in number: 1-888-390-0546
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
Note on forward-looking information
This news release may contain certain forward-looking information and forward-looking statements (collectively, "forward-looking information") within the meaning of applicable securities laws. Forward-looking information includes, but is not limited to, statements concerning expectations, beliefs, plans, goals, objectives, assumptions and statements about possible future events, conditions, and results of operations or performance. Forward-looking information may contain statements with words or headings such as "financial expectations", "key assumptions", "anticipate", "believe", "expect", "plan", "will", "outlook", "should" or similar words suggesting future outcomes. This news release contains forward-looking information relating, but not limited to statements concerning 2021 volume as measured in revenue ton-miles, adjusted diluted EPS growth, capital program investments, the
The forward-looking information that may be in this news release is based on current expectations, estimates, projections and assumptions, having regard to CP's experience and its perception of historical trends, and includes, but is not limited to, expectations, estimates, projections and assumptions relating to: changes in business strategies, North American and global economic growth; commodity demand growth; sustainable industrial and agricultural production; commodity prices and interest rates; foreign exchange rates (as specified herein); effective tax rates (as specified herein); performance of our assets and equipment; sufficiency of our budgeted capital expenditures in carrying out our business plan; geopolitical conditions, applicable laws, regulations and government policies; the availability and cost of labour, services and infrastructure; the satisfaction by third parties of their obligations to CP; and the anticipated impacts of the COVID-19 pandemic 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 and strategic opportunities; general Canadian,
Any forward-looking information contained in this news release is made as of the date hereof. Except as required by law, CP undertakes no obligation to update publicly or otherwise revise any forward-looking information, or the foregoing assumptions and risks affecting such forward-looking information, whether as a result of new information, future events or otherwise.
About Canadian Pacific
Canadian Pacific is a transcontinental railway in
FINANCIAL STATEMENTS
INTERIM CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
For the three months | For the nine months | |||||||||||
(in millions of Canadian dollars, except share and per share data) | 2021 | 2020 | 2021 | 2020 | ||||||||
Revenues (Note 3) | ||||||||||||
Freight | $ | 1,896 | $ | 1,821 | $ | 5,822 | $ | 5,573 | ||||
Non-freight | 46 | 42 | 133 | 125 | ||||||||
Total revenues | 1,942 | 1,863 | 5,955 | 5,698 | ||||||||
Operating expenses | ||||||||||||
Compensation and benefits | 381 | 382 | 1,165 | 1,127 | ||||||||
Fuel | 199 | 140 | 623 | 483 | ||||||||
Materials | 51 | 53 | 164 | 162 | ||||||||
Equipment rents | 31 | 39 | 92 | 108 | ||||||||
Depreciation and amortization | 203 | 195 | 605 | 582 | ||||||||
Purchased services and other (Note 9, 10) | 303 | 275 | 932 | 853 | ||||||||
Total operating expenses | 1,168 | 1,084 | 3,581 | 3,315 | ||||||||
Operating income | 774 | 779 | 2,374 | 2,383 | ||||||||
Less: | ||||||||||||
Other expense (income) (Note 4, 10) | 124 | (36) | 253 | 89 | ||||||||
Merger termination fee (Note 10) | — | — | (845) | — | ||||||||
Other components of net periodic benefit recovery (Note 14) | (95) | (86) | (286) | (257) | ||||||||
Net interest expense | 104 | 114 | 315 | 346 | ||||||||
Income before income tax expense | 641 | 787 | 2,937 | 2,205 | ||||||||
Income tax expense (Note 5) | 169 | 189 | 617 | 563 | ||||||||
Net income | $ | 472 | $ | 598 | $ | 2,320 | $ | 1,642 | ||||
Earnings per share (Note 1, 6) | ||||||||||||
Basic earnings per share | $ | 0.71 | $ | 0.88 | $ | 3.48 | $ | 2.42 | ||||
Diluted earnings per share | $ | 0.70 | $ | 0.88 | $ | 3.46 | $ | 2.41 | ||||
Weighted-average number of shares (millions) (Note 1, 6) | ||||||||||||
Basic | 666.9 | 676.2 | 666.7 | 679.3 | ||||||||
Diluted | 669.8 | 679.0 | 669.8 | 681.8 | ||||||||
Dividends declared per share (Note 1) | $ | 0.190 | $ | 0.190 | $ | 0.570 | $ | 0.522 |
See Notes to Interim Consolidated Financial Statements.
INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
For the three months | For the nine months | |||||||||||
(in millions of Canadian dollars) | 2021 | 2020 | 2021 | 2020 | ||||||||
Net income | $ | 472 | $ | 598 | $ | 2,320 | $ | 1,642 | ||||
Net (loss) gain in foreign currency translation adjustments, net of hedging activities | (17) | 16 | 3 | (18) | ||||||||
Change in derivatives designated as cash flow hedges | 141 | 3 | 69 | 6 | ||||||||
Change in pension and post-retirement defined benefit plans | 53 | 44 | 158 | 134 | ||||||||
Other comprehensive income before income taxes | 177 | 63 | 230 | 122 | ||||||||
Income tax expense on above items | (29) | (29) | (59) | (16) | ||||||||
Other comprehensive income (Note 7) | 148 | 34 | 171 | 106 | ||||||||
Comprehensive income | $ | 620 | $ | 632 | $ | 2,491 | $ | 1,748 |
See Notes to Interim Consolidated Financial Statements.
INTERIM CONSOLIDATED BALANCE SHEETS AS AT
(unaudited)
(in millions of Canadian dollars) | 2021 | 2020 | ||||
Assets | ||||||
Current assets | ||||||
Cash and cash equivalents | $ | 210 | $ | 147 | ||
Restricted cash and cash equivalents | 13 | — | ||||
Accounts receivable, net (Note 8) | 811 | 825 | ||||
Materials and supplies | 227 | 208 | ||||
Other current assets | 190 | 141 | ||||
1,451 | 1,321 | |||||
Investments | 205 | 199 | ||||
Properties | 21,007 | 20,422 | ||||
372 | 366 | |||||
Pension asset | 1,232 | 894 | ||||
Other assets | 405 | 438 | ||||
Payment to Kansas City Southern (Note 10) | 1,773 | — | ||||
Total assets | $ | 26,445 | $ | 23,640 | ||
Liabilities and shareholders' equity | ||||||
Current liabilities | ||||||
Accounts payable and accrued liabilities | $ | 1,744 | $ | 1,467 | ||
Long-term debt maturing within one year (Note 11, 12) | 1,932 | 1,186 | ||||
3,676 | 2,653 | |||||
Pension and other benefit liabilities | 825 | 832 | ||||
Other long-term liabilities | 522 | 585 | ||||
Long-term debt (Note 11, 12) | 8,036 | 8,585 | ||||
Deferred income taxes | 3,918 | 3,666 | ||||
Total liabilities | 16,977 | 16,321 | ||||
Shareholders' equity | ||||||
Share capital | 2,008 | 1,983 | ||||
Additional paid-in capital | 68 | 55 | ||||
Accumulated other comprehensive loss (Note 7) | (2,643) | (2,814) | ||||
Retained earnings | 10,035 | 8,095 | ||||
9,468 | 7,319 | |||||
Total liabilities and shareholders' equity | $ | 26,445 | $ | 23,640 |
See Contingencies (Note 16).
