CALGARY, April 18, 2018
/CNW/ - Canadian Pacific Railway Limited (TSX: CP) (NYSE: CP)
today announced first-quarter reported diluted earnings per share
(EPS) of $2.41, or $2.70 on an adjusted diluted EPS basis.
"This was a challenging quarter, as we battled extreme weather
and unprecedented demand, specifically in the northern reaches of
our network," said Keith Creel, CP's
President and Chief Executive Officer. "Despite these challenges,
we delivered 6 percent more freight than last year, demonstrating
once again the resiliency of our operating model and the commitment
from our family of professional railroaders. With the extraordinary
winter weather behind us, we built a tremendous amount of momentum
through March - one of our best months in recent history -
positioning us well for the rest of the year."
FIRST-QUARTER HIGHLIGHTS
- Volumes as measured by revenue ton-miles increased 6 percent
and carloads increased 4 percent
- Revenue increased by 4 percent to $1.66
billion from $1.60
billion
- Reported diluted EPS $2.41, an 18
percent decrease from $2.93, and
adjusted diluted EPS was $2.70, an 8
percent increase from $2.50 last
year
- Operating ratio was 67.5 percent, an increase of 510 basis
points and 190 basis points compared to last year's operating ratio
and adjusted operating ratio, respectively. Effective January 1, 2018, CP adopted a new accounting
standard for the presentation of pension retirement benefits which
resulted in a 430 basis point increase in CP's 2017 operating
ratio.(1)
"We continue to produce results using the foundations of
precision railroading and remain confident in our ability to
deliver sustainable, profitable growth in 2018 and beyond," Creel
said. "We look forward to showcasing our proven operating model,
strong leadership team, and commitment to disciplined growth at our
Investor Day on June 5 and 6 in
Calgary."
CP will discuss its results with the financial community in a
conference call beginning at 4:30 p.m.
eastern time on April 18,
2018.
(1) 2017
comparative period was restated from 58.1% to 62.4% and adjusted
operating ratio was restated from 61.3% to 65.6% to reflect the
adoption of the new accounting standard for the presentation of net
periodic benefit recoveries, which is discussed further in Note 2
Accounting changes in CP's Interim Consolidated Financial
Statements for the three months ended March 31, 2018.
|
Conference Call Access
Toronto participants dial in
number: 1-647-427-7450
Operator assisted toll free dial in number: 1-888-231-8191
Callers should dial in 10 minutes prior to the call.
Webcast
We encourage you to access the webcast and presentation material
in the Investors section of CP's website
at investor.cpr.ca.
A replay of the first-quarter conference call will be available
by phone through to May 16, 2018 at
416-849-0833 or toll free 1-855-859-2056, password 1973958.
Non-GAAP Measures
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
within the meaning of applicable securities laws relating, but not
limited, to our operations, priorities and plans, anticipated
financial performance, including business prospects, planned
capital expenditures, programs and strategies. This forward-looking
information also 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. To the extent
that CP has provided guidance using non-GAAP financial measures,
the Company may not be able to provide a reconciliation to a GAAP
measure, due to unknown variables and uncertainty related to future
results.
Undue reliance should not be placed on forward-looking
information as actual results may differ materially from the
forward-looking information. Forward-looking information is not a
guarantee of future performance. By its nature, CP's
forward-looking information involves numerous assumptions, 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 in agricultural production such as weather
conditions and insect populations; the availability and price of
energy commodities; the effects of competition and pricing
pressures; industry capacity; shifts in market demand; changes in
commodity prices; uncertainty surrounding timing and volumes of
commodities being shipped via CP; inflation; changes in laws and
regulations, including regulation of rates; changes in taxes and
tax rates; potential increases in maintenance and operating costs;
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; and various events that could disrupt operations,
including severe weather, droughts, floods, avalanches and
earthquakes as well as security threats and governmental response
to them, and technological changes. The foregoing list of factors
is not exhaustive. These and other factors are detailed from time
to time in reports filed by CP with securities regulators in
Canada and the United States. Reference should be made to
"Item 1A - Risk Factors" and "Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operations -
Forward-Looking Information" in CP's annual and interim reports on
Form 10-K and 10-Q. Readers are cautioned not to place undue
reliance on forward-looking information. Forward looking
information is based on current expectations, estimates and
projections and it is possible that predictions, forecasts,
projections, and other forms of forward-looking information will
not be achieved by CP. Except as required by law, CP undertakes no
obligation to update publicly or otherwise revise any
forward-looking information, whether as a result of new
information, future events or otherwise.
About Canadian Pacific
Canadian Pacific is a transcontinental railway in Canada and the
United States with direct links to major ports on the west
and east coasts, providing North American customers a competitive
rail service with access to key markets in every corner of the
globe. CP is growing with its customers, offering a suite of
freight transportation services, logistics solutions and supply
chain expertise. Visit cpr.ca to see the rail advantages of CP.
CP-IR
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
INTERIM CONSOLIDATED STATEMENTS OF
INCOME
(unaudited)
|
For the three
months
ended March 31
|
(in millions of
Canadian dollars, except share and per share data)
|
2018
|
2017
|
Revenues
|
|
|
|
|
|
Freight
|
$
|
1,625
|
$
|
1,563
|
|
Non-freight
|
|
37
|
|
40
|
Total
revenues
|
|
1,662
|
|
1,603
|
Operating
expenses
|
|
|
|
|
|
Compensation and
benefits (Note 2,10 and 11)
|
|
374
|
|
300
|
|
Fuel
|
|
215
|
|
170
|
|
Materials
|
|
55
|
|
49
|
|
Equipment
rents
|
|
33
|
|
36
|
|
Depreciation and
amortization
|
|
170
|
|
166
|
|
Purchased services
and other
|
|
275
|
|
278
|
Total operating
expenses
|
|
1,122
|
|
999
|
|
|
|
|
|
Operating
income
|
|
540
|
|
604
|
Less:
|
|
|
|
|
|
Other income and
charges (Note 5)
|
|
51
|
|
(28)
|
|
Other components of
net periodic benefit recovery (Note 2 and 11)
|
|
(96)
|
|
(67)
|
|
Net interest
expense
|
|
115
|
|
120
|
Income before
income tax expense
|
|
470
|
|
579
|
|
Income tax expense
(Note 6)
|
|
122
|
|
148
|
Net
income
|
$
|
348
|
$
|
431
|
|
|
|
|
|
Earnings per share
(Note 7)
|
|
|
|
|
|
Basic earnings per
share
|
$
|
2.41
|
$
|
2.94
|
|
Diluted earnings per
share
|
$
|
2.41
|
$
|
2.93
|
|
|
|
|
|
Weighted-average
number of shares (millions) (Note 7)
|
|
|
|
|
|
Basic
|
|
144.4
|
|
146.5
|
|
Diluted
|
|
144.8
|
|
147.1
|
|
|
|
|
|
Dividends declared
per share
|
$
|
0.5625
|
$
|
0.5000
|
Certain of the
comparative figures have been reclassified in order to be
consistent with the 2018 presentation (Note 2).
|
See Notes to Interim
Consolidated Financial Statements.
|
INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME
(unaudited)
|
For the three
months
ended March 31
|
(in millions of
Canadian dollars)
|
2018
|
2017
|
Net income
|
$
|
348
|
$
|
431
|
|
Net (loss) gain in
foreign currency translation adjustments, net of hedging
activities
|
|
(20)
|
|
5
|
|
Change in derivatives
designated as cash flow hedges
|
|
21
|
|
5
|
|
Change in pension and
post-retirement defined benefit plans
|
|
29
|
|
38
|
Other comprehensive
income before income taxes
|
30
|
|
48
|
Income tax recovery
(expense) on above items
|
6
|
|
(18)
|
Other comprehensive
income (Note 4)
|
36
|
30
|
Comprehensive
income
|
$
|
384
|
$
|
461
|
|
|
|
|
|
See Notes to Interim
Consolidated Financial Statements.
|
|
|
|
|
INTERIM CONSOLIDATED BALANCE SHEETS AS
AT
(unaudited)
|
March
31
|
December
31
|
(in millions of
Canadian dollars)
|
2018
|
2017
|
Assets
|
Current
assets
|
|
|
|
Cash and cash
equivalents
|
$
|
125
|
$
|
338
|
|
Accounts receivable,
net
|
|
699
|
|
687
|
|
Materials and
supplies
|
|
154
|
|
152
|
|
Other current
assets
|
|
139
|
|
97
|
|
1,117
|
1,274
|
Investments
|
186
|
182
|
Properties
|
17,234
|
17,016
|
Goodwill and
intangible assets
|
192
|
187
|
Pension
asset
|
1,507
|
1,407
|
Other
assets
|
82
|
69
|
Total
assets
|
$
|
20,318
|
$
|
20,135
|
Liabilities and
shareholders' equity
|
|
|
Current
liabilities
|
|
|
|
Accounts payable and
accrued liabilities
|
$
|
1,183
|
$
|
1,238
|
|
Long-term debt
maturing within one year (Note 9)
|
|
756
|
|
746
|
|
1,939
|
1,984
|
Pension and other
benefit liabilities
|
749
|
749
|
Other long-term
liabilities
|
205
|
231
|
Long-term debt (Note
9)
|
7,601
|
7,413
|
Deferred income
taxes
|
3,390
|
3,321
|
Total
liabilities
|
13,884
|
13,698
|
Shareholders'
equity
|
|
|
|
Share
capital
|
2,022
|
2,032
|
|
Additional paid-in
capital
|
45
|
43
|
|
Accumulated other
comprehensive loss (Note 4)
|
(1,705)
|
(1,741)
|
|
Retained
earnings
|
6,072
|
6,103
|
|
6,434
|
6,437
|
Total liabilities
and shareholders' equity
|
$
|
20,318
|
$
|
20,135
|
|
Contingencies (Note
12)
|
See Notes to Interim
Consolidated Financial Statements.
|
INTERIM CONSOLIDATED STATEMENTS OF CASH
FLOWS
(unaudited)
|
For the three
months
ended March 31
|
(in millions of
Canadian dollars)
|
2018
|
2017
|
Operating
activities
|
Net income
|
$
|
348
|
$
|
431
|
Reconciliation of net
income to cash provided by operating
activities:
|
|
|
|
|
|
Depreciation and
amortization
|
|
170
|
|
166
|
|
Deferred income taxes
(Note 6)
|
|
41
|
|
67
|
|
Pension recovery and
funding (Note 11)
|
|
(72)
|
|
(60)
|
Foreign exchange loss
(gain) on long-term debt (Note 5)
|
49
|
(28)
|
Other operating
activities, net
|
(21)
|
(85)
|
Change in non-cash
working capital balances related to operations
|
(118)
|
(180)
|
Cash provided by
operating activities
|
397
|
311
|
Investing
activities
|
|
|
Additions to
properties
|
(241)
|
(230)
|
Proceeds from sale of
properties and other assets
|
4
|
3
|
Other
|
(1)
|
5
|
Cash used in
investing activities
|
(238)
|
(222)
|
Financing
activities
|
|
|
Dividends
paid
|
(82)
|
(73)
|
Issuance of CP Common
Shares
|
8
|
28
|
Purchase of CP Common
Shares (Note 8)
|
(298)
|
—
|
Repayment of
long-term debt, excluding commercial paper
|
(5)
|
(5)
|
Cash used in
financing activities
|
(377)
|
(50)
|
Effect of foreign
currency fluctuations on U.S. dollar-denominated cash and cash
equivalents
|
5
|
(2)
|
Cash
position
|
|
|
(Decrease) increase
in cash and cash equivalents
|
(213)
|
37
|
Cash and cash
equivalents at beginning of period
|
338
|
164
|
Cash and cash
equivalents at end of period
|
$
|
125
|
$
|
201
|
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
Income taxes
paid
|
$
|
104
|
$
|
170
|
Interest
paid
|
$
|
143
|
$
|
150
|
|
|
|
|
|
See Notes to Interim
Consolidated Financial Statements.
