CALGARY,
AB, Oct. 26, 2022 /CNW/ - Canadian Pacific
Railway Limited (TSX: CP) (NYSE: CP) today announced its
third-quarter 2022 results, including revenues of $2.31 billion, reported operating ratio ("OR") of
59.5 percent, adjusted OR1 of 58.7 percent, reported
diluted earnings per share ("EPS") of $0.96 and core adjusted diluted EPS1
of $1.01.
"Throughout the year, we have said 2022 would be a tale of two
halves and that is exactly how it is unfolding," said Keith Creel, CP President and Chief Executive
Officer. "The third quarter saw strong demand in potash and
intermodal that we anticipated, and CP was well-resourced to handle
the volume increases we have seen. I'm proud of the results the
team delivered this quarter and excited about the opportunities in
front of us."
Third-quarter highlights
- Revenues increased by 19 percent to $2.31 billion from $1.94
billion last year
- Reported OR improved by 70 basis points to 59.5 percent from
60.2 percent last year
- Adjusted OR1 improved by 70 basis points to 58.7
percent from 59.4 percent last year
- Reported diluted EPS was $0.96, a
37 percent increase from last year
- Core adjusted diluted EPS1, excluding significant
items and Kansas City Southern ("KCS") purchase accounting, was
$1.01, a 15 percent increase from
last year
- Federal Railroad Administration ("FRA") - reportable train
accident frequency decreased 76 percent to a record-low 0.37 from
1.54 in Q3 2021. FRA-reportable personal injury frequency declined
12 percent to 0.86 from 0.982 in Q3 2021.
"CP's unique growth initiatives coupled with a robust Canadian
grain harvest provide a strong volume backdrop as we finish the
year," said Creel. "We are well-positioned to carry the momentum we
gained in the third quarter through the rest of the year and
beyond."
CP is continuing to progress towards creating the first
single-line rail network linking the U.S., Mexico and Canada by combining with KCS, subject to U.S.
Surface Transportation Board approval.
"We've successfully demonstrated how our proposed combination
with KCS will connect customers to new markets, enhance competition
in the U.S. rail network, take trucks off the roads and drive
economic growth across North
America," Creel said. "Our excitement grows each day we
progress toward this transformative combination."
1
|
These measures have no
standardized meanings prescribed by accounting principles generally
accepted in the United States of America ("GAAP") and, therefore,
may not be comparable to similar measures presented by other
companies. For information regarding non-GAAP measures, including
reconciliations to the most comparable GAAP measures, see the
attached supplementary schedule Non-GAAP Measures.
|
2
|
FRA personal
injuries per 200,000 employee-hours for the three months ended
September 30, 2021 was previously reported as 0.97, restated to
0.98 in this Earnings Release.
|
|
|
Conference Call Details
CP will discuss its results
with the financial community in a conference call beginning at
4:30 p.m. ET (2:30 p.m. MT) on Oct. 26,
2022.
Conference Call Access
Canada and U.S.: 866-831-8713
International: 203-518-9822
*Conference ID: CPQ322
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 Nov. 2, 2022 at
800-839-2456 (Canada/U.S.) or
402-220-7216 (International).
Note on forward-looking information
This news release
may contain certain forward-looking information and forward-looking
statements (collectively, "forward-looking information") within the
meaning of applicable securities laws. Forward-looking information
includes, but is not limited to, statements concerning
expectations, beliefs, plans, goals, objectives, assumptions and
statements about possible future events, conditions, and results of
operations or performance. Forward-looking information may contain
statements with words or headings such as "financial expectations",
"key assumptions", "anticipate", "believe", "expect", "plan",
"will", "outlook", "should" or similar words suggesting future
outcomes. This news release contains forward-looking information
relating, but not limited to statements concerning, the success of
our business, changes to economic and industry conditions, the
status of the CP-KCS transaction, including related regulatory
approvals, and the opportunities arising there from, our
operations, priorities and plans, anticipated financial and
operational performance, business prospects and demand for our
services and growth opportunities.
The forward-looking information that may be in this news release
is based on current expectations, estimates, projections and
assumptions, having regard to CP's experience and its perception of
historical trends, and includes, but is not limited to,
expectations, estimates, projections and assumptions relating to:
changes in business strategies, North American and global economic
growth and conditions; commodity demand growth; sustainable
industrial and agricultural production; commodity prices and
interest rates; 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; carbon markets, evolving
sustainability strategies, and scientific or technological
developments; and the impacts of the COVID-19 pandemic on CP
businesses, operating results, cash flows and/or financial
condition. Although CP believes the expectations, estimates,
projections and assumptions reflected in the forward-looking
information presented herein are reasonable as of the date hereof,
there can be no assurance that they will prove to be correct.
Current conditions, economic and otherwise, render assumptions,
although reasonable when made, subject to greater uncertainty.
Undue reliance should not be placed on forward-looking
information as actual results may differ materially from those
expressed or implied by forward-looking information. By its nature,
CP's forward-looking information involves inherent risks and
uncertainties that could cause actual results to differ materially
from the forward looking information, including, but not limited
to, the following factors: changes in business strategies and
strategic opportunities; general Canadian, U.S., Mexican and global
social, economic, political, 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,
including competition from other rail carriers, trucking companies
and maritime shippers in Canada,
the U.S. and Mexico; North
American and global economic growth and conditions; industry
capacity; shifts in market demand; changes in commodity prices and
commodity demand; 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; disruption in fuel supplies; uncertainties of
investigations, proceedings or other types of claims and
litigation; compliance with environmental regulations; labour
disputes; changes in labour costs and labour difficulties; risks
and liabilities arising from derailments; transportation of
dangerous goods; timing of completion of capital and maintenance
projects; sufficiency of budgeted capital expenditures in carrying
out business plans; services and infrastructure; the satisfaction
by third parties of their obligations; currency and interest rate
fluctuations; exchange rates; 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; the effects of current and future
multinational trade agreements on the level of trade among
Canada, the U.S. and Mexico; climate change and the market and
regulatory responses to climate change; anticipated in-service
dates; success of hedging activities; operational performance and
reliability; customer, regulatory and other stakeholder approvals
and support; regulatory and legislative decisions and actions; the
adverse impact of any termination or revocation by the Mexican
government of Kansas City Southern de México, S.A. de C.V.'s
Concession; public opinion; 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; acts of terrorism, war or other acts of
violence or crime or risk of such activities; insurance coverage
limitations; material adverse changes in economic and industry
conditions, including the availability of short and long-term
financing; the pandemic created by the outbreak of COVID-19 and its
variants 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
realization of anticipated benefits and synergies of the CP-KCS
transaction and the timing thereof; the success of integration
plans for KCS; the focus of management time and attention on the
CP-KCS transaction and other disruptions arising from the
transaction; estimated future dividends; financial strength and
flexibility; debt and equity market conditions, including the
ability to access capital markets on favourable terms or at all;
cost of debt and equity capital; improvement in data collection and
measuring systems; industry-driven changes to methodologies; and
the ability of the management of the Company to execute key
priorities, including those in connection with the CP-KCS
transaction. 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
Statements" in CP's annual and interim reports on Form 10-K and
10-Q.
Any forward-looking information contained in this news release
is made as of the date hereof. Except as required by law, CP
undertakes no obligation to update publicly or otherwise revise any
forward-looking information, or the foregoing assumptions and risks
affecting such forward-looking information, whether as a result of
new information, future events or otherwise.
About Canadian Pacific
Canadian Pacific is a
transcontinental railway in Canada
and the United States with direct
links to major ports on the west and east coasts. CP provides North
American customers a competitive rail service with access to key
markets in every corner of the globe. CP is growing with its
customers, offering a suite of freight transportation services,
logistics solutions and supply chain expertise. Visit cpr.ca to see
the rail advantages of CP. CP-IR
FINANCIAL STATEMENTS
INTERIM CONSOLIDATED STATEMENTS OF
INCOME
(unaudited)
|
For the three
months
ended September 30
|
For the nine
months
ended September 30
|
(in millions of
Canadian dollars, except share and per share data)
|
2022
|
2021
|
2022
|
2021
|
Revenues (Note
3)
|
|
|
|
|
Freight
|
$
2,264
|
$
1,896
|
$
6,214
|
$
5,822
|
Non-freight
|
48
|
46
|
138
|
133
|
Total
revenues
|
2,312
|
1,942
|
6,352
|
5,955
|
Operating
expenses
|
|
|
|
|
Compensation and
benefits
|
393
|
381
|
1,154
|
1,165
|
Fuel
|
358
|
199
|
1,001
|
623
|
Materials
|
66
|
51
|
191
|
164
|
Equipment
rents
|
33
|
31
|
97
|
92
|
Depreciation and
amortization
|
213
|
203
|
634
|
605
|
Purchased services and
other (Note 10)
|
312
|
303
|
935
|
932
|
Total operating
expenses
|
1,375
|
1,168
|
4,012
|
3,581
|
|
|
|
|
|
Operating
income
|
937
|
774
|
2,340
|
2,374
|
Less:
|
|
|
|
|
Equity earnings of
Kansas City Southern (Note 10)
|
(221)
|
—
|
(627)
|
—
|
Other expense (Note 4,
10)
|
7
|
124
|
13
|
253
|
Merger termination fee
(Note 10)
|
—
|
—
|
—
|
(845)
|
Other components of net
periodic benefit recovery (Note 15)
|
(102)
|
(95)
|
(304)
|
(286)
|
Net interest
expense
|
166
|
104
|
486
|
315
|
Income before income
tax expense
|
1,087
|
641
|
2,772
|
2,937
|
Income tax expense
(Note 5)
|
196
|
169
|
526
|
617
|
Net
income
|
$
891
|
$
472
|
$
2,246
|
$
2,320
|
|
|
|
|
|
Earnings per share
(Note 6)
|
|
|
|
|
Basic earnings per
share
|
$
0.96
|
$
0.71
|
$
2.42
|
$
3.48
|
Diluted earnings per
share
|
$
0.96
|
$
0.70
|
$
2.41
|
$
3.46
|
|
|
|
|
|
Weighted-average
number of shares (millions) (Note 6)
|
|
|
|
|
Basic
|
930.0
|
666.9
|
929.9
|
666.7
|
Diluted
|
932.9
|
669.8
|
932.8
|
669.8
|
|
|
|
|
|
Dividends declared
per share
|
$
0.190
|
$
0.190
|
$
0.570
|
$
0.570
|
See Notes to Interim
Consolidated Financial Statements.
|
INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME
(unaudited)
|
For the three
months
ended September 30
|
For the nine
months
ended September 30
|
(in millions of
Canadian dollars)
|
2022
|
2021
|
2022
|
2021
|
Net income
|
$
891
|
$
472
|
$
2,246
|
$
2,320
|
Net gain (loss) in
foreign currency translation adjustments, net of hedging
activities
|
1,565
|
(17)
|
1,948
|
3
|
Change in derivatives
designated as cash flow hedges
|
2
|
141
|
5
|
69
|
Change in pension and
post-retirement defined benefit plans
|
22
|
53
|
99
|
158
|
Equity accounted
investments
|
47
|
—
|
182
|
—
|
Other comprehensive
income before income taxes
|
1,636
|
177
|
2,234
|
230
|
Income tax recovery
(expense) on above items
|
36
|
(29)
|
2
|
(59)
|
Other comprehensive
income (Note 7)
|
1,672
|
148
|
2,236
|
171
|
Comprehensive
income
|
$
2,563
|
$
620
|
$
4,482
|
$
2,491
|
See Notes to Interim
Consolidated Financial Statements.
|
INTERIM CONSOLIDATED BALANCE SHEETS AS
AT
(unaudited)
|
September
30
|
December 31
|
(in millions of
Canadian dollars)
|
2022
|
2021
|
Assets
|
|
|
Current
assets
|
|
|
Cash and cash
equivalents
|
$
138
|
$
69
|
Restricted cash and
cash equivalents
|
—
|
13
|
Accounts receivable,
net (Note 8)
|
1,053
|
819
|
Materials and
supplies
|
267
|
235
|
Other current
assets
|
186
|
216
|
|
1,644
|
1,352
|
Investment in Kansas
City Southern (Note 11)
|
45,964
|
42,309
|
Investments
|
230
|
209
|
Properties
|
22,150
|
21,200
|
Goodwill and intangible
assets
|
390
|
371
|
Pension
asset
|
2,631
|
2,317
|
Other assets
|
426
|
419
|
Total
assets
|
$
73,435
|
$
68,177
|
Liabilities and
shareholders' equity
|
|
|
Current
liabilities
|
|
|
Accounts payable and
accrued liabilities
|
$
1,575
|
$
1,609
|
Long-term debt
maturing within one year (Note 12, 13)
|
1,236
|
1,550
|
|
2,811
|
3,159
|
Pension and other
benefit liabilities
|
726
|
718
|
Other long-term
liabilities
|
519
|
542
|
Long-term debt (Note
12, 13)
|
19,339
|
18,577
|
Deferred income
taxes
|
12,226
|
11,352
|
Total
liabilities
|
35,621
|
34,348
|
Shareholders'
equity
|
|
|
Share
capital
|
25,498
|
25,475
|
Additional paid-in
capital
|
77
|
66
|
Accumulated other
comprehensive income (loss) (Note 7)
|
133
|
(2,103)
|
Retained
earnings
|
12,106
|
10,391
|
|
37,814
|
33,829
|
Total liabilities
and shareholders' equity
|
$
73,435
|
$
68,177
|
See Contingencies (Note
17).
