CALGARY,
AB, Jan. 31, 2023 /PRNewswire/ - Canadian
Pacific Railway Limited (TSX: CP) (NYSE: CP) today announced its
fourth-quarter results, including revenues of $2.46 billion, operating ratio ("OR") of 59.8
percent, adjusted OR1 of 59.1 percent, diluted earnings
per share ("EPS") of $1.36 and core
adjusted diluted EPS1 of $1.14.
Fourth quarter 2022 highlights
- Revenues increased 21 percent to $2.46
billion, from $2.04 billion in
Q4 2021
- Volumes, as measured in revenue ton-miles, increased 8
percent
- Reported OR increased by 60 basis points to 59.8 percent from
59.2 percent
- Adjusted OR1, increased 160 basis points to 59.1
percent
- Reported diluted EPS increased to $1.36, from $0.74
in Q4 2021
- Core adjusted diluted EPS1 increased to $1.14, from $0.96
in Q4 2021
"We finished the year with the people, capacity and resources in
place to meet the needs of our customers today and are
well-positioned to make history in 2023," said Keith Creel, CP President and CEO. "In a year of
changing conditions and challenges, in order to support the broader
economy and prepare for our proposed combination, we executed one
of the largest hiring plans and capital investment programs in our
company's history."
Full-year 2022 highlights
- Federal Railroad Administration ("FRA")-reportable train
accident frequency declined 15 percent to 0.93 from 1.10 in
2021
- Revenues increased 10 percent to $8.81
billion from $8.0 billion in
2021
- Generated $2.7 billion in free
cash1, an increase of 52 percent
- OR increased 230 basis points to 62.2 percent
- Adjusted OR1 increased 380 basis points to 61.4
percent
- Reported diluted EPS decreased to $3.77 from $4.18
- Core adjusted diluted EPS1 was flat compared to 2021
at $3.77
"We remain focused on our precision scheduled railroading model
and fundamentals of efficiency and strong service to our customers
as we await a decision by the U.S. Surface Transportation Board on
our proposed combination with Kansas City Southern, which we
anticipate occurring later this quarter," said Creel.
CP again led the industry in safety, achieving the lowest
FRA-reportable train accident frequency among Class 1 railroads for
the 17th consecutive year.
1
|
These measures have no
standardized meanings prescribed by accounting principles generally
accepted in the United States of America ("GAAP") and, therefore,
may not be comparable to similar measures presented by other
companies. For information regarding non-GAAP measures, including
reconciliations to the most comparable GAAP measures, see the
attached supplementary schedule Non-GAAP Measures.
|
Conference Call Details
CP will discuss its results with the
financial community in a conference call beginning at 4:30 p.m. ET (2:30 p.m.
MT) on Jan. 31, 2023.
Conference Call Access
Canada and U.S.: 866-831-8713
International: 203-518-9822
*Conference ID: CPQ422
Callers should dial in 10 minutes prior to the call.
Webcast
We encourage you to access the webcast and
presentation material in the Investors section of CP's website at
investor.cpr.ca.
A replay of the fourth-quarter conference call will be available
by phone through to Feb. 7, 2023, at
800-723-7372 (Canada/U.S.) or
402-220-2666 (International).
Note on forward-looking information
This news release
may contain certain forward-looking information and forward-looking
statements (collectively, "forward-looking information") within the
meaning of applicable securities laws. Forward-looking information
includes, but is not limited to, statements concerning
expectations, beliefs, plans, goals, objectives, assumptions and
statements about possible future events, conditions, and results of
operations or performance. Forward-looking information may contain
statements with words or headings such as "financial expectations",
"key assumptions", "anticipate", "believe", "expect", "plan",
"will", "outlook", "should" or similar words suggesting future
outcomes. This news release contains forward-looking information
relating, but not limited to statements concerning, the success of
our business, changes to economic and industry conditions, the
status of the CP-Kansas City Southern ("KCS") transaction,
including related regulatory approvals, and the opportunities
arising there from, our operations, priorities and plans,
anticipated financial and operational performance, business
prospects and demand for our services and growth opportunities.
The forward-looking information that may be in this news release
is based on current expectations, estimates, projections and
assumptions, having regard to CP's experience and its perception of
historical trends, and includes, but is not limited to,
expectations, estimates, projections and assumptions relating to:
changes in business strategies, North American and global economic
growth and conditions; commodity demand growth; sustainable
industrial and agricultural production; commodity prices and
interest rates; performance of our assets and equipment;
sufficiency of our budgeted capital expenditures in carrying out
our business plan; geopolitical conditions, applicable laws,
regulations and government policies; the availability and cost of
labour, services and infrastructure; the satisfaction by third
parties of their obligations to CP; carbon markets, evolving
sustainability strategies, and scientific or technological
developments; and the impacts of the COVID-19 pandemic on CP
businesses, operating results, cash flows and/or financial
condition. Although CP believes the expectations, estimates,
projections and assumptions reflected in the forward-looking
information presented herein are reasonable as of the date hereof,
there can be no assurance that they will prove to be correct.
Current conditions, economic and otherwise, render assumptions,
although reasonable when made, subject to greater uncertainty.
Undue reliance should not be placed on forward-looking
information as actual results may differ materially from those
expressed or implied by forward-looking information. By its nature,
CP's forward-looking information involves inherent risks and
uncertainties that could cause actual results to differ materially
from the forward looking information, including, but not limited
to, the following factors: changes in business strategies and
strategic opportunities; general Canadian, U.S., Mexican and global
social, economic, political, credit and business conditions; risks
associated with agricultural production such as weather conditions
and insect populations; the availability and price of energy
commodities; the effects of competition and pricing pressures,
including competition from other rail carriers, trucking companies
and maritime shippers in Canada,
the U.S. and Mexico; North
American and global economic growth and conditions; industry
capacity; shifts in market demand; changes in commodity prices and
commodity demand; uncertainty surrounding timing and volumes of
commodities being shipped via CP; inflation; geopolitical
instability; changes in laws, regulations and government policies,
including regulation of rates; changes in taxes and tax rates;
potential increases in maintenance and operating costs; changes in
fuel prices; disruption in fuel supplies; uncertainties of
investigations, proceedings or other types of claims and
litigation; compliance with environmental regulations; labour
disputes; changes in labour costs and labour difficulties; risks
and liabilities arising from derailments; transportation of
dangerous goods; timing of completion of capital and maintenance
projects; sufficiency of budgeted capital expenditures in carrying
out business plans; services and infrastructure; the satisfaction
by third parties of their obligations; currency and interest rate
fluctuations; exchange rates; effects of changes in market
conditions and discount rates on the financial position of pension
plans and investments; trade restrictions or other changes to
international trade arrangements; the effects of current and future
multinational trade agreements on the level of trade among
Canada, the U.S. and Mexico; climate change and the market and
regulatory responses to climate change; anticipated in-service
dates; success of hedging activities; operational performance and
reliability; customer, regulatory and other stakeholder approvals
and support; regulatory and legislative decisions and actions; the
adverse impact of any termination or revocation by the Mexican
government of Kansas City Southern de México, S.A. de C.V.'s
Concession; public opinion; various events that could disrupt
operations, including severe weather, such as droughts, floods,
avalanches and earthquakes, and cybersecurity attacks, as well as
security threats and governmental response to them, and
technological changes; acts of terrorism, war or other acts of
violence or crime or risk of such activities; insurance coverage
limitations; material adverse changes in economic and industry
conditions, including the availability of short and long-term
financing; the pandemic created by the outbreak of COVID-19 and its
variants and resulting effects on economic conditions, the demand
environment for logistics requirements and energy prices,
restrictions imposed by public health authorities or governments,
fiscal and monetary policy responses by governments and financial
institutions, and disruptions to global supply chains; the
realization of anticipated benefits and synergies of the CP-KCS
transaction and the timing thereof; the success of integration
plans for KCS; the focus of management time and attention on the
CP-KCS transaction and other disruptions arising from the
transaction; estimated future dividends; financial strength and
flexibility; debt and equity market conditions, including the
ability to access capital markets on favourable terms or at all;
cost of debt and equity capital; improvement in data collection and
measuring systems; industry-driven changes to methodologies; and
the ability of the management of the Company to execute key
priorities, including those in connection with the CP-KCS
transaction. The foregoing list of factors is not exhaustive. These
and other factors are detailed from time to time in reports filed
by CP with securities regulators in Canada and the
United States. Reference should be made to "Item 1A - Risk
Factors" and "Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations - Forward-Looking
Statements" in CP's annual and interim reports on Form 10-K and
10-Q.
Any forward-looking information contained in this news release
is made as of the date hereof. Except as required by law, CP
undertakes no obligation to update publicly or otherwise revise any
forward-looking information, or the foregoing assumptions and risks
affecting such forward-looking information, whether as a result of
new information, future events or otherwise.
