CALGARY,
AB, Jan. 30, 2024 /CNW/ - Canadian
Pacific Kansas City (TSX: CP) (NYSE: CP) (CPKC) today announced its
fourth-quarter results, including revenues of $3.8 billion, diluted earnings per share (EPS) of
$1.10 and core adjusted combined
diluted EPS1, 2 of $1.18.
Fourth-quarter 2023 results1
- Reported operating ratio (OR) increased by 200 basis points to
61.8 percent from 59.8 percent in Q4 2022
- Core adjusted combined OR2 decreased 220 basis
points to 58.7 percent from 60.9 percent in Q4 2022
- Reported diluted EPS decreased to $1.10 from $1.36 in
Q4 2022
- Core adjusted combined diluted EPS2 increased to
$1.18 from $1.14 in Q4 2022
- Federal Railroad Administration (FRA)-reportable train accident
frequency declined 23 percent to 1.08 from 1.40 in Q4 2022 on a
combined basis3
- FRA-reportable personal injury frequency declined 15 percent to
1.10 from 1.29 in Q4 2022 on a combined basis3
"I am proud of how our team of incredible railroaders finished
this transformational year with a strong fourth quarter, allowing
CPKC to deliver volume growth and best-in-class earnings growth in
2023," said Keith Creel, CPKC
President and Chief Executive Officer. "Since our historic
combination in April 2023, our united
CPKC team has steadily built momentum, bringing new competition to
supply chains and creating more value for our customers, while
remaining focused on service and safety."
Full-year 2023 results1
- Reported OR increased by 280 basis points to 65.0 percent from
62.2 percent in 2022
- Core adjusted combined OR2 increased 30 basis points
to 62.0 percent from 61.7 percent in 2022
- Reported diluted EPS increased to $4.21 from $3.77 in
2022
- Core adjusted combined diluted EPS2 increased two
percent to $3.84 from $3.77 in 2022
- FRA-reportable train accident frequency declined 32 percent to
0.99 from 1.45 in 2022 on a combined basis3
- FRA-reportable personal injury frequency declined 12 percent to
1.14 from 1.30 in 2022 on a combined basis3
In 2023, CPKC led the industry with the lowest FRA-reportable
train accident frequency among Class 1 railroads, building on
Canadian Pacific's legacy of 17 consecutive years of industry
leadership.
Full-year 2024 guidance
- CPKC expects core adjusted combined diluted EPS2 to
grow double digits versus 2023 core adjusted combined diluted
EPS2 of $3.84
- Capital expenditures of $2.75
billion
- Other components of net periodic benefit recovery will increase
by approximately $23 million from
$327 million in 2023
"Looking forward to 2024, we are confident that our unique
synergy opportunities, along with improving macro-economic
conditions, can overcome a weak Canadian grain crop and position us
for another strong performance this year, our first full year as a
combined company," Creel added. "We stand ready to deliver on our
commitments to our customers and our shareholders with long term
sustainable growth."
1
|
The results of KCS are
included on a consolidated basis from April 14, 2023, the date we
acquired control. From December 14, 2021 to April 13, 2023, we
recorded our interest in KCS under the equity method of
accounting.
|
2
|
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, see attached supplementary schedule of Non-GAAP
Measures and Forward-Looking Non-GAAP Measures below.
|
3
|
FRA statistics for Q4
2022 and full-year 2022 reflect Canadian Pacific and Kansas City
Southern results on a combined basis. In the fourth-quarter of
2022, CP standalone reported FRA personal injury frequency of 1.12
and FRA-reportable train accident frequency of 1.19. For full-year
2022, CP standalone reported FRA personal injury frequency of 1.01
and FRA-reportable train accident frequency of 0.93. The
fourth-quarter 2022 FRA-reportable personal injury frequency on a
combined basis was previously reported as 1.26. The fourth-quarter
and full-year 2022 FRA-reportable train accident frequency on a
combined basis were previously reported as 1.32 and 1.48
respectively. These restatements reflects new information available
within a specified period as stipulated by the FRA but that exceeds
CPKC's financial reporting timeline.
|
Conference Call Details
CPKC 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. 30,
2024.
Conference Call Access
Canada and U.S.: 800-267-6316
International: 203-518-9783
*Conference ID: CPKCQ423
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 CPKC's website at
investor.cpkcr.com.
A replay of the fourth-quarter conference call will be available
through Feb. 6, 2024, at 800-839-6136
(Canada/U.S.) or 402-220-2572
(International).
Forward looking information
This news release contains
certain forward-looking information and forward-looking statements
(collectively, "forward-looking information") within the meaning of
applicable securities laws in both the U.S. and Canada. 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", "guidance", "should" or similar words suggesting future
outcomes. This news release contains forward-looking information
relating, but not limited, to statements concerning financial
guidance for 2024, the success of our business, the realization of
anticipated benefits and synergies of the CP-KCS combination, and
the opportunities arising therefrom, our operations, priorities and
plans, 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 CPKC'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 CPKC; and carbon markets, evolving
sustainability strategies, and scientific or technological
developments. Although CPKC 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,
CPKC'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 CPKC; 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 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 satisfaction of
the conditions imposed by the U.S. Surface Transportation Board in
its March 15, 2023 final decision;
the success of integration plans for KCS; other disruptions arising
from the CP-KCS integration; 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 CPKC 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 CPKC 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 CPKC'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, CPKC
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.
Forward-Looking Non-GAAP Measures
Although CPKC has
provided forward-looking non-GAAP measures (core adjusted combined
diluted EPS) management is unable to reconcile, without
unreasonable efforts, the forward-looking core adjusted combined
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, the Company has recognized
acquisition-related costs, the merger termination payment received,
KCS' gain on unwinding of interest rate hedges (net of Canadian
Pacific's (CP) associated purchase accounting basis differences and
tax), loss on derecognition of CPKC's previously held equity method
investment in KCS, discrete tax items, changes in the outside basis
tax difference between the carrying amount of the Company's equity
investment in KCS and its tax basis of the investment, settlement
of Mexican taxes relating to prior years, changes in income tax
rates, and changes to an uncertain tax item. Acquisition-related
costs include legal, consulting, financing fees, integration costs
including third-party services and system migration, debt exchange
transaction costs, community investments, 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, restructuring, employee retention
and synergy incentive costs, and transaction and integration costs
incurred by KCS which were recognized within Equity earnings of
Kansas City Southern in the Company's Consolidated Statements of
Income. KCS has also recognized FX gains and losses. These items
may not be non-recurring and may include items that are settled in
cash. Specifically, due to the magnitude of the acquisition, its
significant impact to the Company's business and complexity of
integrating the acquired business and operations, the Company
expects to incur the acquisition-related costs beyond the year of
acquisition. These or other similar, large unforeseen transactions
affect diluted EPS but may be excluded from CPKC's core adjusted
combined diluted EPS. Additionally, the Canadian-to-U.S. dollar and
Mexican peso-to-U.S. dollar exchange rates are unpredictable and
can have a significant impact on CPKC's reported results but may be
excluded from CPKC's core adjusted combined diluted EPS. For
further information regarding non-GAAP measures, see below.
About CPKC
With its global headquarters in
Calgary, Alta., Canada, CPKC is the first and only single-line
transnational railway linking Canada, the United
States and México, with unrivaled access to major ports from
Vancouver to Atlantic Canada to the Gulf of México to
Lázaro Cárdenas, México. Stretching approximately 20,000 route
miles and employing 20,000 railroaders, CPKC provides North
American customers unparalleled rail service and network reach to
key markets across the continent. CPKC is growing with its
customers, offering a suite of freight transportation services,
logistics solutions and supply chain expertise. Visit cpkcr.com to
learn more about the rail advantages of CPKC. CP-IR
FINANCIAL INFORMATION
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)
|
2023
|
2022
|
2023
|
2022
|
Revenues
|
|
|
|
|
Freight
|
$
3,697
|
$
2,413
|
$
12,281
|
$
8,627
|
Non-freight
|
79
|
49
|
274
|
187
|
Total
revenues
|
3,776
|
2,462
|
12,555
|
8,814
|
Operating
expenses
|
|
|
|
|
Compensation and
benefits (Note 3)
|
637
|
416
|
2,332
|
1,570
|
Fuel
|
528
|
399
|
1,681
|
1,400
|
Materials (Note
3)
|
86
|
69
|
346
|
260
|
Equipment
rents
|
76
|
43
|
277
|
140
|
Depreciation and
amortization (Note 3)
|
457
|
219
|
1,543
|
853
|
Purchased services and
other (Note 3)
|
550
|
327
|
1,988
|
1,262
|
Total operating
expenses
|
2,334
|
1,473
|
8,167
|
5,485
|
|
|
|
|
|
Operating
income
|
1,442
|
989
|
4,388
|
3,329
|
Less:
|
|
|
|
|
Equity earnings of
Kansas City Southern (Note 3)
|
—
|
(447)
|
(230)
|
(1,074)
|
Other expense (Note
3)
|
16
|
4
|
52
|
17
|
Other components of
net periodic benefit recovery
|
(73)
|
(107)
|
(327)
|
(411)
|
Net interest expense
(Note 3)
|
206
|
166
|
771
|
652
|
Remeasurement loss of
Kansas City Southern
|
—
|
—
|
7,175
|
—
|
Income (loss) before
income tax expense (recovery)
|
1,293
|
1,373
|
(3,053)
|
4,145
|
Less:
|
|
|
|
|
Current income tax
expense (Note 2)
|
235
|
117
|
909
|
492
|
Deferred income tax
expense (recovery) (Note 2)
|
40
|
(15)
|
(7,885)
|
136
|
Income tax expense
(recovery) (Note 2)
|
275
|
102
|
(6,976)
|
628
|
Net
income
|
$
1,018
|
$
1,271
|
$
3,923
|
$
3,517
|
Less: Net loss
attributable to non-controlling interest (Note 3)
|
(5)
|
—
|
(4)
|
—
|
Net income
attributable to controlling shareholders
|
$
1,023
|
$
1,271
|
$
3,927
|
$
3,517
|
|
|
|
|
|
Earnings per
share
|
|
|
|
|
Basic earnings per
share
|
$
1.10
|
$
1.37
|
$
4.22
|
$
3.78
|
Diluted earnings per
share
|
$
1.10
|
$
1.36
|
$
4.21
|
$
3.77
|
|
|
|
|
|
Weighted-average
number of shares (millions)
|
|
|
|
|
Basic
|
931.8
|
930.3
|
931.3
|
930.0
|
Diluted
|
933.8
|
933.2
|
933.7
|
932.9
|
|
|
|
|
|
Dividends declared
per share
|
$
0.19
|
$
0.19
|
$
0.76
|
$
0.76
|
|
See Notes to
Consolidated Financial Information.
