CALGARY, AB, July 28, 2021 /PRNewswire/ - Canadian
Pacific Railway Limited (TSX: CP) (NYSE: CP) today announced
second-quarter operating results, including record Q2 revenues of
$2.05 billion, an operating ratio
("OR") of 60.1 percent, record Q2 adjusted OR of 55.3 percent,
record diluted earnings per share ("EPS") of $1.86 and record adjusted diluted EPS of
$1.03.
"Our industry-leading team of railroaders delivered another
record quarter. I am particularly proud of our all-time record
safety performance made possible by the collective efforts of the
over 12,000-strong CP family," said Keith
Creel, CP President and Chief Executive Officer. "The robust
base demand environment coupled with our unique growth
opportunities has CP extremely well positioned as we head into the
second half of the year."
Second-quarter highlights
- Revenues increased by 15 percent to a Q2 record $2.05 billion, from $1.79
billion last year
- Reported diluted EPS was $1.86, a
100 percent increase from $0.93 last
year
- Adjusted diluted EPS was $1.03, a
27 percent increase from $0.81 last
year
- Reported OR, which includes Kansas City Southern ("KCS")
acquisition-related costs, increased by 310 basis points to 60.1
percent from 57.0 percent.
- Adjusted OR, which excludes the KCS acquisition-related costs,
improved 170 basis points to a Q2 record 55.3 percent
- Federal Railroad Administration ("FRA")-reportable personal
injuries declined 34 percent to a record-low 0.77 from 1.16 in Q2
2020, and FRA-reportable train accident frequency decreased 70
percent versus Q2 2020 to a record-low 0.36 from
1.191
"We remain confident in our full-year guidance of double-digit
adjusted diluted EPS growth relative to 2020's adjusted diluted EPS
of $3.53," added Creel. "Our ability
to deliver sustainable, profitable growth has never been
stronger."
CP's second-quarter results reflect the five-for-one share split
of the outstanding Common Shares that was approved by shareholders
on April 21, 2021. All outstanding
Common Shares and per share amounts have been retrospectively
adjusted to reflect the share split.
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) today.
Conference call access
Toronto participants dial in number:
1-416-764-8688
Operator assisted toll free dial in number:
1-888-390-0546
Callers should dial in 10 minutes prior to the call.
1Federal Railroad Administration ("FRA") personal
injuries per 200,000 employee-hours for the three months ended
June 30, 2020, previously reported as
1.12, was restated to 1.16 in this Earnings Release. FRA train
accidents per million train-miles for the three months ended
June 30, 2020, previously reported as
1.06, was restated to 1.19 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.
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 second-quarter conference call will be available
by phone through to Aug. 4, 2021 at
416-764-8677 or toll free 1-888-390-0541, password 047330#.
Access to the webcast and audio file of the presentation will be
available at investor.cpr.ca.
Non-GAAP measures
Although CP has provided a
forward-looking non-GAAP measure (adjusted diluted EPS), management
is unable to reconcile, without unreasonable efforts, the
forward-looking adjusted diluted EPS to the most comparable GAAP
measure (diluted EPS), due to unknown variables and uncertainty
related to future results. These unknown variables may include
unpredictable transactions of significant value. In recent years,
CP has recognized acquisition-related costs (including legal,
consulting and financing fees, and fair value gain or loss on
foreign exchange (FX) forward contracts and interest rate hedges),
the merger termination fee, changes in income tax rates and a
change to an uncertain tax item. These or other similar, large
unforeseen transactions affect diluted EPS but may be excluded from
CP's adjusted diluted EPS. Additionally, the U.S.-to-Canadian
dollar FX rate is unpredictable and can have a significant impact
on CP's reported results but may be excluded from CP's adjusted
diluted EPS. In particular, CP excludes the FX impact of
translating the Company's debt and lease liabilities from adjusted
diluted EPS. Please see Note on forward-looking information below
for further discussion.
For information regarding non-GAAP measures, including
reconciliations to the nearest GAAP measures, see the attached
supplementary schedule Non-GAAP Measures.
Note on forward-looking information
This news release
may contain certain forward-looking information and forward-looking
statements (collectively, "forward-looking information") within the
meaning of applicable securities laws. Forward-looking information
includes, but is not limited to, statements concerning
expectations, beliefs, plans, goals, objectives, assumptions and
statements about possible future events, conditions, and results of
operations or performance. Forward-looking information may contain
statements with words or headings such as "financial expectations",
"key assumptions", "anticipate", "believe", "expect", "plan",
"will", "outlook", "should" or similar words suggesting future
outcomes. This news release contains forward-looking information
relating, but not limited to statements concerning 2021 volume
including as measured in RTMs, EPS growth and adjusted diluted EPS
growth, capital program investments, the U.S.-to-Canadian dollar
exchange rate, annualized effective tax rate, other components of
net periodic benefit recovery, cost control efforts, the success of
our business, our operations, priorities and plans, anticipated
financial and operational performance, business prospects 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; commodity demand growth; sustainable industrial and
agricultural production; commodity prices and interest rates;
foreign exchange rates (as specified herein); effective tax rates
(as specified herein); performance of our assets and equipment;
sufficiency of our budgeted capital expenditures in carrying out
our business plan; geopolitical conditions, applicable laws,
regulations and government policies; the availability and cost of
labour, services and infrastructure; the satisfaction by third
parties of their obligations to CP; and the anticipated impacts of
the COVID-19 pandemic on CP businesses, operating results, cash
flows and/or financial condition. Although CP believes the
expectations, estimates, projections and assumptions reflected in
the forward-looking information presented herein are reasonable as
of the date hereof, there can be no assurance that they will prove
to be correct. Current conditions, economic and otherwise, render
assumptions, although reasonable when made, subject to greater
uncertainty.
Undue reliance should not be placed on forward-looking
information as actual results may differ materially from those
expressed or implied by forward-looking information. By its nature,
CP's forward-looking information involves inherent risks and
uncertainties that could cause actual results to differ materially
from the forward looking information, including, but not limited
to, the following factors: changes in business strategies and
strategic opportunities; the risk that the Company will not
re-engage with KCS or be successful in doing so; North
American 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 and the U.S.; 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; 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 and the U.S.; climate change and the
market and regulatory responses to climate change; anticipated
in-service dates; success of hedging activities; operational
performance and reliability; regulatory and legislative decisions
and actions; 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
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; 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; and
the ability of the management of the Company, its subsidiaries and
affiliates to execute key priorities. The foregoing list of factors
is not exhaustive. These and other factors are detailed from time
to time in reports filed by CP with securities regulators in
Canada and the United States. Reference should be made to
"Risk Factors" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Forward-Looking
Statements" in CP's annual and interim reports on Form 10-K and
10-Q.
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
June 30
|
For the six months
ended
June 30
|
(in millions of
Canadian dollars, except share and per share data)
|
2021
|
2020
|
2021
|
2020
|
Revenues (Note
3)
|
|
|
|
|
Freight
|
$
|
2,008
|
$
|
1,752
|
$
|
3,926
|
$
|
3,752
|
Non-freight
|
46
|
40
|
87
|
83
|
Total
revenues
|
2,054
|
1,792
|
4,013
|
3,835
|
Operating
expenses
|
|
|
|
|
Compensation and
benefits
|
379
|
347
|
784
|
745
|
Fuel
|
218
|
131
|
424
|
343
|
Materials
|
54
|
50
|
113
|
109
|
Equipment
rents
|
28
|
33
|
61
|
69
|
Depreciation and
amortization
|
200
|
195
|
402
|
387
|
Purchased services and
other (Note 9, 10)
|
355
|
266
|
629
|
578
|
Total operating
expenses
|
1,234
|
1,022
|
2,413
|
2,231
|
|
|
|
|
|
Operating
income
|
820
|
770
|
1,600
|
1,604
|
Less:
|
|
|
|
|
Other expense (income)
(Note 4, 10)
|
157
|
(86)
|
129
|
125
|
Merger termination fee
(Note 10)
|
(845)
|
—
|
(845)
|
—
|
Other components of net
periodic benefit recovery (Note 14)
|
(96)
|
(86)
|
(191)
|
(171)
|
Net interest
expense
|
101
|
118
|
211
|
232
|
Income before
income tax expense
|
1,503
|
824
|
2,296
|
1,418
|
Income tax expense
(Note 5)
|
257
|
189
|
448
|
374
|
Net
income
|
$
|
1,246
|
$
|
635
|
$
|
1,848
|
$
|
1,044
|
|
|
|
|
|
Earnings per share
(Note 1, 6)
|
|
|
|
|
Basic earnings per
share
|
$
|
1.87
|
$
|
0.94
|
$
|
2.77
|
$
|
1.53
|
Diluted earnings per
share
|
$
|
1.86
|
$
|
0.93
|
$
|
2.76
|
$
|
1.53
|
|
|
|
|
|
Weighted-average
number of shares (millions) (Note 1, 6)
|
|
|
|
|
Basic
|
666.7
|
678.2
|
666.6
|
680.8
|
Diluted
|
669.9
|
680.5
|
669.8
|
683.1
|
|
|
|
|
|
Dividends declared
per share (Note 1)
|
$
|
0.190
|
$
|
0.166
|
0.380
|
$
|
0.332
|
See Notes to Interim Consolidated Financial Statements.
INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME
(unaudited)
|
For the three
months
ended June 30
|
For the six
months
ended June 30
|
(in millions of
Canadian dollars)
|
2021
|
2020
|
2021
|
2020
|
Net income
|
$
|
1,246
|
$
|
635
|
$
|
1,848
|
$
|
1,044
|
Net gain (loss) in
foreign currency translation adjustments, net of hedging
activities
|
10
|
31
|
20
|
(34)
|
Change in derivatives
designated as cash flow hedges
|
(97)
|
1
|
(72)
|
3
|
Change in pension and
post-retirement defined benefit plans
|
52
|
45
|
105
|
90
|
Other comprehensive
(loss) income before income taxes
|
(35)
|
77
|
53
|
59
|
Income tax (expense)
recovery on above items
|
—
|
(47)
|
(30)
|
13
|
Other comprehensive
(loss) income (Note 7)
|
(35)
|
30
|
23
|
72
|
Comprehensive
income
|
$
|
1,211
|
$
|
665
|
$
|
1,871
|
$
|
1,116
|
See Notes to Interim Consolidated Financial Statements.
INTERIM CONSOLIDATED BALANCE SHEETS AS
AT
(unaudited)
|
June
30
|
December
31
|
(in millions of
Canadian dollars)
|
2021
|
2020
|
Assets
|
|
|
Current
assets
|
|
|
Cash and cash
equivalents
|
$
|
892
|
$
|
147
|
Accounts receivable,
net (Note 8)
|
755
|
825
|
Materials and
supplies
|
218
|
208
|
Other current
assets
|
122
|
141
|
|
1,987
|
1,321
|
Investments
|
197
|
199
|
Properties
|
20,639
|
20,422
|
Goodwill and
intangible assets
|
366
|
366
|
Pension
asset
|
1,119
|
894
|
Other
assets
|
396
|
438
|
Total
assets
|
$
|
24,704
|
$
|
23,640
|
Liabilities and
shareholders' equity
|
|
|
Current
liabilities
|
|
|
Accounts payable and
accrued liabilities
|
$
|
1,945
|
$
|
1,467
|
Long-term debt
maturing within one year (Note 11, 12)
|
872
|
1,186
|
|
2,817
|
2,653
|
Pension and other
benefit liabilities
|
823
|
832
|
Other long-term
liabilities
|
525
|
585
|
Long-term debt (Note
11, 12)
|
7,850
|
8,585
|
Deferred income
taxes
|
3,724
|
3,666
|
Total
liabilities
|
15,739
|
16,321
|
Shareholders'
equity
|
|
|
Share
capital
|
2,003
|
1,983
|
Additional paid-in
capital
|
63
|
55
|
Accumulated other
comprehensive loss (Note 7)
|
(2,791)
|
(2,814)
|
Retained
earnings
|
9,690
|
8,095
|
|
8,965
|
7,319
|
Total liabilities
and shareholders' equity
|
$
|
24,704
|
$
|
23,640
|
See Contingencies (Note 16).