About Canadian Pacific
Canadian Pacific is a
transcontinental railway in Canada
and the United States with direct
links to major ports on the west and east coasts. CP provides North
American customers a competitive rail service with access to key
markets in every corner of the globe. CP is growing with its
customers, offering a suite of freight transportation services,
logistics solutions and supply chain expertise. Visit cpr.ca to see
the rail advantages of CP. CP-IR
FINANCIAL INFORMATION
INTERIM CONSOLIDATED STATEMENTS OF
INCOME
(unaudited)
|
For the three
months
ended December 31
|
For the year
ended
December 31
|
(in millions of
Canadian dollars, except share and per share data)
|
2022
|
2021
|
2022
|
2021
|
Revenues
|
|
|
|
|
Freight
|
$
2,413
|
$
1,994
|
$
8,627
|
$
7,816
|
Non-freight
|
49
|
46
|
187
|
179
|
Total
revenues
|
2,462
|
2,040
|
8,814
|
7,995
|
Operating
expenses
|
|
|
|
|
Compensation and
benefits
|
416
|
405
|
1,570
|
1,570
|
Fuel
|
399
|
231
|
1,400
|
854
|
Materials
|
69
|
51
|
260
|
215
|
Equipment
rents
|
43
|
29
|
140
|
121
|
Depreciation and
amortization
|
219
|
206
|
853
|
811
|
Purchased services and
other (Note 4)
|
327
|
286
|
1,262
|
1,218
|
Total operating
expenses
|
1,473
|
1,208
|
5,485
|
4,789
|
|
|
|
|
|
Operating
income
|
989
|
832
|
3,329
|
3,206
|
Less:
|
|
|
|
|
Equity (earnings) loss
of Kansas City Southern (Note 4)
|
(447)
|
141
|
(1,074)
|
141
|
Other expense (income)
(Note 2)
|
4
|
(16)
|
17
|
237
|
Merger termination
fee
|
—
|
—
|
—
|
(845)
|
Other components of
net periodic benefit recovery
|
(107)
|
(101)
|
(411)
|
(387)
|
Net interest
expense
|
166
|
125
|
652
|
440
|
Income before income
tax expense
|
1,373
|
683
|
4,145
|
3,620
|
Income tax expense
(Note 3)
|
102
|
151
|
628
|
768
|
Net
income
|
$
1,271
|
$
532
|
$
3,517
|
$
2,852
|
|
|
|
|
|
Earnings per
share
|
|
|
|
|
Basic earnings per
share
|
$
1.37
|
$
0.74
|
$
3.78
|
$
4.20
|
Diluted earnings per
share
|
$
1.36
|
$
0.74
|
$
3.77
|
$
4.18
|
|
|
|
|
|
Weighted-average
number of shares (millions)
|
|
|
|
|
Basic
|
930.3
|
718.4
|
930.0
|
679.7
|
Diluted
|
933.2
|
721.3
|
932.9
|
682.8
|
|
|
|
|
|
Dividends declared
per share
|
$
0.190
|
$
0.190
|
$
0.760
|
$
0.760
|
See Notes to Interim
Consolidated Financial Information.
|
INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME
(unaudited)
|
For the three
months
ended December 31
|
For the year
ended
December 31
|
(in millions of
Canadian dollars)
|
2022
|
2021
|
2022
|
2021
|
Net income
|
$
1,271
|
$
532
|
$
3,517
|
$
2,852
|
Net (loss) gain in
foreign currency translation adjustments, net of
hedging activities
|
(320)
|
(294)
|
1,628
|
(291)
|
Change in derivatives
designated as cash flow hedges
|
1
|
(21)
|
6
|
48
|
Change in pension and
post-retirement defined benefit plans
|
581
|
1,128
|
680
|
1,286
|
Equity accounted
investments
|
(187)
|
9
|
(5)
|
9
|
Other comprehensive
income before income taxes
|
75
|
822
|
2,309
|
1,052
|
Income tax expense on
above items
|
(117)
|
(282)
|
(115)
|
(341)
|
Other comprehensive
(loss) income
|
(42)
|
540
|
2,194
|
711
|
Comprehensive
income
|
$
1,229
|
$
1,072
|
$
5,711
|
$
3,563
|
See Notes to Interim
Consolidated Financial Information
|
INTERIM CONSOLIDATED BALANCE SHEETS AS
AT
(unaudited)
|
December
31
|
December 31
|
(in millions of
Canadian dollars)
|
2022
|
2021
|
Assets
|
|
|
Current
assets
|
|
|
Cash and cash
equivalents
|
$
451
|
$
69
|
Restricted cash and
cash equivalents
|
—
|
13
|
Accounts receivable,
net
|
1,016
|
819
|
Materials and
supplies
|
284
|
235
|
Other current
assets
|
138
|
216
|
|
1,889
|
1,352
|
Investment in Kansas
City Southern (Note 4)
|
45,091
|
42,309
|
Investments
|
223
|
209
|
Properties
|
22,385
|
21,200
|
Goodwill and intangible
assets
|
386
|
371
|
Pension
asset
|
3,101
|
2,317
|
Other assets
|
420
|
419
|
Total
assets
|
$
73,495
|
$
68,177
|
Liabilities and
shareholders' equity
|
|
|
Current
liabilities
|
|
|
Accounts payable and
accrued liabilities
|
$
1,703
|
$
1,609
|
Long-term debt
maturing within one year
|
1,510
|
1,550
|
|
3,213
|
3,159
|
Pension and other
benefit liabilities
|
538
|
718
|
Other long-term
liabilities
|
520
|
542
|
Long-term
debt
|
18,141
|
18,577
|
Deferred income taxes
(Note 3)
|
12,197
|
11,352
|
Total
liabilities
|
34,609
|
34,348
|
Shareholders'
equity
|
|
|
Share
capital
|
25,516
|
25,475
|
Additional paid-in
capital
|
78
|
66
|
Accumulated other
comprehensive income (loss)
|
91
|
(2,103)
|
Retained
earnings
|
13,201
|
10,391
|
|
38,886
|
33,829
|
Total liabilities
and shareholders' equity
|
$
73,495
|
$
68,177
|
See Notes to Interim
Consolidated Financial Information.
|
INTERIM CONSOLIDATED STATEMENTS OF CASH
FLOWS
(unaudited)
|
For the three
months
ended December 31
|
For the year
ended
December 31
|
(in millions of
Canadian dollars)
|
2022
|
2021
|
2022
|
2021
|
Operating
activities
|
|
|
|
|
Net income
|
$
1,271
|
$
532
|
$
3,517
|
$
2,852
|
Reconciliation of net
income to cash provided by operating activities:
|
|
|
|
|
Depreciation and
amortization
|
219
|
206
|
853
|
811
|
Deferred income tax
(recovery) expense
|
(15)
|
52
|
136
|
242
|
Pension recovery and
funding
|
(70)
|
(61)
|
(288)
|
(249)
|
Equity (earnings) loss
of Kansas City Southern (Note 4)
|
(447)
|
141
|
(1,074)
|
141
|
Foreign exchange (gain)
loss on debt and lease liabilities (Note 2)
|
—
|
32
|
—
|
(7)
|
Dividends from Kansas
City Southern (Note 4)
|
564
|
—
|
1,157
|
—
|
Other operating
activities, net
|
35
|
14
|
(67)
|
(36)
|
Change in non-cash
working capital balances related to operations
|
163
|
(312)
|
(92)
|
(66)
|
Cash provided by
operating activities
|
1,720
|
604
|
4,142
|
3,688
|
Investing
activities
|
|
|
|
|
Additions to
properties
|
(539)
|
(421)
|
(1,557)
|
(1,532)
|
Investment in Kansas
City Southern
|
—
|
(10,526)
|
—
|
(12,299)
|
Proceeds from sale of
properties and other assets
|
21
|
31
|
58
|
96
|
Other
|
—
|
6
|
3
|
5
|
Cash used in
investing activities
|
(518)
|
(10,910)
|
(1,496)
|
(13,730)
|
Financing
activities
|
|
|
|
|
Dividends
paid
|
(176)
|
(127)
|
(707)
|
(507)
|
Issuance of CP Common
Shares
|
13
|
5
|
32
|
25
|
Issuance of long-term
debt, excluding commercial paper
|
—
|
10,673
|
—
|
10,673
|
Repayment of long-term
debt, excluding commercial paper
|
(12)
|
(10)
|
(571)
|
(359)
|
Proceeds from term
loan
|
—
|
—
|
—
|
633
|
Repayment of term
loan
|
—
|
—
|
(636)
|
—
|
Net repayment of
commercial paper
|
(713)
|
(388)
|
(415)
|
(454)
|
Acquisition-related
financing fees
|
—
|
(6)
|
—
|
(51)
|
Other
|
—
|
(17)
|
—
|
(24)
|
Cash (used in)
provided by financing activities
|
(888)
|
10,130
|
(2,297)
|
9,936
|
Effect of foreign
currency fluctuations on U.S. dollar-denominated
cash and cash equivalents
|
(1)
|
35
|
20
|
41
|
Cash
position
|
|
|
|
|
Increase (decrease) in
cash, cash equivalents and restricted cash
|
313
|
(141)
|
369
|
(65)
|
Cash, cash equivalents
and restricted cash at beginning of period
|
138
|
223
|
82
|
147
|
Cash, cash
equivalents and restricted cash at end of period
|
$
451
|
$
82
|
$
451
|
$
82
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
Income taxes
paid
|
$
89
|
$
151
|
$
408
|
$
552
|
Interest
paid
|
$
174
|
$
61
|
$
641
|
$
426
|
See Notes to Interim
Consolidated Financial Information.