|
CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME
(unaudited)
|
For the three
months
ended December 31
|
For the year
ended
December 31
|
(in millions of
Canadian dollars)
|
2023
|
2022
|
2023
|
2022
|
Net income
|
$
1,018
|
$
1,271
|
$
3,923
|
$
3,517
|
Net (loss) gain in
foreign currency translation adjustments, net of
hedging activities
|
(622)
|
(320)
|
(655)
|
1,628
|
Change in derivatives
designated as cash flow hedges
|
2
|
1
|
7
|
6
|
Change in pension and
post-retirement defined benefit plans
|
(86)
|
581
|
(73)
|
680
|
Other comprehensive
income (loss) from equity investees
|
—
|
(187)
|
7
|
(5)
|
Other comprehensive
(loss) income before income taxes
|
(706)
|
75
|
(714)
|
2,309
|
Income tax recovery
(expense) on above items
|
1
|
(117)
|
(4)
|
(115)
|
Other comprehensive
(loss) income
|
(705)
|
(42)
|
(718)
|
2,194
|
Comprehensive
income
|
$
313
|
$
1,229
|
$
3,205
|
$
5,711
|
Comprehensive loss
attributable to non-controlling interest
|
(26)
|
—
|
(13)
|
—
|
Comprehensive income
attributable to controlling shareholders
|
$
339
|
$
1,229
|
$
3,218
|
$
5,711
|
See Notes to
Consolidated Financial Information.
|
CONSOLIDATED BALANCE SHEETS AS
AT
(unaudited)
|
December
31
|
December 31
|
(in millions of
Canadian dollars)
|
2023
|
2022
|
Assets
|
|
|
Current
assets
|
|
|
Cash and cash
equivalents
|
$
464
|
$
451
|
Accounts receivable,
net
|
1,887
|
1,016
|
Materials and
supplies
|
400
|
284
|
Other current
assets
|
251
|
138
|
|
3,002
|
1,889
|
Investment in Kansas
City Southern
|
—
|
45,091
|
Investments
|
533
|
223
|
Properties
|
51,744
|
22,385
|
Goodwill
|
17,729
|
344
|
Intangible
assets
|
2,974
|
42
|
Pension
asset
|
3,338
|
3,101
|
Other assets
|
582
|
420
|
Total
assets
|
$
79,902
|
$
73,495
|
Liabilities and
equity
|
|
|
Current
liabilities
|
|
|
Accounts payable and
accrued liabilities
|
$
2,567
|
$
1,703
|
Long-term debt
maturing within one year (Note 4)
|
3,143
|
1,510
|
|
5,710
|
3,213
|
Pension and other
benefit liabilities
|
581
|
538
|
Other long-term
liabilities
|
797
|
520
|
Long-term
debt
|
19,351
|
18,141
|
Deferred income taxes
(Note 2)
|
11,052
|
12,197
|
Total
liabilities
|
37,491
|
34,609
|
Shareholders'
equity
|
|
|
Share
capital
|
25,602
|
25,516
|
Additional paid-in
capital
|
88
|
78
|
Accumulated other
comprehensive (loss) income
|
(618)
|
91
|
Retained
earnings
|
16,420
|
13,201
|
|
41,492
|
38,886
|
Non-controlling
interest
|
919
|
—
|
Total
equity
|
$
42,411
|
$
38,886
|
Total liabilities
and equity
|
$
79,902
|
$
73,495
|
Certain comparative
figures have been reclassified to conform to the current period's
presentation.
|
See Notes to
Consolidated Financial Information.
|
CONSOLIDATED STATEMENTS OF CASH
FLOWS
(unaudited)
|
For the three
months
ended December 31
|
For the year
ended
December 31
|
(in millions of
Canadian dollars)
|
2023
|
2022
|
2023
|
2022
|
Operating
activities
|
|
|
|
|
Net income
|
$
1,018
|
$
1,271
|
$
3,923
|
$
3,517
|
Reconciliation of net
income to cash provided by operating activities:
|
|
|
|
|
Depreciation and
amortization
|
457
|
219
|
1,543
|
853
|
Deferred income tax
expense (recovery)
|
40
|
(15)
|
(7,885)
|
136
|
Pension recovery and
funding
|
(75)
|
(70)
|
(306)
|
(288)
|
Equity earnings of
Kansas City Southern (Note 3)
|
—
|
(447)
|
(230)
|
(1,074)
|
Remeasurement loss of
Kansas City Southern
|
—
|
—
|
7,175
|
—
|
Dividends from Kansas
City Southern
|
—
|
564
|
300
|
1,157
|
Settlement of Mexican
tax audits (Note 2)
|
(60)
|
—
|
(135)
|
—
|
Other operating
activities, net
|
68
|
35
|
60
|
(67)
|
Change in non-cash
working capital balances related to operations
|
(112)
|
163
|
(308)
|
(92)
|
Cash provided by
operating activities
|
1,336
|
1,720
|
4,137
|
4,142
|
Investing
activities
|
|
|
|
|
Additions to
properties
|
(701)
|
(539)
|
(2,468)
|
(1,557)
|
Additions to Meridian
Speedway properties
|
(4)
|
—
|
(31)
|
—
|
Proceeds from sale of
properties and other assets
|
29
|
21
|
57
|
58
|
Cash acquired on
control of Kansas City Southern
|
—
|
—
|
298
|
—
|
Investment in
government securities (Note 4)
|
—
|
—
|
(267)
|
—
|
Proceeds from
settlement of government securities (Note 4)
|
274
|
—
|
274
|
—
|
Other investing
activities, net
|
1
|
—
|
(25)
|
3
|
Cash used in
investing activities
|
(401)
|
(518)
|
(2,162)
|
(1,496)
|
Financing
activities
|
|
|
|
|
Dividends
paid
|
(177)
|
(176)
|
(707)
|
(707)
|
Issuance of Common
Shares
|
19
|
13
|
69
|
32
|
Repayment of long-term
debt, excluding commercial paper (Note 4)
|
(1,287)
|
(12)
|
(2,395)
|
(571)
|
Repayment of term
loan
|
—
|
—
|
—
|
(636)
|
Net issuance
(repayment) of commercial paper (Note 4)
|
692
|
(713)
|
1,095
|
(415)
|
Acquisition-related
financing fees
|
—
|
—
|
(17)
|
—
|
Cash used in
financing activities
|
(753)
|
(888)
|
(1,955)
|
(2,297)
|
Effect of foreign
currency fluctuations on foreign-denominated cash and
cash equivalents
|
(12)
|
(1)
|
(7)
|
20
|
Cash
position
|
|
|
|
|
Increase in cash and
cash equivalents
|
170
|
313
|
13
|
369
|
Cash and cash
equivalents at beginning of period(1)
|
294
|
138
|
451
|
82
|
Cash and cash
equivalents at end of period
|
$
464
|
$
451
|
$
464
|
$
451
|
|
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
Income taxes
paid
|
$
258
|
$
89
|
$
906
|
$
408
|
Interest
paid
|
$
255
|
$
174
|
$
825
|
$
641
|
(1)
|
As at January 1, 2022,
cash and cash equivalents of $82 million includes $13 million of
restricted cash.