|
|
|
|
|
INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY
(unaudited)
(in millions of
Canadian dollars except per share data)
|
|
Common
shares
(in millions)
|
|
Share
capital
|
Additional
paid-in
capital
|
Accumulated
other
comprehensive
loss
|
Retained
earnings
|
Total
shareholders'
equity
|
Balance at January
1, 2018
|
|
144.9
|
|
$
|
2,032
|
$
|
43
|
$
|
(1,741)
|
$
|
6,103
|
$
|
6,437
|
|
Net income
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
348
|
|
348
|
|
Other comprehensive
income (Note 4)
|
|
—
|
|
|
—
|
|
—
|
|
36
|
|
—
|
|
36
|
|
Dividends
declared
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
(81)
|
|
(81)
|
|
Effect of stock-based
compensation expense
|
|
—
|
|
|
—
|
|
4
|
|
—
|
|
—
|
|
4
|
|
CP Common Shares
repurchased (Note 8)
|
|
(1.3)
|
|
|
(20)
|
|
—
|
|
—
|
|
(298)
|
|
(318)
|
|
Shares issued under
stock option plan
|
|
0.1
|
|
|
10
|
|
(2)
|
|
—
|
|
—
|
|
8
|
Balance at March
31, 2018
|
|
143.7
|
|
$
|
2,022
|
$
|
45
|
$
|
(1,705)
|
$
|
6,072
|
$
|
6,434
|
Balance at January 1,
2017
|
|
146.3
|
|
$
|
2,002
|
$
|
52
|
$
|
(1,799)
|
$
|
4,371
|
$
|
4,626
|
|
Net income
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
431
|
|
431
|
|
Other comprehensive
income (Note 4)
|
|
—
|
|
|
—
|
|
—
|
|
30
|
|
—
|
|
30
|
|
Dividends
declared
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
(73)
|
|
(73)
|
|
Effect of stock-based
compensation expense
|
|
—
|
|
|
—
|
|
(3)
|
|
—
|
|
—
|
|
(3)
|
|
Shares issued under
stock option plan
|
|
0.4
|
|
|
34
|
|
(7)
|
|
—
|
|
—
|
|
27
|
Balance at March 31,
2017
|
|
146.7
|
|
$
|
2,036
|
$
|
42
|
$
|
(1,769)
|
$
|
4,729
|
$
|
5,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Interim
Consolidated Financial Statements.
|
NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 2018
(unaudited)
1 Basis of presentation
These unaudited interim consolidated financial statements of
Canadian Pacific Railway Limited ("CP", or "the Company"),
expressed in Canadian dollars, reflect management's estimates and
assumptions that are necessary for their fair presentation in
conformity with generally accepted accounting principles in
the United States of America
("GAAP"). They do not include all disclosures required under GAAP
for annual financial statements and should be read in conjunction
with the 2017 annual consolidated financial statements and notes
included in CP's 2017 Annual Report on Form 10-K. The accounting
policies used are consistent with the accounting policies used in
preparing the 2017 annual consolidated financial statements, except
for the newly adopted accounting policies discussed in Note 2.
CP's operations can be affected by seasonal fluctuations such as
changes in customer demand and weather-related issues. This
seasonality could impact quarter-over-quarter comparisons.
In management's opinion, the unaudited interim consolidated
financial statements include all adjustments (consisting of normal
and recurring adjustments) necessary to present fairly such
information. Interim results are not necessarily indicative of the
results expected for the fiscal year.
2 Accounting changes
Implemented in 2018
Revenue from Contracts with Customers
On January 1, 2018, the Company
adopted the new Accounting Standards Update ("ASU") 2014-09, issued
by the Financial Accounting Standards Board ("FASB"), and all
related amendments under FASB Accounting Standards Codification
("ASC") Topic 606, Revenue from Contracts with Customers, using the
modified retrospective method. Comparative financial information
has not been restated and continues to be reported under the
accounting standards in effect for those periods. The Company did
not recognize any adjustment to the opening balance of retained
earnings upon adoption of ASC Topic 606. The Company expects the
impact of adoption of this new standard to be immaterial to the
Company's net income on an ongoing basis.
Compensation - Retirement Benefits
On January 1, 2018, the Company
adopted the changes required under ASU 2017-07, Improving the
Presentation of Net Periodic Pension Cost and Net Periodic
Post-retirement Benefit Cost under FASB ASC Topic 715, Retirement
Benefits as issued by the FASB in March
2017. In accordance with the ASU, beginning on January 1, 2018, the Company reports the current
service cost component of net periodic benefit cost in Compensation
and benefits on the Company's Consolidated Statements of Income,
and reports the Other components of net periodic benefit cost as a
separate item outside of Operating income on the Company's
Consolidated Statements of Income. The Company has applied these
changes in presentation retrospectively, which resulted in a
decrease in Operating income of $67
million for the three months ended March 31, 2017.
These changes in presentation do not result in any changes to
net income or earnings per share. Details of the components of net
periodic benefit costs are provided in Note 11 Pensions and other
benefits.
The ASU also prospectively restricts capitalization of net
periodic benefit costs to the current service cost component when
applicable. This restriction has no impact on the Company's
operating income or amounts capitalized because the Company has and
continues to only capitalize an appropriate portion of current
service cost for self-constructed properties.
Derivatives and Hedging
In August 2017, the FASB issued
ASU 2017-12, Targeted Improvements to Accounting for Hedging
Activities, under FASB ASC Topic 815, Derivatives and Hedging. This
improves the financial reporting of hedging relationships to better
portray the economic results of an entity's risk management
activities in its financial statements. These amendments also make
targeted improvements to simplify the application of the hedge
accounting guidance in GAAP. The amendments require the entire
change in the fair value of the hedging instrument to be recorded
in Other comprehensive income for effective cash flow hedges.
Consequently, any ineffective portion of the change in fair value
will no longer be recorded to the Consolidated Statement of Income
as it arises. While the amendments are effective for public
entities beginning on January 1,
2019, early adoption is permitted and the Company early
adopted this ASU effective January 1,
2018. Entities are required to apply the amendments in this
update to hedging relationships existing on the date of adoption,
reflected as a cumulative-effect adjustment as of the beginning of
the fiscal year of adoption. Other amendments to presentation and
disclosure are applied prospectively. No significant
cumulative-effect adjustment was required.
Accumulated Other Comprehensive Income -
Reclassification
In February 2018, the FASB issued
ASU 2018-02, Reclassification of Certain Tax Effects from
Accumulated Other Comprehensive Income under FASB ASC Topic 220,
Income Statement - Reporting Comprehensive Income. The current
standard ASC Topic 740, Income Taxes, requires deferred tax
liabilities and assets to be adjusted for the effect of a change in
tax laws or rates with the effect included in income from
continuing operations in the reporting period that includes the
enactment date. This includes the tax effects of items in
Accumulated other comprehensive income ("AOCI") that were
originally recognized in Other comprehensive income, subsequently
creating stranded tax effects. This ASU allows a reclassification
from AOCI to Retained earnings for stranded tax effects
specifically resulting from the U.S. federal government's recently
enacted tax bill, the Tax Cuts and Jobs Act. The amendments are
effective for public entities beginning on January 1, 2019 and early adoption is permitted.
Entities are required to apply these amendments either in the
period of adoption or retrospectively to each period in which the
effect of the change in tax rate from the Tax Cuts and Jobs Act was
recognized. The Company early adopted this ASU effective
January 1, 2018, electing not to
change AOCI or Retained earnings on the Company's Interim
Consolidated Financial Statements or disclosure.
Future changes
Leases
In February 2016, the FASB issued
ASU 2016-02, Leases under FASB ASC Topic 842, Leases which will
supersede the lease recognition and measurement requirements in
Topic 840, Leases. This new standard requires recognition of
right-of-use assets and lease liabilities by lessees for those
leases classified as finance and operating leases with a maximum
term exceeding 12 months. For CP this new standard will be
effective for interim and annual periods commencing January 1, 2019. Current transitional guidance
requires entities to use a modified retrospective approach to adopt
this new standard. The Company has a detailed plan to implement the
new standard and, through a cross functional team, is assessing
contractual arrangements that may qualify as leases under the new
standard. CP is also working with a vendor to implement a lease
management system which will assist in delivering the required
accounting changes. CP's cross functional team and the vendor
finalized system requirements and developed work flows and testing
scenarios that will permit system implementation and parallel
testing later in 2018 for CP's lease system solution. The
cross-functional team is assessing policy choices, permitted under
the new standard, that can facilitate transition. The impact of the
new standard will be a material increase to right of use assets and
lease liabilities on the consolidated balance sheet, primarily, as
a result of operating leases currently not recognized on the
balance sheet. The Company does not anticipate a material impact to
Net income as a result of the adoption of this new standard and is
currently evaluating disclosure requirements.
3 Revenues
Revenue is recognized when obligations under the terms of a
contract with a customer are satisfied. Revenue is measured as the
amount of consideration the Company expects to receive in exchange
for providing services. Government imposed taxes that the Company
collects concurrent with revenue generating activities are excluded
from revenue. In the normal course of business the Company does not
generate any material revenue through acting as an agent for other
entities.
The following is a description of primary activities from which
the Company generates revenue.
Freight revenues
The Company provides rail freight transportation services to a
wide variety of customers and transports bulk commodities,
merchandise freight and intermodal traffic. The Company signs
master service agreements with customers that dictate future
services the Company is to perform for a customer at the time a
bill of lading or service request is received. Each bill of lading
or service request represents a separate distinct performance
obligation that the Company is obligated to satisfy. The
transaction price is generally in the form of a fixed fee
determined at the inception of the bill of lading or service
request. The Company allocates the transaction price to each
distinct performance obligation based on the estimated standalone
selling price for each performance obligation. As each bill of
lading or service request represents a separate distinct
performance obligation, the estimated standalone selling price is
assessed at an observable price which is fair market value. Certain
customer agreements include variable consideration in the form of
rebates, discounts, or incentives. The expected value method is
used to estimate variable consideration and is allocated to the
applicable performance obligation and is recognized when the
related performance obligation is satisfied. Additionally, the
Company offers published rates for services through public tariff
agreements in which a customer can request service, triggering a
performance obligation the Company must satisfy. In accordance with
ASC Topic 606, railway freight revenues continue to be recognized
over time as services are provided based on the percentage of
completed service method. Volume rebates to customers are accrued
as a reduction of freight revenues based on estimated volumes and
contract terms as freight service is provided. Freight revenues
also include certain ancillary and other services provided in
association with the performance of rail freight movements.
