Progress underway - Canadian Pacific announces improved
third-quarter 2012 results
CALGARY, Oct. 24, 2012 /PRNewswire/ - Canadian Pacific
Railway Limited (TSX: CP) (NYSE: CP) today announced its
third-quarter 2012 results with reported net income of $224 million, an increase of $37 million, or 20 per cent and diluted earnings
per share of $1.30, an increase of
$0.20, or 18 per cent, when compared
to third-quarter 2011.
For the nine months of 2012 Canadian Pacific's net income was
$469 million, an increase of
$120 million, or 34 per cent and
diluted earnings per share of $2.72,
an increase of $0.68, or 33 per cent,
when compared to the same period last year.
E. Hunter Harrison, President and
Chief Executive Officer said, "Momentum is building at Canadian
Pacific. We have implemented new services; closed terminals
and certain yard operations; and we've put a new leadership team in
place. The team has made significant progress on operational
improvements, controlling costs and on delivering results.
And this is just the beginning."
THIRD-QUARTER 2012 RESULTS COMPARED WITH THIRD-QUARTER
2011
- Total revenues were $1.5 billion,
an increase of $110 million or 8 per
cent
- Operating expenses were $1.1
billion, an increase of $58
million or 6 per cent
- Operating income was $376
million, an increase of $52
million or 16 per cent
- Operating ratio was 74.1 per cent, an improvement of 170 basis
points
Conference Call Information
CP will discuss its results with analysts in a conference call
beginning at 11:00 a.m. Eastern time
(9:00 a.m. Mountain time) on
October 24, 2012.
Conference call access
Toronto participants dial in
number: (647) 427-7452
Operator assisted toll free dial in number: 1-888-231-8193
Callers should dial in 10 minutes prior to the call
Webcast
For those with Internet access we encourage you to listen via CP's
website at www.cpr.ca. To access the webcast and the
presentation material, click on "Invest In CP" tab.
A replay of the conference call will be available by phone
through November 21, 2012 at
416-849-0833 or toll free 1-855-859-2056, password 35137957. A
webcast of the presentation and an audio file will be available at
www.cpr.ca under "Invest In CP" tab.
About Canadian Pacific
Canadian Pacific (CP: TSX)(NYSE: CP) operates a North American
transcontinental railway providing freight transportation services,
logistics solutions and supply chain expertise. Incorporating
best-in-class technology and environmental practices, CP is
re-defining itself as a modern 21st century transportation company
built on safety, service reliability and operational efficiency.
Visit www.cpr.ca to learn more.
CONSOLIDATED STATEMENTS OF
INCOME
(in millions of Canadian dollars, except per share data)
(unaudited)
|
|
|
For the three
months |
|
|
For the nine months |
|
|
|
ended September 30 |
|
|
ended September 30 |
|
|
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
Freight |
$ |
1,414 |
|
$ |
1,309 |
|
$ |
4,086 |
|
$ |
3,677 |
|
Other |
|
37 |
|
|
32 |
|
|
107 |
|
|
92 |
Total revenues |
|
1,451 |
|
|
1,341 |
|
|
4,193 |
|
|
3,769 |
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and benefits (Notes 8 and
11) |
|
371 |
|
|
336 |
|
|
1,128 |
|
|
1,037 |
|
Fuel |
|
232 |
|
|
238 |
|
|
743 |
|
|
701 |
|
Materials |
|
57 |
|
|
56 |
|
|
178 |
|
|
185 |
|
Equipment rents |
|
52 |
|
|
53 |
|
|
158 |
|
|
158 |
|
Depreciation and amortization |
|
137 |
|
|
123 |
|
|
399 |
|
|
367 |
|
Purchased services and other (Notes 10 and
11) |
|
226 |
|
|
211 |
|
|
698 |
|
|
657 |
Total operating expenses |
|
1,075 |
|
|
1,017 |
|
|
3,304 |
|
|
3,105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
376 |
|
|
324 |
|
|
889 |
|
|
664 |
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
Other income and charges |
|
2 |
|
|
14 |
|
|
34 |
|
|
8 |
|
Net interest expense |
|
69 |
|
|
64 |
|
|
207 |
|
|
191 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
expense |
|
305 |
|
|
246 |
|
|
648 |
|
|
465 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (Note
3) |
|
81 |
|
|
59 |
|
|
179 |
|
|
116 |
Net income |
$ |
224 |
|
$ |
187 |
|
$ |
469 |
|
$ |
349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share (Note
4) |
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
$ |
1.31 |
|
$ |
1.10 |
|
$ |
2.74 |
|
$ |
2.06 |
|
Diluted earnings per share |
$ |
1.30 |
|
$ |
1.10 |
|
$ |
2.72 |
|
$ |
2.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares
(millions) |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
172.2 |
|
|
169.4 |
|
|
171.3 |
|
|
169.4 |
|
Diluted |
|
173.4 |
|
|
170.5 |
|
|
172.6 |
|
|
170.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per
share |
$ |
0.3500 |
|
$ |
0.3000 |
|
$ |
1.0000 |
|
$ |
0.8700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Interim
Consolidated Financial Statements. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME
(in millions of Canadian dollars)
(unaudited)
|
|
|
|
|
|
|
|
|
|
For the three
months |
|
|
For the nine months |
|
|
|
ended September 30 |
|
|
ended September
30 |
|
|
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
$ |
224 |
|
$ |
187 |
|
$ |
469 |
|
$ |
349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss) in foreign currency
translation
adjustments, net of hedging activities |
|
14 |
|
|
(7) |
|
|
12 |
|
|
(7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in derivatives designated as
cash flow hedges |
|
9 |
|
|
(2) |
|
|
11 |
|
|
(5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in defined
benefit pension and post-retirement
plans |
|
53 |
|
|
40 |
|
|
161 |
|
|
115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income before
income taxes |
|
76 |
|
|
31 |
|
|
184 |
|
|
103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (expense) recovery |
|
(30) |
|
|
21 |
|
|
(58) |
|
|
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income |
|
46 |
|
|
52 |
|
|
126 |
|
|
94 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
$ |
270 |
|
$ |
239 |
|
$ |
595 |
|
$ |
443 |
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Interim Consolidated
Financial Statements. |
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED BALANCE SHEETS
(in millions of Canadian dollars)
(unaudited)
|
|
|
September 30 |
|
|
December 31 |
|
|
|
2012 |
|
|
2011 |
Assets |
|
|
|
|
|
Current assets |
|
|
|
|
|
|
Cash and cash equivalents |
$ |
207 |
|
$ |
47 |
|
Accounts receivable, net |
|
533 |
|
|
518 |
|
Materials and supplies |
|
142 |
|
|
138 |
|
Deferred income taxes |
|
175 |
|
|
101 |
|
Other current assets |
|
61 |
|
|
52 |
|
|
|
1,118 |
|
|
856 |
|
|
|
|
|
|
|
Investments (Note 6) |
|
87 |
|
|
167 |
Net properties |
|
12,967 |
|
|
12,752 |
Goodwill and intangible
assets |
|
185 |
|
|
192 |
Other assets |
|
134 |
|
|
143 |
Total assets |
$ |
14,491 |
|
$ |
14,110 |
|
|
|
|
|
|
|
Liabilities and shareholders'
equity |
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
Short-term borrowing |
$ |
- |
|
$ |
27 |
|
Accounts payable and accrued liabilities |
|
1,047 |
|
|
1,133 |
|
Long-term debt maturing within one year |
|
54 |
|
|
50 |
|
|
|
1,101 |
|
|
1,210 |
|
|
|
|
|
|
|
Pension and other benefit liabilities
(Note 8) |
|
1,174 |
|
|
1,372 |
Other long-term liabilities |
|
306 |
|
|
365 |
Long-term debt (Note 5) |
|
4,602 |
|
|
4,695 |
Deferred income taxes |
|
2,077 |
|
|
1,819 |
Total liabilities |
|
9,260 |
|
|
9,461 |
|
|
|
|
|
|
|
Shareholders' equity |
|
|
|
|
|
|
Share capital |
|
2,042 |
|
|
1,854 |
|
Additional paid-in capital |
|
57 |
|
|
86 |
|
Accumulated other comprehensive loss |
|
(2,610) |
|
|
(2,736) |
|
Retained earnings |
|
5,742 |
|
|
5,445 |
|
|
|
5,231 |
|
|
4,649 |
Total liabilities and
shareholders' equity |
$ |
14,491 |
|
$ |
14,110 |
|
|
|
|
|
|
|
Commitments and contingencies (Note
9) |
|
|
|
|
|
See Notes to Interim
Consolidated Financial Statements. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions of Canadian dollars)
(unaudited)
|
|
For the three
months |
|
For the nine months |
|
|
ended September 30 |
|
ended September 30 |
|
|
2012 |
|
|
2011 |
|
|
2012 |
|
2011 |
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
Net income |
$ |
224 |
|
$ |
187 |
|
$ |
469 |
$ |
349 |
|
|
Reconciliation of net income to cash
provided by |
|
|
|
|
|
|
|
|
|
|
|
|
operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
137 |
|
|
123 |
|
|
399 |
|
367 |
|
|
|
Deferred income taxes (Note 3) |
|
68 |
|
|
59 |
|
|
162 |
|
119 |
|
|
|
Pension funding in excess of expense (Note
8) |
|
(14) |
|
|
(16) |
|
|
(44) |
|
(40) |
|
|
|
Other operating activities, net |
|
(58) |
|
|
(34) |
|
|
(81) |
|
(47) |
|
|
|
Change in non-cash working capital balances
related to |
|
|
|
|
|
|
|
|
|
|
|
|
|
operations |
|
(25) |
|
|
6 |
|
|
(46) |
|
(75) |
Cash provided by operating
activities |
|
332 |
|
|
325 |
|
|
859 |
|
673 |
|
|
|
|
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