|
|
See Notes to
Consolidated Financial Information.
|
CONSOLIDATED STATEMENTS OF CHANGES IN 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
|
Non-
controlling
interest
|
Total
equity
|
Balance as at
October 1, 2023
|
|
931.7
|
|
$
25,579
|
$
90
|
$
66
|
$
15,575
|
$
41,310
|
$
945
|
$
42,255
|
Net income
(loss)
|
|
—
|
|
—
|
—
|
—
|
1,023
|
1,023
|
(5)
|
1,018
|
Other comprehensive
loss
|
|
—
|
|
—
|
—
|
(684)
|
—
|
(684)
|
(21)
|
(705)
|
Dividends declared
($0.19 per
share)
|
|
—
|
|
—
|
—
|
—
|
(178)
|
(178)
|
—
|
(178)
|
Effect of
stock-based
compensation expense
|
|
—
|
|
—
|
3
|
—
|
—
|
3
|
—
|
3
|
Shares issued under
stock
option plan
|
|
0.4
|
|
23
|
(5)
|
—
|
—
|
18
|
—
|
18
|
Balance as at
December 31, 2023
|
|
932.1
|
|
$
25,602
|
$
88
|
$
(618)
|
$
16,420
|
$
41,492
|
$
919
|
$
42,411
|
Balance as at October
1, 2022
|
|
930.1
|
|
$ 25,498
|
$
77
|
$
133
|
$
12,106
|
$
37,814
|
$
—
|
$
37,814
|
Net income
|
|
—
|
|
—
|
—
|
—
|
1,271
|
1,271
|
—
|
1,271
|
Other comprehensive
loss
|
|
—
|
|
—
|
—
|
(42)
|
|
(42)
|
—
|
(42)
|
Dividends declared
($0.19 per
share)
|
|
—
|
|
—
|
—
|
—
|
(176)
|
(176)
|
—
|
(176)
|
Effect of
stock-based
compensation expense
|
|
—
|
|
—
|
6
|
—
|
—
|
6
|
—
|
6
|
Shares issued under
stock
option plan
|
|
0.4
|
|
18
|
(5)
|
—
|
—
|
13
|
—
|
13
|
Balance as at December
31, 2022
|
|
930.5
|
|
$ 25,516
|
$
78
|
$
91
|
$
13,201
|
$
38,886
|
$
—
|
$
38,886
|
|
|
|
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
income
(loss)
|
Retained
earnings
|
Total
shareholders'
equity
|
Non-
controlling
interest
|
Total
equity
|
Balance at January
1, 2023
|
|
930.5
|
|
$
25,516
|
$
78
|
$
91
|
$
13,201
|
$
38,886
|
$
—
|
$
38,886
|
Net income
(loss)
|
|
—
|
|
—
|
—
|
—
|
3,927
|
3,927
|
(4)
|
3,923
|
Other comprehensive
loss
|
|
—
|
|
—
|
—
|
(709)
|
—
|
(709)
|
(9)
|
(718)
|
Dividends declared
($0.76 per
share)
|
|
—
|
|
—
|
—
|
—
|
(708)
|
(708)
|
—
|
(708)
|
Effect of
stock-based
compensation expense
|
|
—
|
|
—
|
27
|
—
|
—
|
27
|
—
|
27
|
Shares issued under
stock
option plan
|
|
1.6
|
|
86
|
(17)
|
—
|
—
|
69
|
—
|
69
|
Non-controlling
interest in
connection with business
acquisition
|
|
—
|
|
—
|
—
|
—
|
—
|
—
|
932
|
932
|
Balance as at
December 31,
2023
|
|
932.1
|
|
$
25,602
|
$
88
|
$
(618)
|
$
16,420
|
$
41,492
|
$
919
|
$
42,411
|
Balance at January 1,
2022
|
|
929.7
|
|
$
25,475
|
$
66
|
$
(2,103)
|
$
10,391
|
$
33,829
|
$
—
|
$
33,829
|
Net income
|
|
—
|
|
—
|
—
|
—
|
3,517
|
3,517
|
—
|
3,517
|
Other comprehensive
income
|
|
—
|
|
—
|
—
|
2,194
|
—
|
2,194
|
—
|
2,194
|
Dividends declared
($0.76 per
share)
|
|
—
|
|
—
|
—
|
—
|
(707)
|
(707)
|
—
|
(707)
|
Effect of
stock-based
compensation expense
|
|
—
|
|
—
|
23
|
—
|
—
|
23
|
—
|
23
|
Shares issued for
Kansas City
Southern acquisition
|
|
—
|
|
—
|
(2)
|
—
|
—
|
(2)
|
—
|
(2)
|
Shares issued under
stock
option plan
|
|
0.8
|
|
41
|
(9)
|
—
|
—
|
32
|
—
|
32
|
Balance as at December
31,
2022
|
|
930.5
|
|
$
25,516
|
$
78
|
$
91
|
$
13,201
|
$
38,886
|
$
—
|
$
38,886
|
See Notes to
Consolidated Financial Information.
|
NOTES TO CONSOLIDATED FINANCIAL
INFORMATION
December 31,
2023
(unaudited)
1 Description of business and basis of
presentation
The terms "CPKC" or "the Company" in this unaudited consolidated
financial information refers to Canadian Pacific Kansas City
Limited and its subsidiaries unless the context suggests
otherwise.
CPKC owns and operates a transcontinental freight railway
spanning Canada, the United States ("U.S."), and Mexico. CPKC provides rail and intermodal
transportation services over a network of approximately 20,000
miles, serving the principal markets in Canada, as well as the U.S. Northeast,
Midwest, and Southeast regions, and Mexico.
On April 14, 2023, Canadian
Pacific Railway Limited ("CPRL") assumed control of Kansas City
Southern ("KCS") and changed its name to Canadian Pacific Kansas
City Limited. This unaudited consolidated financial information
includes KCS as a consolidated subsidiary from April 14, 2023. Prior to April 14, 2023, the Company's 100% interest in
KCS was reported as an equity investment.
This unaudited consolidated financial information, 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 or
interim financial statements. In management's opinion, all
adjustments (consisting of normal and recurring adjustments)
considered necessary for fair presentation have been included.
The accounting policies used in preparing this unaudited
consolidated financial information are consistent with the
accounting policies used in preparing the 2022 Annual Consolidated
Financial Statements, and should be read in conjunction with such
financial statements and related notes included in CPRL's 2022
annual report on Form 10-K.
2 Income taxes
During the fourth quarter and year ended December 31, 2023, the Company recorded a
deferred tax recovery of $7 million and $58 million,
respectively, for the revaluation of deferred income tax
balances on unitary state apportionment changes.
During the fourth quarter and year ended December 31, 2022, the Company recorded a
deferred tax recovery of $24 million to reverse an uncertain
tax position as this amount was no longer expected to be realized,
and 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.
Mexican Tax Audits
Kansas City Southern de México, S.A. de C.V. (also known as
Canadian Pacific Kansas City Mexico) ("CPKCM") closed audit
examinations with the Servicio de Administración Tributaria (the
"SAT") for the tax years 2016-2020 in September 2023, and the tax years 2009-2010, 2013
and 2015 in November 2023. The audit
examinations were for corporate income tax and value added tax
("VAT").
During the fourth quarter and year ended December 31, 2023, the settlement of these audits
resulted in payments of $60 million and $135 million,
respectively, as well as a $16 million reduction to the
April 14, 2023 refundable VAT balance
recorded in the third quarter of 2023, which was classified within
"Accounts receivable, net". The settlements primarily resulted in
an increase to "Goodwill". They also resulted in an increase in
"Income tax expense" of $1 million and $13 million during
the fourth quarter and year ended December
31, 2023, respectively. In addition, an income tax expense
of $3 million for the year ended
December 31, 2023 was recognized to
reserve for future audit settlements.
As a result, as at December 31,
2023, the estimated impact of potential future audit
settlements for tax years after 2020 that were substantially
reserved included a reduction to the April
14, 2023 VAT balance of $9 million and an income tax
reserve of $3 million.
2014 Tax Assessment
The CPKCM 2014 Tax Assessment, which is currently in litigation,
is expected to be resolved by the Administrative Court in 2024.
3 Business acquisition
During the fourth quarter and year ended December 31, 2023, the Company incurred
$32 million and $190 million, in acquisition-related
costs, respectively, of which:
- $7 million and $71 million were recognized in "Compensation and
benefits" primarily related to restructuring costs, retention and
synergy related incentive compensation costs;
- $1 million and $2 million were recognized in "Materials";
- $24 million and $111 million were recognized in "Purchased
services and other" including third party purchased services, and
payments made to certain communities across the combined network to
address the environmental and social impacts of increased traffic
as required by voluntary agreements with communities and conditions
imposed by the U.S. Surface Transportation Board (the "STB")
pursuant to the STB's final decision approving the Company and
KCS's joint merger application, including, but not limited to,
payments related to new crossings, closure of existing crossings
and other infrastructure projects; and
- $nil and $6 million, were
recognized in "Other expense".