See Notes to Interim Consolidated Financial Statements.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the three months | For the nine months | |||||||||||
(in millions of Canadian dollars) | 2021 | 2020 | 2021 | 2020 | ||||||||
Operating activities | ||||||||||||
Net income | $ | 472 | $ | 598 | $ | 2,320 | $ | 1,642 | ||||
Reconciliation of net income to cash provided by operating activities: | ||||||||||||
Depreciation and amortization | 203 | 195 | 605 | 582 | ||||||||
Deferred income tax expense (Note 5) | 130 | 45 | 190 | 133 | ||||||||
Pension recovery and funding (Note 14) | (62) | (65) | (188) | (192) | ||||||||
Foreign exchange loss (gain) on debt and lease liabilities (Note 4) | 46 | (40) | (39) | 89 | ||||||||
Other operating activities, net | (14) | 56 | (50) | 11 | ||||||||
Change in non-cash working capital balances related to operations | (227) | (296) | 246 | (448) | ||||||||
Cash provided by operating activities | 548 | 493 | 3,084 | 1,817 | ||||||||
Investing activities | ||||||||||||
Additions to properties | (372) | (484) | (1,111) | (1,341) | ||||||||
Investment in | — | — | — | 19 | ||||||||
Payment to Kansas City Southern (Note 10) | (1,773) | — | (1,773) | — | ||||||||
Proceeds from sale of properties and other assets | 16 | 2 | 65 | 9 | ||||||||
Other | — | (1) | (1) | — | ||||||||
Cash used in investing activities | (2,129) | (483) | (2,820) | (1,313) | ||||||||
Financing activities | ||||||||||||
Dividends paid | (127) | (113) | (380) | (339) | ||||||||
Issuance of CP Common Shares | 4 | 3 | 20 | 32 | ||||||||
Purchase of CP Common Shares (Note 13) | — | (400) | — | (945) | ||||||||
Issuance of long-term debt, excluding commercial paper | — | — | — | 958 | ||||||||
Repayment of long-term debt, excluding commercial paper (Note 11) | (318) | (49) | (349) | (74) | ||||||||
Proceeds from term loan (Note 11) | 633 | — | 633 | — | ||||||||
Net issuance (repayment) of commercial paper (Note 11) | 713 | 459 | (66) | (114) | ||||||||
Net increase in short-term borrowings | — | — | — | 5 | ||||||||
Acquisition-related financing fees (Note 10) | — | — | (45) | — | ||||||||
Other | (3) | — | (7) | 11 | ||||||||
Cash provided by (used in) financing activities | 902 | (100) | (194) | (466) | ||||||||
Effect of foreign currency fluctuations on | 10 | (4) | 6 | 12 | ||||||||
Cash position | ||||||||||||
(Decrease) increase in cash, cash equivalents, and restricted cash | (669) | (94) | 76 | 50 | ||||||||
Cash, cash equivalents, and restricted cash at beginning of period | 892 | 277 | 147 | 133 | ||||||||
Cash, cash equivalents, and restricted cash at end of period | $ | 223 | $ | 183 | $ | 223 | $ | 183 | ||||
Supplemental disclosures of cash flow information: | ||||||||||||
Income taxes paid | $ | 129 | $ | 311 | $ | 401 | $ | 455 | ||||
Interest paid | $ | 153 | $ | 163 | $ | 365 | $ | 383 |
See Notes to Interim Consolidated Financial Statements.
INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(unaudited)
For the three months ended | |||||||||||||||
(in millions of Canadian dollars except per share data) | Common | Share capital | Additional paid-in capital | Accumulated other comprehensive loss | Retained earnings | Total shareholders' equity | |||||||||
Balance at | 666.8 | $ | 2,003 | $ | 63 | $ | (2,791) | $ | 9,690 | $ | 8,965 | ||||
Net income | — | — | — | — | 472 | 472 | |||||||||
Other comprehensive income (Note 7) | — | — | — | 148 | — | 148 | |||||||||
Dividends declared ( | — | — | — | — | (127) | (127) | |||||||||
Effect of stock-based compensation expense | — | — | 6 | — | — | 6 | |||||||||
Shares issued under stock option plan | 0.1 | 5 | (1) | — | — | 4 | |||||||||
Balance at | 666.9 | $ | 2,008 | $ | 68 | $ | (2,643) | $ | 10,035 | $ | 9,468 | ||||
Balance at | 677.6 | $ | 1,990 | $ | 53 | $ | (2,450) | $ | 7,872 | $ | 7,465 | ||||
Net income | — | — | — | — | 598 | 598 | |||||||||
Other comprehensive income (Note 7) | — | — | — | 34 | — | 34 | |||||||||
Dividends declared ( | — | — | — | — | (128) | (128) | |||||||||
Effect of stock-based compensation expense | — | — | 4 | — | — | 4 | |||||||||
CP Common Shares repurchased (Note 13) | (5.3) | (15) | — | — | (381) | (396) | |||||||||
Shares issued under stock option plan | 0.2 | 3 | (1) | — | — | 2 | |||||||||
Balance at | 672.5 | $ | 1,978 | $ | 56 | $ | (2,416) | $ | 7,961 | $ | 7,579 | ||||
For the nine months ended | |||||||||||||||
(in millions of Canadian dollars except per share data) | Common shares (in | Share capital | Additional paid-in capital | Accumulated other comprehensive loss | Retained earnings | Total shareholders' equity | |||||||||
Balance at | 666.3 | $ | 1,983 | $ | 55 | $ | (2,814) | $ | 8,095 | $ | 7,319 | ||||
Net income | — | — | — | — | 2,320 | 2,320 | |||||||||
Other comprehensive income (Note 7) | — | — | — | 171 | — | 171 | |||||||||
Dividends declared ( | — | — | — | — | (380) | (380) | |||||||||
Effect of stock-based compensation expense | — | — | 18 | — | — | 18 | |||||||||
Shares issued under stock option plan | 0.6 | 25 | (5) | — | — | 20 | |||||||||
Balance at | 666.9 | $ | 2,008 | $ | 68 | $ | (2,643) | $ | 10,035 | $ | 9,468 | ||||
Balance at | 685.0 | $ | 1,993 | $ | 48 | $ | (2,522) | $ | 7,549 | $ | 7,068 | ||||
Net income | — | — | — | — | 1,642 | 1,642 | |||||||||
Other comprehensive income (Note 7) | — | — | — | 106 | — | 106 | |||||||||
Dividends declared ( | — | — | — | — | (353) | (353) | |||||||||
Effect of stock-based compensation expense | — | — | 13 | — | — | 13 | |||||||||
CP Common Shares repurchased (Note 13) | (13.7) | (39) | — | — | (877) | (916) | |||||||||
Shares issued under stock option plan | 1.2 | 24 | (5) | — | — | 19 | |||||||||
Balance at | 672.5 | $ | 1,978 | $ | 56 | $ | (2,416) | $ | 7,961 | $ | 7,579 |
See Notes to Interim Consolidated Financial Statements.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1 Basis of presentation
These unaudited Interim Consolidated Financial Statements ("Interim Consolidated Financial Statements") of
On
CP's operations can be affected by seasonal fluctuations such as changes in customer demand and weather-related issues. This seasonality could impact quarter-over-quarter comparisons.
In management's opinion, the Interim Consolidated Financial Statements include all adjustments (consisting of normal and recurring adjustments) necessary to present fairly such information. Interim results are not necessarily indicative of the results expected for the fiscal year.
2 Accounting changes
Accounting pronouncements that became effective during the period covered by the Interim Consolidated Financial Statements did not have a material impact on the Company's Interim Consolidated Balance Sheets, Interim Consolidated Statements of Income, or Interim Consolidated Statements of Cash Flows. Likewise, accounting pronouncements issued, but not effective until after
Future changes
Reference Rate Reform
In
The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to transactions affected by reference rate reform if certain criteria are met. These transactions include contract modifications, hedging relationships, and sale or transfer of debt securities classified as held-to-maturity.