Revenues from these activities are not material and therefore have
been aggregated with the freight revenues from customer contracts
with which they are associated.
Non-freight revenues
In accordance with ASC Topic 606, non-freight revenues,
including passenger revenues, switching fees, and revenues from
logistic services, continue to be recognized at the point in time
the services are provided or when the performance obligations are
satisfied. Non-freight revenues also include leasing revenues.
Disaggregation of revenue
The following table disaggregates the Company's revenues from
contracts with customers by major source:
|
For the three
months ended
March 31
|
(in millions of
Canadian dollars)
|
2018
|
2017(1)
|
Freight
|
|
|
|
Grain
|
$
|
357
|
$
|
393
|
|
Coal
|
151
|
148
|
|
Potash
|
112
|
98
|
|
Fertilizers and
sulphur
|
61
|
59
|
|
Forest
products
|
66
|
67
|
|
Energy, chemicals and
plastics
|
257
|
227
|
|
Metals, minerals, and
consumer products
|
183
|
170
|
|
Automotive
|
71
|
76
|
|
Intermodal
|
367
|
325
|
Total freight
revenues
|
1,625
|
1,563
|
Non-freight excluding
leasing revenues
|
23
|
28
|
Revenues from
contracts with customers
|
1,648
|
1,591
|
Leasing
revenues
|
14
|
12
|
Total
revenues
|
$
|
1,662
|
$
|
1,603
|
(1)
|
Prior period amounts
have not been adjusted under the modified retrospective
method.
|
Satisfying performance obligations
Payment by customers is due upon satisfaction of performance
obligations. Payment terms are such that amounts outstanding at the
period end are expected to be collected within one reporting
period. The Company invoices customers at the time the bill of
lading or service request is processed and therefore the Company
has no material unbilled receivables and no contract assets. All
performance obligations not fully satisfied at period end are
expected to be satisfied within the reporting period immediately
following.
4 Changes in Accumulated other comprehensive loss ("AOCL") by
component
|
For the three
months ended March 31
|
(in millions of
Canadian dollars)
|
Foreign currency
net of hedging
activities(1)
|
Derivatives and
other(1)
|
Pension and post-
retirement defined
benefit plans(1)
|
Total(1)
|
Opening balance,
January 1, 2018
|
$
|
109
|
|
$
|
(89)
|
|
$
|
(1,761)
|
|
$
|
(1,741)
|
Other comprehensive
income before reclassifications
|
—
|
|
13
|
|
(1)
|
|
12
|
Amounts reclassified
from accumulated other comprehensive loss
|
—
|
|
2
|
|
22
|
|
24
|
Net current-period
other comprehensive income
|
—
|
|
15
|
|
21
|
|
36
|
Closing balance,
March 31, 2018
|
$
|
109
|
|
$
|
(74)
|
|
$
|
(1,740)
|
|
$
|
(1,705)
|
Opening balance,
January 1, 2017
|
$
|
127
|
|
$
|
(104)
|
|
$
|
(1,822)
|
|
$
|
(1,799)
|
Other comprehensive
(loss) income before reclassifications
|
(2)
|
|
2
|
|
—
|
|
—
|
Amounts reclassified
from accumulated other comprehensive loss
|
—
|
|
2
|
|
28
|
|
30
|
Net current-period
other comprehensive (loss) income
|
(2)
|
|
4
|
|
28
|
|
30
|
Closing balance,
March 31, 2017
|
$
|
125
|
|
$
|
(100)
|
|
$
|
(1,794)
|
|
$
|
(1,769)
|
(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
March 31
|
(in millions of
Canadian dollars)
|
2018
|
|
2017
|
Amortization of prior
service costs(1)
|
$
|
(1)
|
|
|
$
|
(1)
|
|
Recognition of net
actuarial loss(1)
|
30
|
|
|
39
|
|
Total before income
tax
|
29
|
|
|
38
|
|
Income tax
recovery
|
(7)
|
|
|
(10)
|
|
Net of income
tax
|
$
|
22
|
|
|
$
|
28
|
|
(1)
Impacts Other components of net periodic benefit recovery on the
Interim Consolidated Statements of Income.
|
5 Other income and charges
|
For the three
months ended
March 31
|
(in millions of
Canadian dollars)
|
2018
|
|
2017
|
Foreign exchange loss
(gain) on long-term debt
|
$
|
49
|
|
|
$
|
(28)
|
|
Other foreign
exchange gains
|
(1)
|
|
|
(1)
|
|
Other
|
3
|
|
|
1
|
|
Total other income
and charges
|
$
|
51
|
|
|
$
|
(28)
|
|
6 Income taxes
|
For the three
months ended
March 31
|
(in millions of
Canadian dollars)
|
2018
|
|
2017
|
Current income tax
expense
|
$
|
81
|
|
|
$
|
81
|
|
Deferred income tax
expense
|
41
|
|
|
67
|
|
Income tax
expense
|
$
|
122
|
|
|
$
|
148
|
|
The effective tax rate in the first quarter was 25.92%, compared
to 25.60% for the same period in 2017.
For the three months ended March 31,
2018, the effective tax rate excluding the discrete item of
the foreign exchange loss of $49
million on the Company's U.S. dollar-denominated debt was
24.75%.
For the three months ended March 31,
2017, the effective tax rate excluding the discrete items of
the management transition recovery of $51
million related to the retirement of the Company's Chief
Executive Officer and the foreign exchange gain of $28 million on the Company's U.S.
dollar-denominated debt, was 26.50%.
7 Earnings per share
At March 31, 2018, the number of
shares outstanding was 143.7 million (March
31, 2017 - 146.7 million).
Basic earnings per share have 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 earnings per share calculations is
reconciled as follows:
|
For the three
months ended
March 31
|
(in
millions)
|
2018
|
2017
|
Weighted-average
basic shares outstanding
|
144.4
|
|
146.5
|
|
Dilutive effect of
stock options
|
0.4
|
|
0.6
|
|
Weighted-average
diluted shares outstanding
|
144.8
|
|
147.1
|
|
For the three months ended March 31,
2018, there were 0.2 million options excluded from the
computation of diluted earnings per share because their effects
were not dilutive (three months ended March
31, 2017 - 0.5 million).
8 Shareholders' equity
On May 10, 2017, the Company
announced a new normal course issuer bid ("NCIB"), commencing
May 15, 2017, to purchase up to 4.38
million Common Shares for cancellation before May 14, 2018. As at March
31, 2018, the Company had purchased 3.3 million Common
Shares for $699 million under this
NCIB program.
All purchases are made in accordance with the NCIB at prevalent
market prices plus brokerage fees, or such other prices that may be
permitted by the Toronto Stock Exchange, with consideration
allocated to share capital up to the average carrying amount of the
shares, and any excess allocated to retained earnings.
The following table provides activities under the share
repurchase program:
|
For the three
months ended
March 31
|
|
2018
|
|
2017
|
Number of Common
Shares repurchased(1)
|
1,435,700
|
|
|
—
|
|
Weighted-average
price per share(2)
|
$
|
221.76
|
|
|
$
|
—
|
|
Amount of repurchase
(in millions)(2)
|
$
|
318
|
|
|
$
|
—
|
|
(1)
Includes shares repurchased but not yet canceled at quarter
end.
|
(2)
Includes brokerage fees.
|
9 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.
When possible, the estimated fair value is based on quoted
market prices and, if not available, it is based on estimates from
third party brokers. For non-exchange traded derivatives classified
in Level 2, the Company uses standard valuation techniques to
calculate fair value. Primary inputs to these techniques include
observable market prices (interest, foreign exchange ("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 and long-term debt are classified as Level 2.
The carrying values of financial instruments equal or
approximate their fair values with the exception of long-term
debt:
(in millions of
Canadian dollars)
|
March 31,
2018
|
December 31,
2017
|
Long-term debt
(including current maturities):
|
|
|
|
Fair value
|
$
|
9,598
|
|
$
|
9,680
|
|
|
Carrying
value
|
8,357
|
|
8,159
|
|
The estimated fair value of current and long-term borrowings 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.
B. Financial risk management
Derivative financial instruments
Derivative financial instruments may be used to selectively
reduce volatility associated with fluctuations in interest rates,
FX rates, the price of fuel and stock-based compensation expense.
Where derivatives are designated as hedging instruments, the
relationship between the hedging instruments and their associated
hedged items is documented, as well as the risk management
objective and strategy for the use of the hedging instruments. This
documentation includes linking the derivatives that are designated
as fair value or cash flow hedges to specific assets or liabilities
on the Interim Consolidated Balance Sheets, commitments or
forecasted transactions. At the time a derivative contract is
entered into and at least quarterly thereafter, an assessment is
made as to whether the derivative item is effective in offsetting
the changes in fair value or cash flows of the hedged items. The
derivative qualifies for hedge accounting treatment if it is
effective in substantially mitigating the risk it was designed to
address.
It is not the Company's intent to use financial derivatives or
commodity instruments for trading or speculative purposes.
FX management
The Company conducts business transactions and owns assets in
both Canada and the United States. As a result, the Company is
exposed to fluctuations in value of financial commitments, assets,
liabilities, income or cash flows due to changes in FX rates. The
Company may enter into FX risk management transactions primarily to
manage fluctuations in the exchange rate between Canadian and U.S.
currencies. FX exposure is primarily mitigated through natural
offsets created by revenues, expenditures and balance sheet
positions incurred in the same currency. Where appropriate, the
Company may negotiate with customers and suppliers to reduce the
net exposure.
Net investment hedge
The FX gains and losses on long-term debt are mainly unrealized
and can only be realized when U.S. dollar-denominated long-term
debt matures or is settled. The Company also has long-term FX
exposure on its investment in U.S. affiliates. The majority of the
Company's U.S. dollar-denominated long-term debt has been
designated as a hedge of the net investment in foreign
subsidiaries. This designation has the effect of mitigating
volatility on Net income by offsetting long-term FX gains and
losses on U.S. dollar-denominated long-term debt and gains and
losses on its net investment. The effect of the net investment
hedge recognized in "Other comprehensive income" for the three
months ended March 31, 2018 was an
unrealized FX loss of $151 million
(three months ended March 31, 2017 -
unrealized FX gain of $46
million).