See Notes to Interim Consolidated Financial Statements.
INTERIM CONSOLIDATED STATEMENTS OF CASH
FLOWS
(unaudited)
|
For the three
months
ended June 30
|
For the six
months
ended June 30
|
(in millions of
Canadian dollars)
|
2021
|
2020
|
2021
|
2020
|
Operating
activities
|
|
|
|
|
Net income
|
$
|
1,246
|
$
|
635
|
$
|
1,848
|
$
|
1,044
|
Reconciliation of net
income to cash provided by operating activities:
|
|
|
|
|
Depreciation and
amortization
|
200
|
195
|
402
|
387
|
Deferred income tax
expense (Note 5)
|
9
|
49
|
60
|
88
|
Pension recovery and
funding (Note 14)
|
(65)
|
(62)
|
(126)
|
(127)
|
Foreign exchange
(gain) loss on debt and lease liabilities (Note 4)
|
(52)
|
(86)
|
(85)
|
129
|
Other operating
activities, net
|
52
|
27
|
(36)
|
(45)
|
Change in non-cash
working capital balances related to operations
|
564
|
77
|
473
|
(152)
|
Cash provided by
operating activities
|
1,954
|
835
|
2,536
|
1,324
|
Investing
activities
|
|
|
|
|
|
Additions to
properties
|
(416)
|
(502)
|
(739)
|
(857)
|
Investment in Central
Maine & Québec Railway
|
—
|
19
|
—
|
19
|
Proceeds from sale of
properties and other assets
|
12
|
5
|
49
|
7
|
Other
|
(1)
|
10
|
(1)
|
1
|
Cash used in
investing activities
|
(405)
|
(468)
|
(691)
|
(830)
|
Financing
activities
|
|
|
|
|
|
|
Dividends
paid
|
(126)
|
(112)
|
(253)
|
(226)
|
Issuance of CP Common
Shares
|
8
|
5
|
16
|
29
|
Purchase of CP Common
Shares (Note 13)
|
—
|
(44)
|
—
|
(545)
|
Issuance of long-term
debt, excluding commercial paper
|
—
|
(1)
|
—
|
958
|
Repayment of
long-term debt, excluding commercial paper
|
(10)
|
(10)
|
(31)
|
(25)
|
Net repayment of
commercial paper (Note 11)
|
(872)
|
(20)
|
(779)
|
(573)
|
Net (decrease)
increase in short-term borrowings
|
—
|
(140)
|
—
|
5
|
Acquisition-related
financing fees (Note 10)
|
(12)
|
—
|
(45)
|
—
|
Other
|
(4)
|
—
|
(4)
|
11
|
Cash used in
financing activities
|
(1,016)
|
(322)
|
(1,096)
|
(366)
|
Effect of foreign
currency fluctuations on U.S. dollar-denominated
cash and cash equivalents
|
(1)
|
(15)
|
(4)
|
16
|
Cash
position
|
|
|
|
|
|
|
Increase in cash and
cash equivalents
|
532
|
30
|
745
|
144
|
Cash and cash
equivalents at beginning of period
|
360
|
247
|
147
|
133
|
Cash and cash
equivalents at end of period
|
$
|
892
|
$
|
277
|
$
|
892
|
$
|
277
|
|
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
Income taxes
paid
|
$
|
139
|
$
|
5
|
$
|
272
|
$
|
144
|
Interest
paid
|
$
|
57
|
$
|
63
|
$
|
212
|
$
|
220
|
See Notes to Interim Consolidated Financial Statements.
INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY
(unaudited)
|
|
For the three
months ended June 30
|
(in millions of
Canadian dollars except per
share data)
|
|
Common
Shares (in
millions)
|
|
Share
capital
|
Additional
paid-in
capital
|
Accumulated
other
comprehensive
loss
|
Retained
earnings
|
Total
shareholders'
equity
|
Balance at April
1, 2021
|
|
|
666.6
|
|
$
|
1,993
|
$
|
58
|
$
|
(2,756)
|
$
|
8,571
|
$
|
7,866
|
Net income
|
|
—
|
|
—
|
—
|
—
|
1,246
|
1,246
|
Other comprehensive
loss (Note 7)
|
|
—
|
|
—
|
—
|
(35)
|
—
|
(35)
|
Dividends declared
($0.190 per share) (Note
1)
|
|
—
|
|
—
|
—
|
—
|
(127)
|
(127)
|
Effect of stock-based
compensation
expense
|
|
—
|
|
—
|
7
|
—
|
—
|
7
|
Shares issued under
stock option plan
|
|
0.2
|
|
10
|
(2)
|
—
|
—
|
8
|
Balance at June
30, 2021
|
|
666.8
|
|
$
|
2,003
|
$
|
63
|
$
|
(2,791)
|
$
|
9,690
|
$
|
8,965
|
Balance at April 1,
2020
|
|
678.1
|
|
$
|
1,985
|
$
|
51
|
$
|
(2,480)
|
$
|
7,399
|
$
|
6,955
|
Net income
|
|
—
|
|
—
|
—
|
—
|
635
|
635
|
Other comprehensive
income (Note 7)
|
|
—
|
|
—
|
—
|
30
|
—
|
30
|
Dividends declared
($0.166 per share) (Note
1)
|
|
—
|
|
—
|
—
|
—
|
(113)
|
(113)
|
Effect of stock-based
compensation
expense
|
|
—
|
|
—
|
4
|
—
|
—
|
4
|
CP Common Shares
repurchased (Note 13)
|
|
(0.7)
|
|
(3)
|
—
|
—
|
(49)
|
(52)
|
Shares issued under
stock option plan
|
|
0.2
|
|
8
|
(2)
|
—
|
—
|
6
|
Balance at June 30,
2020
|
|
677.6
|
|
$
|
1,990
|
$
|
53
|
$
|
(2,450)
|
$
|
7,872
|
$
|
7,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months
ended June 30
|
(in millions of
Canadian dollars except per
share data)
|
|
Common
shares (in
millions)
|
|
Share
capital
|
Additional
paid-in
capital
|
Accumulated
other
comprehensive
loss
|
Retained
earnings
|
Total
shareholders'
equity
|
Balance at January
1, 2021
|
|
|
666.3
|
|
$
|
1,983
|
$
|
55
|
$
|
(2,814)
|
$
|
8,095
|
$
|
7,319
|
Net income
|
|
—
|
|
—
|
—
|
—
|
1,848
|
1,848
|
Other comprehensive
income (Note 7)
|
|
—
|
|
—
|
—
|
23
|
—
|
23
|
Dividends declared
($0.380 per share) (Note
1)
|
|
—
|
|
—
|
—
|
—
|
(253)
|
(253)
|
Effect of stock-based
compensation
expense
|
|
—
|
|
—
|
12
|
—
|
—
|
12
|
Shares issued under
stock option plan
|
|
0.5
|
|
20
|
(4)
|
—
|
—
|
16
|
Balance at June
30, 2021
|
|
666.8
|
|
$
|
2,003
|
$
|
63
|
$
|
(2,791)
|
$
|
9,690
|
$
|
8,965
|
Balance at January 1,
2020
|
|
685.0
|
|
$
|
1,993
|
$
|
48
|
$
|
(2,522)
|
$
|
7,549
|
$
|
7,068
|
Net income
|
|
—
|
|
—
|
—
|
—
|
1,044
|
1,044
|
Other comprehensive
income (Note 7)
|
|
—
|
|
—
|
—
|
72
|
—
|
72
|
Dividends declared
($0.332 per share) (Note
1)
|
|
—
|
|
—
|
—
|
—
|
(225)
|
(225)
|
Effect of stock-based
compensation
expense
|
|
—
|
|
—
|
9
|
—
|
—
|
9
|
CP Common Shares
repurchased (Note 13)
|
|
(8.4)
|
|
(24)
|
—
|
—
|
(496)
|
(520)
|
Shares issued under
stock option plan
|
|
1.0
|
|
21
|
(4)
|
|
—
|
—
|
17
|
Balance at June 30,
2020
|
|
677.6
|
|
$
|
1,990
|
$
|
53
|
$
|
(2,450)
|
$
|
7,872
|
$
|
7,465
|
See Notes to Interim Consolidated Financial Statements.
NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS
June 30,
2021
(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 2020 annual Consolidated Financial
Statements and notes included in CP's 2020 Annual Report on Form
10-K. The accounting policies used are consistent with the
accounting policies used in preparing the 2020 annual Consolidated
Financial Statements.
On April 21, 2021, the Company's
shareholders approved a five-for-one share split of the Company's
issued and outstanding Common Shares. On May
13, 2021, the Company's shareholders of record as of
May 5, 2021 received four additional
shares for every Common Share held. Ex-distribution trading in the
Company's Common Shares on a split-adjusted basis commenced on
May 14, 2021. Proportional
adjustments were also made to outstanding awards under the
Company's stock-based compensation plans in order to reflect the
share split. All outstanding Common Shares, stock-based
compensation awards, and per share amounts herein have been
retrospectively adjusted to reflect the share split.
CP's operations can be affected by seasonal fluctuations such as
changes in customer demand and weather-related issues. This
seasonality could impact quarter-over-quarter comparisons.
In management's opinion, the Interim Consolidated Financial
Statements include all adjustments (consisting of normal and
recurring adjustments) necessary to present fairly such
information. Interim results are not necessarily indicative of the
results expected for the fiscal year.
2 Accounting changes
Accounting pronouncements that became effective during the
period covered by the Interim Consolidated Financial Statements did
not have a material impact on the Company's Interim Consolidated
Balance Sheets, Interim Consolidated Statements of Income, or
Interim Consolidated Statements of Cash Flows. Likewise, accounting
pronouncements issued, but not effective until after June 30, 2021, are not expected to have a
material impact on the Company's Consolidated Balance Sheets,
Consolidated Statements of Income, or Consolidated Statements of
Cash Flows.
3 Revenues
The following table disaggregates the Company's revenues from
contracts with customers by major source:
|
For the three
months
ended June 30
|
For the six
months
ended June 30
|
(in millions of
Canadian dollars)
|
2021
|
2020
|
2021
|
2020
|
Freight
|
|
|
|
|
Grain
|
$
|
444
|
$
|
446
|
$
|
892
|
$
|
864
|
Coal
|
170
|
131
|
333
|
281
|
Potash
|
134
|
146
|
235
|
258
|
Fertilizers and
sulphur
|
78
|
77
|
155
|
147
|
Forest
products
|
90
|
81
|
170
|
159
|
Energy, chemicals and
plastics
|
369
|
341
|
757
|
832
|
Metals, minerals and
consumer products
|
180
|
133
|
339
|
322
|
Automotive
|
98
|
34
|
206
|
121
|
Intermodal
|
445
|
363
|
839
|
768
|
Total freight
revenues
|
2,008
|
1,752
|
3,926
|
3,752
|
Non-freight excluding
leasing revenues
|
26
|
25
|
50
|
54
|
Revenues from
contracts with customers
|
2,034
|
1,777
|
3,976
|
3,806
|
Leasing
revenues
|
20
|
|
15
|
|
37
|
|
29
|
Total
revenues
|
$
|
2,054
|
$
|
1,792
|
$
|
4,013
|
$
|
3,835
|
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 June 30
|
For the six
months
ended June 30
|
(in millions of
Canadian dollars)
|
2021
|
2020
|
2021
|
2020
|
Opening
balance
|
$
|
114
|
$
|
112
|
$
|
61
|
$
|
146
|
Revenue recognized
that was included in the contract liability balance at
the beginning of the period
|
|
(19)
|
|
(37)
|
|
(23)
|
|
(73)
|
Increase due to
consideration received, net of revenue recognized
during the period
|
|
150
|
|
4
|
|
207
|
|
6
|
Closing
balance
|
$
|
245
|
$
|
79
|
$
|
245
|
$
|
79
|
4 Other expense (income)
|
For the three
months
ended June 30
|
For the six
months
ended June 30
|
(in millions of
Canadian dollars)
|
2021
|
2020
|
2021
|
2020
|
Foreign exchange
(gain) loss on debt and lease liabilities
|
$
|
(52)
|
$
|
(86)
|
$
|
(85)
|
$
|
129
|
Other foreign
exchange (gains) losses
|
|
(3)
|
1
|
(2)
|
(4)
|
Acquisition-related
costs (Note 10)
|
|
209
|
—
|
212
|
—
|
Other
|
|
3
|
(1)
|
4
|
—
|
Other expense
(income)
|
$
|
157
|
$
|
(86)
|
$
|
129
|
$
|
125
|
5 Income taxes
|
For the three
months
ended June 30
|
For the six
months
ended June 30
|
(in millions of
Canadian dollars)
|
2021
|
2020
|
2021
|
2020
|
Current income tax
expense
|
$
|
248
|
$
|
140
|
$
|
388
|
$
|
286
|
Deferred income tax
expense
|
|
9
|
|
49
|
|
60
|
|
88
|
Income tax
expense
|
$
|
257
|
$
|
189
|
$
|
448
|
$
|
374
|
The effective tax rates including discrete items for the three
and six months ended June 30, 2021
were 17.10% and 19.50%, respectively, compared to 22.98% and
26.38%, respectively for the same periods of 2020.