The guidance in the ASU was effective starting on
3 Revenues
The following table disaggregates the Company's revenues from contracts with customers by major source:
For the three months | For the nine months | |||||||||||
(in millions of Canadian dollars) | 2021 | 2020 | 2021 | 2020 | ||||||||
Freight | ||||||||||||
Grain | $ | 352 | $ | 457 | $ | 1,244 | $ | 1,321 | ||||
Coal | 158 | 130 | 491 | 411 | ||||||||
Potash | 113 | 132 | 348 | 390 | ||||||||
Fertilizers and sulphur | 72 | 65 | 227 | 212 | ||||||||
Forest products | 89 | 85 | 259 | 244 | ||||||||
Energy, chemicals and plastics | 392 | 321 | 1,149 | 1,153 | ||||||||
Metals, minerals and consumer products | 196 | 152 | 535 | 474 | ||||||||
Automotive | 83 | 94 | 289 | 215 | ||||||||
Intermodal | 441 | 385 | 1,280 | 1,153 | ||||||||
Total freight revenues | 1,896 | 1,821 | 5,822 | 5,573 | ||||||||
Non-freight excluding leasing revenues | 25 | 27 | 75 | 80 | ||||||||
Revenues from contracts with customers | 1,921 | 1,848 | 5,897 | 5,653 | ||||||||
Leasing revenues | 21 | 15 | 58 | 45 | ||||||||
Total revenues | $ | 1,942 | $ | 1,863 | $ | 5,955 | $ | 5,698 |
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 | For the nine months | |||||||||||
(in millions of Canadian dollars) | 2021 | 2020 | 2021 | 2020 | ||||||||
Opening balance | $ | 245 | $ | 79 | $ | 61 | $ | 146 | ||||
Revenue recognized that was included in the contract liability | (93) | (25) | (36) | (95) | ||||||||
Increase due to consideration received, net of revenue recognized | 4 | 5 | 131 | 8 | ||||||||
Closing balance | $ | 156 | $ | 59 | $ | 156 | $ | 59 |
4 Other expense (income)
For the three months | For the nine months | |||||||||||
(in millions of Canadian dollars) | 2021 | 2020 | 2021 | 2020 | ||||||||
Foreign exchange loss (gain) on debt and lease liabilities | $ | 46 | $ | (40) | $ | (39) | $ | 89 | ||||
Other foreign exchange (gains) losses | (7) | 2 | (9) | (2) | ||||||||
Acquisition-related costs (Note 10) | 83 | — | 295 | — | ||||||||
Other | 2 | 2 | 6 | 2 | ||||||||
Other expense (income) | $ | 124 | $ | (36) | $ | 253 | $ | 89 |
5 Income taxes
For the three months | For the nine months | ||||||||||||
(in millions of Canadian dollars) | 2021 | 2020 | 2021 | 2020 | |||||||||
Current income tax expense | $ | 39 | $ | 144 | $ | 427 | $ | 430 | |||||
Deferred income tax expense | 130 | 45 | 190 | 133 | |||||||||
Income tax expense | $ | 169 | $ | 189 | $ | 617 | $ | 563 |
The effective tax rates including discrete items for the three and nine months ended
For the three months ended
For the three months ended
For the nine months ended
For the nine months ended
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 | For the nine months ended | |||||||
(in millions) | 2021 | 2020 | 2021 | 2020 | ||||
Weighted-average basic shares outstanding | 666.9 | 676.2 | 666.7 | 679.3 | ||||
Dilutive effect of stock options | 2.9 | 2.8 | 3.1 | 2.5 | ||||
Weighted-average diluted shares outstanding | 669.8 | 679.0 | 669.8 | 681.8 |
For the three and nine months ended
7 Changes in Accumulated other comprehensive loss ("AOCL") by component
For the three months ended | ||||||||||||
(in millions of Canadian dollars) | Foreign currency | Derivatives and | Pension and post- | Total(1) | ||||||||
Opening balance, | $ | 110 | $ | (101) | $ | (2,800) | $ | (2,791) | ||||
Other comprehensive income before reclassifications | 6 | 101 | — | 107 | ||||||||
Amounts reclassified from accumulated other comprehensive loss | — | 2 | 39 | 41 | ||||||||
Net other comprehensive income | 6 | 103 | 39 | 148 | ||||||||
Closing balance, | $ | 116 | $ | 2 | $ | (2,761) | $ | (2,643) | ||||
Opening balance, | $ | 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, | $ | 115 | $ | (50) | $ | (2,481) | $ | (2,416) |
(1) Amounts are presented net of tax. |
For the nine months ended | ||||||||||||
(in millions of Canadian dollars) | Foreign currency net of hedging | Derivatives and | Pension and post- | Total(1) | ||||||||
Opening balance, | $ | 112 | $ | (48) | $ | (2,878) | $ | (2,814) | ||||
Other comprehensive income before reclassifications | 4 | 44 | — | 48 | ||||||||
Amounts reclassified from accumulated other comprehensive loss | — | 6 | 117 | 123 | ||||||||
Net other comprehensive income | 4 | 50 | 117 | 171 | ||||||||
Closing balance, | $ | 116 | $ | 2 | $ | (2,761) | $ | (2,643) | ||||
Opening balance, | $ | 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, | $ | 115 | $ | (50) | $ | (2,481) | $ | (2,416) |
(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 | For the nine months | |||||||||||
(in millions of Canadian dollars) | 2021 | 2020 | 2021 | 2020 | ||||||||
Amortization of prior service costs(1) | $ | — | $ | (1) | $ | — | $ | (1) | ||||
Recognition of net actuarial loss(1) | 53 | 45 | 158 | 135 | ||||||||
Total before income tax | 53 | 44 | 158 | 134 | ||||||||
Income tax recovery | (14) | (11) | (41) | (35) | ||||||||
Total net of income tax | $ | 39 | $ | 33 | $ | 117 | $ | 99 |
(1) Impacts "Other components of net periodic benefit recovery" on the Interim Consolidated Statements of Income. |
8 Accounts receivable, net
As at | As at | |||||||||||||||||
(in millions of Canadian dollars) | Freight | Non- freight | Total | Freight | Non- | Total | ||||||||||||
Total accounts receivable | $ | 655 | $ | 194 | $ | 849 | $ | 662 | $ | 203 | $ | 865 | ||||||
Allowance for credit losses | (22) | (16) | (38) | (25) | (15) | (40) | ||||||||||||
Total accounts receivable, net | $ | 633 | $ | 178 | $ | 811 | $ | 637 | $ | 188 | $ | 825 |
For the three months ended | For the three months ended | |||||||||||||||||
(in millions of Canadian dollars) | Freight | Non- | Total | Freight | Non- freight | Total | ||||||||||||
Allowance for credit losses, opening balance | $ | (23) | $ | (15) | $ | (38) | $ | (26) | $ | (14) | $ | (40) | ||||||
Current period credit loss provision, net | 1 | (1) | — | — | — | — | ||||||||||||
Allowance for credit losses, closing balance | $ | (22) | $ | (16) | $ | (38) | $ | (26) | $ | (14) | $ | (40) |
For the nine months ended | For the nine months ended | |||||||||||||||||
(in millions of Canadian dollars) | Freight | Non- | Total | Freight | Non- | Total | ||||||||||||
Allowance for credit losses, opening balance | $ | (25) | $ | (15) | $ | (40) | $ | (27) | $ | (16) | $ | (43) | ||||||
Current period credit loss provision, net | 3 | (1) | 2 | 1 | 2 | 3 | ||||||||||||
Allowance for credit losses, closing balance | $ | (22) | $ | (16) | $ | (38) | $ | (26) | $ | (14) | $ | (40) |
9 Property sale
Gain on exchange of property and construction easements in
During the first quarter of 2021, the Company exchanged property and construction easements in
For the three and nine months ended
10 Business acquisition
Kansas City Southern Transaction
On
On
On
On
Upon the approval of the transaction by the shareholders of both the Company and KCS, Mexican regulatory approvals, and satisfaction or waiver of customary closing conditions, the shares of KCS will be deposited into a voting trust subject to a voting trust agreement, pending final approval of the acquisition of control by the STB. Approval to use the voting trust has been received from the STB and CP currently expects to close the transaction into the voting trust in the first quarter of 2022. CP will use the equity method of accounting for the voting trust during the period when the shares are held in an independent voting trust while the STB considers the Company's control application. Subject to final approval of the transaction by the STB and any other remaining approvals of regulatory authorities, if applicable, the acquisition will be accounted for as a business combination using the acquisition method of accounting.
Under the Merger Agreement, common stockholders of KCS will receive 2.884 (exchange ratio) of the Company's Common Shares and
The actual value of the transaction may fluctuate based upon changes in the price of the Company's Common Shares and the number of KCS common stock, preferred stock and equity awards outstanding on the closing date into trust. Subject to final approval of the transaction by the STB and other applicable regulatory authorities, the transaction is expected to be completed in the second half of 2022.
During the three and nine months ended
The Merger Agreement includes termination fees for both the Company and KCS. The Company or KCS will be required to pay a termination fee equal to
11 Debt
During the third quarter of 2021, the Company repaid
Shelf prospectus
On
Credit facilities
During the first quarter of 2021, the Company obtained commitments for a 364-day senior unsecured facility (the "original bridge facility") in the amount of
During the third quarter of 2021, the Company obtained commitments for a new 364-day senior unsecured facility (the "bridge facility") in the amount of
Effective
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
12 Financial instruments
A. Fair values of financial instruments
The Company categorizes its financial assets and liabilities measured at fair value into a three-level hierarchy established by GAAP that prioritizes those inputs to valuation techniques used to measure fair value based on the degree to which they are observable. The three levels of the fair value hierarchy are as follows: Level 1 inputs are quoted prices in active markets for identical assets and liabilities; Level 2 inputs, other than quoted prices included within Level 1, are observable for the asset or liability either directly or indirectly; and Level 3 inputs are not observable in the market.
For non-exchange traded derivatives classified as Level 2, the Company uses standard valuation techniques to calculate fair value. Primary inputs to these techniques include observable market prices (interest, FX, and commodity) and volatility, depending on the type of derivative and nature of the underlying risk. The Company uses inputs and data used by willing market participants when valuing derivatives and considers its own credit default swap spread as well as those of its counterparties in its determination of fair value. All derivatives are classified as Level 2.
The Company's short-term financial instruments include cash and cash equivalents, restricted cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, and short-term borrowings including commercial paper and term loans. The carrying values of short-term financial instruments all approximate their fair values.