KCS incurred acquisition-related costs of $11 million
between January 1, 2023 and
April 13, 2023, which were included
in "Equity earnings of Kansas City Southern".
During the fourth quarter and year ended December 31, 2022, the Company incurred
$17 million and $74 million in acquisition-related costs,
respectively, recognized in "Purchased services and other".
Acquisition-related costs of $10 million and $49 million
incurred by KCS during the fourth quarter and year ended
December 31, 2022, respectively, were
included in "Equity earnings of Kansas City Southern". 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 the Company's associated purchase accounting basis
differences and tax. The basis differences were related to
depreciable property, plant and equipment, intangible assets with
definite lives, and long-term debt, and amortized over the related
assets' remaining useful lives, and the remaining terms to maturity
of the debt instruments.
During the fourth quarter and year ended December 31, 2023, KCS purchase accounting
included in Net income was $87 million ($62 million
after deferred tax recovery of $25 million) and
$297 million ($228 million after deferred tax recovery of
$69 million), respectively, including costs of:
- $85 million and $234 million recognized in "Depreciation and
amortization";
- $1 million and $1 million recognized in "Purchased services and
others";
- $6 million and $17 million recognized in "Net interest
expense";
- $nil and $2 million recognized in
"Other expense";
- $nil and $48 million recognized
in "Equity earnings of Kansas City Southern"; and
- a recovery of $5 million and
$5 million recognized in "Net loss
attributable to non-controlling interest".
During the fourth quarter and year ended December 31, 2022, KCS purchase accounting
recognized in "Equity earnings of Kansas City Southern" was
$42 million and $163 million, respectively.
4 Debt
During the fourth quarter of 2023, the Company repaid at
maturity $1 billion 1.589% 2-year Notes. In addition, the
Company repaid at maturity U.S. $199 million
($272 million) 3.85% Senior Notes by release of funds from the
trustee as discussed below in "Satisfaction and Discharge of the
KCS 2023 Notes".
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. $1.5 billion in the form of
unsecured promissory notes. The commercial paper program is backed
by the U.S. $2.2 billion revolving
credit facility. As at December 31,
2023, the Company had total commercial paper borrowings
outstanding of U.S. $800 million ($1,058 million) included in "Long-term debt
maturing within one year" on the Company's Balance Sheets
(December 31, 2022 - $nil). The
weighted-average interest rate on these borrowings as at
December 31, 2023 was 5.59%. The
Company presents issuances and repayments of commercial paper, all
of which have a maturity of less than 90 days, in the Company's
Consolidated Statements of Cash Flows on a net basis.
Satisfaction and Discharge of the KCS 2023 Notes
On April 24, 2023, KCS irrevocably deposited U.S.
$647 million of non-callable government securities with the
trustee of two series of notes that matured in 2023 (the "KCS 2023
Notes") to satisfy and discharge KCS's obligations under the KCS
2023 Notes. These notes were not included within the previously
completed debt exchange on April 19,
2023 of seven series of the KCS notes ("Old Notes") for
notes issued by Canadian Pacific Railway Company (the "CPRC
Notes"). As a result of the satisfaction and discharge, the
obligations of the Company under the indenture with respect to the
KCS 2023 Notes were terminated, except those provisions of the
indenture that, by their terms, survive the satisfaction and
discharge. The Company utilized existing cash resources and
issuances of commercial paper to fund the satisfaction and
discharge. On May 15, 2023 and
November 15, 2023, the U.S.
$439 million 3.00% Senior Notes and
U.S. $199 million 3.85% Senior Notes
respectively, were repaid by release of funds from the trustee. In
the Company's Consolidated Statements of Cash Flows, the government
securities purchased towards settlement of the May maturity were
treated as a cash equivalent. The purchase of government securities
of U.S. $198 million ($267 million) associated with the November
maturity, along with the settlement of these government securities
for U.S. $200 million ($274 million) were presented within investing
activities. This transaction together with the debt exchange
previously disclosed relieved KCS from continuous disclosure
obligations.
Summary of Rail
Data(1)
|
Fourth
Quarter
|
|
Year
|
Financial (millions,
except per share data)
|
2023
|
2022
|
Total
Change
|
%
Change
|
|
2023
|
2022
|
Total
Change
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Freight
|
$
3,697
|
$
2,413
|
$
1,284
|
53
|
|
$
12,281
|
$
8,627
|
$
3,654
|
42
|
Non-freight
|
79
|
49
|
30
|
61
|
|
274
|
187
|
87
|
47
|
Total
revenues
|
3,776
|
2,462
|
1,314
|
53
|
|
12,555
|
8,814
|
3,741
|
42
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
Compensation and
benefits
|
637
|
416
|
221
|
53
|
|
2,332
|
1,570
|
762
|
49
|
Fuel
|
528
|
399
|
129
|
32
|
|
1,681
|
1,400
|
281
|
20
|
Materials
|
86
|
69
|
17
|
25
|
|
346
|
260
|
86
|
33
|
Equipment
rents
|
76
|
43
|
33
|
77
|
|
277
|
140
|
137
|
98
|
Depreciation and
amortization
|
457
|
219
|
238
|
109
|
|
1,543
|
853
|
690
|
81
|
Purchased services and
other
|
550
|
327
|
223
|
68
|
|
1,988
|
1,262
|
726
|
58
|
Total operating
expenses
|
2,334
|
1,473
|
861
|
58
|
|
8,167
|
5,485
|
2,682
|
49
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
1,442
|
989
|
453
|
46
|
|
4,388
|
3,329
|
1,059
|
32
|
|
|
|
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
Equity earnings of
Kansas City Southern
|
—
|
(447)
|
447
|
(100)
|
|
(230)
|
(1,074)
|
844
|
(79)
|
Other
expense
|
16
|
4
|
12
|
300
|
|
52
|
17
|
35
|
206
|
Other components of
net periodic benefit recovery
|
(73)
|
(107)
|
34
|
(32)
|
|
(327)
|
(411)
|
84
|
(20)
|
Net interest
expense
|
206
|
166
|
40
|
24
|
|
771
|
652
|
119
|
18
|
Remeasurement loss of
Kansas City Southern
|
—
|
—
|
—
|
100
|
|
7,175
|
—
|
7,175
|
100
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before
income tax expense (recovery)
|
1,293
|
1,373
|
(80)
|
(6)
|
|
(3,053)
|
4,145
|
(7,198)
|
(174)
|
|
|
|
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
Current income tax
expense
|
235
|
117
|
118
|
101
|
|
909
|
492
|
417
|
85
|
Deferred income tax
expense (recovery)
|
40
|
(15)
|
55
|
(367)
|
|
(7,885)
|
136
|
(8,021)
|
(5,898)
|
Income tax expense
(recovery)
|
275
|
102
|
173
|
170
|
|
(6,976)
|
628
|
(7,604)
|
(1,211)
|
|
|
|
|
|
|
|
|
|
|
Net income
|
$
1,018
|
$
1,271
|
$ (253)
|
(20)
|
|
$
3,923
|
$
3,517
|
$ 406
|
12
|
|
|
|
|
|
|
|
|
|
|
Less: Net loss
attributable to non-controlling
shareholders
|
(5)
|
—
|
(5)
|
100
|
|
(4)
|
—
|
(4)
|
100
|
|
|
|
|
|
|
|
|
|
|
Net income attributable
to controlling shareholders
|
$
1,023
|
$
1,271
|
$ (248)
|
(20)
|
|
$
3,927
|
$
3,517
|
$ 410
|
12
|
Operating ratio
(%)
|
61.8
|
59.8
|
2.0
|
200
bps
|
|
65.0
|
62.2
|
2.8
|
280
bps
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per
share
|
$ 1.10
|
$
1.37
|
$
(0.27)
|
(20)
|
|
$ 4.22
|
$ 3.78
|
$ 0.44
|
12
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per
share
|
$ 1.10
|
$
1.36
|
$
(0.26)
|
(19)
|
|
$ 4.21
|
$ 3.77
|
$ 0.44
|
12
|
|
|
|
|
|
|
|
|
|
|
Shares
Outstanding
|
|
|
|
|
|
|
|
|
|
Weighted average
number of basic shares
outstanding (millions)
|
931.8
|
930.3
|
1.5
|
—
|
|
931.3
|
930.0
|
1.3
|
—
|
Weighted average
number of diluted shares
outstanding (millions)
|
933.8
|
933.2
|
0.6
|
—
|
|
933.7
|
932.9
|
0.8
|
—
|
|
|
|
|
|
|
|
|
|
|
Foreign
Exchange
|
|
|
|
|
|
|
|
|
|
Average foreign
exchange rate (U.S.$/Canadian$)
|
0.74
|
0.74
|
—
|
—
|
|
0.74
|
0.77
|
(0.03)
|
(4)
|
Average foreign
exchange rate (Canadian$/U.S.$)
|
1.36
|
1.36
|
—
|
—
|
|
1.35
|
1.30
|
0.05
|
4
|
Average foreign
exchange rate (Mexican
peso/Canadian$)
|
12.89
|
14.49
|
(1.60)
|
(11)
|
|
13.12
|
15.46
|
(2.34)
|
(15)
|
Average foreign
exchange rate
(Canadian$/Mexican peso)
|
0.0776
|
0.0690
|
0.0086
|
12
|
|
0.0762
|
0.0647
|
0.0115
|
18
|
|
|
(1)
|
The results of
Kansas City Southern ("KCS") are included on a consolidated basis
from April 14, 2023, the date the Company acquired control. From
December 14,
2021 to April 13, 2023, the Company recorded its interest in KCS
under the equity method of accounting.