For the three months ended June 30,
2021, the effective tax rate was 24.60%, excluding the
discrete items of the merger termination fee of $845 million
(U.S. $700 million) received in connection with the KCS'
termination of the Merger Agreement, foreign exchange ("FX") gain
of $52 million on debt and lease liabilities, and
acquisition-related costs of $308 million.
For the three months ended June 30,
2020, the effective tax rate was 25.00%, excluding the
discrete item of the FX gain of $86
million on debt and lease liabilities.
For the six months ended June 30,
2021, the effective tax rate was 24.60%, excluding the
discrete items of the merger termination fee of $845 million
(U.S. $700 million), FX gain of $85
million on debt and lease liabilities, and
acquisition-related costs of $344 million.
For the six months ended June 30,
2020, the effective tax rate was 25.00%, excluding the
discrete item of the FX loss of $129
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 June 30
|
For the six
months
ended June 30
|
(in
millions)
|
2021
|
2020
|
2021
|
2020
|
Weighted-average
basic shares outstanding
|
|
666.7
|
|
678.2
|
|
666.6
|
|
680.8
|
Dilutive effect of
stock options
|
|
3.2
|
|
2.3
|
|
3.2
|
|
2.3
|
Weighted-average
diluted shares outstanding
|
|
669.9
|
|
680.5
|
|
669.8
|
|
683.1
|
For the three and six months ended June
30, 2021, there were no options excluded from the
computation of diluted earnings per share (three and six months
June 30, 2020 - 1.1 million and
0.9 million, respectively).
7 Changes in Accumulated other
comprehensive loss ("AOCL") by component
|
For the three
months ended June 30
|
(in millions of
Canadian dollars)
|
Foreign
currency
net of hedging
activities(1)
|
Derivatives
and
other(1)
|
Pension and
post-
retirement defined
benefit plans(1)
|
Total(1)
|
Opening balance,
April 1, 2021
|
$
|
112
|
$
|
(29)
|
$
|
(2,839)
|
$
|
(2,756)
|
Other comprehensive
loss before reclassifications
|
|
(2)
|
(74)
|
—
|
(76)
|
Amounts reclassified
from accumulated other
comprehensive loss
|
|
—
|
2
|
39
|
41
|
Net other
comprehensive (loss) income
|
|
(2)
|
(72)
|
39
|
(35)
|
Closing balance,
June 30, 2021
|
$
|
110
|
$
|
(101)
|
$
|
(2,800)
|
$
|
(2,791)
|
Opening balance,
April 1, 2020
|
$
|
119
|
$
|
(52)
|
$
|
(2,547)
|
$
|
(2,480)
|
Other comprehensive
loss before reclassifications
|
|
(3)
|
(2)
|
—
|
(5)
|
Amounts reclassified
from accumulated other
comprehensive loss
|
|
—
|
2
|
33
|
35
|
Net other
comprehensive (loss) income
|
|
(3)
|
—
|
33
|
30
|
Closing balance, June
30, 2020
|
$
|
116
|
$
|
(52)
|
$
|
(2,514)
|
$
|
(2,450)
|
(1)
Amounts are presented net of tax.
|
|
For the six months
ended June 30
|
(in millions of
Canadian dollars)
|
Foreign currency
net of hedging
activities(1)
|
Derivatives and
other(1)
|
Pension and post-
retirement defined
benefit plans(1)
|
Total(1)
|
Opening balance,
January 1, 2021
|
$
|
112
|
$
|
(48)
|
$
|
(2,878)
|
$
|
(2,814)
|
Other comprehensive
loss before reclassifications
|
(2)
|
(57)
|
—
|
|
(59)
|
Amounts reclassified
from accumulated other
comprehensive loss
|
—
|
4
|
78
|
|
82
|
Net other
comprehensive (loss) income
|
(2)
|
(53)
|
78
|
|
23
|
Closing balance,
June 30, 2021
|
$
|
110
|
$
|
(101)
|
|
(2,800)
|
$
|
(2,791)
|
Opening balance,
January 1, 2020
|
$
|
112
|
$
|
(54)
|
$
|
(2,580)
|
$
|
(2,522)
|
Other comprehensive
income (loss) before reclassifications
|
4
|
(2)
|
—
|
|
2
|
Amounts reclassified
from accumulated other
comprehensive loss
|
—
|
4
|
66
|
|
70
|
Net other
comprehensive income
|
4
|
2
|
66
|
|
72
|
Closing balance, June
30, 2020
|
$
|
116
|
$
|
(52)
|
$
|
(2,514)
|
$
|
(2,450)
|
(1)
Amounts are presented net of tax.
|
Amounts in Pension and post-retirement defined benefit plans
reclassified from AOCL are as follows:
|
For the three
months
ended June 30
|
For the six
months
ended June 30
|
(in millions of
Canadian dollars)
|
2021
|
2020
|
2021
|
2020
|
Recognition of net
actuarial loss(1)
|
$
|
52
|
$
|
45
|
$
|
105
|
$
|
90
|
Income tax
recovery
|
|
(13)
|
|
(12)
|
|
(27)
|
|
(24)
|
Total net of income
tax
|
$
|
39
|
$
|
33
|
$
|
78
|
$
|
66
|
(1)
Impacts "Other components of net periodic benefit recovery" on the
Interim Consolidated Statements of Income.
|
8 Accounts receivable, net
|
As at June 30,
2021
|
As at December 31,
2020
|
(in millions of
Canadian dollars)
|
Freight
|
Non-
freight
|
Total
|
Freight
|
|
Non-
freight
|
|
Total
|
Total accounts
receivable
|
$
|
614
|
$
|
179
|
$
|
793
|
$
|
662
|
$
|
203
|
$
|
865
|
Allowance for credit
losses
|
|
(23)
|
|
(15)
|
|
(38)
|
|
(25)
|
|
(15)
|
|
(40)
|
Total accounts
receivable, net
|
$
|
591
|
$
|
164
|
$
|
755
|
$
|
637
|
$
|
188
|
$
|
825
|
|
For the three
months ended June
30, 2021
|
For the three
months ended June
30, 2020
|
(in millions of
Canadian dollars)
|
Freight
|
Non-
freight
|
Total
|
Freight
|
Non-
freight
|
Total
|
Allowance for credit
losses, opening balance
|
$
|
(24)
|
|
$
|
(15)
|
$
|
(39)
|
$
|
(27)
|
$
|
(14)
|
$
|
(41)
|
Current period credit
loss provision, net
|
|
1
|
|
|
—
|
|
1
|
|
1
|
|
—
|
|
1
|
Allowance for credit
losses, closing balance
|
$
|
(23)
|
|
$
|
(15)
|
$
|
(38)
|
$
|
(26)
|
$
|
(14)
|
$
|
(40)
|
|
For the six months
ended June 30,
2021
|
For the six months
ended June 30,
2020
|
(in millions of
Canadian dollars)
|
Freight
|
Non-
freight
|
Total
|
Freight
|
Non-
freight
|
Total
|
Allowance for credit
losses, opening balance
|
$
|
(25)
|
$
|
(15)
|
$
|
(40)
|
$
|
(27)
|
$
|
(16)
|
$
|
(43)
|
Current period credit
loss provision, net
|
|
2
|
|
—
|
|
2
|
|
1
|
|
2
|
|
3
|
Allowance for credit
losses, closing balance
|
$
|
(23)
|
$
|
(15)
|
$
|
(38)
|
$
|
(26)
|
$
|
(14)
|
$
|
(40)
|
9 Property sale
Gain on exchange of property and construction easements in
Chicago
During the first quarter of 2021, the Company exchanged property
and construction easements in Chicago with a government agency for proceeds
of $103 million including cash of $61 million and
property assets at a fair value of $42 million. Fair value was
determined based on comparable market transactions. The Company
recorded a gain in the first quarter within "Purchased services and
other" of $50 million ($38 million after tax) from the
transaction, and a deferred gain of $53 million which will be
recognized in income over the period of use of certain
easements.
During the second quarter of 2021, the Company recognized
$4 million of the deferred gain into income.
10 Business acquisition
Kansas City Southern Transaction
On March 21, 2021, the Company
entered into an Agreement and Plan of Merger (the "Merger
Agreement") with Kansas City Southern ("KCS") under which CP agreed
to acquire KCS in a stock and cash transaction representing an
enterprise value of approximately U.S. $29 billion, including
the assumption of U.S. $3.8 billion of outstanding KCS debt.
On May 21, 2021, KCS terminated
the Merger Agreement in order to enter into a definitive agreement
with Canadian National Railway. As a result, and under the terms of
the Merger Agreement, KCS concurrently paid a merger termination
fee of $845 million (U.S. $700 million) to the Company,
recorded as "Merger termination fee" in the Company's Interim
Consolidated Statements of Income.
During the three and six months ended June 30, 2021, the Company incurred
$308 million and $344 million in acquisition-related
expenses, respectively, of which $99 million and
$132 million were recorded within "Purchased services and
other", and $209 million and $212 million were recorded
within "Other expense (income)" in each period, respectively. The
acquisition-related expenses recorded within "Other expense
(income)" include the changes in fair value on the FX forward
contracts and forward starting floating-to-fixed interest rate
swaps associated with the anticipated debt issuance (see Note 12),
and amortization of financing fees associated with the credit
facilities (see Note 11). Total financing fees paid for the bridge
facility associated with the proposed KCS transaction during the
three and six months ended June 30,
2021 were $12 million and $45 million,
respectively, presented under Cash used in financing activities in
the Company's Interim Consolidated Statements of Cash Flows.
11 Debt
Shelf prospectus
On June 21, 2021, the Company
filed a new base shelf prospectus in each province of Canada and a registration statement with the
Securities and Exchange Commission ("SEC") to issue up to U.S.
$8.5 billion in debt securities
in the Canadian and U.S. capital markets over 25 months from the
filing date.
Credit facilities
During the first quarter of 2021, the Company obtained
commitments for a new 364-day senior unsecured facility (the
"bridge facility") in the amount of U.S. $8.5 billion to bridge financing
requirements for the proposed KCS transaction. Effective
April 9, 2021, the Company also
amended the financial covenant within its existing revolving credit
facility to provide flexibility upon the closing of the proposed
KCS transaction.
Effective May 21, 2021, upon
termination of the Merger Agreement with KCS, the bridge facility
was terminated.
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 June 30, 2021,
the Company had no commercial paper borrowings outstanding
(December 31, 2020 - U.S.
$644 million). 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.
12 Financial instruments
A. Fair values of financial instruments
The Company categorizes its financial assets and liabilities
measured at fair value into a three-level hierarchy established by
GAAP that prioritizes those inputs to valuation techniques used to
measure fair value based on the degree to which they are
observable. The three levels of the fair value hierarchy are as
follows: Level 1 inputs are quoted prices in active markets for
identical assets and liabilities; Level 2 inputs, other than quoted
prices included within Level 1, are observable for the asset or
liability either directly or indirectly; and Level 3 inputs are not
observable in the market.