The carrying value of the Company's debt and finance lease liabilities does 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
B. Financial risk management
FX management
Net investment hedge
The effect of the Company's net investment hedge for the three and nine months ended
FX forward contracts
During the first nine months of 2021, the Company entered into various FX forward contracts totalling a notional
Interest rate management
Forward starting swaps
In March and April of 2021, the Company entered into forward starting floating-to-fixed interest rate swap agreements ("forward starting swaps") with terms of up to 30 years, totalling a notional
On
Following CP entering into the Merger Agreement with KCS, the Company rolled the notional
As at
Bond locks
In
On
Following CP entering into the Merger Agreement with KCS, the Company rolled the notional $600 million of bond locks but did not effect a cash settlement. Concurrently, the Company re-designated the bond locks totalling $600 million to fix the benchmark rate on cash flows associated with highly probable forecasted issuances of long-term notes. The changes in fair value on the bond locks are recorded in "Accumulated other comprehensive loss", net of tax, as cash flow hedges until the notes are issued. Subsequent to the notes issuance, amounts in "Accumulated other comprehensive loss" will be reclassified to "Net interest expense" ratably over the duration of the notes' hedged interest payments. Fair value gains subsequent to re-designation of $10 million were recorded within "Other comprehensive income" on the Company's Interim Consolidated Statements of Comprehensive Income for the three and nine months ended
As at
13 Shareholders' equity
On
On
All purchases were made in accordance with the NCIB at prevailing market prices plus brokerage fees, or such other prices that were permitted by the
The following table provides activities under the share repurchase programs:
For the three months ended | For the nine months | |||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||
Number of Common Shares repurchased(1) | — | 5,224,340 | — | 13,257,910 | ||||||||
Weighted-average price per share(2) | $ | — | $ | 75.88 | $ | — | $ | 69.11 | ||||
Amount of repurchase (in millions of Canadian dollars)(2) | $ | — | $ | 396 | $ | — | $ | 916 |
(1) | Includes shares repurchased but not yet cancelled at end of period. |
(2) | Includes brokerage fees. |
On
14 Pension and other benefits
In the three and nine months ended
Net periodic benefit costs for defined benefit pension plans and other benefits included the following components:
For the three months ended | ||||||||||||
Pensions | Other benefits | |||||||||||
(in millions of Canadian dollars) | 2021 | 2020 | 2021 | 2020 | ||||||||
Current service cost (benefits earned by employees) | $ | 42 | $ | 35 | $ | 4 | $ | 3 | ||||
Other components of net periodic benefit (recovery) cost: | ||||||||||||
Interest cost on benefit obligation | 88 | 102 | 4 | 4 | ||||||||
Expected return on fund assets | (240) | (236) | — | — | ||||||||
Recognized net actuarial loss | 52 | 44 | 1 | 1 | ||||||||
Amortization of prior service costs (recoveries) | — | (1) | — | — | ||||||||
Total other components of net periodic benefit (recovery) cost | (100) | (91) | 5 | 5 | ||||||||
Net periodic benefit (recovery) cost | $ | (58) | $ | (56) | $ | 9 | $ | 8 |
For the nine months ended | ||||||||||||
Pensions | Other benefits | |||||||||||
(in millions of Canadian dollars) | 2021 | 2020 | 2021 | 2020 | ||||||||
Current service cost (benefits earned by employees) | $ | 128 | $ | 105 | $ | 10 | $ | 9 | ||||
Other components of net periodic benefit (recovery) cost: | ||||||||||||
Interest cost on benefit obligation | 264 | 305 | 12 | 13 | ||||||||
Expected return on fund assets | (720) | (709) | — | — | ||||||||
Recognized net actuarial loss | 155 | 132 | 3 | 3 | ||||||||
Amortization of prior service costs (recoveries) | — | (1) | — | — | ||||||||
Total other components of net periodic benefit (recovery) cost | (301) | (273) | 15 | 16 | ||||||||
Net periodic benefit (recovery) cost | $ | (173) | $ | (168) | $ | 25 | $ | 25 |
15 Stock-based compensation
At
Stock option plan
Options issued prior to the share split described in Note 1 now each provide rights over five shares. For consistency, all number of options presented herein are calculated and shown on the basis of the number of shares subject to the options. In the nine months ended
Under the fair value method, the fair value of the stock options at grant date was approximately
For the nine months ended | |
Expected option life (years)(1) | 4.75 |
Risk-free interest rate(2) | 0.53% |
Expected share price volatility(3) | 27.14% |
Expected annual dividends per share(4) | |
Expected forfeiture rate(5) | 2.61% |
Weighted-average grant date fair value per option granted during the period |
(1) | Represents the period of time that awards are expected to be outstanding. Historical data on exercise behaviour or, when available, specific expectations regarding future exercise behaviour were used to estimate the expected life of the option. |
(2) | Based on the implied yield available on zero-coupon government issues with an equivalent term commensurate with the expected term of the option. |
(3) | Based on the historical volatility of the Company's share price over a period commensurate with the expected term of the option. |
(4) | Determined by the current annual dividend at the time of grant. The Company does not employ different dividend yields throughout the contractual term of the option. |
(5) | The Company estimates forfeitures based on past experience. This rate is monitored on a periodic basis. |
Performance share unit plans
During the nine months ended
The performance period for PSUs and PDSUs issued in the nine months ended
The performance period for PSUs issued in 2018 was
Deferred share unit plan
During the nine months ended
16 Contingencies
In the normal course of its operations, the Company becomes involved in various legal actions, including claims relating to injuries and damage to property. The Company maintains provisions it considers to be adequate for such actions. While the final outcome with respect to actions outstanding or pending at
Legal proceedings related to Lac-Mégantic rail accident
On
Following the derailment, MMAC sought court protection in
A number of legal proceedings, set out below, were commenced in
(1)
(2) The AGQ sued CP in the
(3) A class action in the
(4) Eight subrogated insurers sued CP in the
On
(5) Forty-eight plaintiffs (all individual claims joined in one action) sued CP, MMAC, and Harding in the
(6) The MMAR
(7) The class and mass tort action commenced against CP in
(8) The trustee for the wrongful death trust commenced Carmack Amendment claims against CP in North Dakota Federal Court, seeking to recover approximately
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" in the Company's Interim Consolidated Statements of Income for the three and nine months ended
Summary of Rail Data
Third Quarter | Year-to-date | ||||||||||||||
Financial (millions, except per share data) | 2021 | 2020 | Total | % | 2021 | 2020 | Total | % | |||||||
Revenues | |||||||||||||||
Freight | $ | 1,896 | $ | 1,821 | $ | 75 | 4 | $ | 5,822 | $ | 5,573 | $ | 249 | 4 | |
Non-freight | 46 | 42 | 4 | 10 | 133 | 125 | 8 | 6 | |||||||
Total revenues | 1,942 | 1,863 | 79 | 4 | 5,955 | 5,698 | 257 | 5 | |||||||
Operating expenses | |||||||||||||||
Compensation and benefits | 381 | 382 | (1) | — | 1,165 | 1,127 | 38 | 3 | |||||||
Fuel | 199 | 140 | 59 | 42 | 623 | 483 | 140 | 29 | |||||||
