"This quarter played out as we expected. Following our record Q2 performance, we steadily built momentum through the quarter and finished strong," said
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
CP's revised guidance assumes a full-year Canadian-to-
"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
2 CP's expectation for positive growth in 2020 adjusted diluted EPS is relative to 2019's adjusted diluted EPS of
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: 1-888-231-8191
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
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
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
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
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
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) | 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 | For the nine months ended | |||||||
(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)
(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 | ||
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 | For the nine months | ||||||||
(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 | — | — | 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 | (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 | |||||||||||||
(in millions of Canadian dollars except per share data) | Common | Share | Additional | Accumulated | Retained | Total | |||||||
Balance at | 135.5 | $ | 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 12) | (1.0) | (15) | — | — | (381) | (396) | |||||||
Shares issued under stock option plan | — | 3 | (1) | — | — | 2 | |||||||
Balance at | 134.5 | $ | 1,978 | $ | 56 | $ | (2,416) | $ | 7,961 | $ | 7,579 | ||
Balance at | 139.1 | $ | 1,996 | $ | 45 | $ | (2,009) | $ | 7,125 | $ | 7,157 | ||
Net income | — | — | — | — | 618 | 618 | |||||||
Other comprehensive income (Note 7) | — | — | — | 17 | — | 17 | |||||||
Dividends declared ( | — | — | — | — | (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 | 137.5 | $ | 1,982 | $ | 45 | $ | (1,992) | $ | 7,180 | $ | 7,215 |
For the nine months ended | |||||||||||||
(in millions of Canadian dollars except per share data) | Common | Share | Additional | Accumulated | Retained | Total | |||||||
Balance at | 137.0 | $ | 1,993 | $ | 48 | $ | (2,522) | $ | 7,550 | $ | 7,069 | ||
Impact of accounting change (Note 2) | — | — | — | — | (1) | (1) | |||||||
Balance at | 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 ( | — | — | — | — | (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 | 134.5 | $ | 1,978 | $ | 56 | $ | (2,416) | $ | 7,961 | $ | 7,579 | ||
Balance at | 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 ( | — | — | — | — | (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 | 137.5 | $ | 1,982 | $ | 45 | $ | (1,992) | $ | 7,180 | $ | 7,215 |
See Notes to Interim Consolidated Financial Statements. |
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1 Basis of presentation
These unaudited interim Consolidated Financial Statements of
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
The impact of the adoption of ASC 326 as at
Simplification of Financial Disclosures about Guarantors
During the second quarter of 2020, the Company early adopted the
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) | 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 | For the nine months | |||||||
(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 | For the nine months | |||||||
(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 | For the nine months | |||||||
(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
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 | |||
(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
7 Changes in Accumulated other comprehensive loss ("AOCL") by component
For the three months ended | ||||||||
(in millions of Canadian dollars) | Foreign currency activities(1) | Derivatives and | Pension and post- | Total(1) | ||||
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) |
Opening balance, | $ | 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, | $ | 113 | $ | (57) | $ | (2,048) | $ | (1,992) |
(1) Amounts are presented net of tax. | ||||||||
For the nine months ended | ||||||||
(in millions of Canadian dollars) | Foreign currency | Derivatives and | Pension and post- | Total(1) | ||||
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) |
Opening balance, | $ | 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, | $ | 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 | For the nine months | |||||||
(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 | For the nine months ended | |||||||||||
(in millions of Canadian dollars) | Freight | Non- | Total | Freight | Non- | 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 |
As at | ||||||
(in millions of Canadian dollars) | Freight | Non- | 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
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
The acquisition of CMQ
On
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
(in millions of Canadian dollars) | ||
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 |
51 | ||
$ | 138 | |
Consideration: | ||
Fair value of previously held equity method investment | $ | 138 |
Intangible assets of
Acquired cash and cash equivalents of
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
Credit facility
The Company's revolving credit facility consists of a
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
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
B. Financial risk management
The effect of the Company's net investment hedge for the three and nine months ended
12 Shareholders' equity
On
On
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