For non-exchange traded derivatives classified as Level 2, the
Company uses standard valuation techniques to calculate fair value.
Primary inputs to these techniques include observable market prices
(interest, FX, and commodity) and volatility, depending on the type
of derivative and nature of the underlying risk. The Company uses
inputs and data used by willing market participants when valuing
derivatives and considers its own credit default swap spread as
well as those of its counterparties in its determination of fair
value. All derivatives are classified as Level 2.
The Company's short-term financial instruments include cash and
cash equivalents, accounts receivable, accounts payable and accrued
liabilities, and short-term borrowings including commercial paper.
The carrying values of short-term financial instruments all
approximate their fair values.
The carrying value of the Company's debt and finance lease
liabilities does not approximate their fair value. Their estimated
fair value has been determined based on market information, where
available, or by discounting future payments of principal and
interest at estimated interest rates expected to be available to
the Company at period end. All measurements are classified as Level
2. The Company's debt and finance lease liabilities, including
current maturities, with a carrying value of $8,722 million at June 30,
2021 (December 31, 2020 -
$8,951 million), had a fair value of
$10,756 million (December 31, 2020 - $11,597 million).
B. Financial risk management
FX management
Net investment hedge
The effect of the Company's net investment hedge for the three
and six months ended June 30, 2021
was an unrealized FX gain of $86
million and $162 million,
respectively (three and six months ended June 30, 2020 - unrealized FX gain of
$264 million and unrealized FX loss
of $291 million, respectively)
recognized in "Other comprehensive income".
FX forward contracts
During the first six months of 2021, the Company entered into
various FX forward contracts totalling a notional U.S. $1.0 billion to fix the FX rate and lock-in a
portion of the amount of Canadian dollars it may borrow to finance
the U.S. dollar-denominated cash portion of the total consideration
that would have been payable pursuant to the Merger Agreement with
KCS. The changes in fair value on the FX forward contracts were
recorded in "Other expense (income)" on the Company's Interim
Consolidated Statements of Income, with the offsetting unrealized
losses included in "Accounts payable and accrued liabilities" on
the Company's Interim Consolidated Balance Sheets. For the three
and six months ended June 30, 2021,
the change in fair value of the FX forward contracts was a loss of
$17 million.
Interest rate management
Forward starting swaps
During the first six months of 2021, the Company entered into
forward starting floating-to-fixed interest rate swap agreements
("forward starting swaps") with terms of up to 30 years, totalling
a notional U.S. $2.4 billion to
fix the benchmark rate on cash flows associated with highly
probable forecasted issuances of long-term notes.
On May 21, 2021, the Merger
Agreement with KCS was terminated which resulted in the Company
ceasing hedge accounting for the U.S. $2.4 billion of forward starting swaps.
However, as the debt issuances are still reasonably possible to
occur, fair value changes prior to this determination remain in
"Accumulated other comprehensive loss", net of tax, until the notes
are issued. Subsequent to the notes issuance, amounts in
"Accumulated other comprehensive loss" will be reclassified to "Net
interest expense". If debts are not issued, a loss of up to
$73 million in "Accumulated other comprehensive loss" would be
immediately reclassified to "Other expense (income)". Fair value
changes subsequent to May 21, 2021
were recorded within "Other expense (income)" on the Company's
Interim Consolidated Statements of Income.
As at June 30, 2021, the
unrealized fair value loss derived from the forward starting swaps
of $220 million was included in "Accounts payable and accrued
liabilities" on the Company's Interim Consolidated Balance Sheets.
The offsetting $73 million and $147 million were
reflected in "Other comprehensive income" on the Company's Interim
Consolidated Statements of Comprehensive Income and "Other expense
(income)" on the Company's Interim Consolidated Statements of
Income for the six months ended June 30,
2021, respectively. Changes in fair value of the forward
starting swaps for the three and six months ended June 30, 2021 was a loss of $240 million and
$220 million, respectively.
Bond locks
During the first six months of 2021, the Company entered into
seven-year interest rate bond locks totalling a notional
$600 million to fix the benchmark rate on cash flows
associated with a highly probable forecasted issuance of long-term
notes.
On May 21, 2021, the Merger
Agreement with KCS was terminated which resulted in the Company
ceasing hedge accounting for the $600 million of bond locks.
However, as the debt issuances are still reasonably possible to
occur, fair value changes prior to this determination remain in
"Accumulated other comprehensive loss", net of tax, until the notes
are issued. Subsequent to the notes issuance, amounts in
"Accumulated other comprehensive loss" will be reclassified to "Net
interest expense". If debts are not issued, up to $2 million
in "Accumulated other comprehensive loss" would be immediately
reclassified to "Other expense (income)". Fair value changes
subsequent to May 21, 2021 were
recorded within "Other expense (income)" on the Company's Interim
Consolidated Statements of Income.
As at June 30, 2021, the
unrealized fair value loss derived from the bond locks of
$5 million was included in "Accounts payable and accrued
liabilities" on the Company's Interim Consolidated Balance Sheets.
The offsetting $2 million and $3 million were reflected
in "Other comprehensive income" on the Company's Interim
Consolidated Statements of Comprehensive Income and "Other expense
(income)" on the Company's Interim Consolidated Statements of
Income for the six months ended June 30,
2021, respectively. Changes in fair value of the bond locks
for the three and six months ended June 30,
2021 was a loss of $7 million and $5 million,
respectively.
13 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. As at
June 30, 2021, the Company had not
purchased any Common Shares under this NCIB.
On December 17, 2019, the Company
announced a NCIB, commencing December 20,
2019, to purchase up to 24.0 million Common Shares for
cancellation on or before December 19, 2020. Upon expiry of
this NCIB, the Company had purchased 21.4 million Common Shares for
$1,577 million.
All purchases were made in accordance with the respective NCIB
at prevailing market prices plus brokerage fees, or such other
prices that were permitted by the Toronto Stock Exchange ("TSX"),
with consideration allocated to "Share capital" up to the average
carrying amount of the shares and any excess allocated to "Retained
earnings".
The following table provides activities under the share
repurchase programs:
|
For the three
months
ended June 30
|
For the six
months
ended June 30
|
|
2021
|
2020
|
2021
|
2020
|
Number of Common
Shares repurchased(1)
|
|
—
|
754,300
|
|
—
|
8,033,570
|
Weighted-average
price per share(2)
|
$
|
—
|
$
|
68.25
|
$
|
—
|
$
|
64.71
|
Amount of repurchase
(in millions of Canadian dollars)(2)
|
$
|
—
|
$
|
|
52
|
$
|
—
|
$
|
520
|
(1)
|
Includes shares
repurchased but not yet cancelled at end of period.
|
(2)
|
Includes brokerage
fees.
|
14 Pension and other benefits
In the three and six months ended June
30, 2021, the Company made contributions to its defined
benefit pension plans of $7 million
and $11 million, respectively (three and six months ended
June 30, 2020 - $6 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 June 30
|
|
Pensions
|
Other
benefits
|
(in millions of
Canadian dollars)
|
2021
|
2020
|
2021
|
2020
|
Current service cost
(benefits earned by employees)
|
$
|
43
|
$
|
35
|
$
|
3
|
$
|
3
|
Other components of
net periodic benefit (recovery) cost:
|
|
|
|
|
Interest cost on
benefit obligation
|
|
88
|
|
101
|
|
4
|
|
4
|
Expected return on
fund assets
|
|
(240)
|
|
(236)
|
|
—
|
|
—
|
Recognized net
actuarial loss
|
|
51
|
|
44
|
|
1
|
|
1
|
Total other
components of net periodic benefit (recovery) cost
|
|
(101)
|
|
(91)
|
|
5
|
|
5
|
Net periodic benefit
(recovery) cost
|
$
|
(58)
|
$
|
(56)
|
$
|
8
|
$
|
8
|
|
|
|
For the six months
ended June 30
|
|
Pensions
|
Other
benefits
|
(in millions of
Canadian dollars)
|
2021
|
2020
|
2021
|
2020
|
Current service cost
(benefits earned by employees)
|
$
|
86
|
$
|
70
|
$
|
6
|
$
|
6
|
Other components of
net periodic benefit (recovery) cost:
|
|
|
|
|
Interest cost on
benefit obligation
|
|
176
|
|
203
|
|
8
|
|
9
|
Expected return on
fund assets
|
|
(480)
|
|
(473)
|
|
—
|
|
—
|
Recognized net
actuarial loss
|
|
103
|
|
88
|
|
2
|
|
2
|
Total other
components of net periodic benefit (recovery) cost
|
|
(201)
|
|
(182)
|
|
10
|
|
11
|
Net periodic benefit
(recovery) cost
|
$
|
(115)
|
$
|
(112)
|
$
|
16
|
$
|
17
|
15 Stock-based compensation
At June 30, 2021, 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
six months ended June 30, 2021 of
$25 million and $49 million, respectively (three and six months
ended June 30, 2020 - expense of
$43 million and $54 million, respectively).
Stock option plan
Options issued prior to the share split described in Note 1 now
each provide rights over five shares. For consistency, all number
of options presented herein are calculated and shown on the basis
of the number of shares subject to the options. In the six months
ended June 30, 2021, under CP's stock
option plans, the Company issued 1,339,886 options at the
weighted-average price of $87.64 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 $26
million. The weighted-average fair value assumptions were
approximately:
|
For the six
months
ended June 30, 2021
|
Expected option life
(years)(1)
|
4.75
|
Risk-free interest
rate(2)
|
0.53%
|
Expected share price
volatility(3)
|
27.14%
|
Expected annual
dividends per share(4)
|
$0.760
|
Expected forfeiture
rate(5)
|
2.61%
|
Weighted-average
grant date fair value per option granted during the
period
|
$19.05
|
(1)
|
Represents the period
of time that awards are expected to be outstanding. Historical data
on exercise behaviour or, when available, specific
expectations regarding future exercise behaviour were used to
estimate the expected life of the option.
|
(2)
|
Based on the implied
yield available on zero-coupon government issues with an equivalent
term commensurate with the expected term of the option.
|
(3)
|
Based on the
historical volatility of the Company's share price over a period
commensurate with the expected term of the option.
|
(4)
|
Determined by the
current annual dividend at the time of grant. The Company does not
employ different dividend yields throughout the contractual
term
of the option.
|
(5)
|
The Company estimates
forfeitures based on past experience. This rate is monitored on a
periodic basis.
|
Performance share unit plans
During the six months ended June 30,
2021, the Company issued 426,402 Performance Share Units
("PSUs") with a grant date fair value of approximately $37 million and 12,694 Performance Deferred Share
Units ("PDSUs") with a grant date fair value, including the value
of expected future matching units, of approximately $1 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 six
months ended June 30, 2021 is
January 1, 2021 to December 31, 2023 and the performance factors are
Return on Invested Capital ("ROIC"), Total Shareholder Return
("TSR") compared to the S&P/TSX 60 Index, and TSR compared to
Class I railways.
The performance period for PSUs issued in 2018 was January 1, 2018 to December 31, 2020. The performance factors for
626,400 PSUs were ROIC, TSR compared to the S&P/TSX Capped
Industrial Index, and TSR compared to the S&P 1500 Road and
Rail Index. 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, 2020. In the first quarter of 2021, payouts occurred on
570,056 total outstanding awards, including dividends reinvested,
totalling $98 million. The
performance factors for the remaining 184,875 PSUs were annual
revenue for the fiscal year 2020, diluted earnings per share for
the fiscal year 2020, and share price appreciation.
Deferred share unit plan
During the six months ended June 30,
2021, the Company granted 53,391 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.
16 Contingencies
In the normal course of its operations, the Company becomes
involved in various legal actions, including claims relating to
injuries and damage to property. The Company maintains provisions
it considers to be adequate for such actions. While the final
outcome with respect to actions outstanding or pending at
June 30, 2021 cannot be predicted
with certainty, it is the opinion of management that their
resolution will not have a material adverse effect on the Company's
business, financial position or results of operations.