Materials | 51 | 53 | (2) | (4) | 164 | 162 | 2 | 1 | |||||||
Equipment rents | 31 | 39 | (8) | (21) | 92 | 108 | (16) | (15) | |||||||
Depreciation and amortization | 203 | 195 | 8 | 4 | 605 | 582 | 23 | 4 | |||||||
Purchased services and other | 303 | 275 | 28 | 10 | 932 | 853 | 79 | 9 | |||||||
Total operating expenses | 1,168 | 1,084 | 84 | 8 | 3,581 | 3,315 | 266 | 8 | |||||||
Operating income | 774 | 779 | (5) | (1) | 2,374 | 2,383 | (9) | — | |||||||
Less: | |||||||||||||||
Other expense (income) | 124 | (36) | 160 | (444) | 253 | 89 | 164 | 184 | |||||||
Merger termination fee | — | — | — | — | (845) | — | (845) | 100 | |||||||
Other components of net periodic benefit recovery | (95) | (86) | (9) | 10 | (286) | (257) | (29) | 11 | |||||||
Net interest expense | 104 | 114 | (10) | (9) | 315 | 346 | (31) | (9) | |||||||
Income before income tax expense | 641 | 787 | (146) | (19) | 2,937 | 2,205 | 732 | 33 | |||||||
Income tax expense | 169 | 189 | (20) | (11) | 617 | 563 | 54 | 10 | |||||||
Net income | $ | 472 | $ | 598 | $ | (126) | (21) | $ | 2,320 | $ | 1,642 | $ | 678 | 41 | |
Operating ratio (%) | 60.2 | 58.2 | 2.0 | 200 bps | 60.1 | 58.2 | 1.9 | 190 bps | |||||||
Basic earnings per share(1) | $ | 0.71 | $ | 0.88 | $ | (0.17) | (19) | $ | 3.48 | $ | 2.42 | $ | 1.06 | 44 | |
Diluted earnings per share(1) | $ | 0.70 | $ | 0.88 | $ | (0.18) | (20) | $ | 3.46 | $ | 2.41 | $ | 1.05 | 44 | |
Shares Outstanding(1) | |||||||||||||||
Weighted average number of basic shares outstanding (millions) | 666.9 | 676.2 | (9.3) | (1) | 666.7 | 679.3 | (12.6) | (2) | |||||||
Weighted average number of diluted shares outstanding (millions) | 669.8 | 679.0 | (9.2) | (1) | 669.8 | 681.8 | (12.0) | (2) | |||||||
Foreign Exchange | |||||||||||||||
Average foreign exchange rate (U.S.$/Canadian$) | 0.79 | 0.75 | 0.04 | 4 | 0.80 | 0.74 | 0.06 | 8 | |||||||
Average foreign exchange rate (Canadian$/U.S.$) | 1.26 | 1.33 | (0.07) | (5) | 1.25 | 1.35 | (0.10) | (7) | |||||||
(1) | As a result of the five-for-one share split of the Company's issued and outstanding Common Shares, which began trading on a post-split basis on |
Summary of Rail Data (Continued)
Third Quarter | Year-to-date | |||||||||||||||||||||
Commodity Data | 2021 | 2020 | Total Change | % Change | FX Adjusted % Change(1) | 2021 | 2020 | Total Change | % Change | FX Adjusted % Change(1) | ||||||||||||
Freight Revenues (millions) | ||||||||||||||||||||||
- Grain | $ | 352 | $ | 457 | $ | (105) | (23) | (21) | $ | 1,244 | $ | 1,321 | $ | (77) | (6) | (3) | ||||||
- Coal | 158 | 130 | 28 | 22 | 22 | 491 | 411 | 80 | 19 | 21 | ||||||||||||
- Potash | 113 | 132 | (19) | (14) | (12) | 348 | 390 | (42) | (11) | (7) | ||||||||||||
- Fertilizers and sulphur | 72 | 65 | 7 | 11 | 16 | 227 | 212 | 15 | 7 | 14 | ||||||||||||
- Forest products | 89 | 85 | 4 | 5 | 10 | 259 | 244 | 15 | 6 | 13 | ||||||||||||
- Energy, chemicals and plastics | 392 | 321 | 71 | 22 | 27 | 1,149 | 1,153 | (4) | — | 4 | ||||||||||||
- Metals, minerals and consumer products | 196 | 152 | 44 | 29 | 35 | 535 | 474 | 61 | 13 | 20 | ||||||||||||
- Automotive | 83 | 94 | (11) | (12) | (8) | 289 | 215 | 74 | 34 | 42 | ||||||||||||
- Intermodal | 441 | 385 | 56 | 15 | 16 | 1,280 | 1,153 | 127 | 11 | 13 | ||||||||||||
Total Freight Revenues | $ | 1,896 | $ | 1,821 | $ | 75 | 4 | 7 | $ | 5,822 | $ | 5,573 | $ | 249 | 4 | 8 | ||||||
Freight Revenue per Revenue Ton-Mile ("RTM") (cents) | ||||||||||||||||||||||
- Grain | 4.56 | 4.33 | 0.23 | 5 | 8 | 4.36 | 4.44 | (0.08) | (2) | 1 | ||||||||||||
- Coal | 3.65 | 2.93 | 0.72 | 25 | 25 | 3.40 | 3.11 | 0.29 | 9 | 10 | ||||||||||||
- Potash | 2.87 | 2.62 | 0.25 | 10 | 12 | 2.74 | 2.66 | 0.08 | 3 | 7 | ||||||||||||
- Fertilizers and sulphur | 6.31 | 6.14 | 0.17 | 3 | 8 | 6.18 | 6.26 | (0.08) | (1) | 5 | ||||||||||||
- Forest products | 6.27 | 5.81 | 0.46 | 8 | 13 | 6.04 | 6.01 | 0.03 | — | 7 | ||||||||||||
- Energy, chemicals and plastics | 6.19 | 6.95 | (0.76) | (11) | (7) | 5.94 | 6.41 | (0.47) | (7) | (3) | ||||||||||||
- Metals, minerals and consumer products | 6.55 | 6.60 | (0.05) | (1) | 4 | 6.42 | 6.82 | (0.40) | (6) | — | ||||||||||||
- Automotive | 20.60 | 24.10 | (3.50) | (15) | (11) | 20.97 | 25.41 | (4.44) | (17) | (13) | ||||||||||||
- Intermodal | 6.20 | 5.63 | 0.57 | 10 | 12 | 6.09 | 5.54 | 0.55 | 10 | 12 | ||||||||||||
Total Freight Revenue per RTM | 5.36 | 4.96 | 0.40 | 8 | 11 | 5.12 | 4.99 | 0.13 | 3 | 6 | ||||||||||||
Freight Revenue per Carload | ||||||||||||||||||||||
- Grain | $ | 3,955 | $ | 3,671 | $ | 284 | 8 | 10 | $ | 3,842 | $ | 3,846 | $ | (4) | — | 3 | ||||||
- Coal | 2,153 | 2,047 | 106 | 5 | 6 | 2,190 | 2,201 | (11) | — | — | ||||||||||||
- Potash | 3,156 | 3,028 | 128 | 4 | 7 | 3,031 | 3,071 | (40) | (1) | 2 | ||||||||||||
- Fertilizers and sulphur | 4,768 | 4,676 | 92 | 2 | 7 | 4,690 | 4,639 | 51 | 1 | 7 | ||||||||||||
- Forest products | 4,759 | 4,749 | 10 | — | 5 | 4,701 | 4,561 | 140 | 3 | 10 | ||||||||||||
- Energy, chemicals and plastics | 5,013 | 5,047 | (34) | (1) | 3 | 4,758 | 5,053 | (295) | (6) | (2) | ||||||||||||
- Metals, minerals and consumer products | 3,245 | 2,992 | 253 | 8 | 14 | 3,019 | 3,076 | (57) | (2) | 4 | ||||||||||||
- Automotive | 3,562 | 3,013 | 549 | 18 | 23 | 3,384 | 3,015 | 369 | 12 | 19 | ||||||||||||
- Intermodal | 1,627 | 1,540 | 87 | 6 | 7 | 1,581 | 1,496 | 85 | 6 | 8 | ||||||||||||
Total Freight Revenue per Carload | $ | 2,851 | $ | 2,763 | $ | 88 | 3 | 6 | $ | 2,799 | $ | 2,814 | $ | (15) | (1) | 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) | 2021 | 2020 | Total | % | 2021 | 2020 | Total | % | |
Millions of RTM | |||||||||
- Grain | 7,715 | 10,549 | (2,834) | (27) | 28,564 | 29,734 | (1,170) | (4) | |
- Coal | 4,334 | 4,437 | (103) | (2) | 14,451 | 13,209 | 1,242 | 9 | |
- Potash | 3,941 | 5,036 | (1,095) | (22) | 12,705 | 14,664 | (1,959) | (13) | |
- Fertilizers and sulphur | 1,141 | 1,059 | 82 | 8 | 3,673 | 3,387 | 286 | 8 | |
- Forest products | 1,419 | 1,463 | (44) | (3) | 4,290 | 4,059 | 231 | 6 | |
- Energy, chemicals and plastics | 6,330 | 4,620 | 1,710 | 37 | 19,328 | 17,981 | 1,347 | 7 | |
- Metals, minerals and consumer products | 2,992 | 2,303 | 689 | 30 | 8,328 | 6,951 | 1,377 | 20 | |
- Automotive | 403 | 390 | 13 | 3 | 1,378 | 846 | 532 | 63 | |
- Intermodal | 7,116 | 6,833 | 283 | 4 | 21,008 | 20,804 | 204 | 1 | |
Total RTMs | 35,391 | 36,690 | (1,299) | (4) | 113,725 | 111,635 | 2,090 | 2 | |
Carloads (thousands) | |||||||||
- Grain | 89.0 | 124.5 | (35.5) | (29) | 323.8 | 343.5 | (19.7) | (6) | |
- Coal | 73.4 | 63.5 | 9.9 | 16 | 224.2 | 186.7 | 37.5 | 20 | |
- Potash | 35.8 | 43.6 | (7.8) | (18) | 114.8 | 127.0 | (12.2) | (10) | |
- Fertilizers and sulphur | 15.1 | 13.9 | 1.2 | 9 | 48.4 | 45.7 | 2.7 | 6 | |
- Forest products | 18.7 | 17.9 | 0.8 | 4 | 55.1 | 53.5 | 1.6 | 3 | |
- Energy, chemicals and plastics | 78.2 | 63.6 | 14.6 | 23 | 241.5 | 228.2 | 13.3 | 6 | |
- Metals, minerals and consumer products | 60.4 | 50.8 | 9.6 | 19 | 177.2 | 154.1 | 23.1 | 15 | |
- Automotive | 23.3 | 31.2 | (7.9) | (25) | 85.4 | 71.3 | 14.1 | 20 | |
- Intermodal | 271.1 | 250.0 | 21.1 | 8 | 809.5 | 770.6 | 38.9 | 5 | |
Total Carloads | 665.0 | 659.0 | 6.0 | 1 | 2,079.9 | 1,980.6 | 99.3 | 5 |
Third Quarter | Year-to-date | ||||||||||||||||
2021 | 2020 | Total Change | % | FX Adjusted | 2021 | 2020 | Total Change | % | FX Adjusted | ||||||||
Operating Expenses (millions) | |||||||||||||||||
Compensation and benefits | $ | 381 | $ | 382 | $ | (1) | — | 2 | $ | 1,165 | $ | 1,127 | $ | 38 | 3 | 6 | |
Fuel | 199 | 140 | 59 | 42 | 49 | 623 | 483 | 140 | 29 | 36 | |||||||