|
INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY
(unaudited)
|
For the three months
ended December 31
|
(in millions of
Canadian dollars except per
share data)
|
|
Common
shares (in
millions)
|
|
Share
capital
|
Additional
paid-in
capital
|
Accumulated
other
comprehensive
income
(loss)
|
Retained
earnings
|
Total
shareholders'
equity
|
Balance as at
October 1, 2022
|
|
930.1
|
|
$
25,498
|
$
77
|
$
133
|
$
12,106
|
$
37,814
|
Net income
|
|
—
|
|
—
|
—
|
—
|
1,271
|
1,271
|
Other comprehensive
loss
|
|
—
|
|
—
|
—
|
(42)
|
—
|
(42)
|
Dividends declared
($0.190 per share)
|
|
—
|
|
—
|
—
|
—
|
(176)
|
(176)
|
Effect of stock-based
compensation
expense
|
|
—
|
|
—
|
6
|
—
|
—
|
6
|
Shares issued under
stock option plan
|
|
0.4
|
|
18
|
(5)
|
—
|
—
|
13
|
Balance as at
December 31, 2022
|
|
930.5
|
|
$
25,516
|
$
78
|
$
91
|
$
13,201
|
$
38,886
|
Balance as at October
1, 2021
|
|
666.9
|
|
$ 2,008
|
$
68
|
$
(2,643)
|
$
10,035
|
$
9,468
|
Net income
|
|
—
|
|
—
|
—
|
—
|
532
|
532
|
Other comprehensive
income
|
|
—
|
|
—
|
—
|
540
|
—
|
540
|
Dividends declared
($0.190 per share)
|
|
—
|
|
—
|
—
|
—
|
(176)
|
(176)
|
Effect of stock-based
compensation
expense
|
|
—
|
|
—
|
5
|
—
|
—
|
5
|
Shares issued for
Kansas City Southern
acquisition
|
|
262.6
|
|
23,461
|
(5)
|
—
|
—
|
23,456
|
Shares issued under
stock option plan
|
|
0.2
|
|
6
|
(2)
|
—
|
—
|
4
|
Balance as at December
31, 2021
|
|
929.7
|
|
$
25,475
|
$
66
|
$
(2,103)
|
$
10,391
|
$
33,829
|
|
For the year ended
December 31
|
(in millions of
Canadian dollars except per
share data)
|
|
Common
shares (in
millions)
|
|
Share
capital
|
Additional
paid-in
capital
|
|
Accumulated
other
comprehensive
(loss)
income
|
Retained
earnings
|
Total
shareholders'
equity
|
Balance at January
1, 2022
|
|
929.7
|
|
$
25,475
|
$
66
|
$
|
(2,103)
|
$
10,391
|
$
33,829
|
Net income
|
|
—
|
|
—
|
—
|
|
—
|
3,517
|
3,517
|
Other comprehensive
income
|
|
—
|
|
—
|
—
|
|
2,194
|
—
|
2,194
|
Dividends declared
($0.760 per share)
|
|
—
|
|
—
|
—
|
|
—
|
(707)
|
(707)
|
Effect of stock-based
compensation
expense
|
|
—
|
|
—
|
23
|
|
—
|
—
|
23
|
Shares issued for
Kansas City Southern
acquisition
|
|
—
|
|
—
|
(2)
|
|
—
|
—
|
(2)
|
Shares issued under
stock option plan
|
|
0.8
|
|
41
|
(9)
|
|
—
|
—
|
32
|
Balance as at
December 31, 2022
|
|
930.5
|
|
$
25,516
|
$
78
|
$
|
91
|
$
13,201
|
$
38,886
|
Balance at January 1,
2021
|
|
666.3
|
|
$ 1,983
|
$
55
|
$
|
(2,814)
|
$ 8,095
|
$
7,319
|
Net income
|
|
—
|
|
—
|
—
|
|
—
|
2,852
|
2,852
|
Other comprehensive
income
|
|
—
|
|
—
|
—
|
|
711
|
—
|
711
|
Dividends declared
($0.760 per share)
|
|
—
|
|
—
|
—
|
|
—
|
(556)
|
(556)
|
Effect of stock-based
compensation
expense
|
|
—
|
|
—
|
23
|
|
—
|
—
|
23
|
Shares issued for
Kansas City Southern
acquisition
|
|
262.6
|
|
23,461
|
(5)
|
|
—
|
—
|
23,456
|
Shares issued under
stock option plan
|
|
0.8
|
|
31
|
(7)
|
|
—
|
—
|
24
|
Balance as at December
31, 2021
|
|
929.7
|
|
$
25,475
|
$
66
|
$
|
(2,103)
|
$
10,391
|
$
33,829
|
See Notes to Interim
Consolidated Financial Information.
|
NOTES TO INTERIM CONSOLIDATED FINANCIAL
INFORMATION
December 31,
2022
(unaudited)
1 Basis of presentation
This unaudited interim consolidated financial information of
Canadian Pacific Railway Limited ("CPRL") and its subsidiaries
(collectively, "CP", or "the Company"), expressed in Canadian
dollars, reflects management's estimates and assumptions that are
necessary for its fair presentation in conformity with generally
accepted accounting principles in the
United States of America ("GAAP"). It does not include all
disclosures required under GAAP for annual financial statements and
interim financial statements, and should be read in conjunction
with the 2021 annual consolidated financial statements and notes
included in CP's 2021 Annual Report on Form 10-K and 2022 interim
consolidated financial statements. The accounting policies used are
consistent with the accounting policies used in preparing the 2021
annual consolidated financial statements.
CP's operations can be affected by seasonal fluctuations such as
changes in customer demand and weather-related issues. This
seasonality could impact quarter-over-quarter comparisons.
In management's opinion, the unaudited interim consolidated
financial information includes 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 Other expense (income)
|
For the three
months
ended December 31
|
For the year
ended
December 31
|
(in millions of
Canadian dollars)
|
2022
|
2021
|
2022
|
2021
|
Foreign exchange loss
(gain) on debt and lease liabilities
|
$
—
|
$
32
|
$
—
|
$
(7)
|
Other foreign exchange
(gains) losses
|
(1)
|
5
|
—
|
(4)
|
Acquisition-related
(recoveries) costs (Note 4)
|
—
|
(48)
|
—
|
247
|
Other
|
5
|
(5)
|
17
|
1
|
Other expense
(income)
|
$
4
|
$
(16)
|
$
17
|
$
237
|
3 Income taxes
During the fourth quarter and for the year ended December 31, 2022, the Company recorded a
deferred tax recovery of $24 million to reverse an uncertain
tax position as this amount is no longer expected to be
realized.
During the fourth quarter and for the year ended December 31, 2022, the Company recorded a
deferred tax recovery of $27 million and $19 million,
respectively, on the outside basis difference of the change in the
equity investment in KCS.
During the fourth quarter and for the year ended December 31, 2021, the Company recorded a
deferred tax recovery of $33 million on the outside basis
difference of the change in the equity investment in KCS from
initial recognition on December 14,
2021.
4 Business acquisition
On December 14, 2021, the Company
purchased 100% of the issued and outstanding shares of KCS. From
December 14, 2021, the date of
purchase, all purchased shares of KCS are held in an independent
voting trust (the "Trust") pending the approval from the U.S.
Surface Transportation Board ("STB") of the Company's application
for control of KCS.
The Company accounts for its investment in KCS using the equity
method of accounting while the STB considers the Company's
application to control KCS. The STB review of CP's proposed control
of KCS while KCS is in the voting trust is expected to be completed
in the first quarter of 2023. The investment in KCS of $45,091 million as at December 31, 2022, includes $1,074 million of equity earnings of KCS and
foreign currency translation of $2,891 million, offset by dividends of
$1,157 million received in the
year ended December 31, 2022.
Included within the $447 million and $1,074 million of equity earnings of KCS
recognized for the three months and year ended December 31, 2022 was amortization (net of tax)
of basis differences of $42 million and $163 million,
respectively. These basis differences relate to depreciable
property, plant and equipment, intangible assets with definite
lives, and long-term debt, and are amortized over the related
assets' remaining useful lives, and the remaining terms to maturity
of the debt instruments.
During the fourth quarter and for the year ended December 31, 2022, the Company incurred
$17 million and $74 million, in acquisition-related
costs, respectively, recorded within "Purchased services and other"
in the Company's Interim Consolidated Statements of Income.
Acquisition-related costs of $10 million and $49 million
incurred by KCS during the fourth quarter and for the year ended
December 31, 2022 are included within
"Equity (earnings) loss of Kansas City Southern" in the Company's
Interim Consolidated Statements of Income. Equity earnings of KCS
recognized for the three months and year ended December 31, 2022 also included KCS's gain on
unwinding of interest rate hedges of $212
million, which is net of CP's associated purchase accounting
basis differences and tax.
During the fourth quarter and for the year ended December 31, 2021, the Company incurred
$157 million and $599 million, respectively, in
acquisition-related costs associated with the KCS acquisition, of
which costs of $36 million and $183 million were recorded
within "Purchased services and other", and recoveries of
$48 million and costs of $247 million were recorded
within "Other expense (income)" in each period, respectively.
Acquisition-related costs, net of tax, of $169 million,
incurred by KCS during the 18 days from the date the transaction
closed into the voting trust, were included within "Equity loss of
Kansas City Southern" in the Company's Interim Consolidated
Statements of Income.