The following table provides activities under the share repurchase programs:
For the three months ended | For the nine months ended | |||||||
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
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) | 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 | ||||||||
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
Stock option plan
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 | |
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) | |
Expected forfeiture rate(5) | 4.40% |
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 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 |
(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 2017 was
Deferred share unit plan
During the nine months ended
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
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" for the three and nine months ended
16 Subsequent event
On
Summary of Rail Data
Third Quarter | Year-to-date | ||||||||||||||
Financial (millions, except per share data) | 2020 | 2019 | Total Change | % | 2020 | 2019 | Total | % | |||||||
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 | % | FX | 2020 | 2019 | Total | % | FX | |||||||
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 | % | 2020 | 2019 | Total | % | |
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 | % | FX | 2020 | 2019 | Total | % | FX | ||||||||
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 | % | 2020 | 2019 | Total | % | ||
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) | |
61.1 | 66.4 | (5.3) | (8) | 188.5 | 200.1 | (11.6) | (6) | ||
Average fuel price ( | 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 |
(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 |
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 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 by58 cents as follows: - in the third quarter, a
$40 million gain ($38 million after deferred tax) that favourably impacted Diluted EPS by29 cents ; - in the second quarter, an
$86 million gain ($82 million after deferred tax) that favourably impacted Diluted EPS by59 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 by17 cents ; - in the second quarter, a deferred tax recovery of
$88 million due to the change in theAlberta provincial corporate income tax rate that favourably impacted Diluted EPS by63 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 by62 cents as follows: - in the fourth quarter, a
$37 million gain ($32 million after deferred tax) that favourably impacted Diluted EPS by22 cents ; - in the third quarter, a
$25 million loss ($22 million after deferred tax) that unfavourably impacted Diluted EPS by15 cents ; - in the second quarter, a
$37 million gain ($34 million after deferred tax) that favourably impacted Diluted EPS by24 cents ; and - in the first quarter, a
$45 million gain ($42 million after deferred tax) that favourably impacted Diluted EPS by30 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 by72 cents .
2020 Outlook
Based on the strength of the Company's performance to date, on
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
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) | 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 |
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 | ||||||||
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 |
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.
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 | ||||
(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 | ||||
(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 |
(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 |
Reconciliation of Average shareholders' equity to Adjusted average invested capital
For the twelve months | ||||
(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 | ||||
(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
Reconciliation of Cash Provided by Operating Activities to Free Cash
For the three months | For the nine months | |||||||
(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 | (4) | 1 | 12 | (1) | ||||
Less: | ||||||||
Investment in | — | — | 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
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) | Reported | Reported | Variance | FX Adjusted | FX Adjusted | ||||
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 | |||||||||
(in millions) | Reported | Reported | Variance | FX Adjusted | FX Adjusted | ||||
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 | |||||||||
(in millions) | Reported | Reported | Variance | FX Adjusted | FX Adjusted | ||||
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 | |||||||||
(in millions) | Reported | Reported | Variance | FX Adjusted | FX Adjusted | ||||
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 | |||||||||
(in millions) | Reported | Reported | Variance | FX Adjusted | FX Adjusted | ||||
Operating income | $ | 779 | $ | 869 | $ | 4 | $ | 873 | (11) |
For the nine months ended | |||||||||
(in millions) | Reported | Reported | Variance | FX Adjusted | FX Adjusted | ||||
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 | $ | 9,786 | $ | 8,983 |
Net income for the twelve months ended | $ | 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 | $ | 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 | $ | 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 | ||||
(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 | $ | 10,215 | $ | 9,468 |
Adjusted EBITDA for the twelve months ended | $ | 4,106 | $ | 3,911 |
Adjusted net debt to Adjusted EBITDA ratio | 2.5 | 2.4 |
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SOURCE Canadian Pacific
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