Materials | 51 | 53 | (2) | (4) | (4) | 164 | 162 | 2 | 1 | 3 | |||||||
Equipment rents | 31 | 39 | (8) | (21) | (16) | 92 | 108 | (16) | (15) | (9) | |||||||
Depreciation and amortization | 203 | 195 | 8 | 4 | 6 | 605 | 582 | 23 | 4 | 6 | |||||||
Purchased services and other | 303 | 275 | 28 | 10 | 13 | 932 | 853 | 79 | 9 | 13 | |||||||
Total Operating Expenses | $ | 1,168 | $ | 1,084 | $ | 84 | 8 | 10 | $ | 3,581 | $ | 3,315 | $ | 266 | 8 | 11 |
(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 | ||||||||
2021 | 2020 | Total | % | 2021 | 2020 | Total | % | ||
Operations Performance | |||||||||
Gross ton-miles ("GTMs") (millions) | 64,665 | 65,997 | (1,332) | (2) | 207,347 | 200,383 | 6,964 | 3 | |
Train miles (thousands) | 6,999 | 7,247 | (248) | (3) | 22,406 | 22,479 | (73) | — | |
Average train weight - excluding local traffic (tons) | 9,973 | 9,857 | 116 | 1 | 9,953 | 9,644 | 309 | 3 | |
Average train length - excluding local traffic (feet) | 8,285 | 8,082 | 203 | 3 | 8,192 | 7,831 | 361 | 5 | |
Average terminal dwell (hours) | 7.2 | 6.7 | 0.5 | 7 | 7.1 | 6.5 | 0.6 | 9 | |
Average train speed (miles per hour, or "mph")(1) | 21.7 | 22.5 | (0.8) | (4) | 21.4 | 22.1 | (0.7) | (3) | |
Locomotive productivity (GTMs / operating horsepower)(2) | 203 | 207 | (4) | (2) | 204 | 207 | (3) | (1) | |
Fuel efficiency(3) | 0.907 | 0.926 | (0.019) | (2) | 0.928 | 0.940 | (0.012) | (1) | |
58.7 | 61.1 | (2.4) | (4) | 192.5 | 188.5 | 4.0 | 2 | ||
Average fuel price ( | 2.70 | 1.72 | 0.98 | 57 | 2.59 | 1.90 | 0.69 | 36 | |
Total Employees and Workforce | |||||||||
Total employees (average)(5) | 12,485 | 12,156 | 329 | 3 | 12,411 | 12,214 | 197 | 2 | |
Total employees (end of period)(5) | 12,262 | 12,166 | 96 | 1 | 12,262 | 12,166 | 96 | 1 | |
Workforce (end of period)(6) | 12,301 | 12,185 | 116 | 1 | 12,301 | 12,185 | 116 | 1 | |
Safety Indicators(7) | |||||||||
FRA personal injuries per 200,000 employee-hours | 0.97 | 1.03 | (0.06) | (6) | 0.97 | 1.11 | (0.14) | (13) | |
FRA train accidents per million train-miles | 1.54 | 1.13 | 0.41 | 36 | 1.09 | 1.05 | 0.04 | 4 | |
(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 |
(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) |
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
Non-GAAP Performance Measures
The Company uses adjusted earnings results including Adjusted income, Adjusted diluted earnings per share, Adjusted operating income and Adjusted operating ratio to evaluate the Company's operating performance and for planning and forecasting future business operations and future profitability. These Non-GAAP measures provide meaningful supplemental information regarding operating results because they exclude certain significant items that are not considered indicative of future financial trends either by nature or amount. As a result, these items are excluded for management assessment of operational performance, allocation of resources and preparation of annual budgets. These significant items may include, but are not limited to, restructuring and asset impairment charges, individually significant gains and losses from sales of assets, acquisition-related costs (including legal, consulting, and financing fees and fair value gain or loss on FX forward contracts and interest rate hedges), the merger termination payment received, the foreign exchange ("FX") impact of translating the Company's debt and lease liabilities (including borrowings under the credit facility), discrete tax items, changes in income tax rates, changes to an uncertain tax item, and certain items outside the control of management. These items may not be non-recurring. However, excluding these significant items from GAAP results allows for a consistent understanding of the Company's consolidated financial performance when performing a multi-period assessment including assessing the likelihood of future results. Accordingly, these Non-GAAP financial measures may provide insight to investors and other external users of the Company's consolidated financial information.
Significant items that impact reported earnings for the first nine months of 2021, the twelve months of 2020, and the last three months of 2019 include:
2021:
- acquisition-related costs of
$442 million in connection with the pending Kansas City Southern ("KCS") transaction ($343 million after current taxes of$94 million and deferred taxes of$5 million ), including an expense of$147 million recognized in Purchased services and other and$295 million recognized in Other expense (income), that unfavourably impacted Diluted EPS by51 cents as follows: - in the third quarter, acquisition-related costs of
$98 million ($80 million after current tax recovery of$61 million net of deferred tax expense of$43 million ), including an expense of$15 million recognized in Purchased services and other and$83 million recognized in Other expense (income), that unfavourably impacted Diluted EPS by12 cents ; - in the second quarter, acquisition-related costs of
$308 million ($236 million after current taxes of$25 million and deferred taxes of$47 million ), including an expense of$99 million recognized in Purchased services and other and$209 million recognized in Other expense (income), that unfavourably impacted Diluted EPS by35 cents ; and - in the first quarter, acquisition-related costs of
$36 million ($27 million after current taxes of$8 million and deferred taxes of$1 million ), including an expense of$33 million recognized in Purchased services and other and$3 million recognized in Other expense (income), that unfavourably impacted Diluted EPS by4 cents . - merger termination payment received of
$845 million ($748 million after current taxes) in connection with KCS's termination of the Agreement and Plan of Merger (the "Original Merger Agreement") datedMarch 21, 2021 effectiveMay 21, 2021 , that favourably impacted Diluted EPS by$1.11 ; and - a non-cash gain of
$39 million ($34 million after deferred tax) due to FX translation of debt and lease liabilities that favourably impacted Diluted EPS by5 cents as follows: - In the third quarter, a
$46 million loss ($40 million after deferred tax) that unfavourably impacted Diluted EPS by6 cents ; and - in the second quarter, a
$52 million gain ($45 million after deferred tax) that favourably impacted Diluted EPS by7 cents ; and - in the first quarter, a
$33 million gain ($29 million after deferred tax) that favourably impacted Diluted EPS by4 cents .
2020:
- in the fourth quarter, a deferred tax recovery of
$29 million due to a change relating to a tax return filing election for the state ofNorth Dakota that favourably impacted Diluted EPS by5 cents ; and - during the course of the year, a net non-cash gain of
$14 million ($12 million after deferred tax) due to FX translation of debt and lease liabilities that favourably impacted Diluted EPS by2 cents as follows: - in the fourth quarter, a
$103 million gain ($90 million after deferred tax) that favourably impacted Diluted EPS by13 cents ; - in the third quarter, a
$40 million gain ($38 million after deferred tax) that favourably impacted Diluted EPS by6 cents ; - in the second quarter, an
$86 million gain ($82 million after deferred tax) that favourably impacted Diluted EPS by12 cents ; and - in the first quarter, a
$215 million loss ($198 million after deferred tax) that unfavourably impacted Diluted EPS by28 cents
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 by3 cents ; and - in the fourth quarter, a
$37 million non-cash gain ($32 million after deferred tax) due to FX translation of debt that favourably impacted Diluted EPS by4 cents .