|
Summary of Rail Data
(Continued)(1)
|
Fourth
Quarter
|
|
Year
|
Commodity
Data
|
2023
|
2022
|
Total
Change
|
%
Change
|
|
2023
|
2022
|
Total
Change
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
Freight Revenues
(millions)
|
|
|
|
|
|
|
|
|
|
- Grain
|
$
844
|
$ 655
|
$ 189
|
29
|
|
$
2,496
|
$ 1,776
|
$
720
|
41
|
- Coal
|
256
|
119
|
137
|
115
|
|
859
|
577
|
282
|
49
|
- Potash
|
157
|
136
|
21
|
15
|
|
566
|
581
|
(15)
|
(3)
|
- Fertilizers and
sulphur
|
109
|
88
|
21
|
24
|
|
385
|
332
|
53
|
16
|
- Forest
products
|
207
|
104
|
103
|
99
|
|
696
|
403
|
293
|
73
|
- Energy, chemicals and
plastics
|
717
|
384
|
333
|
87
|
|
2,301
|
1,394
|
907
|
65
|
- Metals, minerals and
consumer products
|
451
|
229
|
222
|
97
|
|
1,579
|
884
|
695
|
79
|
- Automotive
|
286
|
116
|
170
|
147
|
|
934
|
438
|
496
|
113
|
- Intermodal
|
670
|
582
|
88
|
15
|
|
2,465
|
2,242
|
223
|
10
|
|
|
|
|
|
|
|
|
|
|
Total Freight
Revenues
|
$ 3,697
|
$
2,413
|
$
1,284
|
53
|
|
$
12,281
|
$ 8,627
|
$ 3,654
|
42
|
|
|
|
|
|
|
|
|
|
|
Freight Revenue per
Revenue Ton-Mile (RTM)
(cents)
|
|
|
|
|
|
|
|
|
|
- Grain
|
5.50
|
5.46
|
0.04
|
1
|
|
5.14
|
5.03
|
0.11
|
2
|
- Coal
|
4.00
|
4.06
|
(0.06)
|
(1)
|
|
3.89
|
3.85
|
0.04
|
1
|
- Potash
|
3.36
|
3.51
|
(0.15)
|
(4)
|
|
3.35
|
3.20
|
0.15
|
5
|
- Fertilizers and
sulphur
|
7.70
|
7.41
|
0.29
|
4
|
|
7.68
|
6.96
|
0.72
|
10
|
- Forest
products
|
9.16
|
7.56
|
1.60
|
21
|
|
8.67
|
7.02
|
1.65
|
24
|
- Energy, chemicals and
plastics
|
7.31
|
6.00
|
1.31
|
22
|
|
6.97
|
5.66
|
1.31
|
23
|
- Metals, minerals and
consumer products
|
9.19
|
8.01
|
1.18
|
15
|
|
8.65
|
7.55
|
1.10
|
15
|
- Automotive
|
26.68
|
27.10
|
(0.42)
|
(2)
|
|
26.10
|
25.23
|
0.87
|
3
|
- Intermodal
|
7.57
|
7.44
|
0.13
|
2
|
|
7.36
|
7.19
|
0.17
|
2
|
|
|
|
|
|
|
|
|
|
|
Total Freight Revenue
per RTM
|
6.75
|
6.21
|
0.54
|
9
|
|
6.50
|
5.82
|
0.68
|
12
|
|
|
|
|
|
|
|
|
|
|
Freight Revenue per
Carload
|
|
|
|
|
|
|
|
|
|
- Grain
|
$ 5,680
|
$
5,170
|
$ 510
|
10
|
|
$
5,014
|
$ 4,648
|
$
366
|
8
|
- Coal
|
1,910
|
2,102
|
(192)
|
(9)
|
|
1,911
|
2,139
|
(228)
|
(11)
|
- Potash
|
3,747
|
3,897
|
(150)
|
(4)
|
|
3,687
|
3,631
|
56
|
2
|
- Fertilizers and
sulphur
|
5,956
|
5,867
|
89
|
2
|
|
5,842
|
5,372
|
470
|
9
|
- Forest
products
|
5,671
|
5,843
|
(172)
|
(3)
|
|
5,524
|
5,513
|
11
|
—
|
- Energy, chemicals and
plastics
|
4,935
|
5,039
|
(104)
|
(2)
|
|
4,725
|
4,687
|
38
|
1
|
- Metals, minerals and
consumer products
|
3,391
|
3,748
|
(357)
|
(10)
|
|
3,449
|
3,560
|
(111)
|
(3)
|
- Automotive
|
4,931
|
4,394
|
537
|
12
|
|
4,638
|
4,195
|
443
|
11
|
- Intermodal
|
1,484
|
1,946
|
(462)
|
(24)
|
|
1,534
|
1,892
|
(358)
|
(19)
|
|
|
|
|
|
|
|
|
|
|
Total Freight Revenue
per Carload
|
$ 3,168
|
$
3,381
|
$ (213)
|
(6)
|
|
$
3,036
|
$ 3,101
|
$
(65)
|
(2)
|
|
|
(1)
|
KCS's freight revenues
are included on a consolidated basis from April 14, 2023, the date
the Company acquired control of KCS. From December 14, 2021 to
April 13, 2023, the Company recorded its interest in KCS under the
equity method of accounting, therefore, no KCS data was included in
those periods.
|
Summary of Rail Data
(Continued)(1)
|
Fourth
Quarter
|
|
Year
|
Commodity Data
(Continued)
|
2023
|
2022
|
Total
Change
|
%
Change
|
|
2023
|
2022
|
Total
Change
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
RTMs
(millions)
|
|
|
|
|
|
|
|
|
|
- Grain
|
15,347
|
11,990
|
3,357
|
28
|
|
48,592
|
35,325
|
13,267
|
38
|
- Coal
|
6,395
|
2,933
|
3,462
|
118
|
|
22,095
|
14,970
|
7,125
|
48
|
- Potash
|
4,668
|
3,879
|
789
|
20
|
|
16,904
|
18,176
|
(1,272)
|
(7)
|
- Fertilizers and
sulphur
|
1,416
|
1,187
|
229
|
19
|
|
5,014
|
4,772
|
242
|
5
|
- Forest
products
|
2,260
|
1,375
|
885
|
64
|
|
8,028
|
5,741
|
2,287
|
40
|
- Energy, chemicals
and plastics
|
9,813
|
6,404
|
3,409
|
53
|
|
33,031
|
24,625
|
8,406
|
34
|
- Metals, minerals and
consumer products
|
4,905
|
2,858
|
2,047
|
72
|
|
18,247
|
11,710
|
6,537
|
56
|
-
Automotive
|
1,072
|
428
|
644
|
150
|
|
3,579
|
1,736
|
1,843
|
106
|
-
Intermodal
|
8,855
|
7,819
|
1,036
|
13
|
|
33,470
|
31,173
|
2,297
|
7
|
|
|
|
|
|
|
|
|
|
|
Total RTMs
|
54,731
|
38,873
|
15,858
|
41
|
|
188,960
|
148,228
|
40,732
|
27
|
|
|
|
|
|
|
|
|
|
|
Carloads
(thousands)
|
|
|
|
|
|
|
|
|
|
- Grain
|
148.6
|
126.7
|
21.9
|
17
|
|
497.8
|
382.1
|
115.7
|
30
|
- Coal
|
134.0
|
56.6
|
77.4
|
137
|
|
449.6
|
269.8
|
179.8
|
67
|
- Potash
|
41.9
|
34.9
|
7.0
|
20
|
|
153.5
|
160.0
|
(6.5)
|
(4)
|
- Fertilizers and
sulphur
|
18.3
|
15.0
|
3.3
|
22
|
|
65.9
|
61.8
|
4.1
|
7
|
- Forest
products
|
36.5
|
17.8
|
18.7
|
105
|
|
126.0
|
73.1
|
52.9
|
72
|
- Energy, chemicals
and plastics
|
145.3
|
76.2
|
69.1
|
91
|
|
487.0
|
297.4
|
189.6
|
64
|
- Metals, minerals and
consumer products
|
133.0
|
61.1
|
71.9
|
118
|
|
457.8
|
248.3
|
209.5
|
84
|
-
Automotive
|
58.0
|
26.4
|
31.6
|
120
|
|
201.4
|
104.4
|
97.0
|
93
|
-
Intermodal
|
451.5
|
299.0
|
152.5
|
51
|
|
1,606.6
|
1,185.2
|
421.4
|
36
|
|
|
|
|
|
|
|
|
|
|
Total
Carloads
|
1,167.1
|
713.7
|
453.4
|
64
|
|
4,045.6
|
2,782.1
|
1,263.5
|
45
|
|
|
(1)
|
Includes KCS
information for the period from April 14, 2023 onwards. From
December 14, 2021 to April 13, 2023, the Company recorded
its interest in KCS under the equity method of accounting,
therefore, no KCS data was included in those periods.