Legal proceedings related to Lac-Mégantic rail
accident
On July 6, 2013, a train carrying
petroleum crude oil operated by Montréal Maine and Atlantic Railway ("MMAR") or a
subsidiary, Montréal Maine &
Atlantic Canada Co. ("MMAC" and collectively the "MMA Group"),
derailed in Lac-Mégantic, Québec. The derailment occurred on a
section of railway owned and operated by the MMA Group and while
the MMA Group exclusively controlled the train.
Following the derailment, MMAC sought court protection in
Canada under the Companies'
Creditors Arrangement Act and MMAR filed for bankruptcy in the
U.S. Plans of arrangement were approved in both Canada and the U.S. (the "Plans"), providing
for the distribution of approximately $440
million amongst those claiming derailment damages.
A number of legal proceedings, set out below, were commenced in
Canada and the U.S. against CP and
others:
(1) Québec's Minister of Sustainable Development,
Environment, Wildlife and Parks ordered various parties, including
CP, to remediate the derailment site (the "Cleanup Order") and
served CP with a Notice of Claim for $95
million for those costs. CP appealed the Cleanup Order and
contested the Notice of Claim with the Administrative Tribunal of
Québec. These proceedings are stayed pending determination of the
Attorney General of Québec ("AGQ") action (paragraph 2 below).
(2) The AGQ sued CP in the Québec Superior Court claiming
$409 million in damages, which was
amended and reduced to $315 million
(the "AGQ Action"). The AGQ Action alleges that: (i) CP was
responsible for the petroleum crude oil from its point of origin
until its delivery to Irving Oil Ltd.; and (ii) CP is vicariously
liable for the acts and omissions of the MMA Group.
(3) A class action in the Québec Superior Court on behalf
of persons and entities residing in, owning or leasing property in,
operating a business in, or physically present in Lac-Mégantic at
the time of the derailment was certified against CP on May 8, 2015 (the "Class Action"). Other
defendants including MMAC and Mr. Thomas
Harding ("Harding") were added to the Class Action on
January 25, 2017. The Class Action
seeks unquantified damages, including for wrongful death, personal
injury, property damage, and economic loss.
(4) Eight subrogated insurers sued CP in the Québec
Superior Court claiming approximately $16
million in damages, which was amended and reduced to
approximately $15 million (the
"Promutuel Action"), and two additional subrogated insurers sued CP
claiming approximately $3 million in
damages (the "Royal Action"). Both actions contain similar
allegations as the AGQ Action. The actions do not identify the
subrogated parties. As such, the extent of any overlap between the
damages claimed in these actions and under the Plans is unclear.
The Royal Action is stayed pending determination of the
consolidated proceedings described below.
On December 11, 2017, the AGQ
Action, the Class Action and the Promutuel Action were
consolidated. These consolidated claims are currently scheduled for
a joint liability trial commencing on or around September 20, 2021, followed by a damages trial,
if necessary.
(5) Forty-eight plaintiffs (all individual claims joined in one
action) sued CP, MMAC, and Harding in the Québec Superior Court
claiming approximately $5 million in
damages for economic loss and pain and suffering, and asserting
similar allegations as in the Class Action and the AGQ Action. The
majority of the plaintiffs opted-out of the Class Action and all
but two are also plaintiffs in litigation against CP, described in
paragraph 7 below. This action is stayed pending determination of
the consolidated claims described above.
(6) The MMAR U.S. bankruptcy estate representative
commenced an action against CP in November
2014 in the Maine Bankruptcy Court claiming that CP failed
to abide by certain regulations and seeking approximately U.S.
$30 million in damages for MMAR's
loss in business value according to a recent report. This action
asserts that CP knew or ought to have known that the shipper
misclassified the petroleum crude oil and therefore should have
refused to transport it.
(7) The class and mass tort action commenced against CP in
June 2015 in Texas (on behalf of Lac-Mégantic residents and
wrongful death representatives) and the wrongful death and personal
injury actions commenced against CP in June
2015 in Illinois and
Maine, were all transferred and
consolidated in Federal District Court in Maine (the "Maine Actions"). The Maine Actions
allege that CP negligently misclassified and improperly packaged
the petroleum crude oil. On CP's motion, the Maine Actions were
dismissed. The plaintiffs are appealing the dismissal decision,
which is pending.
(8) The trustee for the wrongful death trust commenced
Carmack Amendment claims against CP in North Dakota Federal Court,
seeking to recover approximately U.S. $6
million for damaged rail cars and lost crude and
reimbursement for the settlement paid by the consignor and the
consignee under the Plans (alleged to be U.S. $110 million and U.S. $60
million, respectively). The Court issued an Order on
August 6, 2020 granting and denying
in parts the parties' summary judgment motions which has been
reviewed and confirmed following motions by the parties for
clarification and reconsideration. This action is scheduled for
trial on September 21, 2021.
At this stage of the proceedings, any potential responsibility
and the quantum of potential losses cannot be determined.
Nevertheless, CP denies liability and is vigorously defending these
proceedings.
Environmental liabilities
Environmental remediation accruals, recorded on an undiscounted
basis unless a reliable, determinable estimate as to an amount and
timing of costs can be established, cover site-specific remediation
programs.
The accruals for environmental remediation represent CP's best
estimate of its probable future obligation and include both
asserted and unasserted claims, without reduction for anticipated
recoveries from third parties. Although the recorded accruals
include CP's best estimate of all probable costs, CP's total
environmental remediation costs cannot be predicted with certainty.
Accruals for environmental remediation may change from time to time
as new information about previously untested sites becomes known,
and as environmental laws and regulations evolve and advances are
made in environmental remediation technology. The accruals may also
vary as the courts decide legal proceedings against outside parties
responsible for contamination. These potential charges, which
cannot be quantified at this time, may materially affect income in
the particular period in which a charge is recognized. Costs
related to existing, but as yet unknown, or future contamination
will be accrued in the period in which they become probable and
reasonably estimable.
The expense included in "Purchased services and other" for the
three and six months ended June 30,
2021 was $2 million and
$4 million (three and six months ended June 30, 2020 - $3
million and $4 million, respectively). Provisions for
environmental remediation costs are recorded in "Other long-term
liabilities", except for the current portion which is recorded in
"Accounts payable and accrued liabilities". The total amount
provided at June 30, 2021 was
$80 million (December 31, 2020 - $80
million). Payments are expected to be made over 10 years
through 2030.
Summary of Rail Data
|
Second
Quarter
|
|
Year-to-date
|
Financial
(millions, except per share data)
|
2021
|
2020
|
Total
Change
|
%
Change
|
|
2021
|
2020
|
Total
Change
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Freight
|
$
|
2,008
|
$
|
1,752
|
$
|
256
|
15
|
|
$
|
3,926
|
$
|
3,752
|
$
|
174
|
5
|
Non-freight
|
46
|
40
|
6
|
15
|
|
87
|
83
|
4
|
5
|
Total
revenues
|
2,054
|
1,792
|
262
|
15
|
|
4,013
|
3,835
|
178
|
5
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
Compensation and
benefits
|
379
|
347
|
32
|
9
|
|
784
|
745
|
39
|
5
|
Fuel
|
218
|
131
|
87
|
66
|
|
424
|
343
|
81
|
24
|
Materials
|
54
|
50
|
4
|
8
|
|
113
|
109
|
4
|
4
|
Equipment
rents
|
28
|
33
|
(5)
|
(15)
|
|
61
|
69
|
(8)
|
(12)
|
Depreciation and
amortization
|
200
|
195
|
5
|
3
|
|
402
|
387
|
15
|
4
|
Purchased services and
other
|
355
|
266
|
89
|
33
|
|
629
|
578
|
51
|
9
|
Total operating
expenses
|
1,234
|
1,022
|
212
|
21
|
|
2,413
|
2,231
|
182
|
8
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
820
|
770
|
50
|
6
|
|
1,600
|
1,604
|
(4)
|
—
|
|
|
|
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
Other expense
(income)
|
157
|
(86)
|
243
|
(283)
|
|
129
|
125
|
4
|
3
|
Merger termination
fee
|
(845)
|
—
|
(845)
|
100
|
|
(845)
|
—
|
(845)
|
100
|
Other components of
net periodic benefit recovery
|
(96)
|
(86)
|
(10)
|
12
|
|
(191)
|
(171)
|
(20)
|
12
|
Net interest
expense
|
101
|
118
|
(17)
|
(14)
|
|
211
|
232
|
(21)
|
(9)
|
|
|
|
|
|
|
|
|
|
|
Income before income
tax expense
|
1,503
|
824
|
679
|
82
|
|
2,296
|
1,418
|
878
|
62
|
|
|
|
|
|
|
|
|
|
|
Income tax
expense
|
257
|
189
|
68
|
36
|
|
448
|
374
|
74
|
20
|
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
1,246
|
$
|
635
|
$
|
611
|
96
|
|
$
|
1,848
|
$
|
1,044
|
$
|
804
|
77
|
Operating ratio
(%)
|
60.1
|
57.0
|
3.1
|
310
bps
|
|
60.1
|
58.2
|
1.9
|
190 bps
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per
share(1)
|
$
|
1.87
|
$
|
0.94
|
$
|
0.93
|
99
|
|
$
|
2.77
|
$
|
1.53
|
$
|
1.24
|
81
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per
share(1)
|
$
|
1.86
|
$
|
0.93
|
$
|
0.93
|
100
|
|
$
|
2.76
|
$
|
1.53
|
$
|
1.23
|
80
|
|
|
|
|
|
|
|
|
|
|
Shares
Outstanding(1)
|
|
|
|
|
|
|
|
|
|
Weighted average
number of basic shares
outstanding (millions)
|
666.7
|
678.2
|
(11.5)
|
(2)
|
|
666.6
|
680.8
|
(14.2)
|
(2)
|
Weighted average
number of diluted shares
outstanding (millions)
|
669.9
|
680.5
|
(10.6)
|
(2)
|
|
669.8
|
683.1
|
(13.3)
|
(2)
|
|
|
|
|
|
|
|
|
|
|
Foreign
Exchange
|
|
|
|
|
|
|
|
|
|
Average foreign
exchange rate (U.S.$/Canadian$)
|
0.81
|
0.72
|
0.09
|
12
|
|
0.80
|
0.74
|
0.06
|
8
|
Average foreign
exchange rate (Canadian$/U.S.$)
|
1.23
|
1.39
|
(0.16)
|
(12)
|
|
1.25
|
1.36
|
(0.11)
|
(8)
|
(1)
|
As a result of the
five-for-one share split of the Company's issued and outstanding
Common Shares, which began trading on a post-split basis on May 14,
2021, per share amounts and all outstanding Common Shares for
comparative periods of 2020 have been retrospectively
adjusted.