Additions to properties |
|
(287) |
|
|
(352) |
|
|
(812) |
|
(704) |
|
Proceeds from the sale of properties
and other assets (Note 6) |
|
76 |
|
|
20 |
|
|
138 |
|
41 |
|
Other |
|
- |
|
|
(6) |
|
|
(1) |
|
(7) |
Cash used in investing
activities |
|
(211) |
|
|
(338) |
|
|
(675) |
|
(670) |
|
|
|
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
Dividends paid |
|
(60) |
|
|
(50) |
|
|
(162) |
|
(142) |
|
Issuance of common shares (Note
7) |
|
81 |
|
|
2 |
|
|
136 |
|
13 |
|
Issuance of long-term debt (Note
5) |
|
- |
|
|
- |
|
|
71 |
|
- |
|
Repayment of long-term debt |
|
(16) |
|
|
(126) |
|
|
(41) |
|
(144) |
|
Net decrease in short-term
borrowing |
|
- |
|
|
- |
|
|
(27) |
|
- |
Cash provided by (used in)
financing activities |
|
5 |
|
|
(174) |
|
|
(23) |
|
(273) |
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign currency
fluctuations on U.S. dollar- |
|
|
|
|
|
|
|
|
|
|
denominated cash and cash
equivalents |
|
(1) |
|
|
16 |
|
|
(1) |
|
6 |
Cash position |
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash
equivalents |
|
125 |
|
|
(171) |
|
|
160 |
|
(264) |
|
Cash and cash equivalents at beginning
of period |
|
82 |
|
|
268 |
|
|
47 |
|
361 |
Cash and cash equivalents at end of
period |
$ |
207 |
|
$ |
97 |
|
$ |
207 |
$ |
97 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash
flow information: |
|
|
|
|
|
|
|
|
|
|
|
Income taxes (refunded)
paid |
$ |
(1) |
|
$ |
- |
|
$ |
(8) |
$ |
3 |
|
Interest paid |
$ |
60 |
|
$ |
40 |
|
$ |
194 |
$ |
180 |
|
|
|
|
|
|
|
|
|
|
|
See Notes to Interim Consolidated
Financial Statements. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY
(in millions of Canadian dollars, except common share
amounts)
(unaudited)
|
Common
shares
(in millions) |
|
|
Share
capital |
|
Additional
paid-in
capital |
|
Accumulated
other
comprehensive
loss |
|
Retained
earnings |
|
Total
shareholders'
equity |
Balance at January 1, 2012 |
170.0 |
|
$ |
1,854 |
$ |
86 |
$ |
(2,736) |
$ |
5,445 |
$ |
4,649 |
Net income |
- |
|
|
- |
|
- |
|
- |
|
469 |
|
469 |
Other comprehensive income |
- |
|
|
- |
|
- |
|
126 |
|
- |
|
126 |
Dividends declared |
- |
|
|
- |
|
- |
|
- |
|
(172) |
|
(172) |
Effect of stock-based compensation expense |
- |
|
|
- |
|
21 |
|
- |
|
- |
|
21 |
Shares issued under stock option plans (Note
7) |
2.8 |
|
|
188 |
|
(50) |
|
- |
|
- |
|
138 |
Balance at September 30, 2012 |
172.8 |
|
$ |
2,042 |
$ |
57 |
$ |
(2,610) |
$ |
5,742 |
$ |
5,231 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
shares
(in millions) |
|
|
Share
capital |
|
Additional
paid-in
capital |
|
Accumulated
other
comprehensive
loss |
|
Retained
earnings |
|
Total
shareholders'
equity |
Balance at January 1, 2011 |
169.2 |
|
$ |
1,813 |
$ |
24 |
$ |
(2,086) |
$ |
5,073 |
$ |
4,824 |
Net income |
- |
|
|
- |
|
- |
|
- |
|
349 |
|
349 |
Other comprehensive income |
- |
|
|
- |
|
- |
|
94 |
|
- |
|
94 |
Dividends declared |
- |
|
|
- |
|
- |
|
- |
|
(148) |
|
(148) |
Effect of stock-based compensation expense |
- |
|
|
- |
|
13 |
|
- |
|
- |
|
13 |
Changes to stock-based compensation awards
(Note 7) |
- |
|
|
- |
|
54 |
|
- |
|
- |
|
54 |
Shares issued under stock option plans |
0.3 |
|
|
16 |
|
(2) |
|
- |
|
- |
|
14 |
Balance at September 30, 2011 |
169.5 |
|
$ |
1,829 |
$ |
89 |
$ |
(1,992) |
$ |
5,274 |
$ |
5,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Interim Consolidated
Financial Statements. |
|
|
|
|
|
|
CANADIAN PACIFIC RAILWAY LIMITED
NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS
September 30, 2012
(unaudited)
1 Basis of presentation
These unaudited interim consolidated financial statements of
Canadian Pacific Railway Limited ("CP", or "the Company") reflect
management's estimates and assumptions that are necessary for their
fair presentation in conformity with accounting principles
generally accepted in the United States
of America ("GAAP"). They do not include all
disclosures required under GAAP for annual financial statements and
should be read in conjunction with the 2011 consolidated financial
statements. The accounting policies used are consistent with
the accounting policies used in preparing the 2011 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 statements include all adjustments (consisting solely of
normal recurring adjustments) necessary to present fairly such
information. Interim results are not necessarily indicative
of the results expected for the fiscal year.