Interest rate management
The Company is exposed to interest rate risk, which is the risk
that the fair value or future cash flows of a financial instrument
will vary as a result of changes in market interest rates. In order
to manage funding needs or capital structure goals, the Company
enters into debt or capital lease agreements that are subject to
either fixed market interest rates set at the time of issue or
floating rates determined by ongoing market conditions. Debt
subject to variable interest rates exposes the Company to
variability in interest expense, while debt subject to fixed
interest rates exposes the Company to variability in the fair value
of debt.
To manage interest rate exposure, the Company accesses diverse
sources of financing and manages borrowings in line with a targeted
range of capital structure, debt ratings, liquidity needs, maturity
schedule, and currency and interest rate profiles. In anticipation
of future debt issuances, the Company may enter into forward rate
agreements, that are designated as cash flow hedges, to
substantially lock in all or a portion of the effective future
interest expense. The Company may also enter into swap agreements,
designated as fair value hedges, to manage the mix of fixed and
floating rate debt.
Forward starting swaps
As at March 31, 2018, the Company
had forward starting floating-to-fixed interest rate swap
agreements ("forward starting swaps") totaling a notional amount of
U.S. $500 million to fix the
benchmark rate on cash flows associated with highly probable
forecasted issuances of long-term notes (December 31, 2017 - U.S. $500 million). The change in fair value on the
forward starting swaps is recorded in "Accumulated other
comprehensive loss", net of tax, as cash flow hedges until the
highly probable forecasted notes are issued. Subsequent to the
notes issuance, amounts in "Accumulated other comprehensive loss"
are reclassified to "Net interest expense".
As at March 31, 2018, the total
fair value loss of $36 million
(December 31, 2017 - fair value loss
of $55 million) derived from the
forward starting swaps was included in "Accounts payable and
accrued liabilities". Changes in fair value from the forward
starting swaps for the three months ended March 31, 2018 was a gain of $19 million (three months ended March 31, 2017 - gain of $2 million) and is recorded in "Other
comprehensive income". For the three months ended March 31, 2018, a loss of $3 million related to previous forward starting
swap hedges has been amortized to "Net interest expense" (three
months ended March 31, 2017 - loss of
$3 million). The Company expects that
during the next twelve months, an additional $11 million of losses will be amortized to "Net
interest expense".
10 Stock-based compensation
At March 31, 2018, the Company had
several stock-based compensation plans, including stock option
plans, various cash settled liability plans and an employee share
purchase plan. These plans resulted in an expense for the three
months ended March 31, 2018 of
$14 million (three months ended
March 31, 2017 - recovery of
$12 million).
Effective January 31, 2017, Mr. E.
Hunter Harrison resigned from all
positions held by him at the Company, including as the Company's
Chief Executive Officer and a member of the Board of Directors of
the Company. In connection with Mr. Harrison's resignation, the
Company entered into a separation agreement with Mr. Harrison.
Under the terms of the separation agreement, the Company has agreed
to a limited waiver of Mr. Harrison's non-competition and
non-solicitation obligations.
Effective January 31, 2017,
pursuant to the separation agreement, Mr. Harrison forfeited
certain pension and post-retirement benefits and agreed to the
surrender for cancellation of 22,514 performance share units
("PSU"), 68,612 deferred share units ("DSU"), and 752,145 stock
options.
As a result of this agreement, the Company recognized a recovery
of $51 million in "Compensation and
benefits" in the first quarter of 2017. Of this amount,
$27 million related to a recovery
from cancellation of certain pension benefits.
Stock option plan
In the three months ended March 31,
2018, under CP's stock option plans, the Company issued
169,968 regular options at the weighted average price of
$231.59 per share, based on the
closing price on the grant date.
Pursuant to the employee plan, these regular options may be
exercised upon vesting, which is between 12 months and 48 months
after the grant date, and will expire after seven years.
Under the fair value method, the fair value of the stock options
at the grant date was approximately $9
million. The weighted average fair value assumptions were
approximately:
|
For the three
months
ended March 31, 2018
|
Grant
price
|
$231.59
|
Expected option life
(years)(1)
|
5.00
|
Risk-free interest
rate(2)
|
2.23%
|
Expected stock price
volatility(3)
|
25.06%
|
Expected annual
dividends per share(4)
|
$2.2500
|
Expected forfeiture
rate(5)
|
4.5%
|
Weighted-average
grant date fair value per option granted during the
period
|
$54.09
|
(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
remaining term at the time of the grant.
|
(3)
|
Based on the
historical stock price volatility of the Company's stock 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 estimated
forfeitures based on past experience. This rate is monitored on a
periodic basis.
|
Performance share unit plan
In the three months ended March 31,
2018, the Company issued 123,798 PSUs with a grant date fair
value of approximately $29 million.
These units attract dividend equivalents in the form of additional
units based on the dividends paid on the Company's Common Shares.
PSUs vest and are settled in cash or in CP Common Shares,
approximately three years after the grant date, contingent upon
CP's performance ("performance factor"). Grant recipients who are
eligible to retire and have provided six months of service during
the performance period are entitled to the full award. The fair
value of PSUs is measured periodically until settlement, using a
lattice-based valuation model.
The performance period for PSUs issued in the three months ended
March 31, 2018 is January 1, 2018 to December 31, 2020. The performance factors for
these PSUs are Return on Invested Capital ("ROIC"), Total
Shareholder Return ("TSR") compared to the S&P/TSX Capped
Industrial index, and TSR compared to S&P 1500 Road and Rail
index.
The performance period for the PSUs issued in 2015 was
January 1, 2015 to December 31, 2017. The performance factors for
these PSUs were Operating Ratio, ROIC, TSR compared to the
S&P/TSX 60 index and TSR compared to Class I railways. The
resulting payout was 160% of the Company's average share price that
was calculated using the last 30 trading days preceding
December 31, 2017. In the first
quarter of 2018, payouts occurred on the total outstanding awards,
including dividends reinvested totalling $30
million on 82,800 outstanding awards.
Deferred share unit plan
In the three months ended March 31,
2018, the Company granted 7,314 DSUs with a grant date fair
value of approximately $2 million.
DSUs vest over various periods of up to 48 months and are only
redeemable for a specified period after employment is terminated.
An expense to income for DSUs is recognized over the vesting period
for both the initial subscription price and the change in value
between reporting periods.
11 Pension and other benefits
In the three months ended March 31,
2018, the Company made net contributions of $1 million (three months ended March 31, 2017 - $12
million), to its defined benefit pension plans, which is net
of a $10 million refund of plan
surplus (three months ended March 31,
2017 - $nil). Net periodic benefit costs for defined benefit
pension plans and other benefits recognized in the three months
ended March 31, 2018 included the
following components:
|
For the three
months ended March 31
|
|
Pensions
|
|
Other
benefits
|
(in millions of
Canadian dollars)
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Current service cost
(benefits earned by employees)
|
$
|
30
|
|
|
$
|
25
|
|
|
$
|
3
|
|
|
$
|
3
|
|
Other components of
net periodic benefit (recovery) cost:
|
|
|
|
|
|
|
|
|
Interest cost on
benefit obligation
|
110
|
|
|
113
|
|
|
4
|
|
|
5
|
|
|
Expected return on
fund assets
|
(239)
|
|
|
(223)
|
|
|
—
|
|
|
—
|
|
|
Recognized net
actuarial loss
|
29
|
|
|
38
|
|
|
1
|
|
|
1
|
|
|
Amortization of prior
service costs
|
(1)
|
|
|
(1)
|
|
|
—
|
|
|
—
|
|
Total other
components of net periodic benefit (recovery) cost
|
$
|
(101)
|
|
|
$
|
(73)
|
|
|
$
|
5
|
|
|
$
|
6
|
|
Net periodic benefit
(recovery) cost
|
$
|
(71)
|
|
|
$
|
(48)
|
|
|
$
|
8
|
|
|
$
|
9
|
|
12 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
March 31, 2018 cannot be predicted
with certainty, it is the opinion of management that their
resolution will not have a material adverse effect on the Company's
financial position or results of operations.
Legal proceedings related to Lac-Mégantic rail
accident
On July 6, 2013, a train carrying
petroleum crude oil operated by Montreal Maine and Atlantic Railway
("MMAR") or a subsidiary, Montreal Maine & Atlantic Canada Co.
("MMAC" and collectively the "MMA Group"), derailed in
Lac-Mégantic, Québec. The derailment occurred on a section of
railway owned and operated by the MMA Group. The previous day CP
had interchanged the train to the MMA Group, and after the
interchange, the MMA Group exclusively controlled the train.
In the wake of the derailment, MMAC sought court protection in
Canada under the Companies'
Creditors Arrangement Act, R.S.C., 1985, c. C-36 and MMAR filed for
bankruptcy in the United States.
Plans of arrangement have been approved in both Canada and the U.S. (the "Plans"). These Plans
provide for the distribution of a fund of approximately
$440 million amongst those claiming
derailment damages.
A number of legal proceedings, set out below, were commenced
after the derailment in Canada
and/or in the U.S. against CP and others:
(1) Québec's Minister of Sustainable Development,
Environment, Wildlife and Parks (the "Minister") ordered various
parties, including CP, to clean up the derailment site (the
"Cleanup Order"). CP appealed the Cleanup Order to the
Administrative Tribunal of Québec (the "TAQ"). The Minister
subsequently served a Notice of Claim seeking $95 million for compensation spent on cleanup. CP
filed a contestation of the Notice of Claim with the TAQ (the "TAQ
Proceeding"). CP and the Minister agreed to stay the TAQ
Proceedings pending the outcome of the Province of Québec's action,
described in item (2) below.
(2) Québec's Attorney General sued CP in the Québec Superior
Court initially claiming $409 million
in damages, which claim was amended and reduced to $315 million (the "Province's Action"). The
Province's Action alleges that CP exercised custody or control over
the petroleum crude oil until its delivery to Irving Oil, that CP
was negligent in its custody and control of the petroleum crude oil
and that therefore CP is jointly and severally liable with third
parties responsible for the derailment and vicariously liable for
the acts and omissions of MMAC.
(3) A class action in the Québec Superior Court on behalf of
persons and entities residing in, owning or leasing property in,
operating a business in or physically present in Lac-Mégantic at
the time of the derailment (the "Class Action") was certified
against CP, MMAC and the train conductor, Mr. Thomas Harding. The Class Action seeks
unquantified damages, including for wrongful death, personal
injury, and property damage arising from the derailment. All known
wrongful death claimants in the Class Action have opted out and, by
court order, cannot re-join the Class Action.
(4) Eight subrogated insurers sued CP in the Québec Superior
Court initially claiming approximately $16
million in damages, which claim was amended and reduced to
$14 million (the "Promutuel Action")
and two additional subrogated insurers sued CP in the Québec
Superior Court claiming approximately $3
million in damages (the "Royal Action"). Both Actions
contain essentially the same allegations as the Province's Action.
The lawsuits do not identify the parties to which the insurers are
subrogated, and therefore the extent to which these claims overlap
with the proof of claims process under the Plans is difficult to
determine at this stage. The Royal Action has been stayed pending
the determination of the consolidated proceedings described
below.