|
Summary of Rail Data
(Continued)(1)
|
Fourth
Quarter
|
|
Year
|
|
2023
|
2022
|
Total
Change
|
%
Change
|
|
2023
|
2022
|
Total
Change
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
Operations
Performance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross ton-miles
("GTMs") (millions)
|
101,361
|
69,622
|
31,739
|
46
|
|
348,447
|
269,134
|
79,313
|
29
|
Train miles
(thousands)
|
12,499
|
7,509
|
4,990
|
66
|
|
41,312
|
28,899
|
12,413
|
43
|
Average train
weight - excluding local traffic (tons)
|
8,732
|
9,978
|
(1,246)
|
(12)
|
|
9,212
|
10,064
|
(852)
|
(8)
|
Average train
length - excluding local traffic (feet)
|
7,345
|
8,244
|
(899)
|
(11)
|
|
7,802
|
8,350
|
(548)
|
(7)
|
Average terminal dwell
(hours)
|
9.3
|
8.0
|
1.3
|
16
|
|
10.1
|
8.0
|
2.1
|
26
|
Average train speed
(miles per hour, or "mph")(2)
|
18.6
|
21.1
|
(2.5)
|
(12)
|
|
19.1
|
21.4
|
(2.3)
|
(11)
|
Locomotive productivity
(GTMs / operating horsepower)(3)
|
164
|
196
|
(32)
|
(16)
|
|
171
|
196
|
(25)
|
(13)
|
Fuel
efficiency(4)
|
1.042
|
0.972
|
0.070
|
7
|
|
1.026
|
0.955
|
0.071
|
7
|
U.S. gallons of
locomotive fuel consumed (millions)(5)
|
105.6
|
67.7
|
37.9
|
56
|
|
357.3
|
257.0
|
100.3
|
39
|
Average fuel price
(U.S. dollars per U.S. gallon)
|
3.67
|
4.34
|
(0.67)
|
(15)
|
|
3.52
|
4.19
|
(0.67)
|
(16)
|
|
|
|
|
|
|
|
|
|
|
Total Employees and
Workforce
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total employees
(average)(6)
|
20,108
|
13,000
|
7,108
|
55
|
|
18,233
|
12,570
|
5,663
|
45
|
Total employees (end of
period)(6)
|
19,927
|
12,754
|
7,173
|
56
|
|
19,927
|
12,754
|
7,173
|
56
|
Workforce (end of
period)(7)
|
20,038
|
12,824
|
7,214
|
56
|
|
20,038
|
12,824
|
7,214
|
56
|
|
|
|
|
|
|
|
|
|
|
Safety
Indicators(8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FRA personal injuries
per 200,000 employee-hours
|
1.10
|
1.17
|
(0.07)
|
(6)
|
|
1.16
|
1.01
|
0.15
|
15
|
FRA train accidents per
million train-miles
|
1.08
|
1.19
|
(0.11)
|
(9)
|
|
1.06
|
0.93
|
0.13
|
14
|
|
|
(1)
|
Includes KCS
information for the period from April 14, 2023 onwards. From
December 14, 2021 to April 13, 2023, the Company recorded its
interest in KCS under the equity method of accounting,
therefore, no KCS data was included in those periods.
|
(2)
|
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 CPKC's yards; ii) passenger trains; and iii) trains used for
repairing track. An increase in average train speed indicates
improved on-time performance resulting in improved asset
utilization.
|
(3)
|
Locomotive productivity
is defined as the daily average 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.
|
(4)
|
Fuel efficiency is
defined as U.S. gallons of locomotive fuel consumed per
1,000 GTMs.
|
(5)
|
Fuel consumed includes
gallons from freight, yard and commuter service but excludes fuel
used in capital projects and other non-freight
activities.
|
(6)
|
An employee is defined
as an individual currently engaged in full-time, part-time, or
seasonal employment with CPKC. CPKC monitors employment levels
in order to efficiently meet service and strategic
requirements. The number of employees is a key driver to total
compensation and benefits costs.
|
(7)
|
Workforce is defined as
total employees plus contractors and consultants.
|
(8)
|
FRA personal injuries
per 200,000 employee-hours for the three months ended December 31,
2022 was previously reported as 1.12, restated to 1.17 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, including Core adjusted
combined operating ratio and Core adjusted combined diluted
earnings per share, to provide an additional basis for evaluating
underlying earnings trends in the Company's current periods'
financial results that can be compared with the results of
operations in prior periods. Management believes these Non-GAAP
measures facilitate a multi-period assessment of long-term
profitability.
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
On April 14, 2023 (the "Control Date"), CP obtained control
of KCS and CPKC began consolidating KCS, which had been accounted
for under the equity method of accounting between December 14, 2021 and April 13, 2023. On the Control Date, CPKC's
previously-held interest in KCS was remeasured to its Control Date
fair value. CPKC presents Core adjusted combined operating ratio
and Core adjusted combined diluted earnings per share to give
effect to results after isolating and removing the impact of the
acquisition of KCS on those results. These measures provide a
comparison to prior period financial information, as adjusted to
exclude certain significant items, and are used to evaluate CPKC's
operating performance and for planning and forecasting future
business operations and future profitability.
Management believes the use of Non-GAAP measures provides
meaningful supplemental information about our 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's 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 CPKC's
associated purchase accounting basis differences and tax), as
recognized within "Equity earnings of Kansas City Southern" in the
Company's Consolidated Statements of Income, loss on derecognition
of CPKC's previously held equity method investment in KCS, discrete
tax items, changes in the outside basis tax difference between the
carrying amount of CPKC's equity investment in KCS and its tax
basis of this investment, a deferred tax recovery related to the
elimination of the deferred tax liability on the outside basis
difference of the investment, settlement of Mexican taxes relating
to prior years, 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 costs including third-party services
and system migration, debt exchange transaction costs, community
investments, fair value gain or loss on foreign exchange ("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, restructuring, employee retention
and synergy incentive costs, and transaction and integration costs
incurred by KCS. These items may not be non-recurring, and may
include items that are settled in cash. Specifically, due to the
magnitude of the acquisition, its significant impact to the
Company's business and complexity of integrating the acquired
business and operations, the Company expects to incur
acquisition-related costs beyond the year of acquisition.
Management believes excluding these significant items from GAAP
results provides an additional viewpoint which may give users a
consistent understanding of CPKC's financial performance when
performing a multi-period assessment including assessing the
likelihood of future results. Accordingly, these Non-GAAP financial
measures may provide additional insight to investors and other
external users of CPKC's financial information.
In addition, Core adjusted combined operating ratio and Core
adjusted combined diluted earnings per share exclude KCS purchase
accounting. KCS purchase accounting represents the amortization of
basis differences being the incremental depreciation and
amortization in relation to fair value adjustments to properties
and intangible assets, incremental amortization in relation to
fair value adjustments to KCS's investments, amortization of the
change in fair value of debt of KCS assumed on the Control Date,
and depreciation and amortization of fair value adjustments that
are attributable to non-controlling interest, as recognized within
"Depreciation and amortization", "Other expense", "Net interest
expense", and "Net loss attributable to non-controlling interest",
respectively, in the Company's Consolidated Statements of Income.
During the periods that KCS was equity accounted for, from
December 14, 2021 to April 13, 2023, 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 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.
Excluding KCS purchase accounting from GAAP results provides
financial statement users with additional transparency by isolating
the impact of KCS purchase accounting.
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:
Core Adjusted Combined Diluted Earnings per Share
Core adjusted combined diluted earnings per share is calculated
using Net income attributable to controlling shareholders reported
on a GAAP basis adjusted for significant items less KCS purchase
accounting, divided by the weighted-average diluted number of
Common Shares outstanding during the period as determined in
accordance with GAAP. Between December 14, 2021 and
April 13, 2023, KCS was accounted for in CPKC's diluted
earnings per share reported on a GAAP basis using the equity method
of accounting and on a consolidated basis beginning April 14,
2023. As the equity method of accounting and consolidation both
provide the same diluted earnings per share for CPKC, no adjustment
is required to pre-control diluted earnings per share to be
comparable on a consolidated basis.