2 Accounting changes
Fair value measurement
In May 2011, the Financial Accounting
Standards Board ("FASB") issued amended guidance on fair value
measurement which updates some of the measurement guidance and
includes enhanced disclosure requirements. The amended
guidance is effective for interim and annual periods beginning
after December 15, 2011. The
adoption did not impact the results of operations or financial
position but resulted in increased note disclosure (see Note
6).
Other comprehensive income
In June 2011, the FASB issued an
accounting standard update on the Presentation of Comprehensive
Income, which eliminates the current option to report other
comprehensive income and its components in the Consolidated
Statement of Changes in Shareholders' Equity. The Company has
elected to present items of net income and other comprehensive
income in two separate, but consecutive, statements as opposed to
one continuous statement. With FASB's deferral of certain
aspects of this accounting standard update in December 2011 and as the new guidance does not
change those components that are recognized in net income or those
components that are recognized in other comprehensive income,
adoption did not impact the results of operations or financial
position.
Intangibles - goodwill and other
In September 2011, the FASB issued
amended guidance on the testing of goodwill for impairment.
The amendments allow an entity to first assess qualitative factors
to determine whether it is necessary to perform the two-step
quantitative goodwill impairment test. Under these
amendments, an entity would not be required to calculate the fair
value of a reporting unit unless the entity determines, based on a
qualitative assessment, that it is more likely than not that its
fair value is less than its carrying amount. For 2012, the
Company has not elected this option for the test of goodwill for
impairment. As it does not change how a goodwill impairment
loss is measured, the adoption of the guidance would not impact the
results of operations and financial position.
3 Income taxes
During the second quarter of 2012, legislation was enacted to
cancel the previously planned province of Ontario's corporate income tax rate
reductions. As a result of these changes, the Company
recorded an income tax expense of $11
million in the second quarter of 2012, based on its deferred
income tax balances as at December 31,
2011.
|
For the three
months |
|
For the nine months |
|
ended September 30 |
|
ended September
30 |
(in millions of Canadian dollars) |
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
Current income tax expense (recovery) |
$ |
13 |
|
$ |
- |
|
$ |
17 |
|
$ |
(3) |
Deferred income tax expense |
|
68 |
|
|
59 |
|
|
162 |
|
|
119 |
Income tax expense |
$ |
81 |
|
$ |
59 |
|
$ |
179 |
|
$ |
116 |
The effective income tax rate for the three and nine months
ended September 30, 2012 was 26.6%
and 27.6%, respectively, (three and nine months ended September 30, 2011 - 24.0% and 24.9%,
respectively) and the changes in tax rates are primarily due to the
change in the province of Ontario's corporate income tax rate.
4 Earnings per share
At September 30, 2012, the number
of shares outstanding was 172.8 million (September 30, 2011 - 169.5 million).
Basic earnings per share have been calculated using net income
for the period divided by the weighted-average number of shares
outstanding during the period.
The number of shares used in earnings per share calculations is
reconciled as follows:
|
For the three
months |
|
For the nine months |
|
ended September 30 |
|
ended September
30 |
(in millions) |
2012 |
|
2011 |
|
2012 |
|
2011 |
Weighted-average shares outstanding |
172.2 |
|
169.4 |
|
171.3 |
|
169.4 |
Dilutive effect of stock options |
1.2 |
|
1.1 |
|
1.3 |
|
1.2 |
Weighted-average diluted shares
outstanding |
173.4 |
|
170.5 |
|
172.6 |
|
170.6 |
For the three and nine months ended September 30, 2012, there were no options and
208,667 options, respectively, excluded from the computation of
diluted earnings per share because their effects were not dilutive
(three and nine months ended September 30,
2011 - 2,305,458 and 1,739,167,
respectively).
5 Long-term debt
During the first quarter of 2012, the Company issued
US$71 million 4.28% Senior Secured
Notes due in 2027 for net proceeds of $71
million. These Notes are secured by locomotives
previously acquired by the Company with a carrying value of
$70 million at September 30, 2012. The Company pays equal
blended semi-annual payments of principal and interest up to and
including March 2027. Final
repayment of the remaining principal of US$35 million is due in March 2027.