Summary of Rail Data
|
Fourth
Quarter
|
|
Year
|
Financial (millions,
except per share data)
|
2022
|
2021
|
Total
Change
|
%
Change
|
|
2022
|
2021
|
Total
Change
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Freight
|
$
2,413
|
$
1,994
|
$ 419
|
21
|
|
$
8,627
|
$
7,816
|
$ 811
|
10
|
Non-freight
|
49
|
46
|
3
|
7
|
|
187
|
179
|
8
|
4
|
Total
revenues
|
2,462
|
2,040
|
422
|
21
|
|
8,814
|
7,995
|
819
|
10
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
Compensation and
benefits
|
416
|
405
|
11
|
3
|
|
1,570
|
1,570
|
—
|
—
|
Fuel
|
399
|
231
|
168
|
73
|
|
1,400
|
854
|
546
|
64
|
Materials
|
69
|
51
|
18
|
35
|
|
260
|
215
|
45
|
21
|
Equipment
rents
|
43
|
29
|
14
|
48
|
|
140
|
121
|
19
|
16
|
Depreciation and
amortization
|
219
|
206
|
13
|
6
|
|
853
|
811
|
42
|
5
|
Purchased services and
other
|
327
|
286
|
41
|
14
|
|
1,262
|
1,218
|
44
|
4
|
Total operating
expenses
|
1,473
|
1,208
|
265
|
22
|
|
5,485
|
4,789
|
696
|
15
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
989
|
832
|
157
|
19
|
|
3,329
|
3,206
|
123
|
4
|
|
|
|
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
Equity (earnings) loss
of Kansas City Southern
|
(447)
|
141
|
(588)
|
(417)
|
|
(1,074)
|
141
|
(1,215)
|
(862)
|
Other expense
(income)
|
4
|
(16)
|
20
|
(125)
|
|
17
|
237
|
(220)
|
(93)
|
Merger termination
fee
|
—
|
—
|
—
|
—
|
|
—
|
(845)
|
845
|
(100)
|
Other components of
net periodic benefit recovery
|
(107)
|
(101)
|
(6)
|
6
|
|
(411)
|
(387)
|
(24)
|
6
|
Net interest
expense
|
166
|
125
|
41
|
33
|
|
652
|
440
|
212
|
48
|
|
|
|
|
|
|
|
|
|
|
Income before income
tax expense
|
1,373
|
683
|
690
|
101
|
|
4,145
|
3,620
|
525
|
15
|
|
|
|
|
|
|
|
|
|
|
Income tax
expense
|
102
|
151
|
(49)
|
(32)
|
|
628
|
768
|
(140)
|
(18)
|
|
|
|
|
|
|
|
|
|
|
Net income
|
$
1,271
|
$ 532
|
$ 739
|
139
|
|
$
3,517
|
$
2,852
|
$ 665
|
23
|
Operating ratio
(%)
|
59.8
|
59.2
|
0.6
|
60
bps
|
|
62.2
|
59.9
|
2.3
|
230
bps
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per
share
|
$ 1.37
|
$ 0.74
|
$ 0.63
|
85
|
|
$ 3.78
|
$ 4.20
|
$
(0.42)
|
(10)
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per
share
|
$ 1.36
|
$ 0.74
|
$ 0.62
|
84
|
|
$ 3.77
|
$ 4.18
|
$
(0.41)
|
(10)
|
|
|
|
|
|
|
|
|
|
|
Shares
Outstanding
|
|
|
|
|
|
|
|
|
|
Weighted average
number of basic shares
outstanding (millions)
|
930.3
|
718.4
|
211.9
|
29
|
|
930.0
|
679.7
|
250.3
|
37
|
Weighted average
number of diluted shares
outstanding (millions)
|
933.2
|
721.3
|
211.9
|
29
|
|
932.9
|
682.8
|
250.1
|
37
|
|
|
|
|
|
|
|
|
|
|
Foreign
Exchange
|
|
|
|
|
|
|
|
|
|
Average foreign
exchange rate (U.S.$/Canadian$)
|
0.74
|
0.79
|
(0.05)
|
(6)
|
|
0.77
|
0.80
|
(0.03)
|
(4)
|
Average foreign
exchange rate (Canadian$/U.S.$)
|
1.36
|
1.26
|
0.10
|
8
|
|
1.30
|
1.25
|
0.05
|
4
|
Summary of Rail Data
(Continued)
|
Fourth
Quarter
|
|
Year
|
Commodity
Data
|
2022
|
2021
|
Total
Change
|
%
Change
|
FX
Adjusted
%
Change(1)
|
|
2022
|
2021
|
Total
Change
|
%
Change
|
FX
Adjusted
%
Change(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Freight Revenues
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
- Grain
|
$
655
|
$
440
|
$ 215
|
49
|
42
|
|
$
1,776
|
$ 1,684
|
$ 92
|
5
|
3
|
- Coal
|
119
|
134
|
(15)
|
(11)
|
(13)
|
|
577
|
625
|
(48)
|
(8)
|
(8)
|
- Potash
|
136
|
115
|
21
|
18
|
13
|
|
581
|
463
|
118
|
25
|
23
|
- Fertilizers and
sulphur
|
88
|
78
|
10
|
13
|
6
|
|
332
|
305
|
27
|
9
|
6
|
- Forest
products
|
104
|
89
|
15
|
17
|
9
|
|
403
|
348
|
55
|
16
|
12
|
- Energy, chemicals and
plastics
|
384
|
414
|
(30)
|
(7)
|
(11)
|
|
1,394
|
1,563
|
(169)
|
(11)
|
(13)
|
- Metals, minerals and
consumer
products
|
229
|
193
|
36
|
19
|
12
|
|
884
|
728
|
156
|
21
|
18
|
- Automotive
|
116
|
87
|
29
|
33
|
27
|
|
438
|
376
|
62
|
16
|
14
|
- Intermodal
|
582
|
444
|
138
|
31
|
29
|
|
2,242
|
1,724
|
518
|
30
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Freight
Revenues
|
$
2,413
|
$ 1,994
|
$ 419
|
21
|
16
|
|
$
8,627
|
$ 7,816
|
$ 811
|
10
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
Freight Revenue per
Revenue Ton-
Mile (RTM) (cents)
|
|
|
|
|
|
|
|
|
|
|
|
- Grain
|
5.46
|
4.66
|
0.80
|
17
|
12
|
|
5.03
|
4.43
|
0.60
|
14
|
11
|
- Coal
|
4.06
|
3.44
|
0.62
|
18
|
16
|
|
3.85
|
3.41
|
0.44
|
13
|
13
|
- Potash
|
3.51
|
2.90
|
0.61
|
21
|
16
|
|
3.20
|
2.78
|
0.42
|
15
|
13
|
- Fertilizers and
sulphur
|
7.41
|
6.66
|
0.75
|
11
|
5
|
|
6.96
|
6.30
|
0.66
|
10
|
7
|
- Forest
products
|
7.56
|
6.23
|
1.33
|
21
|
14
|
|
7.02
|
6.09
|
0.93
|
15
|
11
|
- Energy, chemicals and
plastics
|
6.00
|
6.74
|
(0.74)
|
(11)
|
(15)
|
|
5.66
|
6.14
|
(0.48)
|
(8)
|
(10)
|
- Metals, minerals and
consumer
products
|
8.01
|
6.79
|
1.22
|
18
|
11
|
|
7.55
|
6.52
|
1.03
|
16
|
13
|
- Automotive
|
27.10
|
22.48
|
4.62
|
21
|
15
|
|
25.23
|
21.30
|
3.93
|
18
|
16
|
- Intermodal
|
7.44
|
6.63
|
0.81
|
12
|
10
|
|
7.19
|
6.22
|
0.97
|
16
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Freight Revenue
per RTM
|
6.21
|
5.54
|
0.67
|
12
|
8
|
|
5.82
|
5.22
|
0.60
|
11
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
Freight Revenue per
Carload
|
|
|
|
|
|
|
|
|
|
|
|
- Grain
|
$
5,170
|
$ 4,297
|
$ 873
|
20
|
15
|
|
$
4,648
|
$ 3,951
|
$ 697
|
18
|
15
|
- Coal
|
2,102
|
1,991
|
111
|
6
|
4
|
|
2,139
|
2,144
|
(5)
|
—
|
(1)
|
- Potash
|
3,897
|
3,186
|
711
|
22
|
17
|
|
3,631
|
3,068
|
563
|
18
|
16
|
- Fertilizers and
sulphur
|
5,867
|
4,875
|
992
|
20
|
13
|
|
5,372
|
4,736
|
636
|
13
|
10
|
- Forest
products
|
5,843
|
4,811
|
1,032
|
21
|
14
|
|
5,513
|
4,728
|
785
|
17
|
13
|
- Energy, chemicals and
plastics
|
5,039
|
5,267
|
(228)
|
(4)
|
(8)
|
|
4,687
|
4,883
|
(196)
|
(4)
|
(6)
|
- Metals, minerals and
consumer
products
|
3,748
|
3,244
|
504
|
16
|
9
|
|
3,560
|
3,076
|
484
|
16
|
12
|
- Automotive
|
4,394
|
3,655
|
739
|
20
|
15
|
|
4,195
|
3,443
|
752
|
22
|
19
|
- Intermodal
|
1,946
|
1,752
|
194
|
11
|
9
|
|
1,892
|
1,622
|
270
|
17
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Freight Revenue
per Carload
|
$
3,381
|
$ 3,041
|
$ 340
|
11
|
7
|
|
$
3,101
|
$ 2,857
|
$ 244
|
9
|
7
|
|
|
(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)
|
Fourth
Quarter
|
|
Year
|
Commodity Data
(Continued)
|
2022
|
2021
|
Total
Change
|
%
Change
|
|
2022
|
2021
|
Total
Change
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
Millions of
RTM
|
|
|
|
|
|
|
|
|
|
- Grain
|
11,990
|
9,435
|
2,555
|
27
|
|
35,325
|
37,999
|
(2,674)
|
(7)
|
- Coal
|
2,933
|
3,894
|
(961)
|
(25)
|
|
14,970
|
18,345
|
(3,375)
|
(18)
|
- Potash
|
3,879
|
3,966
|
(87)
|
(2)
|
|
18,176
|
16,671
|
1,505
|
9
|
- Fertilizers and
sulphur
|
1,187
|
1,172
|
15
|
1
|
|
4,772
|
4,845
|
(73)
|
(2)
|
- Forest
products
|
1,375
|
1,428
|
(53)
|
(4)
|
|
5,741
|
5,718
|
23
|
—
|
- Energy, chemicals
and plastics
|
6,404
|
6,141
|
263
|
4
|
|
24,625
|
25,469
|
(844)
|
(3)
|
- Metals, minerals and
consumer products
|
2,858
|
2,842
|
16
|
1
|
|
11,710
|
11,170
|
540
|
5
|
-
Automotive
|
428
|
387
|
41
|
11
|
|
1,736
|
1,765
|
(29)
|
(2)
|
-
Intermodal
|
7,819
|
6,696
|
1,123
|
17
|
|
31,173
|
27,704
|
3,469
|
13
|
|
|
|
|
|
|
|
|
|
|
Total RTMs
|
38,873
|
35,961
|
2,912
|
8
|
|
148,228
|
149,686
|
(1,458)
|
(1)
|
|
|
|
|
|
|
|
|
|
|
Carloads
(thousands)
|
|
|
|
|
|
|
|
|
|
- Grain
|
126.7
|
102.4
|
24.3
|
24
|
|
382.1
|
426.2
|
(44.1)
|
(10)
|
- Coal
|
56.6
|
67.3
|
(10.7)
|
(16)
|
|
269.8
|
291.5
|
(21.7)
|
(7)
|
- Potash
|
34.9
|
36.1
|
(1.2)
|
(3)
|
|
160.0
|
150.9
|
9.1
|
6
|
- Fertilizers and
sulphur
|
15.0
|
16.0
|
(1.0)
|
(6)
|
|
61.8
|
64.4
|
(2.6)
|
(4)
|
- Forest
products
|
17.8
|
18.5
|
(0.7)
|
(4)
|
|
73.1
|
73.6
|
(0.5)
|
(1)
|
- Energy, chemicals
and plastics
|
76.2
|
78.6
|
(2.4)
|
(3)
|
|
297.4
|
320.1
|
(22.7)
|
(7)
|
- Metals, minerals and
consumer products
|
61.1
|
59.5
|
1.6
|
3
|
|
248.3
|
236.7
|
11.6
|
5
|
-
Automotive
|
26.4
|
23.8
|
2.6
|
11
|
|
104.4
|
109.2
|
(4.8)
|
(4)
|
-
Intermodal
|
299.0
|
253.4
|
45.6
|
18
|
|
1,185.2
|
1,062.9
|
122.3
|
12
|
|
|
|
|
|
|
|
|
|
|
Total
Carloads
|
713.7
|
655.6
|
58.1
|
9
|
|
2,782.1
|
2,735.5
|
46.6
|
2
|
|
Fourth
Quarter
|
|
Year
|
|
2022
|
2021
|
Total
Change
|
%
Change
|
FX
Adjusted %
Change(1)
|
|
2022
|
2021
|
Total
Change
|
%
Change
|
FX
Adjusted %
Change(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and
benefits
|
$
416
|
$
405
|
$ 11
|
3
|
—
|
|
$
1,570
|
$ 1,570
|
$
—
|
—
|
(1)
|
Fuel
|
399
|
231
|
168
|
73
|
62
|
|
1,400
|
854
|
546
|
64
|
59
|
Materials
|
69
|
51
|
18
|
35
|
33
|
|
260
|
215
|
45
|
21
|
20
|
Equipment
rents
|
43
|
29
|
14
|
48
|
43
|
|
140
|
121
|
19
|
16
|
13
|
Depreciation and
amortization
|
219
|
206
|
13
|
6
|
4
|
|
853
|
811
|
42
|
5
|
4
|
Purchased services and
other
|
327
|
286
|
41
|
14
|
12
|
|
1,262
|
1,218
|
44
|
4
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating
Expenses
|
$
1,473
|
$ 1,208
|
$ 265
|
22
|
18
|
|
$
5,485
|
$ 4,789
|
$ 696
|
15
|
13
|
|
|
(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)
|
Fourth
Quarter
|
|
Year
|
|
2022
|
2021
|
Total
Change
|
%
Change
|
|
2022
|
2021
|
Total
Change
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
Operations
Performance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross ton-miles
("GTMs") (millions)
|
69,622
|
64,574
|
5,048
|
8
|
|
269,134
|
271,921
|
(2,787)
|
(1)
|
Train miles
(thousands)
|
7,509
|
6,991
|
518
|
7
|
|
28,899
|
29,397
|
(498)
|
(2)
|
Average train
weight - excluding local traffic (tons)
|
9,978
|
10,011
|
(33)
|
—
|
|
10,064
|
9,967
|
97
|
1