In 2023, there were five significant items included in the Net
income attributable to controlling shareholders as reported on a
GAAP basis as follows:
- during the course of the year, a total current tax expense of
$16 million related to a tax
settlement with the Servicio de Administración Tributaria (the
"SAT") of $13 million and a reserve
for the estimated impact of potential future audit settlements of
$3 million, that unfavourably
impacted Diluted EPS by 2 cents as
follows:
- in the fourth quarter, a current tax expense of $1 million related to a tax settlement with the
SAT that had minimal impact on Diluted EPS; and
- in the third quarter, a total current tax expense of
$15 million related to a tax
settlement with the SAT of $9 million
and reserves for the estimated impact of potential future audit
settlements of $6 million of which
$3 million was settled in the fourth
quarter, that unfavourably impacted Diluted EPS by 2 cents;
- in the second quarter, a remeasurement loss of KCS of
$7,175 million recognized in
"Remeasurement loss of Kansas City Southern" due to the
derecognition of CPKC's previously held equity method investment in
KCS and remeasurement at its Control Date fair value that
unfavourably impacted Diluted EPS by $7.68;
- during the course of the year, a deferred tax recovery of
$72 million on account of changes in
tax rates and apportionment that favourably impacted Diluted EPS by
7 cents as follows:
- in the fourth quarter, a deferred tax recovery of $7 million due to CPKC unitary state
apportionment changes that favourably impacted Diluted EPS by
1 cent;
- in the third quarter, a deferred tax recovery of $14 million due to decreases in the Iowa and Arkansas state tax rates that favourably
impacted Diluted EPS by 2 cents;
and
- in the second quarter, a deferred tax recovery of $51 million due to CPKC unitary state
apportionment changes that favourably impacted Diluted EPS by
5 cents;
- during the course of the year, a deferred tax recovery of
$7,855 million on changes in the
outside basis difference on the equity investment in KCS that
favourably impacted Diluted EPS by $8.42 as follows:
- in the second quarter, a deferred tax recovery of $7,832 million related to the elimination of the
deferred tax liability on the outside basis difference of the
investment in KCS that favourably impacted Diluted EPS by
$8.39; and
- in the first quarter, a deferred tax recovery of $23 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
$201 million in connection with the
KCS acquisition ($164 million after
current tax recovery of $37 million),
including an expense of $71 million
recognized in "Compensation and benefits", $2 million recognized in "Materials",
$111 million recognized in "Purchased
services and other", $6 million
recognized in "Other expense", and $11
million recognized in "Equity earnings of KCS", that
unfavourably impacted Diluted EPS by 17
cents as follows:
- in the fourth quarter, acquisition-related costs of
$32 million ($24 million after current tax recovery of
$8 million), including costs of
$7 million recognized in
"Compensation and benefits", $1
million recognized in "Materials", and $24 million recognized in "Purchased services and
other", that unfavourably impacted Diluted EPS by 2 cents;
- in the third quarter, acquisition-related costs of $24 million ($18
million after current tax recovery of $6 million), including costs of $1 million recognized in "Compensation and
benefits", $1 million recognized in
"Materials", and $22 million
recognized in "Purchased services and other",
that unfavourably impacted Diluted EPS by 2 cents;
- in the second quarter, acquisition-related costs of
$120 million ($101 million after current tax recovery of
$19 million), including costs of
$63 million recognized in
"Compensation and benefits", $53
million recognized in "Purchased services and other",
$3 million recognized in "Other
expense", and $1 million recognized
in "Equity earnings of KCS", that unfavourably impacted
Diluted EPS by 11 cents; and
- in the first quarter, acquisition-related costs of $25 million ($21
million after current tax recovery of $4 million), including costs of $12 million recognized in "Purchased services and
other", $3 million recognized in
"Other expense", and $10 million
recognized in "Equity earnings of KCS", that unfavourably
impacted Diluted EPS by 2 cents.
In 2022, there were five significant items included in Net
income attributable to controlling shareholders as reported on a
GAAP basis as follows:
- in the fourth quarter, a gain of $212
million due to KCS's gain on unwinding of interest rate
hedges (net of CPKC'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 $27
million recovery that favourably impacted Diluted EPS
by 3 cents;
- in the third quarter, a $9
million recovery that favourably impacted Diluted EPS
by 1 cent;
- in the second quarter, a $49
million expense that unfavourably impacted Diluted EPS
by 5 cents;
- in the first quarter, a $32
million recovery 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.
KCS purchase accounting included in Net income attributable to
controlling shareholders as reported on a GAAP basis was as
follows:
2023:
- during the course of the year, KCS purchase accounting of
$297 million ($228 million after deferred tax recovery of
$69 million), including costs of
$234 million recognized in
"Depreciation and amortization", $1
million recognized in "Purchased services and other" related
to the amortization of equity investments, $17 million recognized in "Net interest expense",
$2 million recognized in "Other
expense", $48 million recognized in
"Equity earnings of KCS", and a recovery of $5 million recognized in "Net loss attributable
to the non-controlling interest", that unfavourably impacted
Diluted EPS by 25 cents as follows:
- in the fourth quarter, KCS purchase accounting of
$87 million ($62 million after deferred tax recovery of
$25 million), including costs of $85 million recognized
in "Depreciation and amortization", $1 million recognized in
"Purchased services and other" related to the amortization of
equity investments, $6 million recognized in "Net interest
expense", and a recovery of $5 million recognized in "Net loss
attributable to the non-controlling interest", that unfavourably
impacted Diluted EPS by 7 cents;
- in the third quarter, KCS purchase accounting of
$87 million ($63 million after deferred tax recovery of
$24 million), including costs of
$81 million recognized in "Depreciation and amortization",
$5 million recognized in "Net
interest expense", and $1 million in
recognized in "Other expense", that unfavourably impacted Diluted
EPS by 7 cents;
- in the second quarter, KCS purchase accounting of
$81 million ($61 million after deferred tax recovery of
$20 million), including costs of
$68 million recognized in
"Depreciation and amortization", $6
million recognized in "Net interest expense", $1 million recognized in "Other expense", and
$6 million recognized in "Equity
earnings of KCS", that unfavourably impacted Diluted EPS by
6 cents; and
- in the first quarter, KCS purchase accounting of
$42 million recognized in "Equity
earnings of KCS" that unfavourably impacted Diluted EPS by
5 cents.
2022:
- during the course of the year, KCS purchase accounting of
$163 million expense recognized in
"Equity earnings of KCS" that unfavourably impacted Diluted EPS by
17 cents as follows:
- in the fourth quarter, KCS purchase accounting of
$42 million that unfavourably impacted Diluted EPS by
4 cents;
- in the third quarter, KCS purchase accounting of
$42 million that unfavourably impacted Diluted EPS by 4
cents;
- in the second quarter, KCS purchase accounting of
$39 million that unfavourably
impacted Diluted EPS by 5 cents;
and
- in the first quarter, KCS purchase accounting of
$40 million that unfavourably impacted Diluted EPS by
4 cents.
|
For the three
months
ended December 31
|
For the year
ended
December 31
|
|
2023
|
2022
|
2023
|
2022
|
CPKC diluted
earnings per share as reported
|
$
1.10
|
$
1.36
|
$
4.21
|
$
3.77
|
Less:
|
|
|
|
|
Significant items
(pre-tax):
|
|
|
|
|
KCS net gain on unwind
of interest rate hedges
|
—
|
0.23
|
—
|
0.23
|
Remeasurement loss of
KCS
|
—
|
—
|
(7.68)
|
—
|
Acquisition-related
costs
|
(0.02)
|
(0.04)
|
(0.21)
|
(0.14)
|
KCS purchase
accounting
|
(0.09)
|
(0.04)
|
(0.32)
|
(0.17)
|
Add:
|
|
|
|
|
Tax effect of
adjustments(1)
|
(0.02)
|
(0.01)
|
(0.11)
|
(0.02)
|
Settlement of Mexican
taxes relating to prior years
|
—
|
—
|
0.02
|
—
|
Income tax rate
changes
|
(0.01)
|
—
|
(0.07)
|
(0.01)
|
Deferred tax recovery
on the outside basis difference of the investment in KCS
|
—
|
(0.03)
|
(8.42)
|
(0.02)
|
Reversal of provision
for uncertain tax item
|
—
|
(0.03)
|
—
|
(0.03)
|
Core adjusted
combined diluted earnings per share(2)
|
$
1.18
|
$
1.14
|
$
3.84
|
$
3.77
|
(1)
|
The tax effect of
adjustments was calculated as the pre-tax effect of the significant
items and KCS purchase accounting listed above multiplied by
the applicable tax rate for the above items of 27.37% and 1.37% for
the three months and year ended December 31, 2023, respectively,
and 7.60% and 20.08% for the three months and year ended
December 31, 2022, respectively. The applicable tax rates reflect
the taxable jurisdictions and nature, being on account of
capital or income, of the adjustments.
|
(2)
|
The Company previously
used the Non-GAAP measure Core adjusted diluted earnings per share,
which was calculated as diluted earnings per share adjusted
for significant items less KCS purchase accounting. Core adjusted
diluted earnings per share was $1.14 and $3.77 for the
three months and year ended December 31, 2022, respectively,
which are the same as the revised measure Core adjusted combined
diluted earnings per share, as KCS was equity accounted for
within CPKC's results.
|
Core Adjusted Combined Operating Ratio
Core adjusted combined operating ratio is calculated from
reported GAAP revenue and operating expenses adjusted for (1) KCS
operating income prior to the Control Date and giving effect to
transaction accounting adjustments in a consistent manner with
Regulation S-X Article 11 ("Article 11"), where applicable, (2)
significant items (acquisition-related costs) that are reported
within Operating income, and (3) KCS purchase accounting recognized
in Depreciation and amortization and Purchased services and
other.