|
Summary of Rail Data (Continued)
|
Second
Quarter
|
|
Year-to-date
|
Commodity
Data
|
2021
|
2020
|
Total
Change
|
%
Change
|
FX
Adjusted
%
Change(1)
|
|
2021
|
2020
|
Total
Change
|
%
Change
|
FX
Adjusted
%
Change(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Freight Revenues
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
- Grain
|
$
|
444
|
$
|
446
|
$
|
(2)
|
—
|
4
|
|
$
|
892
|
$
|
864
|
$
|
28
|
3
|
7
|
- Coal
|
170
|
131
|
39
|
30
|
32
|
|
333
|
281
|
52
|
19
|
20
|
- Potash
|
134
|
146
|
(12)
|
(8)
|
(3)
|
|
235
|
258
|
(23)
|
(9)
|
(5)
|
- Fertilizers and
sulphur
|
78
|
77
|
1
|
1
|
10
|
|
155
|
147
|
8
|
5
|
12
|
- Forest
products
|
90
|
81
|
9
|
11
|
22
|
|
170
|
159
|
11
|
7
|
15
|
- Energy, chemicals
and plastics
|
369
|
341
|
28
|
8
|
16
|
|
757
|
832
|
(75)
|
(9)
|
(5)
|
- Metals, minerals
and consumer
products
|
180
|
133
|
47
|
35
|
49
|
|
339
|
322
|
17
|
5
|
12
|
-
Automotive
|
98
|
34
|
64
|
188
|
216
|
|
206
|
121
|
85
|
70
|
82
|
-
Intermodal
|
445
|
363
|
82
|
23
|
27
|
|
839
|
768
|
71
|
9
|
12
|
|
|
|
|
|
|
|
|
|
|
|
Total Freight
Revenues
|
$
|
2,008
|
$
|
1,752
|
$
|
256
|
15
|
21
|
|
$
|
3,926
|
$
|
3,752
|
$
|
174
|
5
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
Freight Revenue
per Revenue Ton-
Mile ("RTM") (cents)
|
|
|
|
|
|
|
|
|
|
|
|
- Grain
|
4.41
|
4.39
|
0.02
|
—
|
5
|
|
4.28
|
4.50
|
(0.22)
|
(5)
|
(2)
|
- Coal
|
3.51
|
3.02
|
0.49
|
16
|
18
|
|
3.29
|
3.20
|
0.09
|
3
|
4
|
- Potash
|
2.69
|
2.66
|
0.03
|
1
|
7
|
|
2.68
|
2.68
|
—
|
—
|
4
|
- Fertilizers and
sulphur
|
6.18
|
6.24
|
(0.06)
|
(1)
|
7
|
|
6.12
|
6.31
|
(0.19)
|
(3)
|
3
|
- Forest
products
|
5.97
|
6.14
|
(0.17)
|
(3)
|
6
|
|
5.92
|
6.12
|
(0.20)
|
(3)
|
4
|
- Energy, chemicals
and plastics
|
6.30
|
7.56
|
(1.26)
|
(17)
|
(11)
|
|
5.82
|
6.23
|
(0.41)
|
(7)
|
(3)
|
- Metals, minerals
and consumer
products
|
6.34
|
7.09
|
(0.75)
|
(11)
|
(2)
|
|
6.35
|
6.93
|
(0.58)
|
(8)
|
(2)
|
-
Automotive
|
20.99
|
26.15
|
(5.16)
|
(20)
|
(12)
|
|
21.13
|
26.54
|
(5.41)
|
(20)
|
(15)
|
-
Intermodal
|
6.15
|
5.45
|
0.70
|
13
|
17
|
|
6.04
|
5.50
|
0.54
|
10
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Freight Revenue
per RTM
|
5.14
|
4.90
|
0.24
|
5
|
11
|
|
5.01
|
5.01
|
—
|
—
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
Freight Revenue
per Carload
|
|
|
|
|
|
|
|
|
|
|
|
- Grain
|
$
|
3,750
|
$
|
3,767
|
$
|
(17)
|
—
|
4
|
|
$
|
3,799
|
$
|
3,945
|
$
|
(146)
|
(4)
|
—
|
- Coal
|
2,157
|
2,205
|
(48)
|
(2)
|
(1)
|
|
2,208
|
2,281
|
(73)
|
(3)
|
(2)
|
- Potash
|
3,004
|
3,106
|
(102)
|
(3)
|
2
|
|
2,975
|
3,094
|
(119)
|
(4)
|
—
|
- Fertilizers and
sulphur
|
4,588
|
4,611
|
(23)
|
—
|
8
|
|
4,655
|
4,623
|
32
|
1
|
7
|
- Forest
products
|
4,762
|
4,629
|
133
|
3
|
13
|
|
4,670
|
4,466
|
204
|
5
|
12
|
- Energy, chemicals
and plastics
|
4,849
|
5,430
|
(581)
|
(11)
|
(5)
|
|
4,636
|
5,055
|
(419)
|
(8)
|
(4)
|
- Metals, minerals
and consumer
products
|
2,946
|
2,949
|
(3)
|
—
|
10
|
|
2,902
|
3,117
|
(215)
|
(7)
|
(1)
|
-
Automotive
|
3,415
|
2,857
|
558
|
20
|
31
|
|
3,317
|
3,017
|
300
|
10
|
18
|
-
Intermodal
|
1,590
|
1,439
|
151
|
10
|
15
|
|
1,558
|
1,475
|
83
|
6
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Freight Revenue
per Carload
|
$
|
2,775
|
$
|
2,777
|
$
|
(2)
|
—
|
6
|
|
$
|
2,775
|
$
|
2,839
|
$
|
(64)
|
(2)
|
2
|
(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)
|
Second
Quarter
|
|
Year-to-date
|
|
Commodity Data
(Continued)
|
2021
|
2020
|
Total
Change
|
%
Change
|
|
2021
|
2020
|
Total
Change
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of
RTM
|
|
|
|
|
|
|
|
|
|
|
- Grain
|
10,076
|
10,169
|
(93)
|
(1)
|
|
20,849
|
19,185
|
1,664
|
9
|
|
- Coal
|
4,837
|
4,337
|
500
|
12
|
|
10,117
|
8,772
|
1,345
|
15
|
|
- Potash
|
4,978
|
5,490
|
(512)
|
(9)
|
|
8,764
|
9,628
|
(864)
|
(9)
|
|
- Fertilizers and
sulphur
|
1,263
|
1,233
|
30
|
2
|
|
2,532
|
2,328
|
204
|
9
|
|
- Forest
products
|
1,508
|
1,319
|
189
|
14
|
|
2,871
|
2,596
|
275
|
11
|
|
- Energy, chemicals
and plastics
|
5,856
|
4,512
|
1,344
|
30
|
|
12,998
|
13,361
|
(363)
|
(3)
|
|
- Metals, minerals and
consumer products
|
2,837
|
1,877
|
960
|
51
|
|
5,336
|
4,648
|
688
|
15
|
|
-
Automotive
|
467
|
130
|
337
|
259
|
|
975
|
456
|
519
|
114
|
|
-
Intermodal
|
7,239
|
6,660
|
579
|
9
|
|
13,892
|
13,971
|
(79)
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total RTMs
|
39,061
|
35,727
|
3,334
|
9
|
|
78,334
|
74,945
|
3,389
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
Carloads
(thousands)
|
|
|
|
|
|
|
|
|
|
|
- Grain
|
118.4
|
118.4
|
—
|
—
|
|
234.8
|
219.0
|
15.8
|
7
|
|
- Coal
|
78.8
|
59.4
|
19.4
|
33
|
|
150.8
|
123.2
|
27.6
|
22
|
|
- Potash
|
44.6
|
47.0
|
(2.4)
|
(5)
|
|
79.0
|
83.4
|
(4.4)
|
(5)
|
|
- Fertilizers and
sulphur
|
17.0
|
16.7
|
0.3
|
2
|
|
33.3
|
31.8
|
1.5
|
5
|
|
- Forest
products
|
18.9
|
17.5
|
1.4
|
8
|
|
36.4
|
35.6
|
0.8
|
2
|
|
- Energy, chemicals
and plastics
|
76.1
|
62.8
|
13.3
|
21
|
|
163.3
|
164.6
|
(1.3)
|
(1)
|
|
- Metals, minerals and
consumer products
|
61.1
|
45.1
|
16.0
|
35
|
|
116.8
|
103.3
|
13.5
|
13
|
|
-
Automotive
|
28.7
|
11.9
|
16.8
|
141
|
|
62.1
|
40.1
|
22.0
|
55
|
|
-
Intermodal
|
279.9
|
252.2
|
27.7
|
11
|
|
538.4
|
520.6
|
17.8
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Carloads
|
723.5
|
631.0
|
92.5
|
15
|
|
1,414.9
|
1,321.6
|
93.3
|
7
|
|
|
Second
Quarter
|
|
Year-to-date
|
|
|
2021
|
2020
|
Total
Change
|
%
Change
|
FX
Adjusted %
Change(1)
|
|
2021
|
2020
|
Total
Change
|
%
Change
|
FX
Adjusted %
Change(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and
benefits
|
$
|
379
|
$
|
347
|
$
|
32
|
9
|
13
|
|
$
|
784
|
$
|
745
|
$
|
39
|
5
|
8
|
|
Fuel
|
218
|
131
|
87
|
66
|
82
|
|
424
|
343
|
81
|
24
|
31
|
|
Materials
|
54
|
50
|
4
|
8
|
13
|
|
113
|
109
|
4
|
4
|
7
|
|
Equipment
rents
|
28
|
33
|
(5)
|
(15)
|
(7)
|
|
61
|
69
|
(8)
|
(12)
|
(5)
|
|
Depreciation and
amortization
|
200
|
195
|
5
|
3
|
6
|
|
402
|
387
|
15
|
4
|
6
|
|
Purchased services and
other
|
355
|
266
|
89
|
33
|
40
|
|
629
|
578
|
51
|
9
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating
Expenses
|
$
|
1,234
|
$
|
1,022
|
$
|
212
|
21
|
27
|
|
$
|
2,413
|
$
|
2,231
|
$
|
182
|
8
|
12
|
|
(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)
|
Second
Quarter
|
|
Year-to-date
|
|
|
2021
|
2020
|
Total
Change
|
%
Change
|
|
2021
|
2020
|
Total
Change
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations
Performance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross ton-miles
("GTMs") (millions)
|
71,355
|
63,077
|
8,278
|
13
|
|
142,682
|
134,410
|
8,272
|
6
|
|
Train miles
(thousands)
|
7,605
|
6,865
|
740
|
11
|
|
15,407
|
15,238
|
169
|
1
|
|
Average train
weight - excluding local traffic (tons)
|
10,101
|
9,984
|
117
|
1
|
|
9,945
|
9,544
|
401
|
4
|
|
Average train
length - excluding local traffic (feet)
|
8,335
|
8,089
|
246
|
3
|
|
8,150
|
7,713
|
437
|
6
|
|
Average terminal
dwell (hours)
|
6.8
|
6.5
|
0.3
|
5
|
|
7.1
|
6.4
|
0.7
|
11
|
|
Average train speed
(miles per hour, or "mph")(1)
|
21.8
|
22.4
|
(0.6)
|
(3)
|
|
21.3
|
22.0
|
(0.7)
|
(3)
|
|
Locomotive
productivity (GTMs / operating horsepower)(2)
|
208
|
212
|
(4)
|
(2)
|
|
205
|
206
|
(1)
|
—
|
|
Fuel
efficiency(3)
|
0.918
|
0.921
|
(0.003)
|
—
|
|
0.938
|
0.947
|
(0.009)
|
(1)
|
|
U.S. gallons of
locomotive fuel consumed (millions)(4)
|
65.5
|
58.1
|
7.4
|
13
|
|
133.8
|
127.4
|
6.4
|
5
|
|
Average fuel price
(U.S. dollars per U.S. gallon)
|
2.71
|
1.63
|
1.08
|
66
|
|
2.54
|
1.98
|
0.56
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Employees
and Workforce
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total employees
(average)(5)
|
12,688
|
12,001
|
687
|
6
|
|
12,375
|
12,244
|
131
|
1
|
|
Total employees (end
of period)(5)
|
12,709
|
11,988
|
721
|
6
|
|
12,709
|
11,988
|
721
|
6
|
|
Workforce (end of
period)(6)
|
12,749
|
12,033
|
716
|
6
|
|
12,749
|
12,033
|
716
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
Safety
Indicators(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FRA personal injuries
per 200,000 employee-hours
|
0.77
|
1.16
|
(0.39)
|
(34)
|
|
0.96
|
1.14
|
(0.18)
|
(16)
|
|
FRA train accidents
per million train-miles
|
0.36
|
1.19
|
(0.83)
|
(70)
|
|
0.88
|
1.02
|
(0.14)
|
(14)
|
|
(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 months ended June 30, 2020, previously reported as
1.12, was restated to 1.16 in this Earnings Release. FRA train
accidents per million train-miles for the three months ended June
30, 2020, previously reported as 1.06, was restated to 1.19 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. These Non-GAAP
measures provide meaningful supplemental information regarding
operating results because they exclude certain significant items
that are not considered indicative of future financial trends
either by nature or amount. As a result, these items are excluded
for management assessment of operational performance, allocation of
resources and preparation of annual budgets. These significant
items may include, but are not limited to, restructuring and asset
impairment charges, individually significant gains and losses from
sales of assets, acquisition-related costs (including legal,
consulting, and financing fees and fair value gain or loss on FX
forward contracts and interest rate hedges), the merger termination
fee, the foreign exchange ("FX") impact of translating the
Company's debt and lease liabilities (including borrowings under
the credit facility), discrete tax items, changes in income tax
rates, changes to an uncertain tax item, and certain items outside
the control of management. These items may not be non-recurring.