|
Average train
length - excluding local traffic (feet)
|
8,244
|
8,229
|
15
|
—
|
|
8,350
|
8,200
|
150
|
2
|
Average terminal dwell
(hours)
|
8.0
|
7.5
|
0.5
|
7
|
|
8.0
|
7.2
|
0.8
|
11
|
Average train speed
(miles per hour, or "mph")(1)
|
21.1
|
22.3
|
(1.2)
|
(5)
|
|
21.4
|
21.6
|
(0.2)
|
(1)
|
Locomotive productivity
(GTMs / operating horsepower)(2)
|
196
|
193
|
3
|
2
|
|
196
|
201
|
(5)
|
(2)
|
Fuel
efficiency(3)
|
0.972
|
0.941
|
0.031
|
3
|
|
0.955
|
0.931
|
0.024
|
3
|
U.S. gallons of
locomotive fuel consumed (millions)(4)
|
67.7
|
60.8
|
6.9
|
11
|
|
257.0
|
253.3
|
3.7
|
1
|
Average fuel price
(U.S. dollars per U.S. gallon)
|
4.34
|
3.03
|
1.31
|
43
|
|
4.19
|
2.70
|
1.49
|
55
|
|
|
|
|
|
|
|
|
|
|
Total Employees and
Workforce
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total employees
(average)(5)
|
13,000
|
12,113
|
887
|
7
|
|
12,570
|
12,337
|
233
|
2
|
Total employees (end of
period)(5)
|
12,754
|
11,834
|
920
|
8
|
|
12,754
|
11,834
|
920
|
8
|
Workforce (end of
period)(6)
|
12,824
|
11,872
|
952
|
8
|
|
12,824
|
11,872
|
952
|
8
|
|
|
|
|
|
|
|
|
|
|
Safety
Indicators(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FRA personal injuries
per 200,000 employee-hours
|
1.12
|
0.75
|
0.37
|
49
|
|
1.01
|
0.92
|
0.09
|
10
|
FRA train accidents per
million train-miles
|
1.19
|
1.03
|
0.16
|
16
|
|
0.93
|
1.10
|
(0.17)
|
(15)
|
|
|
(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)
|
FRA personal injuries
per 200,000 employee-hours for the three months ended December 31,
2021 was previously reported as 0.71, restated to 0.75
in this Earnings Release. This restatement reflects new information
available within specified periods stipulated by the FRA but that
exceed the
Company's financial reporting timeline.
|
Non-GAAP Measures
The Company presents Non-GAAP measures to provide a basis for
evaluating underlying earnings and liquidity trends in the
Company's business that can be compared with the results of
operations in prior periods. In addition, these Non-GAAP measures
facilitate a multi-period assessment of long-term profitability,
allowing management and other external users of the Company's
consolidated financial information to compare profitability on a
long-term basis, including assessing future profitability, with
that of the Company's peers.
These Non-GAAP measures have no standardized meaning and are not
defined by accounting principles generally accepted in the United States of America ("GAAP") and,
therefore, may not be comparable to similar measures presented by
other companies. The presentation of these Non-GAAP measures is not
intended to be considered in isolation from, as a substitute for,
or as superior to the financial information presented in accordance
with GAAP.
Non-GAAP Performance Measures
The Company uses adjusted earnings results including Adjusted
income, Adjusted diluted earnings per share, Adjusted operating
income and Adjusted operating ratio to evaluate the Company's
operating performance and for planning and forecasting future
business operations and future profitability. Core adjusted income
and Core adjusted diluted earnings per share are presented to
provide financial statement users with additional transparency by
isolating for the impact of KCS purchase accounting. KCS purchase
accounting represents the amortization of basis differences, being
the difference in value between the consideration paid to acquire
KCS and the underlying carrying value of the net assets of KCS
immediately prior to its acquisition by the Company, net of tax, as
recognized within Equity (earnings) loss of Kansas City Southern in
the Company's Interim Consolidated Statements of Income. All assets
subject to KCS purchase accounting contribute to income generation
and will continue to amortize over their estimated useful lives.
These Non-GAAP measures provide meaningful supplemental information
regarding operating results because they exclude certain
significant items that are not considered indicative of future
financial trends either by nature or amount or provide improved
comparability to past performance. As a result, these items are
excluded for management assessment of operational performance,
allocation of resources and preparation of annual
budgets. These significant items may include, but are not
limited to, restructuring and asset impairment charges,
individually significant gains and losses from sales of assets,
acquisition-related costs, the merger termination payment received,
KCS's gain on unwinding of interest rate hedges (net of CP's
associated purchase accounting basis differences and tax), as
recognized within Equity (earnings) loss of Kansas City Southern in
the Company's Interim Consolidated Statements of Income, the
foreign exchange ("FX") impact of translating the Company's debt
and lease liabilities (including borrowings under the credit
facility), discrete tax items, changes in the outside basis tax
difference between the carrying amount of CP's equity investment in
KCS and its tax basis of this investment, changes in income tax
rates, changes to an uncertain tax item, and certain items outside
the control of management. Acquisition-related costs include legal,
consulting, financing fees, integration planning costs consisting
of third-party services and system migration, fair value gain or
loss on FX forward contracts and interest rate hedges, FX gain on
U.S. dollar-denominated cash on hand from the issuances of
long-term debt to fund the KCS acquisition, and transaction and
integration costs incurred by KCS, net of tax, which were
recognized within Equity (earnings) loss of Kansas City Southern in
the Company's Interim Consolidated Statements of Income. These
items may not be non-recurring. However, excluding these
significant items from GAAP results allows for a consistent
understanding of the Company's consolidated financial performance
when performing a multi-period assessment including assessing the
likelihood of future results. Accordingly, these Non-GAAP financial
measures may provide insight to investors and other external users
of the Company's consolidated financial information.
Significant items that impact reported earnings for 2022 and
2021 include:
In 2022, there were five significant items included in Net
income as follows:
- in the fourth quarter, a gain of $212
million due to KCS's gain on unwinding of interest rate
hedges (net of CP's associated purchase accounting basis
differences and tax) recognized in Equity earnings of KCS that
favourably impacted Diluted EPS by 23
cents;
- in the fourth quarter, a deferred tax recovery of $24 million as a result of a reversal of an
uncertain tax item related to a prior period that favourably
impacted Diluted EPS by 3 cents;
- in the third quarter, a deferred tax recovery of $12 million due to a decrease in the Iowa state tax rate that favourably impacted
Diluted EPS by 1 cent;
- during the course of the year, a net deferred tax recovery of
$19 million on changes in the outside
basis difference of the equity investment in KCS that favourably
impacted Diluted EPS by 2 cents as
follows:
-
- in the fourth quarter, a deferred tax recovery of $27 million on changes in the outside basis
difference of the equity investment in KCS that favourably impacted
Diluted EPS by 3 cents;
- in the third quarter, a deferred tax recovery of $9 million on changes in the outside basis
difference of the equity investment in KCS that favourably impacted
Diluted EPS by 1 cent;
- in the second quarter, a deferred tax expense of $49 million on changes in the outside basis
difference of the equity investment in KCS that unfavourably
impacted Diluted EPS by 5 cents;
and
- in the first quarter, a deferred tax recovery of $32 million on changes in the outside basis
difference of the equity investment in KCS that favourably impacted
Diluted EPS by 3 cents; and
- during the course of the year, acquisition-related costs of
$123 million in connection with the
KCS acquisition ($108 million after
current tax recovery of $15 million),
including costs of $74 million
recognized in Purchased services and other, and $49 million recognized in Equity earnings of KCS,
that unfavourably impacted Diluted EPS by 12
cents as follows:
-
- in the fourth quarter, acquisition-related costs of
$27 million ($16 million after current tax recovery of
$11 million), including costs of
$17 million recognized in Purchased
services and other and $10 million
recognized in Equity earnings of KCS, that unfavourably impacted
Diluted EPS by 3 cents;
- in the third quarter, acquisition-related costs of $30 million ($33
million after current tax expense of $3 million), including costs of $18 million recognized in Purchased services and
other and $12 million recognized in
Equity earnings of KCS, that unfavourably impacted Diluted EPS by
3 cents;
- in the second quarter, acquisition-related costs of
$33 million ($29 million after current tax recovery of
$4 million), including costs of
$19 million recognized in Purchased
services and other and $14 million
recognized in Equity earnings of KCS, that unfavourably impacted
Diluted EPS by 3 cents; and
- in the first quarter, acquisition-related costs of $33 million ($30
million after current tax recovery of $3 million), including costs of $20 million recognized in Purchased services and
other and $13 million recognized in
Equity earnings of KCS, that unfavourably impacted Diluted EPS by
3 cents.