|
See Notes to Interim
Consolidated Financial Statements.
|
INTERIM CONSOLIDATED STATEMENTS OF CASH
FLOWS
(unaudited)
|
For the three
months
ended September 30
|
For the nine
months
ended September 30
|
(in millions of
Canadian dollars)
|
2022
|
2021
|
2022
|
2021
|
Operating
activities
|
|
|
|
|
Net income
|
$
891
|
$
472
|
$
2,246
|
$
2,320
|
Reconciliation of net
income to cash provided by operating activities:
|
|
|
|
|
Depreciation and
amortization
|
213
|
203
|
634
|
605
|
Deferred income tax
expense (Note 5)
|
38
|
130
|
151
|
190
|
Pension recovery and
funding (Note 15)
|
(74)
|
(62)
|
(218)
|
(188)
|
Equity earnings of
Kansas City Southern (Note 10)
|
(221)
|
—
|
(627)
|
—
|
Foreign exchange loss
(gain) on debt and lease liabilities (Note 4)
|
—
|
46
|
—
|
(39)
|
Dividend from Kansas
City Southern (Note 10)
|
259
|
—
|
593
|
—
|
Other operating
activities, net
|
(3)
|
(14)
|
(102)
|
(50)
|
Change in non-cash
working capital balances related to operations
|
(1)
|
(227)
|
(255)
|
246
|
Cash provided by
operating activities
|
1,102
|
548
|
2,422
|
3,084
|
Investing
activities
|
|
|
|
|
Additions to
properties
|
(422)
|
(372)
|
(1,018)
|
(1,111)
|
Payment to Kansas City
Southern (Note 10)
|
—
|
(1,773)
|
—
|
(1,773)
|
Proceeds from sale of
properties and other assets
|
11
|
16
|
37
|
65
|
Other
|
1
|
—
|
3
|
(1)
|
Cash used in
investing activities
|
(410)
|
(2,129)
|
(978)
|
(2,820)
|
Financing
activities
|
|
|
|
|
Dividends
paid
|
(177)
|
(127)
|
(530)
|
(380)
|
Issuance of CP Common
Shares
|
9
|
4
|
18
|
20
|
Repayment of long-term
debt, excluding commercial paper (Note 12)
|
(7)
|
(318)
|
(559)
|
(349)
|
Repayment of term loan
(Note 12)
|
(504)
|
—
|
(636)
|
—
|
Proceeds from term
loan
|
—
|
633
|
—
|
633
|
Net (repayment)
issuance of commercial paper (Note 12)
|
(42)
|
713
|
298
|
(66)
|
Acquisition-related
financing fees (Note 10)
|
—
|
—
|
—
|
(45)
|
Other
|
—
|
(3)
|
—
|
(7)
|
Cash (used in)
provided by financing activities
|
(721)
|
902
|
(1,409)
|
(194)
|
Effect of foreign
currency fluctuations on U.S. dollar-denominated
cash and cash equivalents
|
13
|
10
|
21
|
6
|
Cash
position
|
|
|
|
|
(Decrease) increase in
cash, cash equivalents, and restricted cash
|
(16)
|
(669)
|
56
|
76
|
Cash, cash equivalents,
and restricted cash at beginning of period
|
154
|
892
|
82
|
147
|
Cash, cash
equivalents, and restricted cash at end of period
|
$
138
|
$
223
|
$
138
|
$
223
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
Income taxes
paid
|
$
67
|
$
129
|
$
319
|
$
401
|
Interest
paid
|
$
148
|
$
153
|
$
467
|
$
365
|
See Notes to
Interim Consolidated Financial Statements.
|
INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY
(unaudited)
|
For the three months
ended September 30
|
(in millions of
Canadian dollars except per share data)
|
|
Common
Shares (in
millions)
|
|
Share
capital
|
Additional
paid-in
capital
|
Accumulated
other
comprehensive
income
(loss)
|
Retained
earnings
|
Total
shareholders'
equity
|
Balance as at July
1, 2022
|
|
930.0
|
|
$
25,488
|
$
73
|
$
(1,539)
|
$
11,392
|
$
35,414
|
Net income
|
|
—
|
|
—
|
—
|
—
|
891
|
891
|
Other comprehensive
income (Note 7)
|
|
—
|
|
—
|
—
|
1,672
|
—
|
1,672
|
Dividends declared
($0.190 per share)
|
|
—
|
|
—
|
—
|
—
|
(177)
|
(177)
|
Effect of stock-based
compensation expense
|
|
—
|
|
—
|
5
|
—
|
—
|
5
|
Shares issued under
stock option plan
|
|
0.1
|
|
10
|
(1)
|
—
|
—
|
9
|
Balance as at
September 30, 2022
|
|
930.1
|
|
$
25,498
|
$
77
|
$
133
|
$
12,106
|
$
37,814
|
Balance as at July 1,
2021
|
|
666.8
|
|
$ 2,003
|
$
63
|
$
(2,791)
|
$ 9,690
|
$
8,965
|
Net income
|
|
—
|
|
—
|
—
|
—
|
472
|
472
|
Other comprehensive
income (Note 7)
|
|
—
|
|
—
|
—
|
148
|
—
|
148
|
Dividends declared
($0.190 per share)
|
|
—
|
|
—
|
—
|
—
|
(127)
|
(127)
|
Effect of stock-based
compensation expense
|
|
—
|
|
—
|
6
|
—
|
—
|
6
|
Shares issued under
stock option plan
|
|
0.1
|
|
5
|
(1)
|
—
|
—
|
4
|
Balance as at September
30, 2021
|
|
666.9
|
|
$ 2,008
|
$
68
|
$
(2,643)
|
$
10,035
|
$
9,468
|
|
For the nine months
ended September 30
|
(in millions of
Canadian dollars except per share data)
|
|
Common
Shares (in
millions)
|
|
Share
capital
|
Additional
paid-in
capital
|
Accumulated
other
comprehensive
income
(loss)
|
Retained
earnings
|
Total
shareholders'
equity
|
Balance as at
January 1, 2022
|
|
929.7
|
|
$
25,475
|
$
66
|
$
(2,103)
|
$
10,391
|
$
33,829
|
Net income
|
|
—
|
|
—
|
—
|
—
|
2,246
|
2,246
|
Other comprehensive
income (Note 7)
|
|
—
|
|
—
|
—
|
2,236
|
—
|
2,236
|
Dividends declared
($0.570 per share)
|
|
—
|
|
—
|
—
|
—
|
(531)
|
(531)
|
Effect of stock-based
compensation expense
|
|
—
|
|
—
|
17
|
—
|
—
|
17
|
Shares issued for
Kansas City Southern acquisition
|
|
—
|
|
—
|
(2)
|
—
|
—
|
(2)
|
Shares issued under
stock option plan
|
|
0.4
|
|
23
|
(4)
|
—
|
—
|
19
|
Balance as at
September 30, 2022
|
|
930.1
|
|
$
25,498
|
$
77
|
$
133
|
$
12,106
|
$
37,814
|
Balance as at January
1, 2021
|
|
666.3
|
|
$ 1,983
|
$
55
|
$
(2,814)
|
$ 8,095
|
$
7,319
|
Net income
|
|
—
|
|
—
|
—
|
—
|
2,320
|
2,320
|
Other comprehensive
income (Note 7)
|
|
—
|
|
—
|
—
|
171
|
—
|
171
|
Dividends declared
($0.570 per share)
|
|
—
|
|
—
|
—
|
—
|
(380)
|
(380)
|
Effect of stock-based
compensation expense
|
|
—
|
|
—
|
18
|
—
|
—
|
18
|
Shares issued under
stock option plan
|
|
0.6
|
|
25
|
(5)
|
—
|
—
|
20
|
Balance as at September
30, 2021
|
|
666.9
|
|
$ 2,008
|
$
68
|
$
(2,643)
|
$
10,035
|
$
9,468
|
See Notes to Interim
Consolidated Financial Statements.
|
NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS
September 30,
2022
(unaudited)
1 Basis of presentation
These unaudited Interim Consolidated Financial Statements
("Interim Consolidated Financial Statements") of Canadian Pacific
Railway Limited ("CPRL") and its subsidiaries (collectively, "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 2021 annual Consolidated Financial
Statements and notes included in CP's 2021 Annual Report on Form
10-K. The accounting policies used are consistent with the
accounting policies used in preparing the 2021 annual Consolidated
Financial Statements.
CP's operations can be affected by seasonal fluctuations such as
changes in customer demand and weather-related issues. This
seasonality could impact quarter-over-quarter comparisons.
In management's opinion, the Interim Consolidated Financial
Statements include all adjustments (consisting of normal and
recurring adjustments) necessary to present fairly such
information. Interim results are not necessarily indicative of the
results expected for the fiscal year.
2 Accounting changes
Implemented in 2022
Government Assistance
On January 1, 2022, the Company
adopted the new Accounting Standards Update ("ASU") 2021-10, issued
by the Financial Accounting Standards Board ("FASB"), and all
related amendments under FASB Accounting Standards Codification
("ASC") Topic 832, Government Assistance. The amendment is made to
increase transparency by introducing specific disclosure
requirements for entities who apply a grant or contribution model
by analogy to account for transactions with a government. This
update is applied to government assistance transactions within the
scope of this amendment that are in the financial statements at the
date of initial application and prospectively to new transactions
entered into after initial application. See Note 9 for further
discussion on government assistance.
All other accounting pronouncements that became effective during
the period covered by the Interim Consolidated Financial Statements
did not have a material impact on the Company's Consolidated
Financial Statements and related disclosures.
Future changes
Contract Assets and Contract Liabilities Acquired in a
Business Combination
In October 2021, the FASB issued
ASU 2021-08, Business Combinations (Topic 805), Accounting for
Contract Assets and Contract Liabilities from Contracts with
Customers. This amendment introduces the requirement for an
acquirer to recognize and measure contract assets and contract
liabilities acquired in a business combination in accordance with
the requirements of FASB ASC Topic 606, Revenue from Contracts with
Customers, rather than at fair value. This amendment will be
effective prospectively from January 1,
2023, with early adoption permitted. The Company is
currently assessing the impact of this amendment.
All other accounting pronouncements recently issued, but not
effective until after September 30,
2022, have been assessed and are not expected to have a
material impact on the Company's Consolidated Financial Statements
and related disclosures.
3 Revenues
The following table disaggregates the Company's revenues from
contracts with customers by major source:
|
For the three
months
ended September 30
|
For the nine
months
ended September 30
|
(in millions of
Canadian dollars)
|
2022
|
2021
|
2022
|
2021
|
Freight
|
|
|
|
|
Grain
|
$
391
|
$
352
|
$
1,121
|
$
1,244
|
Coal
|
156
|
158
|
458
|
491
|
Potash
|
170
|
113
|
445
|
348
|
Fertilizers and
sulphur
|
81
|
72
|
244
|
227
|
Forest
products
|
109
|
89
|
299
|
259
|
Energy, chemicals and
plastics
|
360
|
392
|
1,010
|
1,149
|
Metals, minerals and
consumer products
|
246
|
196
|
655
|
535
|
Automotive
|
111
|
83
|
322
|
289
|
Intermodal
|
640
|
441
|
1,660
|
1,280
|
Total freight
revenues
|
2,264
|
1,896
|
6,214
|
5,822
|
Non-freight excluding
leasing revenues
|
28
|
25
|
77
|
75
|
Revenues from contracts
with customers
|
2,292
|
1,921
|
6,291
|
5,897
|
Leasing
revenues
|
20
|
21
|
61
|
58
|
Total
revenues
|
$
2,312
|
$
1,942
|
$
6,352
|
$
5,955
|
Contract liabilities
Contract liabilities represent payments received for performance
obligations not yet satisfied and relate to deferred revenue and
are presented as components of "Accounts payable and accrued
liabilities" and "Other long-term liabilities" on the Company's
Interim Consolidated Balance Sheets.
The following table summarizes the changes in contract
liabilities:
|
For the three
months
ended September 30
|
For the nine
months
ended September 30
|
(in millions of
Canadian dollars)
|
2022
|
2021
|
2022
|
2021
|
Opening
balance
|
$
69
|
$
245
|
$
67
|
$
61
|
Revenue recognized that
was included in the contract liability balance
at the beginning of the period
|
(8)
|
(93)
|
(16)
|
(36)
|
Increase due to
consideration received, net of revenue recognized
during the period
|
4
|
4
|
14
|
131
|
Closing
balance
|
$
65
|
$
156
|
$
65
|
$
156
|
4 Other expense
|
For the three
months
ended September 30
|
For the nine
months
ended September 30
|
(in millions of
Canadian dollars)
|
2022
|
2021
|
2022
|
2021
|
Foreign exchange loss
(gain) on debt and lease liabilities
|
$
—
|
$
46
|
$
—
|
$
(39)
|
Other foreign exchange
losses (gains)
|
2
|
(7)
|
1
|
(9)
|
Acquisition-related
costs (Note 10)
|
—
|
83
|
—
|
295
|
Other
|
5
|
2
|
12
|
6
|
Other
expense
|
$
7
|
$
124
|
$
13
|
$
253
|
5 Income taxes
|
For the three
months
ended September 30
|
For the nine
months
ended September 30
|
(in millions of
Canadian dollars)
|
2022
|
2021
|
2022
|
2021
|
Current income tax
expense
|
$
158
|
$
39
|
$
375
|
$
427
|
Deferred income tax
expense
|
38
|
130
|
151
|
190
|
Income tax
expense
|
$
196
|
$
169
|
$
526
|
$
617
|
During the three months ended September
30, 2022, legislation was enacted to decrease the
Iowa state corporate income tax
rate. As a result of this change, the Company recorded a deferred
tax recovery of $12 million related
to the revaluation of deferred income tax balances as at
January 1, 2022.