6 Financial instruments
A. Fair values of financial instruments
GAAP establishes a fair value hierarchy that prioritizes, with
respect to reliability, the inputs to valuation techniques used to
measure fair value. This hierarchy consists of three broad
levels. Level 1 inputs consist of quoted prices (unadjusted)
in active markets for identical assets and liabilities and have the
highest priority. Level 2 and 3 inputs are based on
significant other observable inputs and significant unobservable
inputs, respectively, and have lower priorities.
When possible, the estimated fair value is based on quoted
market prices and, if not available, estimates from third party
brokers. For non-exchange traded derivatives classified in
Level 2, the Company uses standard valuation techniques to
calculate fair value. Primary inputs to these techniques include
observable market prices (interest, foreign exchange and commodity)
and volatility, depending on the type of derivative and nature of
the underlying risk. The Company uses inputs and data used by
willing market participants when valuing derivatives and considers
its own credit default swap spread as well as those of its
counterparties in its determination of fair value.
The carrying values of financial instruments equal or
approximate their fair values with the exception of long-term debt
which has a fair value of approximately $5,587 million at September 30, 2012 (December 31, 2011 - $5,314
million) with a carrying value of $4,656 million (December
31, 2011 - $4,745
million). The estimated fair value of current and
long-term borrowings has been determined based on market
information where available, or by discounting future payments of
interest and principal at estimated interest rates expected to be
available to the Company at period end. All derivatives and
long-term debt are classified as Level 2.
A detailed analysis of the techniques used to value long-term
floating rate notes, which are classified as Level 3, is discussed
below:
Long-term floating rate notes
During the third quarter of 2012, the Company sold its remaining
investment in long-term floating rate notes (Master Asset Vehicle
("MAV") 2 Class A-1 Notes) which had a carrying value of
$48 million (original cost -
$59 million) for proceeds and
interest of $48 million.
During the first quarter of 2012, the Company sold all of its
MAV 2 Class A-2 Notes which had a carrying value of $33 million (original cost - $46 million) for proceeds and interest of
$33 million.
At September 30, 2012, the Company
had no remaining investment in long-term floating rate notes
(December 31, 2011 - carrying value
$79 million, being the estimated fair
value of the notes, reported in "Investments").
Accretion, redemption of notes and other minor changes in market
assumptions resulted in a negligible net gain in the three months
ended September 30, 2012 and a net
gain of $2 million in the nine months
ended September 30, 2012,
respectively (three and nine months ended September 30, 2011 - gains of $4 million and $14
million, respectively) which were reported in "Other income
and charges".
The valuation technique and assumptions used by the Company to
estimate the fair value of its investment in long-term floating
rate notes during 2012 were similar with that used at December 31, 2011, and incorporated probability
weighted discounted cash flows considered the best available public
information regarding market conditions and other factors that a
market participant would have considered for such investments.
B. Financial risk management
The Company's policy with respect to using derivative financial
instruments is to selectively reduce volatility associated with
fluctuations in interest rates, foreign exchange ("FX") rates, the
price of fuel and stock-based compensation expense. Where
derivatives are designated as hedging instruments, the relationship
between the hedging instruments and their associated hedged items
is documented, as well as the risk management objective and
strategy for the use of the hedging instruments. This
documentation includes linking the derivatives that are designated
as fair value or cash flow hedges to specific assets or liabilities
on the Consolidated Balance Sheet, commitments or forecasted
transactions. At the time a derivative contract is entered
into, and at least quarterly thereafter, an assessment is made
whether the derivative item is effective in offsetting the changes
in fair value or cash flows of the hedged items. The
derivative qualifies for hedge accounting treatment if it is
effective in substantially mitigating the risk it was designed to
address.
It is not the Company's intent to use financial derivatives or
commodity instruments for trading or speculative purposes.
Foreign exchange management
The Company is exposed to fluctuations of financial commitments,
assets, liabilities, income or cash flows due to changes in FX
rates. The Company conducts business transactions and owns
assets in both Canada and
the United States; as a result,
revenues and expenses are incurred in both Canadian and U.S.
dollars. The Company enters into foreign exchange risk
management transactions primarily to manage fluctuations in the
exchange rate between Canadian and U.S. currencies. In terms
of net income, excluding FX on long-term debt, mitigation of U.S.
dollar FX exposure is provided primarily through offsets created by
revenues and expenses incurred in the same currency. Where
appropriate, the Company negotiates with customers and suppliers to
reduce the net exposure.
Occasionally the Company will enter into short-term FX forward
contracts as part of its cash management strategy.