2021 Outlook
As a result of diminished expectations for the 2021-2022 Canadian grain crop and ongoing supply chain challenges, CP has updated its 2021 outlook. CP now expects volumes, as measured in RTMs, to grow by low single-digits year-over-year. In spite of the revised volume expectations, CP continues to expect double digit growth in Adjusted diluted EPS based on Adjusted diluted EPS of
Although CP has provided a forward-looking Non-GAAP measure (Adjusted diluted EPS), management is unable to reconcile, without unreasonable efforts, the forward-looking Adjusted diluted EPS to the most comparable GAAP measure, due to unknown variables and uncertainty related to future results. These unknown variables may include unpredictable transactions of significant value. In recent years, CP has recognized acquisition-related costs (including legal, consulting, and financing fees and fair value gain or loss on FX forward contracts and interest rate hedges), the merger termination payment received, changes in income tax rates, and a change to an uncertain tax item. These or other similar, large unforeseen transactions affect diluted EPS but may be excluded from CP's Adjusted diluted EPS. Additionally, the
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 | For the nine months | For the twelve months | ||||||||
(in millions of Canadian dollars) | 2021 | 2020 | 2021 | 2020 | 2020 | |||||
Net income as reported | $ | 472 | $ | 598 | $ | 2,320 | $ | 1,642 | $ | 2,444 |
Less significant items (pre-tax): | ||||||||||
Acquisition-related costs | (98) | — | (442) | — | — | |||||
Merger termination fee | — | — | 845 | — | — | |||||
Impact of FX translation (loss) gain on debt and lease liabilities | (46) | 40 | 39 | (89) | 14 | |||||
Add: | ||||||||||
Tax effect of adjustments(1) | (24) | 2 | 3 | (11) | 2 | |||||
Income tax rate changes | — | — | — | — | (29) | |||||
Adjusted income | $ | 592 | $ | 560 | $ | 1,881 | $ | 1,720 | $ | 2,403 |
(1) | The tax effect of adjustments was calculated as the pre-tax effect of the adjustments multiplied by the applicable tax rate for the above items of 16.88% and 0.68% for the three and nine months ended September 30, 2021, respectively, 4.82% and 12.15% for the three and nine months ended September 30, 2020, respectively, and 13.58% for the twelve months ended |
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 | For the nine months | For the twelve months | ||||||||
2021 | 2020 | 2021 | 2020 | 2020 | ||||||
Diluted earnings per share as reported | $ | 0.70 | $ | 0.88 | $ | 3.46 | $ | 2.41 | $ | 3.59 |
Less significant items (pre-tax): | ||||||||||
Acquisition-related costs | (0.15) | — | (0.66) | — | — | |||||
Merger termination fee | — | — | 1.26 | — | — | |||||
Impact of FX translation (loss) gain on debt and lease liabilities | (0.07) | 0.06 | 0.06 | (0.13) | 0.02 | |||||
Add: | ||||||||||
Tax effect of adjustments(1) | (0.04) | — | 0.01 | (0.02) | — | |||||
Income tax rate changes | — | — | — | — | (0.04) | |||||
Adjusted diluted earnings per share | $ | 0.88 | $ | 0.82 | $ | 2.81 | $ | 2.52 | $ | 3.53 |
(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 16.88% and 0.68% for the three and nine months ended September 30, 2021, respectively, 4.82% and 12.15% for the three and nine months ended September 30, 2020, respectively, and 13.58% for the twelve months ended |
Adjusted operating income is calculated as Operating income reported on a GAAP basis less significant items.
For the three months | For the nine months | |||||||
(in millions of Canadian dollars) | 2021 | 2020 | 2021 | 2020 | ||||
Operating income as reported | $ | 774 | $ | 779 | $ | 2,374 | $ | 2,383 |
Less significant item: | ||||||||
Acquisition-related costs | (15) | — | (147) | — | ||||
Adjusted operating income | $ | 789 | $ | 779 | $ | 2,521 | $ | 2,383 |
Adjusted operating ratio excludes those significant items that are reported within operating income.
For the three months | For the nine months | |||||||
2021 | 2020 | 2021 | 2020 | |||||
Operating ratio as reported | 60.2 | % | 58.2 | % | 60.1 | % | 58.2 | % |
Less significant item: | ||||||||
Acquisition-related costs | 0.8 | % | — | % | 2.4 | % | — | % |
Adjusted operating ratio | 59.4 | % | 58.2 | % | 57.7 | % | 58.2 | % |
Adjusted Return on
Adjusted ROIC is calculated as Adjusted return divided by Adjusted average invested capital. Adjusted return is defined as Net income adjusted for interest expense, tax effected at the Company's adjusted annualized effective tax rate, and significant items in the Company's Consolidated Financial Statements, tax effected at the applicable tax rate. Adjusted average invested capital is defined as the sum of total Shareholders' equity, Long-term debt, and Long-term debt maturing within one year, as presented in the Company's Consolidated Financial Statements, each averaged between the beginning and ending balance over a rolling 12-month period, adjusted for the impact of significant items, tax effected at the applicable tax rate, on closing balances as part of this average. Adjusted ROIC excludes significant items reported in the Company's Consolidated Financial Statements, as these significant items are not considered indicative of future financial trends either by nature or amount, and excludes interest expense, net of tax, to incorporate returns on the Company's overall capitalization. Adjusted ROIC is a performance measure that measures how productively the Company uses its long-term capital investments, representing critical indicators of good operating and investment decisions made by management, and is an important performance criteria in determining certain elements of the Company's long-term incentive plan. Adjusted ROIC is reconciled below from Return on average shareholders' equity, the most comparable measure calculated in accordance with GAAP.
Calculation of Return on average shareholders' equity
For the twelve months | ||||||
(in millions of Canadian dollars, except for percentages) | 2021 | 2020 | ||||
Net income as reported | $ | 3,122 | $ | 2,306 | ||
Average shareholders' equity | $ | 8,524 | $ | 7,397 | ||
Return on average shareholders' equity | 36.6 | % | 31.2 | % |
Reconciliation of Net income to Adjusted return
For the twelve months | ||||
(in millions of Canadian dollars) | 2021 | 2020 | ||
Net income as reported | $ | 3,122 | $ | 2,306 |
Add: | ||||
Net interest expense | 427 | 458 | ||
Tax on interest(1) | (104) | (114) | ||
Significant items (pre-tax): | ||||
Acquisition-related costs | 442 | — | ||
Merger termination fee | (845) | — | ||
Impact of FX translation (gain) loss on debt and lease liabilities | (142) | 52 | ||
Tax on significant items(2) | 16 | (6) | ||
Income tax rate changes | (29) | — | ||
Provision for uncertain tax item | — | 24 | ||
Adjusted return | $ | 2,887 | $ | 2,720 |
(1) | Tax was calculated at the adjusted annualized effective tax rate of 24.34% and 24.67% for the twelve months ended |
(2) | Tax was calculated as the pre-tax effect of the adjustments multiplied by the applicable tax rate for the above items of 2.57% and 11.22% for the twelve months ended |
Reconciliation of Average shareholders' equity to Adjusted average invested capital
For the twelve months | ||||
(in millions of Canadian dollars) | 2021 | 2020 | ||
Average shareholders' equity | $ | 8,524 | $ | 7,397 |
Average Long-term debt, including long-term debt maturing within one year | 9,877 | 9,385 | ||
$ | 18,401 | $ | 16,782 | |
Less: | ||||
Significant items (pre-tax): | ||||
Acquisition-related costs | (221) | — | ||
Merger termination fee | 423 | — | ||
Tax on significant items(1) | — | — | ||
Income tax rate changes | 15 | — | ||
Provision for uncertain tax item | — | (12) | ||
Adjusted average invested capital | $ | 18,184 | $ | 16,794 |
(1) | Tax was calculated at the pre-tax effect of the adjustment multiplied by the applicable tax rate of 0.51% for the twelve months ended |
Calculation of Adjusted ROIC