The effective tax rates including discrete items for the three
and nine months ended September 30,
2022 were 18.01% and 18.97%, respectively, compared to
26.36% and 21.00%, respectively for the same periods of 2021.
For the three months ended September 30,
2022, the effective tax rate was 24.25%, excluding the
discrete items of the equity earnings of Kansas City Southern
("KCS") of $221 million,
acquisition-related costs incurred by CP of $18 million, the
deferred tax recovery of $12 million
described above, and an outside basis deferred tax recovery of
$9 million arising from the
difference between the carrying amount of CP's investment in KCS
for financial reporting and the underlying tax basis of this
investment.
For the three months ended September 30,
2021, the effective tax rate was 24.60%, excluding the
discrete items of acquisition-related costs incurred by CP of
$98 million, and a foreign exchange ("FX") loss of
$46 million on debt and lease liabilities.
For the nine months ended September 30,
2022, the effective tax rate was 24.25%, excluding the
discrete items of the equity earnings of KCS of $627 million, acquisition-related costs incurred
by CP of $57 million, the deferred tax recovery of
$12 million described above, and an outside basis deferred tax
expense of $8 million arising from
the difference between the carrying amount of CP's investment in
KCS for financial reporting and the underlying tax basis of this
investment.
For the nine months ended September 30,
2021, the effective tax rate was 24.60%, excluding the
discrete items of acquisition-related costs incurred by CP of
$442 million, the merger termination payment received in
connection with KCS's termination of the Agreement and Plan of
Merger (the "Original Merger Agreement") of $845 million (U.S.
$700 million), and an FX gain of $39
million on debt and lease liabilities.
6 Earnings per share
Basic earnings per share has been calculated using Net income
for the period divided by the weighted-average number of shares
outstanding during the period. The number of shares used in the
earnings per share calculations are reconciled as follows:
|
For the three
months
ended September 30
|
For the nine
months
ended September 30
|
(in
millions)
|
2022
|
2021
|
2022
|
2021
|
Weighted-average basic
shares outstanding
|
930.0
|
666.9
|
929.9
|
666.7
|
Dilutive effect of
stock options
|
2.9
|
2.9
|
2.9
|
3.1
|
Weighted-average
diluted shares outstanding
|
932.9
|
669.8
|
932.8
|
669.8
|
For the three and nine months ended September 30, 2022, there were nil and
0.3 million options, respectively, excluded from the
computation of diluted earnings per share because their effects
were not dilutive (three and nine months ended September 30, 2021 - 0.2 million and 0.1
million, respectively).
7 Changes in Accumulated other
comprehensive income (loss) ("AOCI") by component
|
For the three months
ended September 30
|
(in millions of
Canadian dollars)
|
Foreign currency
net of hedging
activities(1)
|
Derivatives(1)(2)
|
Pension and post-
retirement defined
benefit plans(1)
|
Equity
accounted
investments(1)(2)
|
Total(1)
|
Opening
balance,
July 1,
2022
|
$
217
|
$
(2)
|
$
(1,856)
|
$
102
|
$
(1,539)
|
Other comprehensive
income
(loss) before reclassifications
|
1,618
|
—
|
(14)
|
37
|
1,641
|
Amounts reclassified
from
accumulated other
comprehensive income
|
—
|
1
|
30
|
—
|
31
|
Net other comprehensive
income
|
1,618
|
1
|
16
|
37
|
1,672
|
Closing
balance,
September 30,
2022
|
$
1,835
|
$
(1)
|
$
(1,840)
|
$
139
|
$
133
|
Opening balance, July
1, 2021
|
$
110
|
$
(91)
|
$
(2,800)
|
$
(10)
|
$
(2,791)
|
Other comprehensive
income
before reclassifications
|
6
|
101
|
—
|
—
|
107
|
Amounts reclassified
from
accumulated other
comprehensive loss
|
—
|
2
|
39
|
—
|
41
|
Net other comprehensive
income
|
6
|
103
|
39
|
—
|
148
|
Closing
balance,
September 30,
2021
|
$
116
|
$
12
|
$
(2,761)
|
$
(10)
|
$
(2,643)
|
(1) Amounts are presented net
of tax.
|
(2)
Comparative figures have been reclassified to conform with current
period presentation.
|
|
For the nine months
ended September 30
|
(in millions of
Canadian dollars)
|
Foreign currency
net of hedging
activities(1)
|
Derivatives(1)(2)
|
Pension and post-
retirement defined
benefit plans(1)
|
Equity
accounted
investments(1)(2)
|
Total(1)
|
Opening
balance,
January 1, 2022
|
$
(182)
|
$
(4)
|
$
(1,915)
|
$
(2)
|
$
(2,103)
|
Other comprehensive
income
(loss) before reclassifications
|
2,017
|
—
|
(14)
|
140
|
2,143
|
Amounts reclassified
from
accumulated other
comprehensive income
|
—
|
3
|
89
|
1
|
93
|
Net other comprehensive
income
|
2,017
|
3
|
75
|
141
|
2,236
|
Closing
balance,
September 30, 2022
|
$
1,835
|
$
(1)
|
$
(1,840)
|
$
139
|
$
133
|
Opening balance,
January 1, 2021
|
$
112
|
$
(40)
|
$
(2,878)
|
$
(8)
|
$
(2,814)
|
Other comprehensive
income
(loss) before reclassifications
|
4
|
46
|
—
|
(2)
|
48
|
Amounts reclassified
from
accumulated other
comprehensive loss
|
—
|
6
|
117
|
—
|
123
|
Net other comprehensive
income (loss)
|
4
|
52
|
117
|
(2)
|
171
|
Closing
balance,
September 30, 2021
|
$
116
|
$
12
|
$
(2,761)
|
$
(10)
|
$
(2,643)
|
(1) Amounts are presented net
of tax.
|
(2)
Comparative figures have been reclassified to conform with current
period presentation.
|
Amounts in Pension and post-retirement defined benefit plans
reclassified from AOCI are as follows:
|
For the three
months
ended September 30
|
For the nine
months
ended September 30
|
(in millions of
Canadian dollars)
|
2022
|
2021
|
2022
|
2021
|
Recognition of net
actuarial loss(1)
|
$
39
|
$
53
|
$
116
|
$
158
|
Income tax
recovery
|
(9)
|
(14)
|
(27)
|
(41)
|
Total net of income
tax
|
$
30
|
$
39
|
$
89
|
$
117
|
(1) Impacts "Other components
of net periodic benefit recovery" on the Interim Consolidated
Statements of Income.
|
8 Accounts receivable, net
|
As at September 30,
2022
|
As at December 31,
2021
|
(in millions of
Canadian dollars)
|
Freight
|
Non-freight
|
Total
|
Freight
|
Non-freight
|
Total
|
Total accounts
receivable
|
$
835
|
$
257
|
$
1,092
|
$
614
|
$
239
|
$ 853
|
Allowance for credit
losses
|
(26)
|
(13)
|
(39)
|
(20)
|
(14)
|
(34)
|
Total accounts
receivable, net
|
$
809
|
$
244
|
$
1,053
|
$
594
|
$
225
|
$ 819
|
|
For the three months
ended
September 30, 2022
|
For the three months
ended
September 30, 2021
|
(in millions of
Canadian dollars)
|
Freight
|
Non-freight
|
Total
|
Freight
|
Non-freight
|
Total
|
Allowance for credit
losses, opening balance
|
$
(24)
|
$
(15)
|
$
(39)
|
$
(23)
|
$
(15)
|
$ (38)
|
Current period credit
loss provision, net
|
(2)
|
2
|
—
|
1
|
(1)
|
—
|
Allowance for credit
losses, closing balance
|
$
(26)
|
$
(13)
|
$
(39)
|
$
(22)
|
$
(16)
|
$ (38)
|
|
For the nine months
ended
September 30, 2022
|
For the nine months
ended
September 30, 2021
|
(in millions of
Canadian dollars)
|
Freight
|
Non-freight
|
Total
|
Freight
|
Non-freight
|
Total
|
Allowance for credit
losses, opening balance
|
$
(20)
|
$
(14)
|
$
(34)
|
$
(25)
|
$
(15)
|
$
(40)
|
Current period credit
loss provision, net
|
(6)
|
1
|
(5)
|
3
|
(1)
|
2
|
Allowance for credit
losses, closing balance
|
$
(26)
|
$
(13)
|
$
(39)
|
$
(22)
|
$
(16)
|
$
(38)
|
9 Government assistance
By analogy to the grant model of accounting within International
Accounting Standards ("IAS") 20, Accounting for Government Grants
and Disclosure of Government Assistance, CP records government
assistance from various levels of Canadian and U.S. governments and
government agencies when the conditions of their receipt are
complied with and there is reasonable assurance that the assistance
will be received.
Government assistance related to properties has as a primary
condition that CP should purchase, construct, or otherwise acquire
property, plant and equipment. Under certain government assistance
arrangements, there is a secondary condition that requires CP to
repay a portion of the assistance if certain conditions related to
the assets are not adhered to during a specified period. In these
cases, it is CP's intention to comply with all conditions imposed
by the terms of the government assistance. Government assistance
received or receivable related to CP's property assets is deducted
from the cost of the assets in the Interim Consolidated Balance
Sheets within "Properties" and amortized over the same period as
the related assets in "Depreciation and amortization" in the
Interim Consolidated Statements of Income.
During the three and nine months ended September 30, 2022, the Company received
$6 million and $25 million, respectively, of government
assistance towards the purchase and construction of properties.
As of September 30, 2022, the
total Properties balance of $22,150
million is net of $279 million of unamortized
government assistance (December 31,
2021 - $259 million), primarily related to the
enhancement of CP's track and roadway infrastructure. Amortization
expense related to government assistance for the three and nine
months ended September 30, 2022 was
$3 million and $8 million, respectively.
10 Business acquisition
Kansas City Southern
The Company accounts for its investment in KCS using the equity
method of accounting while the U.S. Surface Transportation Board
("STB") considers the Company's application to control KCS. The STB
review of CP's proposed control of KCS while KCS is in the voting
trust is expected to be completed in the first quarter of 2023. The
investment in KCS of $45,964 million as at September 30, 2022 includes $627 million of
equity earnings of KCS and foreign currency translation of
$3,445 million, offset by
dividends of $593 million received in the nine months ended
September 30, 2022. Included within
the $221 million and $627 million of equity earnings of
KCS recognized for the three and nine months ended September 30, 2022 was amortization (net of tax),
of the approximately $30 billion basis difference,
representing the difference in value between the consideration paid
to acquire KCS and the underlying carrying value of the net assets
of KCS as at December 14, 2021,
immediately prior to the acquisition by CP. The amortization (net
of tax), recognized for the three and nine months ended
September 30, 2022 was
$42 million and $121 million, respectively. The basis
difference is related to depreciable property, plant and equipment,
intangible assets with definite lives, and long-term debt, and is
amortized over the related assets' remaining useful lives, and the
remaining terms to maturity of the debt instruments.
During the three and nine months ended September 30, 2022, the Company incurred
$18 million and $57 million, in acquisition-related
costs, respectively, recorded within "Purchased services and other"
in the Company's Interim Consolidated Statements of Income.
Acquisition-related costs of $12 million and $39 million
incurred by KCS during the three and nine months ended September 30, 2022 are included within "Equity
earnings of Kansas City Southern" in the Company's Interim
Consolidated Statements of Income.
During the three and nine months ended September 30, 2021, the Company incurred
$98 million and $442 million, respectively, in
acquisition-related costs associated with the Original Merger
Agreement and Merger Agreement, of which $15 million and
$147 million were recorded within "Purchased services and
other" and $83 million and $295 million were recorded
within "Other expense", respectively, including the amortization of
financing fees associated with new credit facilities. Total
financing fees paid for a bridge facility associated with the KCS
acquisition during the three and nine months ended September 30, 2021 were $nil and
$45 million, respectively, presented under "Cash (used in)
provided by financing activities" in the Company's Interim
Consolidated Statements of Cash Flows.
On May 21, 2021, KCS terminated
the Original Merger Agreement entered into on March 21, 2021 with CP to enter into a definitive
agreement with Canadian National Railway ("CN"). At the same time
and in accordance with the terms of the Original Merger Agreement,
KCS paid CP a termination fee of $845 million (U.S.
$700 million). This amount is reported as "Merger termination
fee" in the Company's Interim Consolidated Statements of Income for
the nine months ended September 30,
2021. No similar items were received in the same period of
2022.
In connection with the Merger Agreement, the Company remitted
$1,773 million (U.S.
$1,400 million) to KCS on
September 15, 2021 in connection with
KCS's payment of the CN merger termination fees, recorded within
"Investment in KCS" in the Company's Balance Sheets.
11 Investment in KCS
The KCS investment carrying cost of $45,964 million reported on the Company's
Interim Consolidated Balance Sheets as at September 30, 2022 reflects the consideration
paid to acquire KCS, the asset recorded upon recognition of a
deferred tax liability computed on an outside basis (see Note 5),
the subsequent recognition of equity earnings, the dividends
received from KCS, and foreign currency translation based on the
quarter-end exchange rate.