Net investment hedge
The FX gains and losses on long-term debt are mainly unrealized and
can only be realized when U.S. dollar denominated long-term debt
matures or is settled. The Company also has long-term FX exposure
on its investment in U.S. affiliates. The majority of the Company's
U.S. dollar denominated long-term debt has been designated as a
hedge of the net investment in foreign subsidiaries. This
designation has the effect of mitigating volatility on net income
by offsetting long-term FX gains and losses on U.S. dollar
denominated long-term debt and gains and losses on its net
investment. The effective portion recognized in "Other
comprehensive income" for the three and nine months ended
September 30, 2012 was an unrealized
foreign exchange gain of $112 million
and $106 million, respectively (three
and nine months ended September 30,
2011 - unrealized loss of $238
million and $148 million,
respectively). There was no ineffectiveness for the three and
nine months ended September 30, 2012,
and comparative periods.
Foreign exchange forward contracts
The Company may enter into FX forward contracts to lock-in the
amount of Canadian dollars it has to pay on its U.S. denominated
debt maturities.
At September 30, 2012, the Company
had FX forward contracts to fix the exchange rate on US$100 million of principal outstanding on a
capital lease due in January 2014,
US$175 million of its 6.50% Notes due
in May 2018, and US$100 million of its 7.25% Notes due in
May 2019. At September 30, 2011, the Company had FX forward
contracts to fix the exchange rate on US$175
million of its 6.50% Notes due in May
2018, and US$100 million of
its 7.25% Notes due in May
2019. These derivatives, which are accounted for as
cash flow hedges, guarantee the amount of Canadian dollars that the
Company will repay when these obligations mature.
During the three and nine months ended September 30, 2012, an unrealized foreign
exchange loss of $8 million and
$7 million, respectively (three
months and nine months ended September 30,
2011 - unrealized gain of $19
million and $14 million,
respectively) was recorded in "Other income and charges" in
relation to these derivatives. These losses in 2012 recorded
in "Other income and charges" were largely offset by the unrealized
gains on the underlying debt which the derivatives were designated
to hedge. Similarly, the gains in 2011 were largely offset by the
unrealized losses on the underlying debt.
At September 30, 2012, the
unrealized gain derived from these FX forwards was $5 million which was included in "Other assets"
with the offset reflected as an unrealized gain of $6 million in "Accumulated other comprehensive
loss" and as an unrealized loss of $1
million in "Retained earnings". At December 31, 2011, the unrealized gain derived
from these FX forwards was $6 million
which was included in "Other assets" with the offset reflected as
an unrealized loss of $1 million in
"Accumulated other comprehensive loss" and as an unrealized gain of
$7 million in "Retained
earnings".
During the three months ended September
30, 2011, in anticipation of a cash tender to offer to
redeem the Company's US$101 million
5.75% May 2013 Notes, the Company
unwound a similar amount of FX forward contracts to fix the
exchange rate on these Notes for total proceeds of $2 million.
At September 30, 2012, the Company
expected that, during the next twelve months, unrealized pre-tax
losses of $3 million would be
reclassified to "Other income and charges".
Interest rate management
The Company is exposed to interest rate risk, which is the risk
that the fair value or future cash flows of a financial instrument
will vary as a result of changes in market interest rates. In order
to manage funding needs or capital structure goals, the Company
enters into debt or capital lease agreements that are subject to
either fixed market interest rates set at the time of issue or
floating rates determined by on-going market conditions. Debt
subject to variable interest rates exposes the Company to
variability in interest expense, while debt subject to fixed
interest rates exposes the Company to variability in the fair value
of debt.
To manage interest rate exposure, the Company accesses diverse
sources of financing and manages borrowings in line with a targeted
range of capital structure, debt ratings, liquidity needs, maturity
schedule, and currency and interest rate profiles. In anticipation
of future debt issuances, the Company may enter into forward rate
agreements such as treasury rate locks, bond forwards or forward
starting swaps, designated as cash flow hedges, to substantially
lock in all or a portion of the effective future interest
expense. The Company may also enter into swap agreements,
designated as fair value hedges, to manage the mix of fixed and
floating rate debt.
At September 30, 2012 and
December 31, 2011, the Company had no
outstanding interest rate swaps.
Fuel price management
The Company is exposed to commodity risk related to purchases of
diesel fuel and the potential reduction in net income due to
increases in the price of diesel. Fuel expense constitutes a
large portion of the Company's operating costs and volatility in
diesel fuel prices can have a significant impact on the Company's
income. Items affecting volatility in diesel prices include, but
are not limited to, fluctuations in world markets for crude oil and
distillate fuels, which can be affected by supply disruptions and
geopolitical events.
The impact of variable fuel expense is mitigated substantially
through fuel cost recovery programs which apportion incremental
changes in fuel prices to shippers through price indices, tariffs,
and by contract, within agreed upon guidelines. While these
programs provide effective and meaningful coverage, residual
exposure remains as the fuel expense risk cannot be completely
recovered from shippers due to timing and volatility in the
market. The Company continually monitors residual exposure,
and where appropriate, may enter into derivative instruments.