However, excluding these significant items from GAAP results allows
for a consistent understanding of the Company's consolidated
financial performance when performing a multi-period assessment
including assessing the likelihood of future results. Accordingly,
these Non-GAAP financial measures may provide insight to investors
and other external users of the Company's consolidated financial
information.
Significant items that impact reported earnings for the first
six months of 2021, the twelve months of 2020, and the last six
months of 2019 include:
2021:
- acquisition-related costs of $344 million in connection
with the proposed Kansas City Southern ("KCS")
transaction ($263 million after
current taxes of $33 million and
deferred taxes of $48 million),
including an expense of $132 million recognized in Purchased
services and other and $212 million recognized in Other
expense (income), that unfavourably impacted Diluted EPS by
38 cents as follows:
-
- in the second quarter, acquisition-related costs of
$308 million ($236 million after
current taxes of $25 million and
deferred taxes of $47 million),
including an expense of $99 million recognized in Purchased
services and other and $209 million recognized in Other
expense (income), that unfavourably impacted Diluted EPS 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 an expense 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.
- merger termination fee of $845
million ($748 million after
current taxes) in connection with KCS' termination of the Agreement
and Plan of Merger (the "Merger Agreement") effective May 21, 2021, that favourably impacted Diluted
EPS by $1.11; and
- a non-cash gain of $85 million
($74 million after deferred tax) due
to FX translation of debt and lease liabilities that favourably
impacted Diluted EPS by 11 cents as
follows:
-
- 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:
- in the fourth quarter, a deferred tax recovery of $29 million due to a change relating to a tax
return filing election for the state of North Dakota that favourably impacted Diluted
EPS by 5 cents; and
- during the course of the year, a net non-cash gain of
$14 million ($12 million after deferred tax) due to FX
translation of debt and lease liabilities that favourably impacted
Diluted EPS by 2 cents as
follows:
-
- in the fourth quarter, a $103
million gain ($90 million
after deferred tax) that favourably impacted Diluted EPS by
13 cents;
- in the third quarter, a $40
million gain ($38 million after deferred tax) that
favourably impacted Diluted EPS by 6
cents;
- in the second quarter, an $86
million gain ($82 million after deferred tax) that
favourably impacted Diluted EPS by 12
cents; and
- in the first quarter, a $215
million loss ($198 million after deferred tax) that
unfavourably impacted Diluted EPS by 28
cents.
2019:
- in the fourth quarter, a deferred tax expense of $24 million as a result of a provision for an
uncertain tax item of a prior period that unfavourably impacted
Diluted EPS by 3 cents; and
- a net non-cash gain of $12
million ($10 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 $37
million gain ($32 million after deferred tax) that
favourably impacted Diluted EPS by 4
cents; and
- in the third quarter, a $25
million loss ($22 million after deferred tax) that
unfavourably impacted Diluted EPS by 3
cents.
2021 Outlook
With a 2021 plan that encompasses profitable sustainable growth,
CP expects high single-digit RTM growth and double-digit Adjusted
diluted EPS growth. CP's expectations for Adjusted diluted EPS
growth in 2021 are based on Adjusted diluted EPS of $3.53 in 2020. For the purposes of this outlook,
CP assumes an effective tax rate of 24.6 percent. CP estimates
other components of net periodic benefit recovery to increase by
approximately $40 million versus
2020. As CP continues to invest in service, productivity and
safety, the Company plans to invest approximately $1.55 billion in capital programs in
2021.
Although CP has provided a forward-looking Non-GAAP measure
(Adjusted diluted EPS), management is unable to reconcile, without
unreasonable efforts, the forward-looking Adjusted diluted EPS to
the most comparable GAAP measure, due to unknown variables and
uncertainty related to future results. These unknown variables may
include unpredictable transactions of significant value. In recent
years, CP has recognized acquisition-related costs (including
legal, consulting, and financing fees and fair value gain or loss
on FX forward contracts and interest rate hedges), the merger
termination fee, changes in income tax rates and a change to an
uncertain tax item. These or other similar, large unforeseen
transactions affect diluted EPS but may be excluded from CP's
Adjusted diluted EPS. Additionally, the U.S.-to-Canada dollar exchange rate is unpredictable
and can have a significant impact on CP's reported results but may
be excluded from CP's Adjusted diluted EPS. In particular, CP
excludes the FX impact of translating the Company's debt and lease
liabilities, the impact from changes in income tax rates and a
provision for uncertain tax item from Adjusted diluted EPS. Please
see Note on Forward-Looking Information in this Earnings Release
for further discussion.
Reconciliation of GAAP Performance Measures to Non-GAAP
Performance Measures
The following tables reconcile the most directly comparable
measures presented in accordance with GAAP to the Non-GAAP
measures:
Adjusted income is calculated as Net income reported on a GAAP
basis adjusted for significant items.
|
For the three
months
ended June 30
|
For the six
months
ended June 30
|
For the twelve
months
ended December 31
|
(in millions of
Canadian dollars)
|
2021
|
2020
|
2021
|
2020
|
2020
|
Net income as
reported
|
$
|
1,246
|
$
|
635
|
$
|
1,848
|
$
|
1,044
|
$
|
2,444
|
Less significant
items (pre-tax):
|
|
|
|
|
|
Acquisition-related
costs
|
(308)
|
—
|
(344)
|
—
|
—
|
Merger termination
fee
|
845
|
—
|
845
|
—
|
—
|
Impact of FX
translation gain (loss) on debt and lease liabilities
|
52
|
86
|
85
|
(129)
|
14
|
Add:
|
|
|
|
|
|
Tax effect of
adjustments(1)
|
32
|
4
|
27
|
(13)
|
2
|
Income tax rate
changes
|
—
|
—
|
—
|
—
|
(29)
|
Adjusted
income
|
$
|
689
|
$
|
553
|
$
|
1,289
|
$
|
1,160
|
$
|
2,403
|
(1)
|
The tax effect of
adjustments was calculated as the pre-tax effect of the adjustments
multiplied by the applicable tax rate for the above items of 5.48%
and 4.67% for the three and six months ended June 30, 2021,
respectively, 5.62% and 9.87% for the three and six months
ended June 30, 2020, respectively, and 13.58% for the twelve
months ended December 31, 2020. The applicable tax rates reflect
the taxable jurisdictions and nature, being on account of capital
or income, of the significant items.
|
Adjusted diluted earnings per share is calculated using Adjusted
income, as defined above, divided by the weighted-average diluted
number of Common Shares outstanding during the period as determined
in accordance with GAAP.
|
For the three
months
ended June 30
|
For the six
months
ended June 30
|
For the twelve
months
ended December 31
|
|
2021
|
2020
|
2021
|
2020
|
2020
|
Diluted earnings
per share as reported
|
$
|
1.86
|
$
|
0.93
|
$
|
2.76
|
$
|
1.53
|
$
|
3.59
|
Less significant
items (pre-tax):
|
|
|
|
|
|
Acquisition-related
costs
|
(0.46)
|
—
|
(0.51)
|
—
|
—
|
Merger termination
fee
|
1.26
|
—
|
1.26
|
—
|
—
|
Impact of FX
translation gain (loss) on debt and lease liabilities
|
0.08
|
0.13
|
0.13
|
(0.19)
|
0.02
|
Add:
|
|
|
|
|
|
Tax effect of
adjustments(1)
|
0.05
|
0.01
|
0.04
|
(0.02)
|
—
|
Income tax rate
changes
|
—
|
—
|
—
|
—
|
(0.04)
|
Adjusted diluted
earnings per share
|
$
|
1.03
|
$
|
0.81
|
$
|
1.92
|
$
|
1.70
|
$
|
3.53
|
(1)
|
The tax effect of
adjustments was calculated as the pre-tax effect of the adjustments
multiplied by the applicable tax rate for the above items of 5.48%
and 4.67% for the three and six months ended June 30, 2021,
respectively, 5.62% and 9.87% for the three and six months ended
June 30, 2020, respectively, and 13.58% for the twelve months ended
December 31, 2020. 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 June 30
|
For the six
months
ended June 30
|
(in millions of
Canadian dollars)
|
2021
|
2020
|
2021
|
2020
|
Operating income
as reported
|
$
|
820
|
$
|
770
|
$
|
1,600
|
$
|
1,604
|
Less significant
item:
|
|
|
|
|
Acquisition-related
costs
|
(99)
|
—
|
(132)
|
—
|
Adjusted operating
income
|
$
|
919
|
$
|
770
|
$
|
1,732
|
$
|
1,604
|
Adjusted operating ratio excludes those significant items that
are reported within operating income.
|
For the three
months
ended June 30
|
For the six
months
ended June 30
|
|
|
2021
|
2020
|
2021
|
2020
|
|
Operating ratio as
reported
|
60.1
%
|
57.0%
|
60.1
%
|
58.2 %
|
|
Less significant
item:
|
|
|
|
|
|
Acquisition-related
costs
|
4.8
%
|
—%
|
3.3
%
|
— %
|
|
Adjusted operating
ratio
|
55.3
%
|
57.0%
|
56.8
%
|
58.2 %
|
|
Adjusted Return on Invested Capital ("Adjusted ROIC")
Adjusted ROIC is calculated as Adjusted return divided by
Adjusted average invested capital. Adjusted return is defined as
Net income adjusted for interest expense, tax effected at the
Company's adjusted annualized effective tax rate, and significant
items in the Company's Consolidated Financial Statements, tax
effected at the applicable tax rate. Adjusted average invested
capital is defined as the sum of total Shareholders' equity,
Long-term debt, and Long-term debt maturing within one year, as
presented in the Company's Consolidated Financial Statements, each
averaged between the beginning and ending balance over a rolling
12-month period, adjusted for the impact of significant items, tax
effected at the applicable tax rate, on closing balances as part of
this average. Adjusted ROIC excludes significant items reported in
the Company's Consolidated Financial Statements, as these
significant items are not considered indicative of future financial
trends either by nature or amount, and excludes interest expense,
net of tax, to incorporate returns on the Company's overall
capitalization. Adjusted ROIC is a performance measure that
measures how productively the Company uses its long-term capital
investments, representing critical indicators of good operating and
investment decisions made by management, and is an important
performance criteria in determining certain elements of the
Company's long-term incentive plan. Adjusted ROIC is reconciled
below from Return on average shareholders' equity, the most
comparable measure calculated in accordance with GAAP.
Calculation of Return on average shareholders' equity
|
For the twelve
months ended
June 30
|
(in millions of
Canadian dollars, except for percentages)
|
2021
|
2020
|
Net income as
reported
|
$
|
3,248
|
$
|
2,326
|
Average shareholders'
equity
|
$
|
8,215
|
$
|
7,311
|
Return on average
shareholders' equity
|
39.5%
|
31.8%
|
Reconciliation of Net income to Adjusted return
|
For the twelve
months
ended June 30
|
(in millions of
Canadian dollars)
|
2021
|
2020
|
Net income as
reported
|
$
|
3,248
|
$
|
2,326
|
Add:
|
|
|
Net interest
expense
|
437
|
454
|
Tax on
interest(1)
|
(107)
|
(113)
|
Significant items
(pre-tax):
|
|
|
Acquisition-related
costs
|
344
|
—
|
Merger termination
fee
|
(845)
|
—
|
Impact of FX
translation (gain) loss on debt and lease liabilities
|
(228)
|
117
|
Tax on significant
items(2)
|
42
|
(11)
|
Income tax rate
changes
|
(29)
|
—
|
Provision for
uncertain tax item
|
—
|
24
|
Adjusted
return
|
$
|
2,862
|
$
|
2,797
|
(1)
|
Tax was calculated at
the adjusted annualized effective tax rate of 24.45% and 24.69% for
the twelve months ended June 30, 2021 and 2020,
respectively.
|
(2)
|
Tax was calculated as
the pre-tax effect of the adjustments multiplied by the applicable
tax rate for the above items of 5.52% and 9.68% for the twelve
months ended June 30, 2021 and 2020, 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
June 30
|
(in millions of
Canadian dollars)
|
2021
|
2020
|
Average
shareholders' equity
|
$
|
8,215
|
$
|
7,311
|
Average Long-term
debt, including long-term debt maturing within one year
|
9,135
|
9,044
|
|
$
|
17,350
|
$
|
16,355
|
Less:
|
|
|
Significant items
(pre-tax):
|
|
|
Acquisition-related
costs
|
(172)
|
—
|
Merger termination
fee
|
423
|
—
|
Tax on
significant items(1)
|
(9)
|
—
|
Income tax rate
changes
|
15
|
—
|
Provision for
uncertain tax item
|
—
|
(12)
|
Adjusted average
invested capital
|
$
|
17,093
|
$
|
16,367
|
(1)
|
Tax was calculated at
the pre-tax effect of the adjustment multiplied by the applicable
tax rate of 3.21% for the twelve months ended June 30, 2021.