The following table presents summarized financial information
for KCS, on its historical cost basis:
Statement of Income
(in millions of
Canadian dollars)(1)
|
For the three months
ended
September 30, 2022
|
For the nine months
ended
September 30, 2022
|
Total
revenues
|
$
1,152
|
$
3,216
|
Total operating
expenses
|
728
|
2,024
|
Operating
income
|
424
|
1,192
|
Less:
Other(2)
|
67
|
164
|
Income before income
taxes
|
357
|
1,028
|
Net
income
|
$
263
|
$
748
|
(1) Amounts translated at the average
FX rate for the three and nine months ended September 30, 2022 of
$1.00 USD = $1.31 CAD and $1.00 USD = $1.28 CAD,
respectively.
|
(2) Includes
Equity in net earnings of KCS's affiliates, Interest expense, FX
loss, and Other income, net.
|
|
12 Debt
During the nine months ended September
30, 2022, the Company repaid at maturity $125 million
5.100% 10-year Medium Term Notes, U.S. $250 million
($313 million) 4.500% 10-year Notes, and a U.S.
$76 million ($97 million) 6.99% finance lease.
Credit facility
Effective March 14, 2022, the
Company extended the maturity date of the U.S. $500 million
unsecured non-revolving term credit facility (the "term facility")
to September 15, 2022. During the three months ended
June 30, 2022, the Company repaid
U.S. $100 million ($132 million) of the term facility.
During the three months ended September 30,
2022, the Company repaid in full the term facility's
outstanding borrowings of U.S. $400 million
($504 million). The facility was automatically terminated on
September 15, 2022 following the
final principal repayment.
Commercial paper program
The Company has a commercial paper program which enables it to
issue commercial paper up to a maximum aggregate principal amount
of U.S. $1.0 billion in the form of
unsecured promissory notes. This commercial paper program is backed
by the U.S. $1.3 billion revolving
credit facility. As at September 30,
2022, the Company had total commercial paper borrowings of
U.S. $525 million ($720 million), included in "Long-term
debt maturing within one year" on the Company's Interim
Consolidated Balance Sheets (December 31,
2021 - U.S. $265 million). The weighted-average
interest rate on these borrowings as at September 30, 2022 was 3.48% (December 31, 2021 - 0.32%). The Company presents
issuances and repayments of commercial paper, all of which have a
maturity of less than 90 days, in the Company's Interim
Consolidated Statements of Cash Flows on a net basis.
13 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 may include Cash
and cash equivalents, Restricted cash and cash equivalents,
accounts receivable, accounts payable and accrued liabilities, and
short-term borrowings including commercial paper and term loans.
The carrying values of short-term financial instruments approximate
their fair values.
The carrying value of the Company's long-term debt and finance
lease liabilities does not approximate their fair value. Their
estimated fair value has been determined based on market
information, where available, or by discounting future payments of
principal and interest at estimated interest rates expected to be
available to the Company at period end. All measurements are
classified as Level 2. The Company's long-term debt and finance
lease liabilities, including current maturities, with a carrying
value of $19,855 million as at
September 30, 2022 (December 31, 2021 - $19,151 million), had a fair value of
$17,472 million (December 31, 2021 - $21,265 million).
B. Financial risk management
FX management
Net investment hedge
The effect of the Company's net investment hedge for the three
and nine months ended September 30,
2022 was an unrealized FX loss of $440 million and $558
million, respectively (three and nine months ended
September 30, 2021 - unrealized FX
loss of $168 million and $6 million, respectively) recognized in "Other
comprehensive income".
14 Shareholders' equity
On January 27, 2021, the Company
announced a normal course issuer bid ("NCIB"), commencing
January 29, 2021, to purchase up to
16.7 million Common Shares in the open market for cancellation
on or before January 28, 2022. Upon
expiry of this NCIB, the Company had not purchased any Common
Shares under this NCIB.
15 Pension and other
benefits
In the three and nine months ended September 30, 2022, the Company made
contributions to its defined benefit pension plans of
$5 million and $12 million, respectively (three and nine
months ended September 30, 2021 -
$4 million and $15 million, respectively).
Net periodic benefit costs for defined benefit pension plans and
other benefits included the following
components:
|
For the three months
ended September 30
|
|
Pensions
|
Other
benefits
|
(in millions of
Canadian dollars)
|
2022
|
2021
|
2022
|
2021
|
Current service cost
(benefits earned by employees)
|
$
37
|
$
42
|
$
3
|
$
4
|
Other components of net
periodic benefit (recovery) cost:
|
|
|
|
|
Interest cost on
benefit obligation
|
95
|
88
|
4
|
4
|
Expected return on
fund assets
|
(240)
|
(240)
|
—
|
—
|
Recognized net
actuarial loss
|
39
|
52
|
—
|
1
|
Total other components
of net periodic benefit (recovery) cost
|
(106)
|
(100)
|
4
|
5
|
Net periodic benefit
(recovery) cost
|
$
(69)
|
$
(58)
|
$
7
|
$
9
|
|
For the nine months
ended September 30
|
|
Pensions
|
Other
benefits
|
(in millions of
Canadian dollars)
|
2022
|
2021
|
2022
|
2021
|
Current service cost
(benefits earned by employees)
|
$
111
|
$
128
|
$
8
|
$
10
|
Other components of net
periodic benefit (recovery) cost:
|
|
|
|
|
Interest cost on
benefit obligation
|
287
|
264
|
12
|
12
|
Expected return on
fund assets
|
(719)
|
(720)
|
—
|
—
|
Recognized net
actuarial loss
|
115
|
155
|
1
|
3
|
Total other components
of net periodic benefit (recovery) cost
|
(317)
|
(301)
|
13
|
15
|
Net periodic benefit
(recovery) cost
|
$
(206)
|
$
(173)
|
$
21
|
$
25
|
16 Stock-based
compensation
As at September 30, 2022, the
Company had several stock-based compensation plans including stock
option plans, various cash-settled liability plans, and an employee
share purchase plan. These plans resulted in an expense for the
three and nine months ended September 30,
2022 of $21 million and
$67 million, respectively (three and
nine months ended September 30, 2021
- expense of $26 million and
$75 million, respectively).
Stock option plans
In the nine months ended September 30,
2022, under CP's stock option plans, the Company issued
836,379 options at the weighted-average price of $90.96 per share, based on the closing price on
the grant date. Pursuant to the employee plan, these options may be
exercised upon vesting, which is between 12 months and 48 months
after the grant date, and will expire after seven years.
Under the fair value method, the fair value of the stock options
at grant date was approximately $16
million. The weighted-average fair value assumptions were
approximately:
|
For the nine
months
ended September 30,
2022
|
Expected option life
(years)(1)
|
4.75
|
Risk-free interest
rate(2)
|
1.61 %
|
Expected share price
volatility(3)
|
26.84 %
|
Expected annual
dividends per share(4)
|
$0.760
|
Expected forfeiture
rate(5)
|
3.00 %
|
Weighted-average grant
date fair value per option granted during the period
|
$18.79
|
(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 option life.
|
(3) Based on the historical
volatility of the Company's share price over a period commensurate
with the expected term of the option.
|
(4) Determined by the current
annual dividend at the time of grant. The Company does not employ
different dividend yields throughout the contractual term of the
option.
|
(5) The Company estimates
forfeitures based on past experience. This rate is monitored on a
periodic basis.
|
Performance share unit plans
During the nine months ended September
30, 2022, the Company issued 414,375 Performance Share Units
("PSUs") with a grant date fair value of approximately $36 million and 13,506 Performance Deferred Share
Units ("PDSUs") with a grant date fair value, including the value
of expected future matching units, of approximately $2 million. PSUs and PDSUs attract dividend
equivalents in the form of additional units based on dividends paid
on the Company's Common Shares, and vest approximately three years
after the grant date, contingent upon CP's performance
("performance factor"). The fair value of these PSUs and PDSUs is
measured periodically until settlement. Vested PSUs are settled in
cash. Vested PDSUs are settled in cash pursuant to the Deferred
Share Unit ("DSU") Plan and are eligible for a 25% match if the
holder has not exceeded their share ownership requirements, and are
paid out only when the holder ceases their employment with CP.
The performance period for PSUs and PDSUs issued in the nine
months ended September 30, 2022 is
January 1, 2022 to December 31, 2024 and the performance factors are
Free Cash Flow ("FCF"), Adjusted Net Debt to Adjusted earnings
before interest, tax, depreciation, and amortization ("EBITDA")
Modifier, Total Shareholder Return ("TSR") compared to the
S&P/TSX 60 Index, and TSR compared to S&P 500 Industrials
Index.
The performance period for PSUs issued in 2019 was January 1, 2019 to December 31, 2021. The performance factors for
668,405 PSUs were Return on Invested Capital ("ROIC"), TSR compared
to the S&P/TSX 60 Index, and TSR compared to Class I Railways.
The resulting payout was 200% of the outstanding units multiplied
by the Company's average share price calculated using the last 30
trading days preceding December 31,
2021. In the first quarter of 2022, payouts occurred on
631,457 total outstanding awards, including dividends reinvested,
totalling $116 million.
Deferred share unit plan
During the nine months ended September
30, 2022, the Company granted 53,834 Deferred Share Units
("DSUs") with a grant date fair value of approximately $5 million. DSUs vest over various periods of up
to 36 months and are only redeemable for a specified period after
employment is terminated. The expense for DSUs is recognized over
the vesting period for both the initial subscription price and the
change in value between reporting periods.
17 Contingencies
In the normal course of its operations, the Company becomes
involved in various legal actions, including claims relating to
injuries and damage to property. The Company maintains provisions
it considers to be adequate for such actions. While the final
outcome with respect to actions outstanding or pending at
September 30, 2022 cannot be
predicted with certainty, it is the opinion of management that
their resolution will not have a material adverse effect on the
Company's business, financial position or results of operations.
However, an unexpected adverse resolution of one or more of these
legal actions could have a material adverse effect on the Company's
business, financial position, results of operations, or liquidity
in a particular quarter or fiscal year.
Legal proceedings related to Lac-Mégantic rail
accident
On July 6, 2013, a train carrying
petroleum crude oil operated by Montréal Maine and Atlantic Railway ("MMAR") or a
subsidiary, Montréal Maine &
Atlantic Canada Co. ("MMAC" and collectively the "MMA Group"),
derailed in Lac-Mégantic, Québec. The derailment occurred on a
section of railway owned and operated by the MMA Group and while
the MMA Group exclusively controlled the train.
Following the derailment, MMAC sought court protection in
Canada under the Companies'
Creditors Arrangement Act and MMAR filed for bankruptcy in the
U.S. Plans of arrangement were approved in both Canada and the U.S. (the "Plans"), providing
for the distribution of approximately $440
million amongst those claiming derailment damages.
A number of legal proceedings, set out below, were commenced in
Canada and the U.S. against CP and
others:
(1) Québec's Minister of Sustainable Development, Environment,
Wildlife and Parks ordered various parties, including CP, to
remediate the derailment site (the "Cleanup Order") and served CP
with a Notice of Claim for $95
million for those costs. CP appealed the Cleanup Order and
contested the Notice of Claim with the Administrative Tribunal of
Québec. These proceedings are stayed pending determination of the
Attorney General of Québec ("AGQ") action (paragraph 2 below).
(2) The AGQ sued CP in the Québec Superior Court claiming
$409 million in damages, which was
amended and reduced to $315 million
(the "AGQ Action"). The AGQ Action alleges that: (i) CP was
responsible for the petroleum crude oil from its point of origin
until its delivery to Irving Oil Ltd.; and (ii) CP is vicariously
liable for the acts and omissions of the MMA Group.
(3) A class action in the Québec Superior Court on behalf of
persons and entities residing in, owning or leasing property in,
operating a business in, or physically present in Lac-Mégantic at
the time of the derailment was certified against CP on May 8, 2015 (the "Class Action"). Other
defendants including MMAC and Mr. Thomas
Harding ("Harding") were added to the Class Action on
January 25, 2017. On November 28, 2019, the plaintiffs' motion to
discontinue their action against Harding was granted. The Class
Action seeks unquantified damages, including for wrongful death,
personal injury, property damage, and economic loss.
(4) Eight subrogated insurers sued CP in the Québec Superior
Court claiming approximately $16
million in damages, which was amended and reduced to
approximately $15 million (the
"Promutuel Action"), and two additional subrogated insurers sued CP
claiming approximately $3 million in
damages (the "Royal Action"). Both actions contain similar
allegations as the AGQ Action. The actions do not identify the
subrogated parties. As such, the extent of any overlap between the
damages claimed in these actions and under the Plans is unclear.
The Royal Action is stayed pending determination of the
consolidated proceedings described below.
On December 11, 2017, the AGQ
Action, the Class Action and the Promutuel Action were
consolidated. The joint liability trial of these consolidated
claims commenced on September 21,
2021 with oral arguments ending on June 15, 2022. A decision is expected by
December 15, 2022. A damages trial
will follow if necessary.
(5) Forty-eight plaintiffs (all individual claims joined in one
action) sued CP, MMAC, and Harding in the Québec Superior Court
claiming approximately $5 million in
damages for economic loss and pain and suffering, and asserting
similar allegations as in the Class Action and the AGQ Action. The
majority of the plaintiffs opted-out of the Class Action and all
but two are also plaintiffs in litigation against CP, described in
paragraph 7 below. This action is stayed pending determination of
the consolidated claims described above.