2021:
- in the fourth quarter, a deferred tax recovery of $33 million on changes in the outside basis
difference of the equity investment in KCS that favourably impacted
Diluted EPS by 5 cents;
- in the second quarter, the merger termination payment received
of $845 million ($748 million after current taxes) in connection
with KCS's termination of the Agreement and Plan of Merger (the
"Original Merger Agreement") effective May
21, 2021 that favourably impacted Diluted EPS by
$1.11;
- during the course of the year, acquisition-related costs of
$599 million in connection with the
KCS acquisition ($500 million after
current tax recovery of $107 million
net of deferred tax expense of $8
million), including costs of $183
million recognized in Purchased services and other,
$169 million recognized in Equity
loss of KCS, and $247 million
recognized in Other expense (income), that unfavourably impacted
Diluted EPS by 75 cents as
follows:
-
- in the fourth quarter, acquisition-related costs of
$157 million ($157 million after current tax recovery of
$13 million net of deferred tax
expense of $13 million), including
costs of $36 million recognized in
Purchased services and other, $169
million in Equity loss of KCS, and a $48 million recovery recognized in Other (income)
expense, that unfavourably impacted Diluted EPS by 22 cents;
- in the third quarter, acquisition-related costs of $98 million ($80
million after current tax recovery of $61 million net of deferred tax expense of
$43 million), including costs of
$15 million recognized in Purchased
services and other and $83 million
recognized in Other expense (income), that unfavourably impacted
Diluted EPS by 12 cents;
- in the second quarter, acquisition-related costs of
$308 million ($236 million after current taxes of $25 million and deferred taxes of $47 million), including costs of $99 million recognized in Purchased services and
other and $209 million recognized in
Other expense (income), that unfavourably impacted Diluted EPS by
35 cents; and
- in the first quarter, acquisition-related costs of $36 million ($27
million after current taxes of $8
million and deferred taxes of $1
million), including costs of $33
million recognized in Purchased services and other and
$3 million recognized in Other
expense (income), that unfavourably impacted Diluted EPS by
4 cents; and
- during the course of the year, a net non-cash gain of
$7 million ($6
million after deferred tax) due to FX translation of debt
and lease liabilities that favourably impacted Diluted EPS by
1 cent as follows:
-
- in the fourth quarter, a $32
million loss ($28 million
after deferred tax) that unfavourably impacted Diluted EPS by
4 cents;
- in the third quarter, a $46
million loss ($40 million
after deferred tax) that unfavourably impacted Diluted EPS by
6 cents;
- in the second quarter, a $52
million gain ($45 million
after deferred tax) that favourably impacted Diluted EPS by
7 cents; and
- in the first quarter, a $33
million gain ($29 million
after deferred tax) that favourably impacted Diluted EPS by
4 cents.
Reconciliation of GAAP Performance Measures to Non-GAAP
Performance Measures
The following tables reconcile the most directly comparable
measures presented in accordance with GAAP to the Non-GAAP
measures:
Adjusted income is calculated as Net income reported on a GAAP
basis adjusted for significant items. Core adjusted income is
calculated as Adjusted income less KCS purchase accounting.
|
For the three
months
ended December 31
|
For the year
ended
December 31
|
(in millions of
Canadian dollars)
|
2022
|
2021
|
2022
|
2021
|
Net income as
reported
|
$
1,271
|
$
532
|
$
3,517
|
$
2,852
|
Less significant items
(pre-tax):
|
|
|
|
|
KCS net gain on unwind
of interest rate hedges
|
212
|
—
|
212
|
—
|
Acquisition-related
costs
|
(27)
|
(157)
|
(123)
|
(599)
|
Merger termination
fee
|
—
|
—
|
—
|
845
|
Impact of FX
translation gain (loss) on debt and lease liabilities
|
—
|
(32)
|
—
|
7
|
Add:
|
|
|
|
|
Tax effect of
adjustments(1)
|
(11)
|
(4)
|
(15)
|
(1)
|
Deferred tax recovery
on the outside basis difference of the investment in
KCS
|
(27)
|
(33)
|
(19)
|
(33)
|
Income tax rate
changes
|
—
|
—
|
(12)
|
—
|
Reversal of provision
for uncertain tax item
|
(24)
|
—
|
(24)
|
—
|
Adjusted
income
|
$
1,024
|
$
684
|
$
3,358
|
$
2,565
|
Less: KCS purchase
accounting
|
(42)
|
(8)
|
(163)
|
(8)
|
Core adjusted
income
|
$
1,066
|
$
692
|
$
3,521
|
$
2,573
|
(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 5.84% and 16.97% for the three months and year ended
December 31, 2022, respectively, and 2.27% and 0.51%
for the three months and year ended December 31, 2021,
respectively. The applicable tax rates reflect the taxable
jurisdictions
and nature, being on account of capital or income, of the
significant items.
|
Adjusted diluted earnings per share is calculated using Adjusted
income, as defined above, divided by the weighted-average diluted
number of Common Shares outstanding during the period as determined
in accordance with GAAP. Core adjusted diluted earnings per share
is calculated as Adjusted diluted earnings per share less KCS
purchase accounting.
|
For the three
months
ended December 31
|
For the year
ended
December 31
|
|
2022
|
2021
|
2022
|
2021
|
Diluted earnings per
share as reported
|
$
1.36
|
$
0.74
|
$
3.77
|
$
4.18
|
Less significant items
(pre-tax):
|
|
|
|
|
KCS net gain on unwind
of interest rate hedges
|
0.23
|
—
|
0.23
|
—
|
Acquisition-related
costs
|
(0.04)
|
(0.22)
|
(0.14)
|
(0.88)
|
Merger termination
fee
|
—
|
—
|
—
|
1.24
|
Impact of FX
translation gain (loss) on debt and lease liabilities
|
—
|
(0.05)
|
—
|
0.01
|
Add:
|
|
|
|
|
Tax effect of
adjustments(1)
|
(0.01)
|
(0.01)
|
(0.02)
|
—
|
Deferred tax recovery
on the outside basis difference of the investment in
KCS
|
(0.03)
|
(0.05)
|
(0.02)
|
(0.05)
|
Income tax rate
changes
|
—
|
—
|
(0.01)
|
—
|
Reversal of provision
for uncertain tax item
|
(0.03)
|
—
|
(0.03)
|
—
|
Adjusted diluted
earnings per share
|
$
1.10
|
$
0.95
|
$
3.60
|
$
3.76
|
Less: KCS purchase
accounting
|
(0.04)
|
(0.01)
|
(0.17)
|
(0.01)
|
Core adjusted
diluted earnings per share
|
$
1.14
|
$
0.96
|
$
3.77
|
$
3.77
|
(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 5.84% and 16.97% for the three months and year
ended December 31, 2022, and 2.27% and 0.51% for the
three months and year ended December 31, 2021, respectively. The
applicable tax rates reflect the taxable jurisdictions and
nature, being on account of capital or income, of the significant
items.
|
Adjusted operating income is calculated as Operating income
reported on a GAAP basis less significant items.
|
For the three
months
ended December 31
|
For the year
ended
December 31
|
(in millions of
Canadian dollars)
|
2022
|
2021
|
2022
|
2021
|
Operating income as
reported
|
$
989
|
$
832
|
$
3,329
|
$
3,206
|
Less significant
item:
|
|
|
|
|
Acquisition-related
costs
|
(17)
|
(36)
|
(74)
|
(183)
|
Adjusted operating
income
|
$
1,006
|
$
868
|
$
3,403
|
$
3,389
|
Adjusted operating ratio excludes those significant items that
are reported within Operating income.
|
For the three
months
ended December 31
|
For the year
ended
December 31
|
|
2022
|
2021
|
2022
|
2021
|
Operating ratio as
reported
|
59.8 %
|
59.2 %
|
62.2 %
|
59.9 %
|
Less significant
item:
|
|
|
|
|
Acquisition-related
costs
|
0.7 %
|
1.7 %
|
0.8 %
|
2.3 %
|
Adjusted operating
ratio
|
59.1 %
|
57.5 %
|
61.4 %
|
57.6 %
|
Adjusted Return on Invested Capital ("Adjusted ROIC")
Return on average shareholders' equity is calculated as Net
income divided by average shareholders' equity, averaged between
the beginning and ending balance over a trailing twelve month
period. Adjusted ROIC is calculated as Adjusted return divided by
Adjusted average invested capital. Adjusted return is defined as
Net income adjusted for interest expense, tax effected at the
Company's adjusted annualized effective tax rate, and significant
items in the Company's Consolidated Financial Statements, tax
effected at the applicable tax rate. Adjusted average invested
capital is defined as the sum of total Shareholders' equity,
Long-term debt, and Long-term debt maturing within one year, as
presented in the Company's Consolidated Financial Statements, each
averaged between the beginning and ending balance over a trailing
twelve month period, adjusted for the impact of significant items,
tax effected at the applicable tax rate, on closing balances as
part of this average. Adjusted ROIC excludes significant items
reported in the Company's Consolidated Financial Statements, as
these significant items are not considered indicative of future
financial trends either by nature or amount, and excludes interest
expense, net of tax, to incorporate returns on the Company's
overall capitalization. Adjusted ROIC is a performance measure that
measures how productively the Company uses its long-term capital
investments, representing critical indicators of good operating and
investment decisions made by management, and is an important
performance criteria in determining certain elements of the
Company's long-term incentive plan. Adjusted ROIC is reconciled
below from Return on average shareholders' equity, the most
comparable measure calculated in accordance with GAAP.