This combined measure does not purport to represent what the
actual consolidated results of operations would have been had the
Company obtained control of KCS and consolidation actually occurred
on January 1, 2022, nor is it
indicative of future results. This information is based upon
assumptions that CPKC believes reasonably reflect the impact to
CPKC's historical financial information, on a supplemental basis,
of obtaining control of KCS had it occurred as of January 1,
2022. This information does not include anticipated costs related
to integration activities, cost savings or synergies that may be
achieved by the combined company.
In 2023, acquisition-related costs were $197 million in
connection with the KCS acquisition including costs of
$82 million recognized in "Compensation and benefits",
$2 million recognized in "Materials", and $113 million
recognized in "Purchased services and other", that unfavourably
impacted operating ratio on a combined basis, calculated in a
manner consistent with Article 11, by 1.4%:
- in the fourth quarter, acquisition-related costs of
$32 million including costs of
$7 million recognized in
"Compensation and benefits", $1
million recognized in "Materials", and $24 million recognized in "Purchased services and
other", that unfavourably impacted operating ratio by 0.8%;
- in the third quarter, acquisition-related costs of $24 million including costs of $1 million recognized in "Compensation and
benefits", $1 million recognized in
"Materials", and $22 million
recognized in "Purchased services and other", that unfavourably
impacted operating ratio by 0.8%;
- in the second quarter, acquisition-related costs of
$116 million including costs of
$63 million recognized in
"Compensation and benefits", and $53
million recognized in "Purchased services and other",
that unfavourably impacted operating ratio by 3.5%; and
- in the first quarter, acquisition-related costs of $25 million including costs of $11 million recognized in "Compensation and
benefits", and $14 million recognized
in "Purchased services and other", that unfavourably impacted
operating ratio by 0.7%.
In 2022, acquisition-related costs were $168 million in
connection with the KCS acquisition including costs of
$55 million recognized in "Compensation and benefits" and
$113 million recognized in "Purchased
services and other", that unfavourably impacted operating ratio on
a combined basis, calculated in a manner consistent with Article
11, by 1.3%:
- in the fourth quarter, acquisition-related costs of
$31 million including costs of
$12 million recognized in
"Compensation and benefits", and $19
million recognized in "Purchased services and other",
that unfavourably impacted operating ratio by 0.8%;
- in the third quarter, acquisition-related costs of $33 million including costs of $14 million recognized in "Compensation and
benefits", and $19 million recognized
in "Purchased services and other", that unfavourably impacted
operating ratio by 0.8%;
- in the second quarter, acquisition-related costs of
$35 million including costs of
$14 million recognized in
"Compensation and benefits", and $21
million recognized in "Purchased services and other",
that unfavourably impacted operating ratio by 1.1%; and
- in the first quarter, acquisition-related costs of $69 million including costs of $15 million recognized in "Compensation and
benefits", and $54 million recognized
in "Purchased services and other", that unfavourably impacted
operating ratio by 2.5%.
KCS purchase accounting included in operating ratio on a
combined basis, calculated in a manner consistent with Article 11,
was as follows:
2023:
- during the course of the year, KCS purchase accounting of
$327 million including $326 million recognized in "Depreciation and
amortization" and $1 million
recognized in "Purchased services and other" related to the
amortization of equity investments, that unfavourably impacted
operating ratio by 2.4% as follows:
- in the fourth quarter, KCS purchase accounting of
$86 million including $85 million recognized in "Depreciation and
amortization" and $1 million
recognized in "Purchased services and other" related to the
amortization of equity investments, that unfavourably impacted
operating ratio by 2.3%;
- in the third quarter, KCS purchase accounting of
$81 million recognized in
"Depreciation and amortization" that unfavourably impacted
operating ratio by 2.4%;
- in the second quarter, KCS purchase accounting of
$80 million recognized in
"Depreciation and amortization" that unfavourably impacted
operating ratio by 2.4%; and
- in the first quarter, KCS purchase accounting of
$80 million recognized in
"Depreciation and amortization" that unfavourably impacted
operating ratio by 2.3%.
2022:
- during the course of the year, KCS purchase accounting of
$310 million recognized in
"Depreciation and amortization" that unfavourably impacted
operating ratio by 2.3% as follows:
- in the fourth quarter, KCS purchase accounting of
$80 million that unfavourably
impacted operating ratio by 2.2%;
- in the third quarter, KCS purchase accounting of
$78 million that unfavourably
impacted operating ratio by 2.3%;
- in the second quarter, KCS purchase accounting of
$76 million that unfavourably
impacted operating ratio by 2.3%; and
- in the first quarter, KCS purchase accounting of
$76 million that unfavourably
impacted operating ratio by 2.7%.
|
For the three
months
ended December 31
|
For the year
ended
December 31
|
|
2023
|
2022(3)
|
2023
|
2022(3)
|
CPKC operating ratio
as reported
|
61.8 %
|
59.8 %
|
65.0 %
|
62.2 %
|
Add:
|
|
|
|
|
KCS operating income
as reported prior to Control Date(1)
|
— %
|
1.9 %
|
— %
|
0.5 %
|
Pro forma Article 11
transaction accounting adjustments(2)
|
— %
|
2.2 %
|
0.8 %
|
2.6 %
|
|
61.8 %
|
63.9 %
|
65.8 %
|
65.3 %
|
Less:
|
|
|
|
|
Acquisition-related
costs
|
0.8 %
|
0.8 %
|
1.4 %
|
1.3 %
|
KCS purchase
accounting in Operating expenses
|
2.3 %
|
2.2 %
|
2.4 %
|
2.3 %
|
Core adjusted
combined operating ratio
|
58.7 %
|
60.9 %
|
62.0 %
|
61.7 %
|
(1)
|
KCS results were
translated into Canadian dollars at the Bank of Canada monthly
average rate for January 1 through April 13, 2023, and the three
months and year ended December 31, 2022 of $1.35, $1.36, and $1.30,
respectively.
|
(2)
|
Pro forma Article 11
transaction accounting adjustments represent adjustments made in a
manner consistent with Article 11, these include:
|
|
•
|
For January 1 through
April 13, 2023, depreciation and amortization of differences
between the historic carrying values and the provisional fair
values of KCS's tangible and intangible assets and investments
prior to the Control Date that unfavourably impacted operating
ratio by 0.8% and miscellaneous immaterial amounts that have been
reclassified across revenue, operating expenses, and non-operating
income or expense, consistent with CPKC's financial statement
captions;
|
|
•
|
For the three months
ended December 31, 2022, depreciation and amortization of
differences between the historic carrying values and the
provisional fair values of KCS's tangible and intangible assets and
investments prior to the Control Date that unfavourably impacted
operating ratio by 2.2% and miscellaneous immaterial amounts that
have been reclassified across revenue, operating expenses, and
non-operating income or expense, consistent with CPKC's financial
statement captions; and
|
|
•
|
For the year ended
December 31, 2022, depreciation and amortization of differences
between the historic carrying values and the provisional fair
values of KCS's tangible and intangible assets and investments
prior to the Control Date that unfavourably impacted operating
ratio by 2.3%, the estimated transaction costs expected to be
incurred by the Company that unfavourably impacted operating ratio
by 0.3%, and miscellaneous immaterial amounts that have been
reclassified across revenue, operating expenses, and non-operating
income or expense, consistent with CPKC's financial statement
captions.
|
|
For more information
about these pro forma transaction accounting adjustments for the
three months ended March 31, 2023 and the year ended December 31,
2022, please see Exhibit 99.1 "Selected Unaudited Combined Summary
of Historical Financial Data" of CPKC's Current Report on Form 8-K
furnished with the Securities and Exchange Commission on May 15,
2023.
|
(3)
|
The Company previously
used the Non-GAAP measure Adjusted operating ratio, which was
defined as operating ratio excluding those significant items that
are reported within Operating income. Adjusted operating ratio was
59.1% and 61.4% for the three months and year ended December 31,
2022, respectively, which was changed to the revised measure Core
adjusted combined operating ratio. This change was due to the
addition of KCS historical operating income less KCS
acquisition-related costs (as defined above) prior to the Control
Date. For the three months and year ended December 31, 2023, CPKC
has presented the Non-GAAP measure of Core adjusted combined
operating ratio, as defined above, to provide a comparison to prior
period combined information calculated in a manner consistent with
Article 11 as further adjusted to conform to CPKC's core adjusted
measures.
|
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SOURCE CPKC