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 June 30
|
(in millions of
Canadian dollars, except for percentages)
|
2021
|
2020
|
Adjusted
return
|
$
|
2,862
|
$
|
2,797
|
Adjusted average
invested capital
|
$
|
17,093
|
$
|
16,367
|
Adjusted
ROIC
|
16.7%
|
17.1%
|
Free Cash
Free cash is calculated as Cash provided by operating
activities, less Cash used in investing activities, adjusted for
changes in cash and cash equivalents balances resulting from FX
fluctuations, the acquisition-related transaction costs paid in
cash related to the proposed KCS transaction, the merger
termination fee received in cash related to the proposed KCS
transaction and the acquisition of Central Maine & Québec Railway ("CMQ").
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 transaction costs
paid in cash and the merger termination fee received in cash
related to the proposed KCS transaction are not indicative of
operating trends and have been excluded from Free cash. The
acquisition of CMQ 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 June 30
|
For the six
months
ended June 30
|
(in millions of
Canadian dollars)
|
2021
|
2020
|
2021
|
2020
|
Cash provided by
operating activities
|
$
|
1,954
|
$
|
835
|
$
|
2,536
|
$
|
1,324
|
Cash used in
investing activities
|
(405)
|
(468)
|
(691)
|
(830)
|
Effect of foreign
currency fluctuations on U.S. dollar-denominated cash
and cash equivalents
|
(1)
|
(15)
|
(4)
|
16
|
Less:
|
|
|
|
|
Acquisition-related
costs
|
(43)
|
—
|
(46)
|
—
|
Merger termination
fee
|
845
|
—
|
845
|
—
|
Investment in Central
Maine and Québec Railway
|
—
|
19
|
—
|
19
|
Free
cash
|
$
|
746
|
$
|
333
|
$
|
1,042
|
$
|
491
|
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 June 30
|
(in millions of
Canadian dollars)
|
Reported
2021
|
Reported
2020
|
Variance
due to FX
|
FX Adjusted
2020
|
FX Adjusted %
Change
|
Freight revenues by
line of business
|
|
|
|
|
|
Grain
|
$
|
444
|
$
|
446
|
$
|
(20)
|
$
|
426
|
4
|
Coal
|
170
|
131
|
(2)
|
129
|
32
|
Potash
|
134
|
146
|
(8)
|
138
|
(3)
|
Fertilizers and
sulphur
|
78
|
77
|
(6)
|
71
|
10
|
Forest
products
|
90
|
81
|
(7)
|
74
|
22
|
Energy, chemicals and
plastics
|
369
|
341
|
(22)
|
319
|
16
|
Metals, minerals and
consumer products
|
180
|
133
|
(12)
|
121
|
49
|
Automotive
|
98
|
34
|
(3)
|
31
|
216
|
Intermodal
|
445
|
363
|
(13)
|
350
|
27
|
Freight
revenues
|
2,008
|
1,752
|
(93)
|
1,659
|
21
|
Non-freight
revenues
|
46
|
40
|
(1)
|
39
|
18
|
Total
revenues
|
$
|
2,054
|
$
|
1,792
|
$
|
(94)
|
$
|
1,698
|
21
|
|
For the six months
ended June 30
|
(in millions of
Canadian dollars)
|
Reported
2021
|
Reported
2020
|
Variance
due to FX
|
FX Adjusted
2020
|
FX Adjusted %
Change
|
Freight revenues by
line of business
|
|
|
|
|
|
Grain
|
$
|
892
|
$
|
864
|
$
|
(30)
|
$
|
834
|
7
|
Coal
|
333
|
281
|
(3)
|
278
|
20
|
Potash
|
235
|
258
|
(11)
|
247
|
(5)
|
Fertilizers and
sulphur
|
155
|
147
|
(9)
|
138
|
12
|
Forest
products
|
170
|
159
|
(11)
|
148
|
15
|
Energy, chemicals and
plastics
|
757
|
832
|
(35)
|
797
|
(5)
|
Metals, minerals and
consumer products
|
339
|
322
|
(20)
|
302
|
12
|
Automotive
|
206
|
121
|
(8)
|
113
|
82
|
Intermodal
|
839
|
768
|
(18)
|
750
|
12
|
Freight
revenues
|
3,926
|
3,752
|
(145)
|
3,607
|
9
|
Non-freight
revenues
|
87
|
83
|
(1)
|
82
|
6
|
Total
revenues
|
$
|
4,013
|
$
|
3,835
|
$
|
(146)
|
$
|
3,689
|
9
|
FX adjusted % changes in operating expenses are as follows:
|
For the three
months ended June 30
|
(in millions of
Canadian dollars)
|
Reported
2021
|
Reported
2020
|
Variance
due to FX
|
FX Adjusted
2020
|
FX Adjusted %
Change
|
Compensation and
benefits
|
$
|
379
|
$
|
347
|
$
|
(12)
|
$
|
335
|
13
|
Fuel
|
218
|
131
|
(11)
|
120
|
82
|
Materials
|
54
|
50
|
(2)
|
48
|
13
|
Equipment
rents
|
28
|
33
|
(3)
|
30
|
(7)
|
Depreciation and
amortization
|
200
|
195
|
(6)
|
189
|
6
|
Purchased services
and other
|
355
|
266
|
(13)
|
253
|
40
|
Total operating
expenses
|
$
|
1,234
|
$
|
1,022
|
$
|
(47)
|
$
|
975
|
27
|
|
For the six months
ended June 30
|
(in millions of
Canadian dollars)
|
Reported
2021
|
Reported
2020
|
Variance
due to FX
|
FX Adjusted
2020
|
FX Adjusted %
Change
|
Compensation and
benefits
|
$
|
784
|
$
|
745
|
$
|
(17)
|
$
|
728
|
8
|
Fuel
|
424
|
343
|
(19)
|
324
|
31
|
Materials
|
113
|
109
|
(3)
|
106
|
7
|
Equipment
rents
|
61
|
69
|
(5)
|
64
|
(5)
|
Depreciation and
amortization
|
402
|
387
|
(9)
|
378
|
6
|
Purchased services
and other
|
629
|
578
|
(21)
|
557
|
13
|
Total operating
expenses
|
$
|
2,413
|
$
|
2,231
|
$
|
(74)
|
$
|
2,157
|
12
|
FX adjusted % change in operating income is as follows:
|
For the three
months ended June 30
|
(in millions of
Canadian dollars)
|
Reported
2021
|
Reported
2020
|
Variance
due to FX
|
FX Adjusted
2020
|
FX Adjusted %
Change
|
Operating
income
|
$
|
820
|
$
|
770
|
$
|
(47)
|
$
|
723
|
13
|
|
For the six months
ended June 30
|
(in millions of
Canadian dollars)
|
Reported
2021
|
Reported
2020
|
Variance
due to FX
|
FX Adjusted
2020
|
FX Adjusted %
Change
|
Operating
income
|
$
|
1,600
|
$
|
1,604
|
$
|
(72)
|
$
|
1,532
|
4
|
Adjusted Net Debt to Adjusted EBITDA Ratio
Adjusted net debt to Adjusted earnings before interest, tax,
depreciation and amortization ("EBITDA") ratio is calculated as
Adjusted net debt divided by Adjusted EBITDA. The Adjusted net debt
to Adjusted EBITDA ratio is a key credit measure used to assess the
Company's financial capacity. The ratio provides information on the
Company's ability to service its debt and other long-term
obligations. The Adjusted net debt to Adjusted EBITDA ratio is
reconciled below from the Long-term debt to Net income ratio, the
most comparable measure calculated in accordance with GAAP.
Calculation of Long-term Debt to Net Income Ratio
(in millions of
Canadian dollars, except for ratios)
|
2021
|
2020
|
Long-term debt
including long-term debt maturing within one year as at June
30
|
$
|
8,722
|
$
|
9,548
|
Net income for the
twelve months ended June 30
|
$
|
3,248
|
$
|
2,326
|
Long-term debt to
Net income ratio
|
2.7
|
4.1
|
Reconciliation of Long-term Debt to Adjusted Net Debt
Adjusted net debt is defined as Long-term debt, Long-term debt
maturing within one year, and Short-term borrowing as reported on
the Company's Consolidated Balance Sheets adjusted for pension
plans deficit, operating lease liabilities recognized on the
Company's Consolidated Balance Sheets, and Cash and cash
equivalents.
(in millions of
Canadian dollars)
|
2021
|
2020
|
Long-term debt
including long-term debt maturing within one year as at June
30
|
$
|
8,722
|
$
|
9,548
|
Add:
|
|
|
Pension plans
deficit(1)
|
322
|
294
|
Operating lease
liabilities
|
273
|
343
|
Less:
|
|
|
Cash and cash
equivalents
|
892
|
277
|
Adjusted net debt
as at June 30
|
$
|
8,425
|
$
|
9,908
|
(1)
|
Pension plans deficit
is the total funded status of the Pension plans in deficit
only.
|
Reconciliation of Net Income to EBIT, Adjusted EBIT and Adjusted
EBITDA
Earnings before interest and tax ("EBIT") is calculated as Net
income before Net interest expense and Income tax expense. Adjusted
EBIT excludes significant items reported in both Operating income
and Other expense (income). Adjusted EBITDA is calculated as
Adjusted EBIT plus operating lease expense and Depreciation and
amortization, less Other components of net periodic benefit
recovery.
|
For the twelve
months
ended June 30
|
(in millions of
Canadian dollars)
|
2021
|
2020
|
Net income as
reported
|
$
|
3,248
|
$
|
2,326
|
Add:
|
|
|
Net interest
expense
|
437
|
454
|
Income tax
expense
|
832
|
817
|
EBIT
|
4,517
|
3,597
|
Less significant
items (pre-tax):
|
|
|
Acquisition-related
costs
|
(344)
|
—
|
Merger termination
fee
|
845
|
—
|
Impact of FX
translation gain (loss) on debt and lease liabilities
|
228
|
(117)
|
Adjusted
EBIT
|
3,788
|
3,714
|
Add:
|
|
|
Operating lease
expense
|
72
|
80
|
Depreciation and
amortization
|
794
|
750
|
Less:
|
|
|
Other components of
net periodic benefit recovery
|
362
|
357
|
Adjusted
EBITDA
|
$
|
4,292
|
$
|
4,187
|
Calculation of Adjusted Net Debt to Adjusted EBITDA Ratio
(in millions of
Canadian dollars, except for ratios)
|
2021
|
2020
|
Adjusted net debt as
at June 30
|
$
|
8,425
|
$
|
9,908
|
Adjusted EBITDA for
the twelve months ended June 30
|
$
|
4,292
|
$
|
4,187
|
Adjusted net debt
to Adjusted EBITDA ratio
|
2.0
|
2.4
|
View original
content:https://www.prnewswire.com/news-releases/on-strength-of-safety-and-service-cp-reports-record-q2-revenues-of-2-05-billion-301343564.html
SOURCE Canadian Pacific