For the twelve months | ||||||
(in millions of Canadian dollars, except for percentages) | 2021 | 2020 | ||||
Adjusted return | $ | 2,887 | $ | 2,720 | ||
Adjusted average invested capital | $ | 18,184 | $ | 16,794 | ||
Adjusted ROIC | 15.9 | % | 16.2 | % |
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, the acquisition-related transaction costs paid in cash, the merger termination payment received and the payment to KCS related to the pending KCS transaction, and the acquisition of
Reconciliation of Cash Provided by Operating Activities to Free Cash
For the three months | For the nine months | |||||||||||
(in millions of Canadian dollars) | 2021 | 2020 | 2021 | 2020 | ||||||||
Cash provided by operating activities | $ | 548 | $ | 493 | $ | 3,084 | $ | 1,817 | ||||
Cash used in investing activities | (2,129) | (483) | (2,820) | (1,313) | ||||||||
Effect of foreign currency fluctuations on | 10 | (4) | 6 | 12 | ||||||||
Less: | ||||||||||||
Acquisition-related costs | (1) | — | (47) | — | ||||||||
Merger termination fee | — | — | 845 | — | ||||||||
Payment to Kansas City Southern | (1,773) | — | (1,773) | — | ||||||||
Investment in | — | — | — | 19 | ||||||||
Free cash | $ | 203 | $ | 6 | $ | 1,245 | $ | 497 |
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
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 | ||||||||||||||
(in millions of Canadian dollars) | Reported | Reported | Variance | FX Adjusted | FX Adjusted % | |||||||||
Freight revenues by line of business | ||||||||||||||
Grain | $ | 352 | $ | 457 | $ | (11) | $ | 446 | (21) | |||||
Coal | 158 | 130 | (1) | 129 | 22 | |||||||||
Potash | 113 | 132 | (3) | 129 | (12) | |||||||||
Fertilizers and sulphur | 72 | 65 | (3) | 62 | 16 | |||||||||
Forest products | 89 | 85 | (4) | 81 | 10 | |||||||||
Energy, chemicals and plastics | 392 | 321 | (12) | 309 | 27 | |||||||||
Metals, minerals and consumer products | 196 | 152 | (7) | 145 | 35 | |||||||||
Automotive | 83 | 94 | (4) | 90 | (8) | |||||||||
Intermodal | 441 | 385 | (5) | 380 | 16 | |||||||||
Freight revenues | 1,896 | 1,821 | (50) | 1,771 | 7 | |||||||||
Non-freight revenues | 46 | 42 | — | 42 | 10 | |||||||||
Total revenues | $ | 1,942 | $ | 1,863 | $ | (50) | $ | 1,813 | 7 | |||||
For the nine months ended | ||||||||||||||
(in millions of Canadian dollars) | Reported | Reported | Variance | FX Adjusted | FX Adjusted % | |||||||||
Freight revenues by line of business | ||||||||||||||
Grain | $ | 1,244 | $ | 1,321 | $ | (41) | $ | 1,280 | (3) | |||||
Coal | 491 | 411 | (4) | 407 | 21 | |||||||||
Potash | 348 | 390 | (14) | 376 | (7) | |||||||||
Fertilizers and sulphur | 227 | 212 | (12) | 200 | 14 | |||||||||
Forest products | 259 | 244 | (15) | 229 | 13 | |||||||||
Energy, chemicals and plastics | 1,149 | 1,153 | (47) | 1,106 | 4 | |||||||||
Metals, minerals and consumer products | 535 | 474 | (27) | 447 | 20 | |||||||||
Automotive | 289 | 215 | (12) | 203 | 42 | |||||||||
Intermodal | 1,280 | 1,153 | (23) | 1,130 | 13 | |||||||||
Freight revenues | 5,822 | 5,573 | (195) | 5,378 | 8 | |||||||||
Non-freight revenues | 133 | 125 | (1) | 124 | 7 | |||||||||
Total revenues | $ | 5,955 | $ | 5,698 | $ | (196) | $ | 5,502 | 8 |
FX adjusted % changes in operating expenses are as follows:
For the three months ended | ||||||||||||||
(in millions of Canadian dollars) | Reported | Reported | Variance | FX Adjusted | FX Adjusted % | |||||||||
Compensation and benefits | $ | 381 | $ | 382 | $ | (7) | $ | 375 | 2 | |||||
Fuel | 199 | 140 | (6) | 134 | 49 | |||||||||
Materials | 51 | 53 | — | 53 | (4) | |||||||||
Equipment rents | 31 | 39 | (2) | 37 | (16) | |||||||||
Depreciation and amortization | 203 | 195 | (3) | 192 | 6 | |||||||||
Purchased services and other | 303 | 275 | (6) | 269 | 13 | |||||||||
Total operating expenses | $ | 1,168 | $ | 1,084 | $ | (24) | $ | 1,060 | 10 |
For the nine months ended | ||||||||||||||
(in millions of Canadian dollars) | Reported | Reported | Variance | FX Adjusted | FX Adjusted % | |||||||||
Compensation and benefits | $ | 1,165 | $ | 1,127 | $ | (24) | $ | 1,103 | 6 | |||||
Fuel | 623 | 483 | (25) | 458 | 36 | |||||||||
Materials | 164 | 162 | (3) | 159 | 3 | |||||||||
Equipment rents | 92 | 108 | (7) | 101 | (9) | |||||||||
Depreciation and amortization | 605 | 582 | (12) | 570 | 6 | |||||||||
Purchased services and other | 932 | 853 | (27) | 826 | 13 | |||||||||
Total operating expenses | $ | 3,581 | $ | 3,315 | $ | (98) | $ | 3,217 | 11 |
FX adjusted % change in operating income is as follows:
For the three months ended | ||||||||||||||
(in millions of Canadian dollars) | Reported | Reported | Variance | FX Adjusted | FX Adjusted % | |||||||||
Operating income | $ | 774 | $ | 779 | $ | (26) | $ | 753 | 3 | |||||
For the nine months ended | ||||||||||||||
(in millions of Canadian dollars) | Reported | Reported | Variance | FX Adjusted | FX Adjusted % | |||||||||
Operating income | $ | 2,374 | $ | 2,383 | $ | (98) | $ | 2,285 | 4 | |||||
Adjusted Net Debt to Adjusted EBITDA Ratio
Adjusted net debt to Adjusted earnings before interest, tax, depreciation and amortization ("EBITDA") ratio is calculated as Adjusted net debt divided by Adjusted EBITDA. The Adjusted net debt to Adjusted EBITDA ratio is a key credit measure used to assess the Company's financial capacity. The ratio provides information on the Company's ability to service its debt and other long-term obligations. The Adjusted net debt to Adjusted EBITDA ratio is reconciled below from the Long-term debt to Net income ratio, the most comparable measure calculated in accordance with GAAP.
Calculation of Long-term Debt to Net Income Ratio
(in millions of Canadian dollars, except for ratios) | 2021 | 2020 | ||||
Long-term debt including long-term debt maturing within one year as at | $ | 9,968 | $ | 9,786 | ||
Net income for the twelve months ended | $ | 3,122 | $ | 2,306 | ||
Long-term debt to Net income ratio | 3.2 | 4.2 |
Reconciliation of Long-term Debt to Adjusted Net Debt
Adjusted net debt is defined as Long-term debt, Long-term debt maturing within one year, and Short-term borrowing as reported on the Company's Consolidated Balance Sheets adjusted for pension plans deficit, operating lease liabilities recognized on the Company's Consolidated Balance Sheets, and Cash and cash equivalents.
(in millions of Canadian dollars) | 2021 | 2020 | ||||
Long-term debt including long-term debt maturing within one year as at | $ | 9,968 | $ | 9,786 | ||
Add: | ||||||
Pension plans deficit(1) | 323 | 287 | ||||
Operating lease liabilities | 274 | 325 | ||||
Less: | ||||||
Cash and cash equivalents | 210 | 183 | ||||
Adjusted net debt as at | $ | 10,355 | $ | 10,215 |
(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 expense (income). 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 | ||||||
(in millions of Canadian dollars) | 2021 | 2020 | ||||
Net income as reported | $ | 3,122 | $ | 2,306 | ||
Add: | ||||||
Net interest expense | 427 | 458 | ||||
Income tax expense | 812 | 795 | ||||
EBIT | 4,361 | 3,559 | ||||
Less significant items (pre-tax): | ||||||
Acquisition-related costs | (442) | — | ||||
Merger termination fee | 845 | — | ||||
Impact of FX translation gain (loss) on debt and lease liabilities | 142 | (52) | ||||
Adjusted EBIT | 3,816 | 3,611 | ||||
Add: | ||||||
Operating lease expense | 71 | 79 | ||||
Depreciation and amortization | 802 | 760 | ||||
Less: | ||||||
Other components of net periodic benefit recovery | 371 | 344 | ||||
Adjusted EBITDA | $ | 4,318 | $ | 4,106 |
Calculation of Adjusted Net Debt to Adjusted EBITDA Ratio
(in millions of Canadian dollars, except for ratios) | 2021 | 2020 | ||||
Adjusted net debt as at | $ | 10,355 | $ | 10,215 | ||
Adjusted EBITDA for the twelve months ended | $ | 4,318 | $ | 4,106 | ||
Adjusted net debt to Adjusted EBITDA ratio | 2.4 | 2.5 |
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SOURCE Canadian Pacific
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