Calculation of Return on average shareholders' equity
|
For the year ended
December 31
|
(in millions of
Canadian dollars, except for percentages)
|
2022
|
2021
|
Net income as
reported
|
$
3,517
|
$
2,852
|
Average shareholders'
equity
|
36,358
|
20,574
|
Return on average
shareholders' equity
|
9.7 %
|
13.9 %
|
Reconciliation of Net income to Adjusted return
|
For the year ended
December 31
|
(in millions of
Canadian dollars)
|
2022
|
2021
|
Net income as
reported
|
$
3,517
|
$
2,852
|
Add:
|
|
|
Net interest
expense
|
652
|
440
|
Tax on
interest(1)
|
(145)
|
(106)
|
Significant items
(pre-tax):
|
|
|
KCS net gain on unwind
of interest rate hedges
|
(212)
|
—
|
Acquisition-related
costs
|
123
|
599
|
Merger termination
fee
|
—
|
(845)
|
Impact of FX
translation gain on debt and lease liabilities
|
—
|
(7)
|
Tax on significant
items(2)
|
(15)
|
(1)
|
Deferred tax recovery
on the outside basis difference of the investment in KCS
|
(19)
|
(33)
|
Income tax rate
changes
|
(12)
|
—
|
Reversal of provision
for uncertain tax item
|
(24)
|
—
|
Adjusted
return
|
$
3,865
|
$
2,899
|
(1)
|
Tax was calculated at
the adjusted annualized effective tax rate of 22.24% and 23.85% for
the years ended December
31, 2022 and 2021, respectively.
|
(2)
|
Tax was calculated as
the pre-tax effect of the adjustments multiplied by the applicable
tax rate for the above items of
16.97% and 0.51% for the years ended December 31, 2022 and 2021,
respectively. The applicable tax rates reflect the
taxable jurisdictions and nature, being on account of capital or
income, of the significant items.
|
Reconciliation of Average shareholders' equity to Adjusted
average invested capital
|
For the year ended
December 31
|
(in millions of
Canadian dollars)
|
2022
|
2021
|
Average
shareholders' equity
|
$
36,358
|
$
20,574
|
Average long-term debt,
including long-term debt maturing within one year
|
19,889
|
14,949
|
|
$
56,247
|
$
35,523
|
Less:
|
|
|
Significant items
(pre-tax):
|
|
|
KCS net gain on unwind
of interest rate hedges
|
106
|
—
|
Acquisition-related
costs
|
(62)
|
(300)
|
Merger termination
fee
|
—
|
423
|
Tax on significant
items(1)
|
8
|
1
|
Deferred tax recovery
on the outside basis difference of the investment in KCS
|
10
|
16
|
Income tax rate
changes
|
6
|
—
|
Reversal of provision
for uncertain tax item
|
12
|
—
|
Adjusted average
invested capital
|
$
56,167
|
$
35,383
|
(1)
|
Tax was calculated at
the pre-tax effect of the adjustments multiplied by the applicable
tax rate of 16.97% and 0.90%
for the years ended December 31, 2022 and 2021, respectively. The
applicable tax rate reflects the taxable jurisdictions
and nature, being on account of capital or income, of the
significant items.
|
Calculation of Adjusted ROIC
|
For the year ended
December 31
|
(in millions of
Canadian dollars, except for percentages)
|
2022
|
2021
|
Adjusted
return
|
$
3,865
|
$
2,899
|
Adjusted average
invested capital
|
56,167
|
35,383
|
Adjusted
ROIC
|
6.9 %
|
8.2 %
|
Free Cash
Free cash is calculated as Cash provided by operating
activities, less Cash used in investing activities, adjusted for
changes in Cash and cash equivalents balances resulting from FX
fluctuations, the operating cash flow impacts of
acquisition-related costs associated with the KCS transaction
including settlement of cash flow hedges upon debt issuance and FX
gain on U.S. dollar-denominated cash held to fund the KCS
acquisition, the merger termination payment received related to
KCS's termination of the Original Merger Agreement, and the
acquisition of KCS. 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, and is an
important performance criteria in determining certain elements of
the Company's long-term incentive plan. The acquisition-related
costs and the merger termination fee related to the KCS acquisition
are not indicative of operating trends and have been excluded from
Free cash. The acquisition of KCS is not indicative of investment
trends and has also been excluded from Free cash. Free cash should
be considered in addition to, rather than as a substitute for, Cash
provided by operating activities.
Reconciliation of Cash Provided by Operating Activities to Free
Cash
|
For the three
months
ended December 31
|
For the year
ended
December 31
|
(in millions of
Canadian dollars)
|
2022
|
2021
|
2022
|
2021
|
Cash provided by
operating activities
|
$
1,720
|
$
604
|
$
4,142
|
$
3,688
|
Cash used in investing
activities
|
(518)
|
(10,910)
|
(1,496)
|
(13,730)
|
Effect of foreign
currency fluctuations on U.S. dollar-denominated cash and
cash equivalents
|
(1)
|
35
|
20
|
41
|
Less:
|
|
|
|
|
Acquisition-related
costs
|
(18)
|
(293)
|
(67)
|
(340)
|
Merger termination
fee
|
—
|
—
|
—
|
845
|
Investment in Kansas
City Southern
|
—
|
(10,526)
|
—
|
(12,299)
|
Free
cash
|
$
1,219
|
$
548
|
$
2,733
|
$
1,793
|
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 December 31
|
(in millions of
Canadian dollars)
|
Reported
2022
|
Reported
2021
|
Variance
due to FX
|
FX Adjusted
2021
|
FX Adjusted
% Change
|
Freight revenues by
line of business
|
|
|
|
|
|
Grain
|
$
655
|
$
440
|
$
20
|
$
460
|
42
|
Coal
|
119
|
134
|
2
|
136
|
(13)
|
Potash
|
136
|
115
|
5
|
120
|
13
|
Fertilizers and
sulphur
|
88
|
78
|
5
|
83
|
6
|
Forest
products
|
104
|
89
|
6
|
95
|
9
|
Energy, chemicals and
plastics
|
384
|
414
|
17
|
431
|
(11)
|
Metals, minerals and
consumer products
|
229
|
193
|
12
|
205
|
12
|
Automotive
|
116
|
87
|
4
|
91
|
27
|
Intermodal
|
582
|
444
|
7
|
451
|
29
|
Freight
revenues
|
2,413
|
1,994
|
78
|
2,072
|
16
|
Non-freight
revenues
|
49
|
46
|
—
|
46
|
7
|
Total
revenues
|
$
2,462
|
$
2,040
|
$
78
|
$
2,118
|
16
|
|
For the year ended
December 31
|
(in millions of
Canadian dollars)
|
Reported
2022
|
Reported
2021
|
Variance
due to FX
|
FX Adjusted
2021
|
FX Adjusted
% Change
|
Freight revenues by
line of business
|
|
|
|
|
|
Grain
|
$
1,776
|
$
1,684
|
$
34
|
$
1,718
|
3
|
Coal
|
577
|
625
|
3
|
628
|
(8)
|
Potash
|
581
|
463
|
9
|
472
|
23
|
Fertilizers and
sulphur
|
332
|
305
|
9
|
314
|
6
|
Forest
products
|
403
|
348
|
12
|
360
|
12
|
Energy, chemicals and
plastics
|
1,394
|
1,563
|
31
|
1,594
|
(13)
|
Metals, minerals and
consumer products
|
884
|
728
|
22
|
750
|
18
|
Automotive
|
438
|
376
|
9
|
385
|
14
|
Intermodal
|
2,242
|
1,724
|
13
|
1,737
|
29
|
Freight
revenues
|
8,627
|
7,816
|
142
|
7,958
|
8
|
Non-freight
revenues
|
187
|
179
|
1
|
180
|
4
|
Total
revenues
|
$
8,814
|
$
7,995
|
$
143
|
$
8,138
|
8
|
FX adjusted % changes in operating expenses are as follows:
|
For the three months
ended December 31
|
(in millions of
Canadian dollars)
|
Reported
2022
|
Reported
2021
|
Variance
due to FX
|
FX Adjusted
2021
|
FX Adjusted
% Change
|
Compensation and
benefits
|
$
416
|
$
405
|
$
10
|
$
415
|
—
|
Fuel
|
399
|
231
|
15
|
246
|
62
|
Materials
|
69
|
51
|
1
|
52
|
33
|
Equipment
rents
|
43
|
29
|
1
|
30
|
43
|
Depreciation and
amortization
|
219
|
206
|
4
|
210
|
4
|
Purchased services and
other
|
327
|
286
|
6
|
292
|
12
|
Total operating
expenses
|
$
1,473
|
$
1,208
|
$
37
|
$
1,245
|
18
|
|
For the year ended
December 31
|
(in millions of
Canadian dollars)
|
Reported
2022
|
Reported
2021
|
Variance
due to FX
|
FX Adjusted
2021
|
FX Adjusted
% Change
|
Compensation and
benefits
|
$
1,570
|
$
1,570
|
$
18
|
$
1,588
|
(1)
|
Fuel
|
1,400
|
854
|
27
|
881
|
59
|
Materials
|
260
|
215
|
2
|
217
|
20
|
Equipment
rents
|
140
|
121
|
3
|
124
|
13
|
Depreciation and
amortization
|
853
|
811
|
8
|
819
|
4
|
Purchased services and
other
|
1,262
|
1,218
|
13
|
1,231
|
3
|
Total operating
expenses
|
$
5,485
|
$
4,789
|
$
71
|
$
4,860
|
13
|
FX adjusted % change in operating income is as follows:
|
For the three months
ended December 31
|
(in millions of
Canadian dollars)
|
Reported
2022
|
Reported
2021
|
Variance
due to FX
|
FX Adjusted
2021
|
FX Adjusted
% Change
|
Operating
income
|
$
989
|
$
832
|
$
41
|
$
873
|
13
|
|
For the year ended
December 31
|
(in millions of
Canadian dollars)
|
Reported
2022
|
Reported
2021
|
Variance
due to FX
|
FX Adjusted
2021
|
FX Adjusted
% Change
|
Operating
income
|
$
3,329
|
$
3,206
|
$
72
|
$
3,278
|
2
|
Dividend Payout Ratio and Core Adjusted Dividend Payout
Ratio
Dividend payout ratio is calculated as dividends declared per
share divided by Diluted EPS. Core adjusted dividend payout ratio
is calculated as dividends declared per share divided by Core
adjusted diluted EPS, as defined above. This ratio is a measure of
shareholder return and provides information on the Company's
ability to declare dividends on an ongoing basis, excluding
significant items and the impact of KCS purchase accounting.