The Province's Action, the Class Action and the Promutuel Action
have been consolidated and will proceed together through the
litigation process in the Québec Superior Court. While each Action
will remain a separate legal proceeding, there will be a trial to
determine liability issues commencing mid-September 2019, and subsequently, if
necessary, a trial to determine damages issues.
(5) An adversary proceeding filed by the MMAR U.S. estate
representative ("Estate Representative") in Maine accuses CP of failing to abide by
certain regulations (the "Adversary Proceeding"). The Estate
Representative alleges that CP should not have moved the petroleum
crude oil train because an inaccurate classification by the shipper
was or should have been known. The Estate Representative seeks
damages for MMAR's business value (as yet unquantified) allegedly
destroyed by the derailment.
(6) A class action and mass tort action on behalf of
Lac-Mégantic residents and wrongful death representatives commenced
in Texas and wrongful death and
personal injury actions commenced in Illinois and Maine against CP were all removed to and
consolidated in Maine (the "Maine
Actions"). The Maine Actions allege that CP negligently
misclassified and mis-packaged the petroleum crude oil being
shipped. On CP's motion, the Maine Actions were dismissed by
the Court on several grounds. The plaintiffs are appealing the
dismissal decision.
(7) The Trustee (the "WD Trustee") for the wrongful death trust
(the "WD Trust"), as defined and established by the Estate
Representative under the Plans, asserts Carmack Amendment claims
against CP in North Dakota federal
court (the "Carmack Claims"). The WD Trustee seeks to recover
approximately $6 million for damaged
rail cars, and the settlement amounts the consignor and the
consignee paid to the bankruptcy estates, alleged to be
$110 million and $60 million, respectively. On CP's motion, the
federal court in North Dakota
dismissed the Carmack Claims. The WD Trustee appealed the dismissal
decision. The court in the appeal has reserved judgment.
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 the
above noted 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 months ended March 31, 2018 was
$1 million (three months ended
March 31, 2017 - $1 million). Provisions for environmental
remediation costs are recorded in "Other long-term liabilities",
except for the current portion which is recorded in "Accounts
payable and accrued liabilities". The total amount provided at
March 31, 2018 was $80 million (December 31,
2017 - $78 million). Payments
are expected to be made over 10 years through 2027.
13 Condensed consolidating financial information
Canadian Pacific Railway Company, a 100%-owned subsidiary of
Canadian Pacific Railway Limited ("CPRL"), is the issuer of certain
debt securities, which are fully and unconditionally guaranteed by
CPRL. The following tables present condensed consolidating
financial information ("CCFI") in accordance with Rule 3-10(c) of
Regulation S-X.
Investments in subsidiaries are accounted for under the equity
method when presenting the CCFI.
The tables include all adjustments necessary to reconcile the
CCFI on a consolidated basis to CPRL's consolidated financial
statements for the periods presented.
Interim Condensed Consolidating Statements of
Income
For the three months ended March 31,
2018
(in millions of
Canadian dollars)
|
CPRL (Parent
Guarantor)
|
CPRC
(Subsidiary
Issuer)
|
Non-Guarantor
Subsidiaries
|
Consolidating
Adjustments and
Eliminations
|
CPRL
Consolidated
|
Revenues
|
|
|
|
|
|
|
Freight
|
$
|
—
|
$
|
1,155
|
$
|
470
|
$
|
—
|
$
|
1,625
|
|
Non-freight
|
—
|
27
|
89
|
(79)
|
37
|
Total
revenues
|
—
|
1,182
|
559
|
(79)
|
1,662
|
Operating
expenses
|
|
|
|
|
|
|
Compensation and
benefits
|
—
|
257
|
115
|
2
|
374
|
|
Fuel
|
—
|
168
|
47
|
—
|
215
|
|
Materials
|
—
|
35
|
15
|
5
|
55
|
|
Equipment
rents
|
—
|
31
|
2
|
—
|
33
|
|
Depreciation and
amortization
|
—
|
104
|
66
|
—
|
170
|
|
Purchased services
and other
|
—
|
218
|
143
|
(86)
|
275
|
Total operating
expenses
|
—
|
813
|
388
|
(79)
|
1,122
|
Operating
income
|
—
|
369
|
171
|
—
|
540
|
Less:
|
|
|
|
|
|
|
Other income and
charges
|
6
|
48
|
(3)
|
—
|
51
|
|
Other components of
net periodic benefit recovery
|
—
|
(96)
|
—
|
—
|
(96)
|
|
Net interest expense
(income)
|
8
|
114
|
(7)
|
—
|
115
|
(Loss) income
before income tax expense
and equity in net earnings of subsidiaries
|
(14)
|
303
|
181
|
—
|
470
|
|
Less: Income tax
expense
|
—
|
86
|
36
|
—
|
122
|
|
Add: Equity in net
earnings of subsidiaries
|
362
|
145
|
—
|
(507)
|
—
|
Net
income
|
$
|
348
|
$
|
362
|
$
|
145
|
$
|
(507)
|
$
|
348
|
Interim Condensed Consolidating Statements of
Income
For the three months ended March 31,
2017
(in millions of
Canadian dollars)
|
CPRL (Parent
Guarantor)
|
CPRC
(Subsidiary
Issuer)
|
Non-Guarantor
Subsidiaries
|
Consolidating
Adjustments and
Eliminations
|
CPRL
Consolidated
|
Revenues
|
|
|
|
|
|
|
Freight
|
$
|
—
|
$
|
1,089
|
$
|
474
|
$
|
—
|
$
|
1,563
|
|
Non-freight
|
—
|
32
|
93
|
(85)
|
40
|
Total
revenues
|
—
|
1,121
|
567
|
(85)
|
1,603
|
Operating
expenses
|
|
|
|
|
|
|
Compensation and
benefits
|
—
|
191
|
108
|
1
|
300
|
|
Fuel
|
—
|
132
|
38
|
—
|
170
|
|
Materials
|
—
|
34
|
9
|
6
|
49
|
|
Equipment
rents
|
—
|
36
|
—
|
—
|
36
|
|
Depreciation and
amortization
|
—
|
109
|
57
|
—
|
166
|
|
Purchased services
and other
|
—
|
208
|
162
|
(92)
|
278
|
Total operating
expenses
|
—
|
710
|
374
|
(85)
|
999
|
Operating
income
|
—
|
411
|
193
|
—
|
604
|
Less:
|
|
|
|
|
|
|
Other income and
charges
|
(20)
|
(7)
|
(1)
|
—
|
(28)
|
|
Other components of
net periodic benefit recovery
|
—
|
(67)
|
—
|
—
|
(67)
|
|
Net interest expense
(income)
|
2
|
125
|
(7)
|
—
|
120
|
Income before
income tax expense and
equity in net earnings of subsidiaries
|
18
|
360
|
201
|
—
|
579
|
|
Less: Income tax
expense
|
1
|
98
|
49
|
—
|
148
|
|
Add: Equity in net
earnings of subsidiaries
|
414
|
152
|
—
|
(566)
|
—
|
Net
income
|
$
|
431
|
$
|
414
|
$
|
152
|
$
|
(566)
|
$
|
431
|
Certain of the comparative figures have been reclassified in
order to be consistent with the 2018 presentation (Note 2).
Interim Condensed Consolidating Statements of Comprehensive
Income
For the three months ended March 31, 2018
(in millions of
Canadian dollars)
|
CPRL (Parent
Guarantor)
|
CPRC
(Subsidiary
Issuer)
|
Non-Guarantor
Subsidiaries
|
Consolidating
Adjustments and
Eliminations
|
CPRL
Consolidated
|
|
Net income
|
$
|
348
|
$
|
362
|
$
|
145
|
$
|
(507)
|
$
|
348
|
|
Net (loss) gain in
foreign currency translation
adjustments, net of hedging activities
|
—
|
(150)
|
130
|
—
|
(20)
|
|
Change in derivatives
designated as cash flow
hedges
|
—
|
21
|
—
|
—
|
21
|
|
Change in pension and
post-retirement defined
benefit plans
|
—
|
28
|
1
|
—
|
29
|
Other
comprehensive (loss) income before
income taxes
|
—
|
(101)
|
131
|
—
|
30
|
|
Income tax recovery
on above items
|
—
|
6
|
—
|
—
|
6
|
|
Equity accounted
investments
|
36
|
131
|
—
|
(167)
|
—
|
Other
comprehensive income
|
36
|
36
|
131
|
(167)
|
36
|
Comprehensive
income
|
$
|
384
|
$
|
398
|
$
|
276
|
$
|
(674)
|
$
|
384
|
Interim Condensed Consolidating Statements of Comprehensive
Income
For the three months ended March 31,
2017
(in millions of
Canadian dollars)
|
CPRL (Parent
Guarantor)
|
CPRC
(Subsidiary
Issuer)
|
Non-Guarantor
Subsidiaries
|
Consolidating
Adjustments and
Eliminations
|
CPRL
Consolidated
|
|
Net income
|
$
|
431
|
$
|
414
|
$
|
152
|
$
|
(566)
|
$
|
431
|
|
Net gain (loss) in
foreign currency translation adjustments, net of hedging
activities
|
—
|
45
|
(40)
|
—
|
5
|
|
Change in derivatives
designated as cash flow
hedges
|
—
|
5
|
—
|
—
|
5
|
|
Change in pension and
post-retirement defined
benefit plans
|
—
|
36
|
2
|
—
|
38
|
Other
comprehensive income (loss) before income taxes
|
—
|
86
|
(38)
|
—
|
48
|
|
Income tax expense on
above items
|
—
|
(17)
|
(1)
|
—
|
(18)
|
|
Equity accounted
investments
|
30
|
(39)
|
—
|
9
|
—
|
Other
comprehensive income (loss)
|
30
|
30
|
(39)
|
9
|
30
|
Comprehensive
income
|
$