(6) The MMAR U.S. bankruptcy estate representative commenced an
action against CP in November 2014 in
the Maine Bankruptcy Court claiming that CP failed to abide by
certain regulations and seeking approximately U.S. $30 million in damages for MMAR's loss in
business value according to a recent expert report filed by the
bankruptcy estate. This action asserts that CP knew or ought to
have known that the shipper misclassified the petroleum crude oil
and therefore should have refused to transport it. Summary judgment
motion was argued and taken under advisement on June 9, 2022, and decision is pending.
(7) The class and mass tort action commenced against CP in
June 2015 in Texas (on behalf of Lac-Mégantic residents and
wrongful death representatives) and the wrongful death and personal
injury actions commenced against CP in June
2015 in Illinois and
Maine, were all transferred and
consolidated in Federal District Court in Maine (the "Maine Actions"). The Maine Actions
allege that CP negligently misclassified and improperly packaged
the petroleum crude oil. On CP's motion, the Maine Actions were
dismissed. The plaintiffs appealed the dismissal decision to the
United States First Circuit Court of Appeals, which dismissed the
plaintiffs' appeal on June 2, 2021.
The plaintiffs further petitioned the United States First Circuit
Court of Appeals for a rehearing, which was denied on September 8, 2021. On January 24, 2022, the plaintiffs further appealed
to the U.S. Supreme Court on two bankruptcy procedural grounds. On
May 31, 2022, the U.S. Supreme Court
denied the petition, thereby rejecting the plaintiffs'
appeal.
(8) The trustee for the wrongful death trust commenced Carmack
Amendment claims against CP in North Dakota Federal Court, seeking
to recover approximately U.S. $6
million for damaged rail cars and lost crude and
reimbursement for the settlement paid by the consignor and the
consignee under the Plans (alleged to be U.S. $110 million and U.S. $60
million, respectively). The Court issued an Order on
August 6, 2020 granting and denying
in parts the parties' summary judgment motions which has been
reviewed and confirmed following motions by the parties for
clarification and reconsideration. Final briefs of dispositive
motions for summary judgment and for reconsideration on tariff
applicability were submitted on September
30, 2022. In the event the dispositive motions are denied,
this action is scheduled for trial from February 27 to March 2, 2023.
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.
Court decision related to Remington Development Corporation
legal claim
On October 20, 2022, the Court of
King's Bench of Alberta issued a
decision in a claim brought by Remington Development Corporation
("Remington") against the Company and the Province of Alberta ("Alberta") with respect to an alleged
breach of contract by the Company in relation to the sale of
certain properties in Calgary. In its decision, the Court
found the Company had breached its contract with Remington and
Alberta had induced the contract
breach. The Court found the Company and Alberta liable for damages of approximately
$164 million plus interest and costs,
and subject to an adjustment to the acquisition value of the
property. However, the court has not provided any indication of how
the damages, which are currently estimated to total approximately
$200 million before Remington's costs
are established, should be apportioned between the Company and
Alberta. As a result, at this
time, the Company cannot reasonably estimate the amount of damages,
or range of damages, for which it is liable under the ruling of the
Court and no amount has been accrued in the Company's financial
statements as at September 30, 2022.
The Company plans to appeal the Court's decision.
Environmental liabilities
Environmental remediation accruals, recorded on an undiscounted
basis unless a reliable, determinable estimate as to an amount and
timing of costs can be established, cover site-specific remediation
programs.
The accruals for environmental remediation represent CP's best
estimate of its probable future obligation and include both
asserted and unasserted claims, without reduction for anticipated
recoveries from third parties. Although the recorded accruals
include CP's best estimate of all probable costs, CP's total
environmental remediation costs cannot be predicted with certainty.
Accruals for environmental remediation may change from time to time
as new information about previously untested sites becomes known,
and as environmental laws and regulations evolve and advances are
made in environmental remediation technology. The accruals may also
vary as the courts decide legal proceedings against outside parties
responsible for contamination. These potential charges, which
cannot be quantified at this time, may materially affect income in
the particular period in which a charge is recognized. Costs
related to existing, but as yet unknown, or future contamination
will be accrued in the period in which they become probable and
reasonably estimable.
The expense included in "Purchased services and other" in the
Company's Interim Consolidated Statements of Income for the three
and nine months ended September 30,
2022 was $1 million and $5 million, respectively
(three and nine months ended September 30,
2021 - $2 million and
$6 million, respectively). Provisions for environmental
remediation costs are recorded in the Company's Interim
Consolidated Balance Sheets in "Other long-term liabilities",
except for the current portion, which is recorded in "Accounts
payable and accrued liabilities". The total amount provided as at
September 30, 2022 was $85 million (December 31,
2021 - $79 million). Payments are expected to be made
over 10 years through 2031.
Summary of Rail Data
|
Third
Quarter
|
|
Year-to-date
|
Financial (millions,
except per share data)
|
2022
|
2021
|
Total
Change
|
%
Change
|
|
2022
|
2021
|
Total
Change
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Freight
|
$
2,264
|
$
1,896
|
$ 368
|
19
|
|
$
6,214
|
$
5,822
|
$ 392
|
7
|
Non-freight
|
48
|
46
|
2
|
4
|
|
138
|
133
|
5
|
4
|
Total
revenues
|
2,312
|
1,942
|
370
|
19
|
|
6,352
|
5,955
|
397
|
7
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
Compensation and
benefits
|
393
|
381
|
12
|
3
|
|
1,154
|
1,165
|
(11)
|
(1)
|
Fuel
|
358
|
199
|
159
|
80
|
|
1,001
|
623
|
378
|
61
|
Materials
|
66
|
51
|
15
|
29
|
|
191
|
164
|
27
|
16
|
Equipment
rents
|
33
|
31
|
2
|
6
|
|
97
|
92
|
5
|
5
|
Depreciation and
amortization
|
213
|
203
|
10
|
5
|
|
634
|
605
|
29
|
5
|
Purchased services and
other
|
312
|
303
|
9
|
3
|
|
935
|
932
|
3
|
—
|
Total operating
expenses
|
1,375
|
1,168
|
207
|
18
|
|
4,012
|
3,581
|
431
|
12
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
937
|
774
|
163
|
21
|
|
2,340
|
2,374
|
(34)
|
(1)
|
|
|
|
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
Equity earnings of
Kansas City Southern
|
(221)
|
—
|
(221)
|
100
|
|
(627)
|
—
|
(627)
|
100
|
Other
expense
|
7
|
124
|
(117)
|
(94)
|
|
13
|
253
|
(240)
|
(95)
|
Merger termination
fee
|
—
|
—
|
—
|
—
|
|
—
|
(845)
|
845
|
(100)
|
Other components of
net periodic benefit recovery
|
(102)
|
(95)
|
(7)
|
7
|
|
(304)
|
(286)
|
(18)
|
6
|
Net interest
expense
|
166
|
104
|
62
|
60
|
|
486
|
315
|
171
|
54
|
|
|
|
|
|
|
|
|
|
|
Income before income
tax expense
|
1,087
|
641
|
446
|
70
|
|
2,772
|
2,937
|
(165)
|
(6)
|
|
|
|
|
|
|
|
|
|
|
Income tax
expense
|
196
|
169
|
27
|
16
|
|
526
|
617
|
(91)
|
(15)
|
|
|
|
|
|
|
|
|
|
|
Net income
|
$ 891
|
$ 472
|
$ 419
|
89
|
|
$
2,246
|
$
2,320
|
$ (74)
|
(3)
|
Operating ratio
(%)
|
59.5
|
60.2
|
(0.7)
|
(70)
bps
|
|
63.2
|
60.1
|
3.1
|
310
bps
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per
share
|
$ 0.96
|
$ 0.71
|
$ 0.25
|
35
|
|
$ 2.42
|
$ 3.48
|
$
(1.06)
|
(30)
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per
share
|
$ 0.96
|
$ 0.70
|
$ 0.26
|
37
|
|
$ 2.41
|
$ 3.46
|
$
(1.05)
|
(30)
|
|
|
|
|
|
|
|
|
|
|
Shares
Outstanding
|
|
|
|
|
|
|
|
|
|
Weighted average
number of basic shares
outstanding (millions)
|
930.0
|
666.9
|
263.1
|
39
|
|
929.9
|
666.7
|
263.2
|
39
|
Weighted average
number of diluted shares
outstanding (millions)
|
932.9
|
669.8
|
263.1
|
39
|
|
932.8
|
669.8
|
263.0
|
39
|
|
|
|
|
|
|
|
|
|
|
Foreign
Exchange
|
|
|
|
|
|
|
|
|
|
Average foreign
exchange rate (U.S.$/Canadian$)
|
0.77
|
0.79
|
(0.02)
|
(3)
|
|
0.78
|
0.80
|
(0.02)
|
(3)
|
Average foreign
exchange rate (Canadian$/U.S.$)
|
1.30
|
1.26
|
0.04
|
3
|
|
1.28
|
1.25
|
0.03
|
2
|
Summary of Rail Data (Continued)
|
Third
Quarter
|
|
Year-to-date
|
Commodity
Data
|
2022
|
2021
|
Total
Change
|
%
Change
|
FX
Adjusted
%
Change(1)
|
|
2022
|
2021
|
Total
Change
|
%
Change
|
FX
Adjusted
%
Change(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Freight Revenues
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
- Grain
|
$
391
|
$
352
|
$ 39
|
11
|
9
|
|
$
1,121
|
$ 1,244
|
$
(123)
|
(10)
|
(11)
|
- Coal
|
156
|
158
|
(2)
|
(1)
|
(2)
|
|
458
|
491
|
(33)
|
(7)
|
(7)
|
- Potash
|
170
|
113
|
57
|
50
|
48
|
|
445
|
348
|
97
|
28
|
26
|
- Fertilizers and
sulphur
|
81
|
72
|
9
|
13
|
11
|
|
244
|
227
|
17
|
7
|
6
|
- Forest
products
|
109
|
89
|
20
|
22
|
18
|
|
299
|
259
|
40
|
15
|
13
|
- Energy, chemicals and
plastics
|
360
|
392
|
(32)
|
(8)
|
(10)
|
|
1,010
|
1,149
|
(139)
|
(12)
|
(13)
|
- Metals, minerals and
consumer
products
|
246
|
196
|
50
|
26
|
22
|
|
655
|
535
|
120
|
22
|
20
|
- Automotive
|
111
|
83
|
28
|
34
|
31
|
|
322
|
289
|
33
|
11
|
10
|
- Intermodal
|
640
|
441
|
199
|
45
|
44
|
|
1,660
|
1,280
|
380
|
30
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Freight
Revenues
|
$
2,264
|
$ 1,896
|
$ 368
|
19
|
17
|
|
$
6,214
|
$ 5,822
|
$ 392
|
7
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
Freight Revenue per
Revenue Ton-
Mile ("RTM") (cents)
|
|
|
|
|
|
|
|
|
|
|
|
- Grain
|
5.16
|
4.56
|
0.60
|
13
|
11
|
|
4.80
|
4.36
|
0.44
|
10
|
9
|
- Coal
|
4.04
|
3.65
|
0.39
|
11
|
10
|
|
3.80
|
3.40
|
0.40
|
12
|
12
|
- Potash
|
3.29
|
2.87
|
0.42
|
15
|
13
|
|
3.11
|
2.74
|
0.37
|
14
|
12
|
- Fertilizers and
sulphur
|
7.12
|
6.31
|
0.81
|
13
|
11
|
|
6.81
|
6.18
|
0.63
|
10
|
8
|
- Forest
products
|
7.33
|
6.27
|
1.06
|
17
|
13
|
|
6.85
|
6.04
|
0.81
|
13
|
11
|
- Energy, chemicals and
plastics
|
5.73
|
6.19
|
(0.46)
|
(7)
|
(9)
|
|
5.54
|
5.94
|
(0.40)
|
(7)
|
(8)
|
- Metals, minerals and
consumer
products
|
7.63
|
6.55
|
1.08
|
16
|
14
|
|
7.40
|
6.42
|
0.98
|
15
|
13
|
- Automotive
|
26.56
|
20.60
|
5.96
|
29
|
26
|
|
24.62
|
20.97
|
3.65
|
17
|
15
|
- Intermodal
|
7.60
|
6.20
|
1.40
|
23
|
22
|
|
7.11
|
6.09
|
1.02
|
17
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Freight Revenue
per RTM
|
6.03
|
5.36
|
0.67
|
13
|
11
|
|
5.68
|
5.12
|
0.56
|
11
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
Freight Revenue per
Carload
|
|
|
|
|
|
|
|
|
|
|
|
- Grain
|
$
4,463
|
$ 3,955
|
$ 508
|
13
|
11
|
|
$
4,389
|
$ 3,842
|
$ 547
|
14
|
13
|
- Coal
|
2,179
|
2,153
|
26
|
1
|
1
|
|
2,148
|
2,190
|
(42)
|
(2)
|
(2)
|
- Potash
|
3,720
|
3,156
|
564
|
18
|
16
|
|
3,557
|
3,031
|
526
|
17
|
16
|
- Fertilizers and
sulphur
|
5,436
|
4,768
|
668
|
14
|
12
|
|
5,214
|
4,690
|
524
|
11
|
9
|
- Forest
products
|
5,892
|
4,759
|
1,133
|
24
|
20
|
|
5,407
|
4,701
|
706
|
15
|
12
|
- Energy, chemicals and
plastics
|
4,794
|
5,013
|
(219)
|
(4)
|
(6)
|
|
4,566
|
4,758
|
(192)
|
(4)
|
(5)
|
- Metals, minerals and
consumer
products
|
3,727
|
3,245
|
482
|
15
|
12
|
|
3,499
|
3,019
|
480
|
16
|
14
|
- Automotive
|
4,422
|
3,562
|
860
|
24
|
21
|
|
4,128
|
3,384
|
744
|
22
|
20
|
- Intermodal
|
1,966
|
1,627
|
339
|
21
|
20
|
|
1,873
|
1,581
|
292
|
18
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Freight Revenue
per Carload
|
$
3,101
|
$ 2,851
|
$ 250
|
9
|
7
|
|
$
3,004
|
$ 2,799
|
$ 205
|
7
|
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
|
Commodity Data
(Continued)
|
2022
|
2021
|
Total
Change
|
%
Change
|
|
2022
|
2021
|
Total
Change