Energy futures
At September 30, 2012, the Company
had diesel futures contracts, which are accounted for as cash flow
hedges, to purchase approximately 20 million U.S. gallons during
the period October 2012 to
September 2013 at an average price of
$3.01 per U.S. gallon. This
represents approximately 7% of estimated fuel purchases for this
period. At September 30, 2012,
the unrealized gain on these futures contracts was $1 million (December 31,
2011 - unrealized loss $3
million) and was reflected in "Other current assets"
(December 31, 2011 - "Accounts
payable and accrued liabilities") with the offset, net of tax,
reflected in "Accumulated other comprehensive loss" on the
Consolidated Balance Sheets.
During the three and nine months ended September 30, 2012, the impact of settled
commodity swaps decreased "Fuel" expense by $1 million and $1
million, respectively, as a result of realized gains on
diesel swaps. During the three and nine months ended September 30, 2011, these swaps decreased "Fuel"
expense by $1 million and
$8 million, respectively, as a result
of realized gains. At September 30,
2012, the Company expected that, during the next twelve
months, $1 million of unrealized
pre-tax holding gains on diesel future contracts would be realized
and recognized in "Fuel" expense as a result of these derivatives
being settled.
Stock-based compensation expense management
Total Return Swaps ("TRS")
The Company is exposed to stock-based compensation risk, which is
the probability of increased compensation expense when the
Company's share price rises.
The TRS was a derivative that provided a gain to offset
increased compensation expense as the share price increased and a
loss to offset reduced compensation expense when the share price
declined. If stock-based compensation share units fall out of
the money after entering the program, the loss associated with the
swap would no longer be fully offset by the compensation expense
reductions, which would reduce the effectiveness of the swap.
This derivative was not designated as a hedge and changes in fair
value were recognized in net income in the period in which the
change occurred.
During the nine months ended September
30, 2012, the Company exited the TRS program and unwound 0.6
million of its remaining share units for proceeds of $3 million. During the same period of 2011,
the program was reduced by 0.5 million share units at minimal
cost. At September 30, 2012,
the Company had no share units (December 31,
2011 - 0.6 million) remaining in the TRS.
7 Stock-based compensation
At September 30, 2012, the Company
had several stock-based compensation plans, including stock option
plans, various cash settled liability plans, which are remeasured
to fair value quarterly based on share price and vesting
conditions, and an employee stock savings plan. These plans
resulted in an expense of $12 million
for the three months ended September 30,
2012 and an expense of $38
million for the nine months ended September 30, 2012 (three and nine months ended
September 30, 2011 expense recovery
of $9 million and expense of
$6 million, respectively). Most
of the stock-based compensation plans include a provision whereby
vesting is accelerated should certain changes in the composition of
the Board of Directors occur. These provisions were triggered
on June 26, 2012 and the recognition
of the revised vesting terms as outlined in the stock-based
compensation plans resulted in a credit to "Compensation and
benefits" of $8 million in the second
quarter of 2012. RSUs and TSARs were not impacted by this
change and for DSUs 14,080 units were subject to immediate
vesting. The impact discussed above on options and
performance share units is outlined in more detail below.
Regular options
In the nine months ended September 30,
2012, under CP's stock option plans, the Company issued
1,236,100 regular options, including options granted upon
management transition (see Note 11) at the
weighted-average price of $74.48 per
share, based on the last closing price immediately prior to the
grant. Pursuant to the employee plans, these regular options
vest between 12 and 48 months after the grant date, and will expire
after 10 years. Certain of these options granted are only
exercisable after employment is terminated.
The recent changes to the composition of the Board triggered the
immediate vesting on June 26, 2012 of
all unvested regular options granted prior to 2012, 4,000 unvested
options granted in 2012, and all unvested performance
options. As at September 30,
2012, 3,897,583 options are exercisable.
During the nine months ended September
30, 2012, 2,812,990 options, were exercised for cash
proceeds of $136 million.
Under the fair value method, the fair value at the grant date of
the regular options issued in the nine months ended September 30, 2012 was $22
million. The weighted-average fair value assumptions
were approximately:
|
|
|
For the nine months
ended September 30,
2012 |
|
Grant price |
$ |
74.48 |
|
Expected option life (years)
(1) |
|
5.99 |
|
Risk-free interest rate
(2) |
|
1.48 |
% |
Expected stock price volatility
(3) |
|
31 |
% |
Expected annual dividends per share
(4) |
$ |
1.40 |
|
Expected forfeiture rate
(5) |
|
1.00 |
% |
Weighted-average grant
date fair value of regular options
granted during the period |
$ |
17.66 |
|
(1) Represents the period of time that awards are
expected to be outstanding. Historical data on exercise
behaviour, or when available, specific expectations regarding
future exercise behaviour, were used to estimate the expected life
of the option.
(2) Based on the implied yield available on zero-coupon
government issues with an equivalent remaining term at the time of
the grant.
(3) Based on the historical stock price volatility of
the Company's stock over a period commensurate with the expected
term of the option.