|
461
|
$
|
444
|
$
|
113
|
$
|
(557)
|
$
|
461
|
Interim Condensed Consolidating Balance Sheets
As at March 31, 2018
(in millions of
Canadian dollars)
|
CPRL (Parent
Guarantor)
|
CPRC
(Subsidiary
Issuer)
|
Non-Guarantor
Subsidiaries
|
Consolidating
Adjustments and
Eliminations
|
CPRL
Consolidated
|
Assets
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
Cash and cash
equivalents
|
$
|
—
|
$
|
43
|
$
|
82
|
$
|
—
|
$
|
125
|
|
Accounts receivable,
net
|
—
|
525
|
174
|
—
|
699
|
|
Accounts receivable,
inter-company
|
104
|
149
|
205
|
(458)
|
—
|
|
Short-term advances
to affiliates
|
—
|
1,313
|
4,805
|
(6,118)
|
—
|
|
Materials and
supplies
|
—
|
121
|
33
|
—
|
154
|
|
Other current
assets
|
—
|
80
|
143
|
(84)
|
139
|
|
104
|
2,231
|
5,442
|
(6,660)
|
1,117
|
Long-term advances to
affiliates
|
1,090
|
—
|
88
|
(1,178)
|
—
|
Investments
|
—
|
27
|
159
|
—
|
186
|
Investments in
subsidiaries
|
10,944
|
11,862
|
—
|
(22,806)
|
—
|
Properties
|
—
|
9,016
|
8,218
|
—
|
17,234
|
Goodwill and
intangible assets
|
—
|
—
|
192
|
—
|
192
|
Pension
asset
|
—
|
1,507
|
—
|
—
|
1,507
|
Other
assets
|
—
|
73
|
9
|
—
|
82
|
Deferred income
taxes
|
4
|
—
|
—
|
(4)
|
—
|
Total
assets
|
$
|
12,142
|
$
|
24,716
|
$
|
14,108
|
$
|
(30,648)
|
$
|
20,318
|
Liabilities and
shareholders' equity
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
Accounts payable and
accrued liabilities
|
$
|
102
|
$
|
886
|
$
|
279
|
$
|
(84)
|
$
|
1,183
|
|
Accounts payable,
inter-company
|
4
|
305
|
149
|
(458)
|
—
|
|
Short-term advances
from affiliates
|
5,602
|
508
|
8
|
(6,118)
|
—
|
|
Long-term debt
maturing within one year
|
—
|
756
|
—
|
—
|
756
|
|
5,708
|
2,455
|
436
|
(6,660)
|
1,939
|
Pension and other
benefit liabilities
|
—
|
670
|
79
|
—
|
749
|
Long-term advances
from affiliates
|
—
|
1,178
|
—
|
(1,178)
|
—
|
Other long-term
liabilities
|
—
|
93
|
112
|
—
|
205
|
Long-term
debt
|
—
|
7,549
|
52
|
—
|
7,601
|
Deferred income
taxes
|
—
|
1,827
|
1,567
|
(4)
|
3,390
|
Total
liabilities
|
5,708
|
13,772
|
2,246
|
(7,842)
|
13,884
|
Shareholders'
equity
|
|
|
|
|
|
Share
capital
|
2,022
|
1,038
|
6,307
|
(7,345)
|
2,022
|
|
Additional paid-in
capital
|
45
|
1,648
|
261
|
(1,909)
|
45
|
|
Accumulated other
comprehensive (loss)
income
|
(1,705)
|
(1,705)
|
547
|
1,158
|
(1,705)
|
|
Retained
earnings
|
6,072
|
9,963
|
4,747
|
(14,710)
|
6,072
|
|
6,434
|
10,944
|
11,862
|
(22,806)
|
6,434
|
Total liabilities
and shareholders' equity
|
$
|
12,142
|
$
|
24,716
|
$
|
14,108
|
$
|
(30,648)
|
$
|
20,318
|
Condensed Consolidating Balance Sheets
As at December 31, 2017
(in millions of
Canadian dollars)
|
CPRL (Parent
Guarantor)
|
CPRC
(Subsidiary
Issuer)
|
Non-Guarantor
Subsidiaries
|
Consolidating
Adjustments and
Eliminations
|
CPRL
Consolidated
|
Assets
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
Cash and cash
equivalents
|
$
|
—
|
$
|
241
|
$
|
97
|
$
|
—
|
$
|
338
|
|
Accounts receivable,
net
|
—
|
508
|
179
|
—
|
687
|
|
Accounts receivable,
inter-company
|
97
|
153
|
215
|
(465)
|
—
|
|
Short-term advances
to affiliates
|
500
|
1,004
|
4,996
|
(6,500)
|
—
|
|
Materials and
supplies
|
—
|
120
|
32
|
—
|
152
|
|
Other current
assets
|
—
|
31
|
66
|
—
|
97
|
|
597
|
2,057
|
5,585
|
(6,965)
|
1,274
|
Long-term advances to
affiliates
|
590
|
—
|
410
|
(1,000)
|
—
|
Investments
|
—
|
27
|
155
|
—
|
182
|
Investments in
subsidiaries
|
10,623
|
12,122
|
—
|
(22,745)
|
—
|
Properties
|
—
|
8,982
|
8,034
|
—
|
17,016
|
Goodwill and
intangible assets
|
—
|
—
|
187
|
—
|
187
|
Pension
asset
|
—
|
1,407
|
—
|
—
|
1,407
|
Other
assets
|
—
|
56
|
13
|
—
|
69
|
Deferred income
taxes
|
3
|
—
|
—
|
(3)
|
—
|
Total
assets
|
$
|
11,813
|
$
|
24,651
|
$
|
14,384
|
$
|
(30,713)
|
$
|
20,135
|
Liabilities and
shareholders' equity
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
Accounts payable and
accrued liabilities
|
$
|
82
|
$
|
844
|
$
|
312
|
$
|
—
|
$
|
1,238
|
|
Accounts payable,
inter-company
|
3
|
309
|
153
|
(465)
|
—
|
|
Short-term advances
from affiliates
|
5,291
|
1,185
|
24
|
(6,500)
|
—
|
|
Long-term debt
maturing within one year
|
—
|
746
|
—
|
—
|
746
|
|
5,376
|
3,084
|
489
|
(6,965)
|
1,984
|
Pension and other
benefit liabilities
|
—
|
672
|
77
|
—
|
749
|
Long-term advances
from affiliates
|
—
|
1,000
|
—
|
(1,000)
|
—
|
Other long-term
liabilities
|
—
|
108
|
123
|
—
|
231
|
Long-term
debt
|
—
|
7,362
|
51
|
—
|
7,413
|
Deferred income
taxes
|
—
|
1,802
|
1,522
|
(3)
|
3,321
|
Total
liabilities
|
5,376
|
14,028
|
2,262
|
(7,968)
|
13,698
|
Shareholders'
equity
|
|
|
|
|
|
|
Share
capital
|
2,032
|
1,037
|
6,730
|
(7,767)
|
2,032
|
|
Additional paid-in
capital
|
43
|
1,643
|
259
|
(1,902)
|
43
|
|
Accumulated other
comprehensive (loss) income
|
(1,741)
|
(1,742)
|
417
|
1,325
|
(1,741)
|
|
Retained
earnings
|
6,103
|
9,685
|
4,716
|
(14,401)
|
6,103
|
|
6,437
|
10,623
|
12,122
|
(22,745)
|
6,437
|
Total liabilities
and shareholders' equity
|
$
|
11,813
|
$
|
24,651
|
$
|
14,384
|
$
|
(30,713)
|
$
|
20,135
|
Interim Condensed Consolidating Statements of Cash Flows
For the three months ended March 31,
2018
(in millions of
Canadian dollars)
|
CPRL
(Parent Guarantor)
|
CPRC
(Subsidiary
Issuer)
|
Non-Guarantor
Subsidiaries
|
Consolidating
Adjustments and
Eliminations
|
CPRL
Consolidated
|
Cash provided by
operating activities
|
$
|
65
|
$
|
392
|
$
|
135
|
$
|
(195)
|
$
|
397
|
Investing
activities
|
|
|
|
|
|
|
Additions to
properties
|
—
|
(122)
|
(119)
|
—
|
(241)
|
|
Proceeds from sale of
properties and other assets
|
—
|
3
|
1
|
—
|
4
|
|
Advances to
affiliates
|
—
|
(307)
|
—
|
307
|
—
|
|
Repayment of advances
to affiliates
|
—
|
—
|
502
|
(502)
|
—
|
|
Repurchase of share
capital from affiliates
|
—
|
423
|
—
|
(423)
|
—
|
|
Other
|
—
|
—
|
(1)
|
—
|
(1)
|
Cash (used in)
provided by investing activities
|
—
|
(3)
|
383
|
(618)
|
(238)
|
Financing
activities
|
|
|
|
|
|
|
Dividends
paid
|
(82)
|
(82)
|
(113)
|
195
|
(82)
|
|
Return of share
capital to affiliates
|
—
|
—
|
(423)
|
423
|
—
|
|
Issuance of CP Common
Shares
|
8
|
—
|
—
|
—
|
8
|
|
Purchase of CP Common
Shares
|
(298)
|
—
|
—
|
—
|
(298)
|
|
Repayment of
long-term debt, excluding commercial paper
|
—
|
(5)
|
—
|
—
|
(5)
|
|
Advances from
affiliates
|
307
|
—
|
—
|
(307)
|
—
|
|
Repayment of advances
from affiliates
|
—
|
(502)
|
—
|
502
|
—
|
Cash used in
financing activities
|
(65)
|
(589)
|
(536)
|
813
|
(377)
|
Effect of foreign
currency fluctuations on U.S.
dollar-denominated cash and cash equivalents
|
—
|
2
|
3
|
—
|
5
|
Cash
position
|
|
|
|
|
|
|
Decrease in cash and
cash equivalents
|
—
|
(198)
|
(15)
|
—
|
(213)
|
|
Cash and cash
equivalents at beginning of period
|
—
|
241
|
97
|
—
|
338
|
Cash and cash
equivalents at end of period
|
$
|
—
|
$
|
43
|
$
|
82
|
$
|
—
|
$
|
125
|
Interim Condensed Consolidating Statements of Cash
Flows
For the three months ended March 31, 2017
(in millions of
Canadian dollars)
|
CPRL (Parent
Guarantor)
|
CPRC
(Subsidiary Issuer)
|
Non-Guarantor
Subsidiaries
|
Consolidating
Adjustments and
Eliminations
|
CPRL
Consolidated
|
Cash provided by
operating activities
|
$
|
63
|
|
$
|
85
|
|
$
|
264
|
|
$
|
(101)
|
|
$
|
311
|
Investing
activities
|
|
|
|
|
|
|
Additions to
properties
|
—
|
|
(109)
|
|
(121)
|
|
—
|
|
(230)
|
|
Proceeds from sale of
properties and other assets
|
—
|
|
1
|
|
2
|
|
—
|
|
3
|
|
Advances to
affiliates
|
(152)
|
|
—
|
|
(134)
|
|
286
|
|
—
|
|
Capital contributions
to affiliates
|
—
|
|
(68)
|
|
—
|
|
68
|
|
—
|
|
Other
|
—
|
|
5
|
|
—
|
|
—
|
|
5
|
Cash used in
investing activities
|
(152)
|
|
(171)
|
|
(253)
|
|
354
|
|
(222)
|
Financing
activities
|
|
|
|
|
|
|
Dividends
paid
|
(73)
|
|
(73)
|
|
(28)
|
|
101
|
|
(73)
|
|
Issuance of share
capital
|
—
|
|
—
|
|
68
|
|
(68)
|
|
—
|
|
Issuance of CP Common
Shares
|
28
|
|
—
|
|
—
|
|
—
|
|
28
|
|
Repayment of
long-term debt, excluding commercial paper
|
—
|
|
(5)
|
|
—
|
|
—
|
|
(5)
|
|
Advances from
affiliates
|
134
|
|
149
|
|
3
|
|
(286)
|
|
—
|
Cash provided by
(used in) financing activities
|
89
|
|
71
|
|
43
|
|
(253)
|
|
(50)
|
Effect of foreign
currency fluctuations on U.S.