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
Millions of
RTM
|
|
|
|
|
|
|
|
|
|
- Grain
|
7,577
|
7,715
|
(138)
|
(2)
|
|
23,335
|
28,564
|
(5,229)
|
(18)
|
- Coal
|
3,857
|
4,334
|
(477)
|
(11)
|
|
12,037
|
14,451
|
(2,414)
|
(17)
|
- Potash
|
5,164
|
3,941
|
1,223
|
31
|
|
14,297
|
12,705
|
1,592
|
13
|
- Fertilizers and
sulphur
|
1,138
|
1,141
|
(3)
|
—
|
|
3,585
|
3,673
|
(88)
|
(2)
|
- Forest
products
|
1,488
|
1,419
|
69
|
5
|
|
4,366
|
4,290
|
76
|
2
|
- Energy, chemicals
and plastics
|
6,286
|
6,330
|
(44)
|
(1)
|
|
18,221
|
19,328
|
(1,107)
|
(6)
|
- Metals, minerals and
consumer
products
|
3,225
|
2,992
|
233
|
8
|
|
8,852
|
8,328
|
524
|
6
|
-
Automotive
|
418
|
403
|
15
|
4
|
|
1,308
|
1,378
|
(70)
|
(5)
|
-
Intermodal
|
8,416
|
7,116
|
1,300
|
18
|
|
23,354
|
21,008
|
2,346
|
11
|
|
|
|
|
|
|
|
|
|
|
Total RTMs
|
37,569
|
35,391
|
2,178
|
6
|
|
109,355
|
113,725
|
(4,370)
|
(4)
|
|
|
|
|
|
|
|
|
|
|
Carloads
(thousands)
|
|
|
|
|
|
|
|
|
|
- Grain
|
87.6
|
89.0
|
(1.4)
|
(2)
|
|
255.4
|
323.8
|
(68.4)
|
(21)
|
- Coal
|
71.6
|
73.4
|
(1.8)
|
(2)
|
|
213.2
|
224.2
|
(11.0)
|
(5)
|
- Potash
|
45.7
|
35.8
|
9.9
|
28
|
|
125.1
|
114.8
|
10.3
|
9
|
- Fertilizers and
sulphur
|
14.9
|
15.1
|
(0.2)
|
(1)
|
|
46.8
|
48.4
|
(1.6)
|
(3)
|
- Forest
products
|
18.5
|
18.7
|
(0.2)
|
(1)
|
|
55.3
|
55.1
|
0.2
|
—
|
- Energy, chemicals
and plastics
|
75.1
|
78.2
|
(3.1)
|
(4)
|
|
221.2
|
241.5
|
(20.3)
|
(8)
|
- Metals, minerals and
consumer
products
|
66.0
|
60.4
|
5.6
|
9
|
|
187.2
|
177.2
|
10.0
|
6
|
-
Automotive
|
25.1
|
23.3
|
1.8
|
8
|
|
78.0
|
85.4
|
(7.4)
|
(9)
|
-
Intermodal
|
325.5
|
271.1
|
54.4
|
20
|
|
886.2
|
809.5
|
76.7
|
9
|
|
|
|
|
|
|
|
|
|
|
Total
Carloads
|
730.0
|
665.0
|
65.0
|
10
|
|
2,068.4
|
2,079.9
|
(11.5)
|
(1)
|
|
Third
Quarter
|
|
Year-to-date
|
|
2022
|
2021
|
Total
Change
|
%
Change
|
FX
Adjusted %
Change(1)
|
|
2022
|
2021
|
Total
Change
|
%
Change
|
FX
Adjusted %
Change(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and
benefits
|
$
393
|
$
381
|
$ 12
|
3
|
2
|
|
$
1,154
|
$ 1,165
|
$ (11)
|
(1)
|
(2)
|
Fuel
|
358
|
199
|
159
|
80
|
75
|
|
1,001
|
623
|
378
|
61
|
58
|
Materials
|
66
|
51
|
15
|
29
|
29
|
|
191
|
164
|
27
|
16
|
16
|
Equipment
rents
|
33
|
31
|
2
|
6
|
3
|
|
97
|
92
|
5
|
5
|
3
|
Depreciation and
amortization
|
213
|
203
|
10
|
5
|
4
|
|
634
|
605
|
29
|
5
|
4
|
Purchased services and
other
|
312
|
303
|
9
|
3
|
2
|
|
935
|
932
|
3
|
—
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating
Expenses
|
$
1,375
|
$ 1,168
|
$ 207
|
18
|
16
|
|
$
4,012
|
$ 3,581
|
$ 431
|
12
|
11
|
|
|
(1)
|
This earnings measure
has no standardized meaning prescribed by GAAP and, therefore, is
unlikely to be comparable to similar measures presented by other
companies. This measure is defined and reconciled in Non-GAAP
Measures of this Earnings Release.
|
Summary of Rail Data (Continued)
|
Third
Quarter
|
|
Year-to-date
|
|
2022
|
2021
|
Total
Change
|
%
Change
|
|
2022
|
2021
|
Total
Change
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
Operations
Performance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross ton-miles
("GTMs") (millions)
|
68,482
|
64,665
|
3,817
|
6
|
|
199,512
|
207,347
|
(7,835)
|
(4)
|
Train miles
(thousands)
|
7,237
|
6,999
|
238
|
3
|
|
21,390
|
22,406
|
(1,016)
|
(5)
|
Average train
weight - excluding local traffic (tons)
|
10,247
|
9,973
|
274
|
3
|
|
10,093
|
9,953
|
140
|
1
|
Average train
length - excluding local traffic (feet)
|
8,578
|
8,285
|
293
|
4
|
|
8,387
|
8,192
|
195
|
2
|
Average terminal dwell
(hours)
|
7.8
|
7.2
|
0.6
|
8
|
|
8.0
|
7.1
|
0.9
|
13
|
Average train speed
(miles per hour, or "mph")(1)
|
21.5
|
21.7
|
(0.2)
|
(1)
|
|
21.5
|
21.4
|
0.1
|
—
|
Locomotive productivity
(GTMs / operating horsepower)(2)
|
202
|
203
|
(1)
|
—
|
|
196
|
204
|
(8)
|
(4)
|
Fuel
efficiency(3)
|
0.927
|
0.907
|
0.020
|
2
|
|
0.949
|
0.928
|
0.021
|
2
|
U.S. gallons of
locomotive fuel consumed (millions)(4)
|
63.5
|
58.7
|
4.8
|
8
|
|
189.3
|
192.5
|
(3.2)
|
(2)
|
Average fuel price
(U.S. dollars per U.S. gallon)
|
4.33
|
2.70
|
1.63
|
60
|
|
4.13
|
2.59
|
1.54
|
59
|
|
|
|
|
|
|
|
|
|
|
Total Employees and
Workforce
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total employees
(average)(5)
|
13,004
|
12,485
|
519
|
4
|
|
12,427
|
12,411
|
16
|
—
|
Total employees (end of
period)(5)
|
13,087
|
12,262
|
825
|
7
|
|
13,087
|
12,262
|
825
|
7
|
Workforce (end of
period)(6)
|
13,144
|
12,301
|
843
|
7
|
|
13,144
|
12,301
|
843
|
7
|
|
|
|
|
|
|
|
|
|
|
Safety
Indicators(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FRA personal injuries
per 200,000 employee-hours
|
0.86
|
0.98
|
(0.12)
|
(12)
|
|
0.96
|
0.98
|
(0.02)
|
(2)
|
FRA train accidents per
million train-miles
|
0.37
|
1.54
|
(1.17)
|
(76)
|
|
0.84
|
1.13
|
(0.29)
|
(26)
|
|
|
(1)
|
Average train speed is
defined as a measure of the line-haul movement from origin to
destination including terminal dwell hours. It is calculated by
dividing the total train miles travelled by the total train hours
operated. This calculation does not include delay time related to
customers or foreign railroads and excludes the time and distance
travelled by: i) trains used in or around CP's yards; ii) passenger
trains; and iii) trains used for repairing track.
|
(2)
|
Locomotive productivity
is defined as daily GTMs divided by daily average operating
horsepower. Operating horsepower excludes units offline, tied up or
in storage, or in use on other railways, and includes foreign units
online.
|
(3)
|
Fuel efficiency is
defined as U.S. gallons of locomotive fuel consumed per 1,000
GTMs.
|
(4)
|
Includes gallons of
fuel consumed from freight, yard and commuter service but excludes
fuel used in capital projects and other non-freight
activities.
|
(5)
|
An employee is defined
as an individual currently engaged in full-time, part-time, or
seasonal employment with CP.
|
(6)
|
Workforce is defined as
total employees plus contractors and consultants.
|
(7)
|
Federal Railroad
Administration ("FRA") personal injuries per 200,000 employee-hours
for the three and nine months ended September 30, 2021, previously
reported as 0.97 and 0.97, were restated to 0.98 and 0.98,
respectively in this Earnings Release. FRA train accidents per
million train-miles for the nine months ended September 30, 2021,
previously reported as 1.09, was restated to 1.13, respectively in
this Earnings Release. These restatements reflect new information
available within specified periods stipulated by the FRA but that
exceed the Company's financial reporting timeline.
|
Non-GAAP Measures
The Company presents Non-GAAP measures to provide a basis for
evaluating underlying earnings and liquidity trends in the
Company's business that can be compared with the results of
operations in prior periods. In addition, these Non-GAAP measures
facilitate a multi-period assessment of long-term profitability,
allowing management and other external users of the Company's
consolidated financial information to compare profitability on a
long-term basis, including assessing future profitability, with
that of the Company's peers.
These Non-GAAP measures have no standardized meaning and are not
defined by accounting principles generally accepted in the United States of America ("GAAP") and,
therefore, may not be comparable to similar measures presented by
other companies. The presentation of these Non-GAAP measures is not
intended to be considered in isolation from, as a substitute for,
or as superior to the financial information presented in accordance
with GAAP.
Non-GAAP Performance Measures
The Company uses adjusted earnings results including Adjusted
income, 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. Core adjusted income
and Core adjusted diluted earnings per share are presented to
provide financial statement users with additional transparency by
isolating for the impact of KCS purchase accounting. KCS purchase
accounting represents the amortization of basis differences, being
the difference in value between the consideration paid to acquire
KCS and the underlying carrying value of the net assets of KCS
immediately prior to its acquisition by the Company. All assets
subject to KCS purchase accounting contribute to income generation
and will continue to amortize over their estimated useful
lives. 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 or provide
improved comparability to past performance. As a result, these
items are excluded for management assessment of operational
performance, allocation of resources and preparation of annual
budgets. These significant items may include, but are not limited
to, restructuring and asset impairment charges, individually
significant gains and losses from sales of assets,
acquisition-related costs, the merger termination payment received,
the foreign exchange ("FX") impact of translating the Company's
debt and lease liabilities (including borrowings under the credit
facility), discrete tax items, changes in the outside basis tax
difference between the carrying amount of CP's equity investment in
KCS and its tax basis of this investment, changes in income tax
rates, changes to an uncertain tax item, and certain items outside
the control of management. Acquisition-related costs include legal,
consulting, financing fees, integration planning costs consisting
of third-party services and system migration, fair value gain or
loss on FX forward contracts and interest rate hedges, FX gain on
U.S. dollar-denominated cash on hand from the issuances of
long-term debt to fund the KCS acquisition, and transaction and
integration costs incurred by KCS which were recognized within
Equity earnings of Kansas City Southern in the Company's Interim
Consolidated Statements of Income. 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 2022, the twelve months of 2021, and the last three
months of 2020 include:
2022:
- in the third quarter, a deferred tax recovery of $12 million due to a decrease in the Iowa state tax rate that favourably impacted
Diluted EPS by 1 cent;
- a net deferred tax expense of $8
million on changes in the outside basis difference of the
equity investment in KCS that unfavourably impacted Diluted EPS by
1 cent as follows:
- in the third quarter, a deferred tax recovery of $9 million on changes in the outside basis
difference of the equity investment in KCS that favourably impacted
Diluted EPS by 1 cent;
- in the second quarter, a deferred tax expense of $49 million on changes in the outside basis
difference of the equity investment in KCS that unfavourably
impacted Diluted EPS by 5 cents;
and
- in the first quarter, a deferred tax recovery of $32 million on changes in the outside basis
difference of the equity investment in KCS that favourably impacted
Diluted EPS by 3 cents; and
- acquisition-related costs of $96
million in connection with the KCS acquisition ($92 million after current tax recovery of
$4 million), including costs of
$57 million recognized in Purchased
services and other, and $39 million
recognized in Equity earnings of KCS, that unfavourably impacted
Diluted EPS by 9 cents as
follows:
- in the third quarter, acquisition-related costs of $30 million ($33
million after current tax expense of $3 million), including costs of $18 million recognized in Purchased services and
other and $12 million recognized in
Equity earnings of KCS, that unfavourably impacted Diluted EPS by
3 cents;
- in the second quarter, acquisition-related costs of
$33 million ($29 million after current tax recovery of
$4 million), including costs of
$19 million recognized in Purchased
services and other and $14 million
recognized in Equity earnings of KCS, that unfavourably impacted
Diluted EPS by 3 cents; and
- in the first quarter, acquisition-related costs of $33 million ($30
million after current tax recovery of $3 million), including costs of $20 million recognized in Purchased services and
other and $13 million recognized in
Equity earnings of KCS, that unfavourably impacted Diluted EPS by
3 cents.