Starting with this Earnings Release, Core adjusted dividend
payout ratio is presented to provide users with additional
transparency by isolating for the impact of KCS purchase
accounting.
Calculation of Dividend Payout Ratio
|
For the year ended
December 31
|
(in Canadian dollars,
except for percentages)
|
2022
|
2021
|
Dividends declared per
share
|
$
0.760
|
$
0.760
|
Diluted EPS
|
3.77
|
4.18
|
Dividend payout
ratio
|
20.2 %
|
18.2 %
|
Calculation of Core Adjusted Dividend Payout Ratio
|
For the year ended
December 31
|
(in Canadian dollars,
except for percentages)
|
2022
|
2021
|
Dividends declared per
share
|
$
0.760
|
$
0.760
|
Core adjusted diluted
EPS
|
3.77
|
3.77
|
Core adjusted
dividend payout ratio
|
20.2 %
|
20.2 %
|
Adjusted Net Debt to Adjusted EBITDA Ratio and Pro-forma
adjusted Net Debt to Pro-forma adjusted EBITDA Ratio
Adjusted net debt to Adjusted earnings before interest, tax,
depreciation and amortization ("EBITDA") ratio is calculated as
Adjusted net debt divided by Adjusted EBITDA. The Adjusted net debt
to Adjusted EBITDA ratio is a key credit measure used to assess the
Company's financial capacity. The ratio provides information on the
Company's ability to service its debt and other long-term
obligations from operations, excluding significant items, and is an
important performance criteria in determining certain elements of
the Company's long-term incentive plan. The Adjusted net debt to
Adjusted EBITDA ratio is reconciled below from the Long-term debt
to Net income ratio, the most comparable measure calculated in
accordance with GAAP.
Beginning in the first quarter of 2022, CP added disclosure of
Pro-forma adjusted net debt to Pro-forma adjusted EBITDA ratio to
better align with CP's debt covenant calculation, which
incorporates the trailing twelve month adjusted EBITDA of KCS as
well as KCS's outstanding debt. CP is incorporating the trailing
twelve month adjusted EBITDA of KCS on a pro-forma basis, as CP is
not entitled to earnings prior to the acquisition date of
December 14, 2021. CP does not
control KCS while it is in the voting trust during review of our
merger application by the STB, though CP is the beneficial owner of
KCS's outstanding shares and receives cash dividends from KCS. The
adjustment to include the trailing twelve month EBITDA and KCS's
outstanding debt provides users of the financial statements with
better insight into CP's progress in achieving deleveraging
commitments. KCS's disclosed U.S. dollar financial values for the
years ended December 31, 2022 and December 31, 2021 were adjusted to Canadian
dollars reflecting the FX rate for the appropriate period
presented, respectively.
Calculation of Long-term Debt to Net Income Ratio
Long-term debt to Net income ratio is calculated as long-term
debt, including long-term debt maturing within one year, divided by
Net income.
(in millions of
Canadian dollars, except for ratios)
|
2022
|
2021
|
Long-term debt
including long-term debt maturing within one year as at December
31
|
$
19,651
|
$
20,127
|
Net income for the year
ended December 31
|
3,517
|
2,852
|
Long-term debt to
Net income ratio
|
5.6
|
7.1
|
Reconciliation of Long-term Debt to Adjusted Net Debt and
Pro-forma Adjusted Net Debt
Adjusted net debt is defined as Long-term debt, Long-term debt
maturing within one year and Short-term borrowing as reported on
the Company's Consolidated Balance Sheets adjusted for pension
plans deficit, operating lease liabilities recognized on the
Company's Consolidated Balance Sheets, and Cash and cash
equivalents. Adjusted net debt is used as a measure of debt and
long-term obligations as part of the calculation of Adjusted Net
Debt to Adjusted EBITDA.
(in millions of
Canadian dollars)(1)
|
2022
|
2021
|
CP Long-term debt
including long-term debt maturing within one year as at
December 31
|
$
19,651
|
$
20,127
|
Add:
|
|
|
Pension plans
deficit(2)
|
175
|
263
|
Operating lease
liabilities
|
270
|
283
|
Less:
|
|
|
Cash and cash
equivalents
|
451
|
69
|
CP Adjusted net debt
as at December 31
|
$
19,645
|
$
20,604
|
KCS's long-term debt
including long-term debt maturing within one year as at
December 31
|
$
5,119
|
$
4,789
|
Add:
|
|
|
KCS operating lease
liabilities
|
136
|
87
|
Less:
|
|
|
KCS cash and cash
equivalents
|
281
|
430
|
KCS Adjusted net
debt as at December 31
|
4,974
|
4,446
|
CP Adjusted net debt
as at December 31
|
19,645
|
20,604
|
Pro-forma Adjusted
net debt as at December 31
|
$
24,619
|
$
25,050
|
(1)
|
KCS's amounts were
translated at the period end FX rate of $1.35 and $1.27 for the
years ended December 31, 2022
and 2021, respectively.
|
(2)
|
Pension plans deficit
is the total funded status of the Pension plans in deficit
only.
|
Reconciliation of Net Income to EBIT, Adjusted EBIT and Adjusted
EBITDA and Pro-forma Adjusted EBITDA
Earnings before interest and tax ("EBIT") is calculated as Net
income before Net interest expense and Income tax expense. Adjusted
EBIT excludes significant items reported in both Operating income
and Other expense (income). Adjusted EBITDA is calculated as
Adjusted EBIT plus operating lease expense and Depreciation and
amortization, less Other components of net periodic benefit
recovery. Adjusted EBITDA is used as a measure of liquidity derived
from operations, excluding significant items, as part of the
calculation of Adjusted Net Debt to Adjusted EBITDA.
|
For the year ended
December 31
|
(in millions of
Canadian dollars)(1)
|
2022
|
2021
|
CP Net income as
reported
|
$
3,517
|
$
2,852
|
Add:
|
|
|
Net interest
expense
|
652
|
440
|
Income tax
expense
|
628
|
768
|
EBIT
|
4,797
|
4,060
|
Less significant items
(pre-tax):
|
|
|
KCS net gain on unwind
of interest rate hedges
|
212
|
—
|
Acquisition-related
costs
|
(123)
|
(599)
|
Merger termination
fee
|
—
|
845
|
Impact of FX
translation gain on debt and lease liabilities
|
—
|
7
|
Adjusted
EBIT
|
4,708
|
3,807
|
Add:
|
|
|
Operating lease
expense
|
75
|
72
|
Depreciation and
amortization
|
853
|
811
|
Less:
|
|
|
Other components of
net periodic benefit recovery
|
411
|
387
|
CP Adjusted
EBITDA
|
$
5,225
|
$
4,303
|
Net income
attributable to KCS and subsidiaries
|
$
1,290
|
$
675
|
Add:
|
|
|
KCS interest
expense
|
204
|
196
|
KCS income tax
expense
|
426
|
269
|
KCS
EBIT
|
1,920
|
1,140
|
Less significant items
(pre-tax):
|
|
|
KCS merger
costs
|
(60)
|
(310)
|
KCS gain on settlement
of treasury lock agreements
|
352
|
—
|
KCS Adjusted
EBIT
|
1,628
|
1,450
|
Add:
|
|
|
KCS total lease
cost
|
43
|
40
|
KCS depreciation and
amortization
|
509
|
459
|
KCS Adjusted
EBITDA
|
$
2,180
|
$
1,949
|
CP Adjusted
EBITDA
|
$
5,225
|
$
4,303
|
Less:
|
|
|
Equity earnings (loss)
of KCS(2)
|
1,074
|
(141)
|
Acquisition-related
costs of KCS(3)
|
49
|
169
|
KCS net gain on unwind
of interest rate hedges(4)
|
(212)
|
—
|
Pro-forma Adjusted
EBITDA
|
$
6,494
|
$
6,224
|
(1)
|
KCS's amounts were
translated at the quarterly average FX rate of $1.36, $1.30, $1.28,
and $1.27 for Q4 2022,
Q3 2022, Q2 2022 and Q1 2022 and $1.26, $1.26, $1.23, and $1.27 for
Q4 2021, Q3 2021, Q2 2021, and Q1
2021, respectively.
|
(2)
|
Equity earnings of KCS
were part of CP's reported net income and, therefore, have been
deducted in arriving to
the Pro-forma Adjusted EBITDA.
|
(3)
|
Acquisition-related
costs of KCS have been adjusted in CP's Adjusted EBITDA calculation
above, therefore have
been deducted in arriving to the Pro-
forma Adjusted EBITDA.
|
(4)
|
KCS net gain on unwind
of interest rate hedges has been adjusted in CP's Adjusted EBITDA
calculation above,
therefore has been added back in arriving to the Pro-forma Adjusted
EBITDA.
|
Calculation of Adjusted Net Debt to Adjusted EBITDA Ratio and
Pro-forma Adjusted Net Debt to Pro-forma Adjusted EBITDA Ratio
(in millions of
Canadian dollars, except for ratios)
|
2022
|
2021
|
Adjusted net debt as at
December 31
|
$
19,645
|
$
20,604
|
Adjusted EBITDA for the
year ended December 31
|
5,225
|
4,303
|
Adjusted net debt to
Adjusted EBITDA ratio
|
3.8
|
4.8
|
(in millions of
Canadian dollars, except for ratios)
|
2022
|
2021
|
Pro-forma adjusted net
debt as at December 31
|
$
24,619
|
$
25,050
|
Pro-forma adjusted
EBITDA for the year ended December 31
|
6,494
|
6,224
|
Pro-forma adjusted
net debt to Pro-forma adjusted EBITDA ratio
|
3.8
|
4.0
|
View original
content:https://www.prnewswire.com/news-releases/cp-reports-fourth-quarter-results-ready-to-unite-a-continent-in-2023-301735256.html
SOURCE Canadian Pacific