dollar-denominated cash and cash equivalents
|
—
|
|
(2)
|
|
—
|
|
—
|
|
(2)
|
Cash
position
|
|
|
|
|
|
|
(Decrease) increase
in cash and cash equivalents
|
—
|
|
(17)
|
|
54
|
|
—
|
|
37
|
|
Cash and cash
equivalents at beginning of period
|
—
|
|
100
|
|
64
|
|
—
|
|
164
|
Cash and cash
equivalents at end of period
|
$
|
—
|
|
$
|
83
|
|
$
|
118
|
|
$
|
—
|
|
$
|
201
|
Summary of Rail Data
|
First
Quarter
|
Financial
(millions, except per share data)
|
2018
|
2017
|
Total
Change
|
%
Change
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
Freight
|
$
|
1,625
|
|
$
|
1,563
|
|
$
|
62
|
|
4
|
|
Non-freight
|
37
|
|
40
|
|
(3)
|
|
(8)
|
Total
revenues
|
1,662
|
|
1,603
|
|
59
|
|
4
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
Compensation and
benefits(1)
|
374
|
|
300
|
|
74
|
|
25
|
|
Fuel
|
215
|
|
170
|
|
45
|
|
26
|
|
Materials
|
55
|
|
49
|
|
6
|
|
12
|
|
Equipment
rents
|
33
|
|
36
|
|
(3)
|
|
(8)
|
|
Depreciation and amortization
|
170
|
|
166
|
|
4
|
|
2
|
|
Purchased services
and other
|
275
|
|
278
|
|
(3)
|
|
(1)
|
Total operating
expenses(1)
|
1,122
|
|
999
|
|
123
|
|
12
|
|
|
|
|
|
Operating
income(1)
|
540
|
|
604
|
|
(64)
|
|
(11)
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
Other income and
charges
|
51
|
|
(28)
|
|
79
|
|
(282)
|
|
Other components of
net periodic benefit recovery(1)
|
(96)
|
|
(67)
|
|
(29)
|
|
43
|
|
Net interest
expense
|
115
|
|
120
|
|
(5)
|
|
(4)
|
|
|
|
|
|
Income before income
tax expense
|
470
|
|
579
|
|
(109)
|
|
(19)
|
|
|
|
|
|
|
Income tax
expense
|
122
|
|
148
|
|
(26)
|
|
(18)
|
|
|
|
|
|
Net income
|
$
|
348
|
|
$
|
431
|
|
$
|
(83)
|
|
(19)
|
Operating ratio
(%)(1)
|
67.5
|
|
62.4
|
|
5.1
|
|
510
bps
|
|
|
|
|
|
|
Basic earnings per
share
|
$
|
2.41
|
|
$
|
2.94
|
|
$
|
(0.53)
|
|
(18)
|
|
|
|
|
|
|
Diluted earnings per
share
|
$
|
2.41
|
|
$
|
2.93
|
|
$
|
(0.52)
|
|
(18)
|
|
|
|
|
|
Shares
Outstanding
|
|
|
|
|
|
Weighted average
number of shares outstanding (millions)
|
144.4
|
|
146.5
|
|
(2.1)
|
|
(1)
|
|
Weighted average
number of diluted shares outstanding (millions)
|
144.8
|
|
147.1
|
|
(2.3)
|
|
(2)
|
|
|
|
|
|
Foreign
Exchange
|
|
|
|
|
|
Average foreign
exchange rate (US$/Canadian$)
|
0.79
|
|
0.76
|
|
0.03
|
|
4
|
|
Average foreign
exchange rate (Canadian$/US$)
|
1.26
|
|
1.32
|
|
(0.06)
|
|
(5)
|
(1)
|
2017 comparative
period figure has been restated for the retrospective adoption of
Accounting Standards Update ("ASU") ASU 2017-07, discussed further
in Note 2 Accounting changes in CP's Interim Consolidated Financial
Statements for the three months ended March 31, 2018.
|
Summary of Rail Data (Page 2)
|
First
Quarter
|
|
Commodity
Data
|
2018
|
2017
|
Total
Change
|
%
Change
|
FX
Adjusted
%
Change(1)
|
|
|
|
|
|
|
Freight Revenues
(millions)
|
|
|
|
|
|
- Grain
|
$
|
357
|
|
$
|
393
|
|
$
|
(36)
|
|
(9)
|
|
(7)
|
- Coal
|
151
|
|
148
|
|
3
|
|
2
|
|
3
|
- Potash
|
112
|
|
98
|
|
14
|
|
14
|
|
18
|
- Fertilizers and
sulphur
|
61
|
|
59
|
|
2
|
|
3
|
|
5
|
- Forest
products
|
66
|
|
67
|
|
(1)
|
|
(1)
|
|
2
|
- Energy, chemicals
and plastics
|
257
|
|
227
|
|
30
|
|
13
|
|
17
|
- Metals, minerals,
and consumer products
|
183
|
|
170
|
|
13
|
|
8
|
|
12
|
-
Automotive
|
71
|
|
76
|
|
(5)
|
|
(7)
|
|
(3)
|
-
Intermodal
|
367
|
|
325
|
|
42
|
|
13
|
|
14
|
|
|
|
|
|
|
Total Freight
Revenues
|
$
|
1,625
|
|
$
|
1,563
|
|
$
|
62
|
|
4
|
|
6
|
|
|
|
|
|
|
Freight Revenue
per Revenue Ton-Miles (RTM) (cents)
|
|
|
|
|
|
- Grain
|
4.09
|
|
4.19
|
|
(0.10)
|
|
(2)
|
|
—
|
- Coal
|
2.90
|
|
2.88
|
|
0.02
|
|
1
|
|
1
|
- Potash
|
2.56
|
|
2.67
|
|
(0.11)
|
|
(4)
|
|
(2)
|
- Fertilizers and
sulphur
|
5.74
|
|
6.17
|
|
(0.43)
|
|
(7)
|
|
(4)
|
- Forest
products
|
5.84
|
|
6.11
|
|
(0.27)
|
|
(4)
|
|
(1)
|
- Energy, chemicals
and plastics
|
4.18
|
|
4.25
|
|
(0.07)
|
|
(2)
|
|
1
|
- Metals, minerals,
and consumer products
|
6.27
|
|
6.63
|
|
(0.36)
|
|
(5)
|
|
(2)
|
-
Automotive
|
23.32
|
|
22.29
|
|
1.03
|
|
5
|
|
9
|
-
Intermodal
|
5.68
|
|
5.66
|
|
0.02
|
|
—
|
|
1
|
|
|
|
|
|
|
Total Freight Revenue
per RTM
|
4.47
|
|
4.57
|
|
(0.10)
|
|
(2)
|
|
—
|
|
|
|
|
|
|
Freight Revenue
per Carload
|
|
|
|
|
|
- Grain
|
$
|
3,650
|
|
$
|
3,688
|
|
$
|
(38)
|
|
(1)
|
|
1
|
- Coal
|
2,079
|
|
2,096
|
|
(17)
|
|
(1)
|
|
—
|
- Potash
|
3,010
|
|
3,130
|
|
(120)
|
|
(4)
|
|
(1)
|
- Fertilizers and
sulphur
|
4,074
|
|
4,217
|
|
(143)
|
|
(3)
|
|
(1)
|
- Forest
products
|
3,937
|
|
4,128
|
|
(191)
|
|
(5)
|
|
(1)
|
- Energy, chemicals
and plastics
|
3,468
|
|
3,412
|
|
56
|
|
2
|
|
5
|
- Metals, minerals,
and consumer products
|
3,126
|
|
2,851
|
|
275
|
|
10
|
|
14
|
-
Automotive
|
2,792
|
|
2,792
|
|
—
|
|
—
|
|
4
|
-
Intermodal
|
1,458
|
|
1,391
|
|
67
|
|
5
|
|
6
|
|
|
|
|
|
|
Total Freight Revenue
per Carload
|
$
|
2,503
|
|
$
|
2,499
|
|
$
|
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 (Page 3)
|
First
Quarter
|
Commodity Data
(Continued)
|
2018
|
2017
|
Total
Change
|
%
Change
|
|
|
|
|
|
Millions of
RTM
|
|
|
|
|
- Grain
|
8,729
|
|
9,383
|
|
(654)
|
|
(7)
|
- Coal
|
5,218
|
|
5,123
|
|
95
|
|
2
|
- Potash
|
4,381
|
|
3,677
|
|
704
|
|
19
|
- Fertilizers and
sulphur
|
1,061
|
|
962
|
|
99
|
|
10
|
- Forest
products
|
1,122
|
|
1,102
|
|
20
|
|
2
|
- Energy, chemicals
and plastics
|
6,157
|
|
5,340
|
|
817
|
|
15
|
- Metals, minerals,
and consumer products
|
2,924
|
|
2,560
|
|
364
|
|
14
|
-
Automotive
|
305
|
|
340
|
|
(35)
|
|
(10)
|
-
Intermodal
|
6,458
|
|
5,725
|
|
733
|
|
13
|
|
|
|
|
|
Total RTMs
|
36,355
|
|
34,212
|
|
2,143
|
|
6
|
|
|
|
|
|
Carloads
(thousands)(1)
|
|
|
|
|
- Grain
|
97.7
|
|
106.6
|
|
(8.9)
|
|
(8)
|
- Coal
|
72.8
|
|
70.4
|
|
2.4
|
|
3
|
- Potash
|
37.3
|
|
31.4
|
|
5.9
|
|
19
|
- Fertilizers and
sulphur
|
14.9
|
|
14.1
|
|
0.8
|
|
6
|
- Forest
products
|
16.7
|
|
16.3
|
|
0.4
|
|
2
|
- Energy, chemicals
and plastics
|
74.2
|
|
66.6
|
|
7.6
|
|
11
|
- Metals, minerals,
and consumer products
|
58.6
|
|
59.5
|
|
(0.9)
|
|
(2)
|
-
Automotive
|
25.5
|
|
27.1
|
|
(1.6)
|
|
(6)
|
-
Intermodal
|
251.4
|
|
233.2
|
|
18.2
|
|
8
|
|
|
|
|
|
Total
Carloads
|
649.1
|
|
625.2
|
|
23.9
|
|
4
|
|
First
Quarter
|
|
|
2018
|
2017
|
Total
Change
|
%
Change
|
FX Adjusted %
Change(2)
|
|
|
|
|
|
|
Operating Expenses
(millions)
|
|
|
|
|
|
|
Compensation and
benefits(3)
|
$
|
374
|
|
$
|
300
|
|
$
|
74
|
|
25
|
|
27
|
|
Fuel
|
215
|
|
170
|
|
45
|
|
26
|
|
31
|
|
Materials
|
55
|
|
49
|
|
6
|
|
12
|
|
15
|
|
Equipment
rents
|
33
|
|
36
|
|
(3)
|
|
(8)
|
|
(6)
|
|
Depreciation and
amortization
|
170
|
|
166
|
|
4
|
|
2
|
|
4
|
|
Purchased services
and other
|
275
|
|
278
|
|
(3)
|
|
(1)
|
|
1
|
|
|
|
|
|
|
Total Operating
Expenses(3)
|
$
|
1,122
|
|
$
|
999
|
|
$
|
123
|
|
12
|
|
15
|
(1)
|
Certain figures have
been revised to conform with current presentation.