2021:
- in the fourth quarter, a deferred tax recovery of $33 million on changes in the outside basis
difference of the equity investment in KCS that favourably impacted
Diluted EPS by 5 cents;
- in the second quarter, the merger termination payment received
of $845 million ($748 million after current taxes) in connection
with KCS's termination of the Agreement and Plan of Merger (the
"Original Merger Agreement") effective May
21, 2021 that favourably impacted Diluted EPS by
$1.11;
- during the course of the year, acquisition-related costs of
$599 million in connection with the
KCS acquisition ($500 million after
current tax recovery of $107 million
net of deferred tax expense of $8
million), including costs of $183
million recognized in Purchased services and other,
$169 million recognized in Equity
loss of KCS, and $247 million
recognized in Other expense (income), that unfavourably impacted
Diluted EPS by 75 cents as
follows:
- in the fourth quarter, acquisition-related costs of
$157 million ($157 million after current tax recovery of
$13 million net of deferred tax
expense of $13 million), including
costs of $36 million recognized in
Purchased services and other, $169
million in Equity loss of KCS, and a $48 million recovery recognized in Other (income)
expense, that unfavourably impacted Diluted EPS by 22 cents;
- in the third quarter, acquisition-related costs of $98 million ($80
million after current tax recovery of $61 million net of deferred tax expense of
$43 million), including costs of
$15 million recognized in Purchased
services and other and $83 million
recognized in Other expense (income), that unfavourably impacted
Diluted EPS by 12 cents;
- in the second quarter, acquisition-related costs of
$308 million ($236 million after current taxes of $25 million and deferred taxes of $47 million), including costs of $99 million recognized in Purchased services and
other and $209 million recognized in
Other expense (income), that unfavourably impacted Diluted EPS by
35 cents; and
- in the first quarter, acquisition-related costs of $36 million ($27
million after current taxes of $8
million and deferred taxes of $1
million), including costs of $33
million recognized in Purchased services and other and
$3 million recognized in Other
expense (income), that unfavourably impacted Diluted EPS by
4 cents; and
- during the course of the year, a net non-cash gain of
$7 million ($6
million after deferred tax) due to FX translation of debt
and lease liabilities that favourably impacted Diluted EPS by
1 cent as follows:
- in the fourth quarter, a $32
million loss ($28 million
after deferred tax) that unfavourably impacted Diluted EPS by
4 cents;
- in the third quarter, a $46
million loss ($40 million
after deferred tax) that unfavourably impacted Diluted EPS by
6 cents;
- in the second quarter, a $52
million gain ($45 million
after deferred tax) that favourably impacted Diluted EPS by
7 cents; and
- in the first quarter, a $33
million gain ($29 million
after deferred tax) that favourably impacted Diluted EPS by
4 cents.
2020:
- a deferred tax recovery of $29
million due to a change relating to a tax return filing
election for the state of North
Dakota that favourably impacted Diluted EPS by 5 cents; and
- a $103 million non-cash gain
($90 million after deferred tax) due
to FX translation of debt that favourably impacted Diluted EPS by
13 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:
Adjusted income is calculated as Net income reported on a GAAP
basis adjusted for significant items. Core adjusted income is
calculated as Adjusted income less KCS purchase accounting.
|
For the three
months
ended September 30
|
For the nine
months
ended September 30
|
(in millions of
Canadian dollars)
|
2022
|
2021
|
2022
|
2021
|
Net income as
reported
|
$
891
|
$
472
|
$
2,246
|
$
2,320
|
Less significant items
(pre-tax):
|
|
|
|
|
Acquisition-related
costs
|
(30)
|
(98)
|
(96)
|
(442)
|
Merger termination
fee
|
—
|
—
|
—
|
845
|
Impact of FX
translation (loss) gain on debt and lease liabilities
|
—
|
(46)
|
—
|
39
|
Add:
|
|
|
|
|
Tax effect of
adjustments(1)
|
3
|
(24)
|
(4)
|
3
|
Deferred tax
(recovery) expense on the outside basis difference of the
investment in KCS
|
(9)
|
—
|
8
|
—
|
Income tax rate
changes
|
(12)
|
—
|
(12)
|
—
|
Adjusted
income
|
$
903
|
$
592
|
$
2,334
|
$
1,881
|
Less: KCS purchase
accounting
|
(42)
|
—
|
(121)
|
—
|
Core adjusted
income
|
$
945
|
$
592
|
$
2,455
|
$
1,881
|
(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
(6.73%) and 4.35% for the three and nine months
ended September 30, 2022, respectively, and 16.88% and 0.68%
for the three and nine months ended September 30, 2021,
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
number of Common Shares outstanding during the period as determined
in accordance with GAAP. Core adjusted diluted earnings per share
is calculated as Adjusted diluted earnings per share less KCS
purchase accounting.
|
For the three
months
ended September 30
|
For the nine
months
ended September 30
|
|
2022
|
2021
|
2022
|
2021
|
Diluted earnings per
share as reported
|
$
0.96
|
$
0.70
|
$
2.41
|
$
3.46
|
Less significant items
(pre-tax):
|
|
|
|
|
Acquisition-related
costs
|
(0.03)
|
(0.15)
|
(0.10)
|
(0.66)
|
Merger termination
fee
|
—
|
—
|
—
|
1.26
|
Impact of FX
translation (loss) gain on debt and lease liabilities
|
—
|
(0.07)
|
—
|
0.06
|
Add:
|
|
|
|
|
Tax effect of
adjustments(1)
|
—
|
(0.04)
|
(0.01)
|
0.01
|
Deferred tax
(recovery) expense on the outside basis difference of the
investment in KCS
|
(0.01)
|
—
|
0.01
|
—
|
Income tax rate
changes
|
(0.01)
|
—
|
(0.01)
|
—
|
Adjusted diluted
earnings per share
|
$
0.97
|
$
0.88
|
$
2.50
|
$
2.81
|
Less: KCS purchase
accounting
|
(0.04)
|
—
|
(0.13)
|
—
|
Core adjusted
diluted earnings per share
|
$
1.01
|
$
0.88
|
$
2.63
|
$
2.81
|
(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
(6.73%) and 4.35% for the three and nine months
ended September 30, 2022, respectively, and 16.88% and 0.68%
for the three and nine months ended September 30, 2021,
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 September 30
|
For the nine
months
ended September 30
|
(in millions of
Canadian dollars)
|
2022
|
2021
|
2022
|
2021
|
Operating income as
reported
|
$
937
|
$
774
|
$
2,340
|
$
2,374
|
Less significant
item:
|
|
|
|
|
Acquisition-related
costs
|
(18)
|
(15)
|
(57)
|
(147)
|
Adjusted operating
income
|
$
955
|
$
789
|
$
2,397
|
$
2,521
|
Adjusted operating ratio excludes those significant items that
are reported within operating income.
|
For the three
months
ended September 30
|
For the nine
months
ended September 30
|
|
2022
|
2021
|
2022
|
2021
|
Operating ratio as
reported
|
59.5 %
|
60.2 %
|
63.2 %
|
60.1 %
|
Less significant
item:
|
|
|
|
|
Acquisition-related
costs
|
0.8 %
|
0.8 %
|
0.9 %
|
2.4 %
|
Adjusted operating
ratio
|
58.7 %
|
59.4 %
|
62.3 %
|
57.7 %
|
Adjusted Return on Invested Capital ("Adjusted ROIC")
Adjusted ROIC is calculated as Adjusted return divided by
Adjusted average invested capital. Adjusted return is defined as
Net income adjusted for interest expense, tax effected at the
Company's adjusted annualized effective tax rate, and significant
items in the Company's Consolidated Financial Statements, tax
effected at the applicable tax rate. Adjusted average invested
capital is defined as the sum of total Shareholders' equity,
Long-term debt, and Long-term debt maturing within one year, as
presented in the Company's Consolidated Financial Statements, each
averaged between the beginning and ending balance over a trailing
twelve month period, adjusted for the impact of significant items,
tax effected at the applicable tax rate, on closing balances as
part of this average. Adjusted ROIC excludes significant items
reported in the Company's Consolidated Financial Statements, as
these significant items are not considered indicative of future
financial trends either by nature or amount, and excludes interest
expense, net of tax, to incorporate returns on the Company's
overall capitalization. Adjusted ROIC is a performance measure that
measures how productively the Company uses its long-term capital
investments, representing critical indicators of good operating and
investment decisions made by management, and is an important
performance criteria in determining certain elements of the
Company's long-term incentive plan. Adjusted ROIC is reconciled
below from Return on average shareholders' equity, the most
comparable measure calculated in accordance with GAAP.
Calculation of Return on average shareholders' equity
|
For the twelve
months
ended September 30
|
(in millions of
Canadian dollars, except for percentages)
|
2022
|
2021
|
Net income as
reported
|
$
2,778
|
$
3,122
|
Average shareholders'
equity
|
$
23,641
|
$
8,524
|
Return on average
shareholders' equity
|
11.8 %
|
36.6 %
|
Reconciliation of Net income to Adjusted return
|
For the twelve
months
ended September 30
|
(in millions of
Canadian dollars)
|
2022
|
2021
|
Net income as
reported
|
$
2,778
|
$
3,122
|
Add:
|
|
|
Net interest
expense
|
611
|
427
|
Tax on
interest(1)
|
(145)
|
(104)
|
Significant items
(pre-tax):
|
|
|
Acquisition-related
costs
|
253
|
442
|
Merger termination
fee
|
—
|
(845)
|
Impact of FX
translation loss (gain) on debt and lease liabilities
|
32
|
(142)
|
Tax on significant
items(2)
|
(8)
|
16
|
Deferred tax recovery
on the outside basis difference of the investment in KCS
|
(25)
|
—
|
Income tax rate
changes
|
(12)
|
(29)
|
Adjusted
return
|
$
3,484
|
$
2,887
|
(1)
|
Tax was calculated at
the adjusted annualized effective tax rate of 23.73% and 24.34% for
the twelve months ended September 30, 2022 and 2021,
respectively.
|
(2)
|
Tax was calculated as
the pre-tax effect of the adjustments multiplied by the applicable
tax rate for the above items of 2.97% and 2.57% for the twelve
months ended September 30, 2022 and 2021, respectively. The
applicable tax rates reflect the taxable jurisdictions and nature,
being on account of capital or income, of the significant
items.
|
Reconciliation of Average shareholders' equity to Adjusted
average invested capital
|
For the twelve
months ended
September 30
|
(in millions of
Canadian dollars)
|
2022
|
2021
|
Average
shareholders' equity
|
$
23,641
|
$
8,524
|
Average long-term debt,
including long-term debt maturing within one year
|
15,272
|
9,877
|
|
$
38,913
|
$
18,401
|
Less:
|
|
|
Significant items
(pre-tax):
|
|
|
Acquisition-related
costs
|
(127)
|
(221)
|
Merger termination
fee
|
—
|
423
|
Tax on
significant items(1)
|
2
|
—
|
Deferred tax recovery
on the outside basis difference of the investment in KCS
|
13
|
—
|
Income tax rate
changes
|
6
|
15
|
Adjusted average
invested capital
|
$
39,019
|
$
18,184
|
(1)
|
Tax was calculated at
the pre-tax effect of the adjustment multiplied by the applicable
tax rate of 1.71% and 0.51% for the twelve months ended September
30, 2022 and 2021, respectively. The applicable tax rate reflects
the taxable jurisdiction and nature, being on account of capital or
income, of the significant item.
|
Calculation of Adjusted ROIC
|
For the twelve
months
ended September 30
|
(in millions of
Canadian dollars, except for percentages)
|
2022
|
2021
|
Adjusted
return
|
$
3,484
|
$
2,887
|
Adjusted average
invested capital
|
$
39,019
|
$
18,184
|
Adjusted
ROIC
|
8.9 %
|
15.9 %
|
Free Cash
Free cash is calculated as Cash provided by operating
activities, less Cash used in investing activities, adjusted for
changes in Cash and cash equivalents balances resulting from FX
fluctuations, the operating cash flow impacts of
acquisition-related costs associated with the KCS transaction, the
merger termination payment received related to KCS's termination of
the Original Merger Agreement and the payment to KCS related to the
KCS Acquisition. Free cash is a measure that management considers
to be a valuable indicator of liquidity. Free cash is useful to
investors and other external users of the Company's Consolidated
Financial Statements as it assists with the evaluation of the
Company's ability to generate cash to satisfy debt obligations and
discretionary activities such as dividends, share repurchase
programs, and other strategic opportunities. The
acquisition-related costs and the merger termination fee related to
the KCS acquisition are not indicative of operating trends and have
been excluded from Free cash. The payment to KCS is not indicative
of investment trends and has also been excluded from free cash.
Free cash should be considered in addition to, rather than as a
substitute for, Cash provided by operating activities.
Reconciliation of Cash Provided by Operating Activities to Free
Cash
|
For the three
months
ended September 30
|
For the nine
months
ended September 30
|
(in millions of
Canadian dollars)
|
2022
|
2021
|
2022
|
2021
|
Cash provided by
operating activities
|
$
1,102
|
$
548
|
$
2,422
|
$
3,084
|
Cash used in investing
activities
|
(410)
|
(2,129)
|
(978)
|
(2,820)
|
Effect of foreign
currency fluctuations on U.S. dollar-denominated cash and cash
equivalents
|
13
|
10
|
21
|
6
|
Less:
|
|
|
|
|
Acquisition-related
costs
|
(16)
|
(1)
|
(49)
|
(47)
|
Merger termination
fee
|
—
|
—
|
—
|
845
|
Payment to Kansas City
Southern
|
—
|
(1,773)
|
—
|
(1,773)
|
Free
cash
|
$
721
|
$
203
|
$
1,514
|
$
1,245
|
Foreign Exchange Adjusted % Change
FX adjusted % change allows certain financial results to be
viewed without the impact of fluctuations in foreign currency
exchange rates, thereby facilitating period-to-period comparisons
in the analysis of trends in business performance. Financial result
variances at constant currency are obtained by translating the
comparable period of the prior year results denominated in U.S.
dollars at the foreign exchange rates of the current
period.
FX adjusted % changes in revenues are further used in
calculating FX adjusted % change in freight revenue per carload and
RTM. FX adjusted % changes in revenues are as follows:
|
For the three months
ended September 30
|
(in millions of
Canadian dollars)
|
Reported
2022
|
Reported
2021
|
Variance
due to FX
|
FX Adjusted
2021
|
FX Adjusted
% Change
|
Freight revenues by
line of business
|
|
|
|
|
|
Grain
|
$
391
|
$
352
|
$
7
|
$
359
|
9
|
Coal
|
156
|
158
|
1
|
159
|
(2)
|
Potash
|
170
|
113
|
2
|
115
|
48
|
Fertilizers and
sulphur
|
81
|
72
|
1
|
73
|
11
|
Forest
products
|
109
|
89
|
3
|
92
|
18
|
Energy, chemicals and
plastics
|
360
|
392
|
7
|
399
|
(10)
|
Metals, minerals and
consumer products
|
246
|
196
|
5
|
201
|
22
|
Automotive
|
111
|
83
|
2
|
85
|
31
|
Intermodal
|
640
|
441
|
3
|
444
|
44
|
Freight
revenues
|
2,264
|
1,896
|
31
|
1,927
|
17
|
Non-freight
revenues
|
48
|
46
|
—
|
46
|
4
|
Total
revenues
|
$
2,312
|
$
1,942
|
$
31
|
$
1,973
|
17
|
|
For the nine months
ended September 30
|
(in millions of
Canadian dollars)
|
Reported
2022
|
Reported
2021
|
Variance
due to FX
|
FX Adjusted
2021
|
FX Adjusted
% Change
|
Freight revenues by
line of business
|
|
|
|
|
|
Grain
|
$
1,121
|
$
1,244
|
$
14
|
$
1,258
|
(11)
|
Coal
|
458
|
491
|
1
|
492
|
(7)
|
Potash
|
445
|
348
|
4
|
352
|
26
|
Fertilizers and
sulphur
|
244
|
227
|
4
|
231
|
6
|
Forest
products
|
299
|
259
|
6
|
265
|
13
|
Energy, chemicals and
plastics
|
1,010
|
1,149
|
14
|
1,163
|
(13)
|
Metals, minerals and
consumer products
|
655
|
535
|
10
|
545
|
20
|
Automotive
|
322
|
289
|
5
|
294
|
10
|
Intermodal
|
1,660
|
1,280
|
6
|
1,286
|
29
|
Freight
revenues
|
6,214
|
5,822
|
64
|
5,886
|
6
|
Non-freight
revenues
|
138
|
133
|
1
|
134
|
3
|
Total
revenues
|
$
6,352
|
$
5,955
|
$
65
|
$
6,020
|
6
|
FX adjusted % changes in operating expenses are as follows:
|
For the three months
ended September 30
|
(in millions of
Canadian dollars)
|
Reported
2022
|
Reported
2021
|
Variance
due to FX
|
FX Adjusted
2021
|
FX Adjusted
% Change
|
Compensation and
benefits
|
$
393
|
$
381
|
$
4
|
$
385
|
2
|
Fuel
|
358
|
199
|
6
|
205
|
75
|
Materials
|
66
|
51
|
—
|
51
|
29
|
Equipment
rents
|
33
|
31
|
1
|
32
|
3
|
Depreciation and
amortization
|
213
|
203
|
2
|
205
|
4
|
Purchased services and
other
|
312
|
303
|
4
|
307
|
2
|
Total operating
expenses
|
$
1,375
|
$
1,168
|
$
17
|
$
1,185
|
16
|
|
For the nine months
ended September 30
|
(in millions of
Canadian dollars)
|
Reported
2022
|
Reported
2021
|
Variance
due to FX
|
FX Adjusted
2021
|
FX Adjusted
% Change
|
Compensation and
benefits
|
$
1,154
|
$
1,165
|
$
8
|
$
1,173
|
(2)
|
Fuel
|
1,001
|
623
|
12
|
635
|
58
|
Materials
|
191
|
164
|
1
|
165
|
16
|
Equipment
rents
|
97
|
92
|
2
|
94
|
3
|
Depreciation and
amortization
|
634
|
605
|
4
|
609
|
4
|
Purchased services and
other
|
935
|
932
|
7
|
939
|
—
|
Total operating
expenses
|
$
4,012
|
$
3,581
|
$
34
|
$
3,615
|
11
|
FX adjusted % change in operating income is as follows:
|
For the three months
ended September 30
|
(in millions of
Canadian dollars)
|
Reported
2022
|
Reported
2021
|
Variance
due to FX
|
FX Adjusted
2021
|
FX Adjusted
% Change
|
Operating
income
|
$
937
|
$
774
|
$
14
|
$
788
|
19
|
|
For the nine months
ended September 30
|
(in millions of
Canadian dollars)
|
Reported
2022
|
Reported
2021
|
Variance
due to FX
|
FX Adjusted
2021
|
FX Adjusted
% Change
|
Operating
income
|
$
2,340
|
$
2,374
|
$
31
|
$
2,405
|
(3)
|
Adjusted Net Debt to Adjusted EBITDA Ratio and Pro-forma
adjusted Net Debt to Pro-forma 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 from operations, excluding significant items. 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.
Beginning in the first quarter of 2022, CP added disclosure of
Pro-forma adjusted net debt to Pro-forma adjusted EBITDA ratio to
better align with CP's debt covenant calculation, which
incorporates the trailing twelve month adjusted EBITDA of KCS as
well as KCS's outstanding debt. CP is incorporating the trailing
twelve month adjusted EBITDA of KCS on a pro-forma basis, as CP is
not entitled to earnings prior to the acquisition date of
December 14, 2021. CP does not
control KCS while it is in the voting trust during review of our
merger application by the U.S. Surface Transportation Board
("STB"), though CP is the beneficial owner of KCS's outstanding
shares and receives cash dividends from KCS. The adjustment to
include the trailing twelve month EBITDA and KCS's outstanding debt
provides users of the financial statements with better insight into
CP's progress in achieving deleveraging commitments. KCS's
disclosed U.S. dollar financial values for the trailing twelve
months ended September 30, 2022 were
adjusted to Canadian dollars reflecting the FX rate for the
appropriate period presented. We have not presented 2021 Pro-forma
adjusted net debt to Pro-forma adjusted EBITDA as CP was not the
beneficial owner of KCS's shares as at September 30, 2021.
Calculation of Long-term Debt to Net Income Ratio
(in millions of
Canadian dollars, except for ratios)
|
2022
|
2021
|
Long-term debt
including long-term debt maturing within one year as at September
30
|
$
20,575
|
$
9,968
|
Net income for the
twelve months ended September 30
|
$
2,778
|
$
3,122
|
Long-term debt to
Net income ratio
|
7.4
|
3.2
|
Reconciliation of Long-term Debt to Adjusted Net Debt and
Pro-forma 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. Adjusted net debt is used as a measure of debt
and long-term obligations as part of the calculation of Adjusted
Net Debt to Adjusted EBITDA.
(in millions of
Canadian dollars)(1)
|
2022
|
2021
|
CP Long-term debt
including long-term debt maturing within one year as at September
30
|
$
20,575
|
$
9,968
|
Add:
|
|
|
Pension plans
deficit(2)
|
265
|
323
|
Operating lease
liabilities
|
280
|
274
|
Less:
|
|
|
Cash and cash
equivalents
|
138
|
210
|
CP Adjusted net debt
as at September 30
|
$
20,982
|
$
10,355
|
KCS's long-term debt
including long-term debt maturing within one year as at September
30
|
$
5,183
|
N/A
|
Add:
|
|
|
KCS operating lease
liabilities
|
116
|
N/A
|
Less:
|
|
|
KCS cash and cash
equivalents
|
225
|
N/A
|
KCS Adjusted net
debt as at September 30
|
5,074
|
N/A
|
CP Adjusted net debt
as at September 30
|
20,982
|
N/A
|
Pro-forma Adjusted
net debt as at September 30
|
$
26,056
|
N/A
|
(1)
|
KCS's amounts were
translated at the September 30, 2022 period end FX rate of
$1.37.
|
(2)
|
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 and Pro-forma Adjusted EBITDA
Earnings before interest and tax ("EBIT") is calculated as Net
income before Net interest expense and Income tax expense. Adjusted
EBIT excludes significant items reported in both Operating income
and Other expense. Adjusted EBITDA is calculated as Adjusted EBIT
plus operating lease expense and Depreciation and amortization,
less Other components of net periodic benefit recovery. Adjusted
EBITDA is used as a measure of liquidity derived from operations,
excluding significant items, as part of the calculation of Adjusted
Net Debt to Adjusted EBITDA.
|
For the twelve
months
ended September 30
|
(in millions of
Canadian dollars)(1)
|
2022
|
2021
|
CP Net income as
reported
|
$
2,778
|
$
3,122
|
Add:
|
|
|
Net interest
expense
|
611
|
427
|
Income tax
expense
|
677
|
812
|
EBIT
|
4,066
|
4,361
|
Less significant items
(pre-tax):
|
|
|
Acquisition-related
costs
|
(253)
|
(442)
|
Merger termination
fee
|
—
|
845
|
Impact of FX
translation (loss) gain on debt and lease liabilities
|
(32)
|
142
|
Adjusted
EBIT
|
4,351
|
3,816
|
Add:
|
|
|
Operating lease
expense
|
77
|
71
|
Depreciation and
amortization
|
840
|
802
|
Less:
|
|
|
Other components of
net periodic benefit recovery
|
405
|
371
|
CP Adjusted
EBITDA
|
$
4,863
|
$
4,318
|
Net income
attributable to KCS and subsidiaries
|
$
1,497
|
N/A
|
Add:
|
|
|
KCS interest
expense
|
200
|
N/A
|
KCS income tax
expense
|
498
|
N/A
|
KCS
EBIT
|
2,195
|
N/A
|
Less significant item
(pre-tax):
|
|
|
KCS merger
income
|
599
|
N/A
|
KCS Adjusted
EBIT
|
1,596
|
N/A
|
Add:
|
|
|
KCS total lease
cost
|
40
|
N/A
|
KCS depreciation and
amortization
|
491
|
N/A
|
KCS Adjusted
EBITDA
|
2,127
|
N/A
|
CP Adjusted
EBITDA
|
$
4,863
|
N/A
|
Less:
|
|
|
Equity earnings of
KCS(2)
|
486
|
N/A
|
Acquisition-related
costs of KCS(3)
|
208
|
N/A
|
Pro-forma Adjusted
EBITDA
|
$
6,296
|
N/A
|
(1)
|
KCS's amounts
were translated at the quarterly average FX rate of $1.30, $1.28,
$1.27, and $1.26 for Q3 2022, Q2 2022, Q1 2022 and Q4 2021,
respectively.
|
(2)
|
Equity earnings of KCS
were part of CP's reported net income and therefore have been
deducted in arriving to the Pro-forma Adjusted EBITDA.
|
(3)
|
Acquisition-related
costs of KCS have been adjusted in CP's Adjusted EBITDA calculation
above, therefore have been deducted in arriving to the Pro-forma
Adjusted EBITDA.
|
Calculation of Adjusted Net Debt to Adjusted EBITDA Ratio and
Pro-forma Adjusted Net Debt to Pro-forma Adjusted EBITDA Ratio
(in millions of
Canadian dollars, except for ratios)
|
2022
|
2021
|
Adjusted net debt as at
September 30
|
$
20,982
|
$
10,355
|
Adjusted EBITDA for the
twelve months ended September 30
|
$
4,863
|
$
4,318
|
Adjusted net debt to
Adjusted EBITDA ratio
|
4.3
|
2.4
|
(in millions of
Canadian dollars, except for ratios)
|
2022
|
2021
|
Pro-forma adjusted net
debt as at September 30
|
$
26,056
|
N/A
|
Pro-forma adjusted
EBITDA for the twelve months ended September 30
|
$
6,296
|
N/A
|
Pro-forma adjusted
net debt to Pro-forma adjusted EBITDA ratio
|
4.1
|
N/A
|
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content:https://www.prnewswire.com/news-releases/cp-reports-solid-third-quarter-results-well-positioned-for-strong-finish-to-2022-301660394.html
SOURCE Canadian Pacific