|
(2)
|
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.
|
(3)
|
2017 comparative
period figure has been restated for the retrospective adoption of
ASU 2017-07, discussed further in Note 2 Accounting changes in CP's
Interim Consolidated Financial Statements for the three months
ended March 31, 2018.
|
Summary of Rail Data (Page 4)
|
First
Quarter
|
|
2018
|
2017 (1)
|
Total
Change
|
%
Change
|
|
|
|
|
|
Operations
Performance
|
|
|
|
|
|
|
|
|
|
Gross ton-miles
("GTMs") (millions)
|
64,411
|
|
60,827
|
|
3,584
|
|
6
|
Train miles
(thousands)
|
7,642
|
|
7,511
|
|
131
|
|
2
|
Average train
weight - excluding local traffic (tons)
|
8,989
|
|
8,647
|
|
342
|
|
4
|
Average train
length - excluding local traffic (feet)
|
7,229
|
|
7,143
|
|
86
|
|
1
|
Average terminal
dwell (hours)
|
7.9
|
|
7.1
|
|
0.8
|
|
11
|
Average train speed
(mph)(2)
|
20.6
|
|
22.3
|
|
(1.7)
|
|
(8)
|
Fuel
efficiency(3)
|
0.984
|
|
1.012
|
|
(0.028)
|
|
(3)
|
U.S. gallons of
locomotive fuel consumed (millions)(4)
|
62.9
|
|
61.0
|
|
1.9
|
|
3
|
Average fuel price
(U.S. dollars per U.S. gallon)
|
2.70
|
|
2.11
|
|
0.59
|
|
28
|
|
|
|
|
|
Total Employees
and Workforce
|
|
|
|
|
|
|
|
|
|
Total employees
(average)(5)
|
12,173
|
|
11,648
|
|
525
|
|
5
|
Total employees (end
of period)(5)
|
12,328
|
|
11,794
|
|
534
|
|
5
|
Workforce (end of
period)(6)
|
12,398
|
|
11,829
|
|
569
|
|
5
|
|
|
|
|
|
Safety
Indicators
|
|
|
|
|
|
|
|
|
|
FRA personal injuries
per 200,000 employee-hours
|
1.74
|
|
1.85
|
|
(0.11)
|
|
(6)
|
FRA train accidents
per million train miles
|
1.07
|
|
0.85
|
|
0.22
|
|
26
|
(1)
|
Certain figures have
been revised to conform with current presentation or have been
updated to reflect new information as certain operating statistics
are estimated and can continue to be updated as actuals
settle.
|
(2)
|
Average train speed
is defined as a measure of the line-haul movement from origin to
destination including terminal dwell hours. It excludes delay time
related to customer or foreign railways, and also 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.
|
(3)
|
Fuel efficiency is
defined as U.S. gallons of locomotive fuel consumed per 1,000 GTMs
– freight and yard.
|
(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 or
part-time employment with CP.
|
(6)
|
Workforce is defined
as total employees plus contractors and consultants.
|
Non-GAAP Measures
The Company presents non-GAAP measures and cash flow information
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 GAAP and, therefore, may not be comparable to similar
measures presented by other companies. The presentation of these
non-GAAP measures is not intended to be considered in isolation
from, as a substitute for, or as superior to, the financial
information presented in accordance with GAAP.
Adjusted Performance Measures
The Company uses 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, 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
three months of 2018 and 2017 include:
2018:
- a net non-cash loss of $49
million ($42 million after
deferred tax) due to FX translation of the Company's U.S.
dollar-denominated debt that unfavourably impacted Diluted EPS by
29 cents.
2017:
- a management transition recovery of $51
million related to the retirement of Mr. E. Hunter Harrison as CEO of CP ($39 million after deferred tax) that favourably
impacted Diluted EPS by 27 cents;
and
- a net non-cash gain $28 million
($24 million after deferred tax) due
to FX translation of the Company's U.S. dollar-denominated debt
that favourably impacted Diluted EPS by 16
cents.
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
for the three months ended March 31,
2018 and 2017:
Adjusted income is calculated as Net income reported on a GAAP
basis less significant items.
|
For the three
months ended
March 31
|
(in
millions)
|
2018
|
2017
|
Net income as
reported
|
$
|
348
|
|
$
|
431
|
Less significant
items (pretax):
|
|
|
|
Management transition
recovery
|
—
|
|
51
|
|
Impact of FX
translation on U.S. dollar-denominated debt
|
(49)
|
|
28
|
Add:
|
|
|
|
Tax effect of
adjustments(1)
|
(7)
|
|
16
|
Adjusted
income
|
$
|
390
|
|
$
|
368
|
(1)
|
The tax effect of
adjustments was calculated as the pretax effect of the adjustments
multiplied by the applicable tax rate for the above items of 13.43%
and 19.88% for the three months ended March 31, 2018 and 2017,
respectively. The applicable tax rates reflect the taxable
jurisdictions and nature, being on account of capital or income, of
the significant items.
|
Adjusted diluted earnings per share is calculated using Adjusted
income, as defined above, divided by the weighted-average diluted
shares outstanding during the period as determined in accordance
with GAAP.
|
For the three
months ended
March 31
|
|
2018
|
2017
|
Diluted earnings
per share as reported
|
$
|
2.41
|
|
$
|
2.93
|
Less significant
items (pretax):
|
|
|
|
Management transition
recovery
|
—
|
|
0.35
|
|
Impact of FX
translation on U.S. dollar-denominated debt
|
(0.34)
|
|
0.19
|
Add:
|
|
|
|
Tax effect of
adjustments(1)
|
(0.05)
|
|
0.11
|
Adjusted diluted
earnings per share
|
$
|
2.70
|
|
$
|
2.50
|
(1)
|
The tax effect of
adjustments was calculated as the pretax effect of the adjustments
multiplied by the applicable tax rate for the above items of 13.43%
and 19.88% for the three months ended March 31, 2018 and 2017,
respectively. The applicable tax rates reflect the taxable
jurisdictions and nature, being on account of capital or income, of
the significant items.
|
Adjusted operating income is calculated as Operating income
reported on a GAAP basis less significant items.
|
For the three
months ended
March 31
|
(in
millions)
|
2018
|
2017
|
Operating income
as reported(1)
|
$
|
540
|
|
$
|
604
|
Less significant
item:
|
|
|
|
Management transition
recovery
|
—
|
|
51
|
Adjusted operating
income(1)
|
$
|
540
|
|
$
|
553
|
(1)
|
2017 comparative
period figure has been restated for the retrospective adoption of
ASU 2017-07, discussed further in Note 2 Accounting changes in CP's
Interim Consolidated Financial Statements for the three months
ended March 31, 2018.
|
Adjusted operating ratio excludes those significant items that
are reported within Operating income.
|
For the three
months ended
March 31
|
|
2018
|
2017
|
Operating ratio as
reported(1)
|
67.5
|
%
|
62.4
|
%
|
Less significant
item:
|
|
|
|
Management transition
recovery
|
—
|
|
(3.2)
|
|
Adjusted operating
ratio(1)
|
67.5
|
%
|
65.6
|
%
|
(1)
|
2017 comparative
period figure has been restated for the retrospective adoption of
ASU 2017-07, discussed further in Note 2 Accounting changes in CP's
Interim Consolidated Financial Statements for the three months
ended March 31, 2018.
|
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. Free cash is a measure that management considers to
be an indicator of liquidity. Free cash is useful to investors and
other external users of the Consolidated Financial Statements as it
assists with the evaluation of the Company's ability to generate
cash from its operations without incurring additional external
financing. Positive Free cash indicates the amount of cash
available for reinvestment in the business, or cash that can be
returned to investors through dividends, stock repurchase programs,
debt retirements or a combination of these. Conversely, negative
Free cash indicates the amount of cash that must be raised from
investors through new debt or equity issues, reduction in available
cash balances or a combination of these. Free cash should be
considered in addition to, rather than as a substitute for, Cash
provided by operating activities.
Reconciliation of Cash Provided by Operating Activities to
Free Cash
|
For the three
months ended
March 31
|
(in
millions)
|
2018
|
2017
|
Cash provided by
operating activities
|
$
|
397
|
|
$
|
311
|
Cash used in
investing activities
|
(238)
|
|
(222)
|
Effect of foreign
currency fluctuations on U.S. dollar-denominated cash and cash
equivalents
|
5
|
|
(2)
|
Free
cash
|
$
|
164
|
|
$
|
87
|
FX Adjusted Variance
FX adjusted variance allows certain financial results to be
viewed without the impact of fluctuations in foreign currency
exchange rates, thereby facilitating period to period comparisons
in the analysis of trends in business performance. Financial result
variances at constant currency are obtained by translating the
comparable period of the prior year results denominated in U.S.
dollars at the foreign exchange rates of the current period.
|
For the three
months ended March 31
|
(in
millions)
|
Reported
2018
|
Reported
2017
|
Variance
due to FX
|
FX Adjusted
2017
|
FX Adjusted
% Change
|
Freight
revenues
|
$
|
1,625
|
|
$
|
1,563
|
|
$
|
(37)
|
|
$
|
1,526
|
|
6
|
Non-freight
revenues
|
37
|
|
40
|
|
—
|
|
40
|
|
(8)
|
Total
revenues
|
1,662
|
|
1,603
|
|
(37)
|
|
1,566
|
|
6
|
Compensation and
benefits(1)
|
374
|
|
300
|
|
(5)
|
|
295
|
|
27
|
Fuel
|
215
|
|
170
|
|
(6)
|
|
164
|
|
31
|
Materials
|
55
|
|
49
|
|
(1)
|
|
48
|
|
15
|
Equipment
rents
|
33
|
|
36
|
|
(1)
|
|
35
|
|
(6)
|
Depreciation and
amortization
|
170
|
|
166
|
|
(2)
|
|
164
|
|
4
|
Purchased services
and other
|
275
|
|
278
|
|
(6)
|
|
272
|
|
1
|
Total operating
expenses(1)
|
1,122
|
|
999
|
|
(21)
|
|
978
|
|
15
|
Operating
income(1)
|
$
|
540
|
|
$
|
604
|
|
$
|
(16)
|
|
$
|
588
|
|
(8)
|
(1)
|
2017 comparative
period figure has been restated for the retrospective adoption of
ASU 2017-07, discussed further in Note 2 Accounting changes in CP's
Interim Consolidated Financial Statements for the three months
ended March 31, 2018.
|
View original
content:http://www.prnewswire.com/news-releases/cp-reports-first-quarter-revenue-of-1-66-billion-positive-momentum-heading-into-second-quarter-300632495.html
SOURCE Canadian Pacific