(4) Determined by the current annual dividend at the
time of grant. The Company does not employ different dividend
yields throughout the contractual term of the option.
(5) The Company estimated forfeitures based on past
experience. This rate is monitored on a periodic basis.
Performance share unit ("PSU") plan
In the nine months ended September 30,
2012, the Company issued 278,670 PSUs with a grant date fair
value of $21 million. These
units attract dividend equivalents in the form of additional units
based on the dividends paid on the Company's Common Shares.
PSUs vest and are settled in cash approximately three years after
the grant date contingent upon CP's performance (performance
factor). The fair value of PSUs is measured, both on the
grant date and each subsequent quarter until settlement, using a
Monte Carlo simulation model. The model utilizes multiple
input variables that determine the probability of satisfying the
performance and market conditions stipulated in the grant.
Recent changes to the Board also resulted in the immediate
vesting of a pro-rata portion of all unvested PSUs during the
second quarter of 2012. The number of units that vested was
based on the number of months of the total performance period that
had passed and the fair value of the units to be settled was based
on the average closing price of the 30 trading days prior to
June 26, 2012. The payout of
$31 million occurred in the third
quarter of 2012.
The performance period for the first grant of PSUs issued in
2009 ended December 31, 2011.
These PSUs are earned based on the Total Shareholder Return ("TSR")
compared to the S&P/TSX60 index, and Return on Capital Employed
("ROCE"). The TSR for the three-year period exceeded target,
while ROCE targets were not met. The TSR component of the
plan resulted in a total PSU payout equal to 200% for half of the
award, in effect resulting in a target payout. The payout of
$24 million occurred in March 2012 and was calculated using the Company's
average share price during the last 30 trading days ending on
December 31, 2011.
Deferred share unit ("DSU") plan
In the nine months ended September 30,
2012, the Company granted 179,713 DSUs with a grant date
fair value of $14 million. DSUs
vest over various periods of up to 48 months and are only
redeemable for a specified period after employment is
terminated. An expense to income for DSUs is recognized over
the vesting period for both the initial subscription price and the
change in value between reporting periods. In the nine months
ended September 30, 2012,
$5 million in DSUs were paid out.
Restricted share unit ("RSU") plan
In the nine months ended September 30,
2012, the Company granted 113,408 RSUs with a grant date
fair value of $9 million. RSUs
are subject to time vesting over various periods of up to 36
months. An expense to income for RSUs is recognized over the
vesting period for both the initial subscription price and the
change in value between reporting periods.
Tandem share appreciation rights ("TSARs")
As a result of changes to Canadian tax legislation, which
eliminated the favourable tax treatment on cash settled
compensation awards, the Company offered employees the option of
cancelling the outstanding SAR and keeping in place the outstanding
option. During the first quarter of 2011, the Company
cancelled 3.1 million SARs and reclassified the fair value of the
previously recognized liability ($70
million) and the recognized deferred tax asset ($18 million) to "Additional paid-in
capital". During the third quarter of 2011, the Company
cancelled a further 0.3 million SARs and reclassified the fair
value of the previously recognized liability ($2 million) and the recognized deferred tax asset
($1 million) to "Additional paid-in
capital". The terms of the awards were not changed and as a
result no incremental cost was recognized. The weighted
average fair value of the units cancelled during the first and
third quarters of 2011 was $25.36 per
unit and $10.21 per unit,
respectively.
8 Pensions and other benefits
In the three and nine months ended September 30, 2012, the Company made
contributions of $24 million and
$74 million, respectively (2011 -
$27 million and $74 million, respectively) to its defined benefit
pension plans. The elements of net periodic benefit cost for
defined benefit pension plans and other benefits recognized in the
three and nine months ended September 30,
2012, included the following components:
|
|
For the three months
ended September 30 |
|
|
Pensions |
|
|
Other benefits |
(in millions of Canadian dollars) |
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
|
|
|
|
|
|
|
|
|
|
|
|
Current service cost (benefits
earned by employees in the
period) |
$ |
33 |
|
$ |
26 |
|
$ |
5 |
|
$ |
4 |
Interest cost on benefit obligation |
|
113 |
|
|
115 |
|
|
6 |
|
|
6 |
Expected return on fund assets |
|
(188) |
|
|
(168) |
|
|
- |
|
|
- |
Recognized net actuarial loss |
|
52 |
|
|
35 |
|
|
1 |
|
|
1 |
Amortization of prior service costs |
|
- |
|
|
3 |
|
|
- |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
$ |
10 |
|
$ |
11 |
|
$ |
12 |
|
$ |
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine
months
ended September 30 |
|
|
Pensions |
|
|
Other benefits |
(in millions of Canadian dollars) |
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
|
|
|
|
|
|
|
|
|
|
|
|
Current service cost (benefits
earned by employees in the
period) |
$ |
99 |
|
$ |
78 |
|
$ |
14 |
|
$ |
12 |
Interest cost on benefit obligation |
|
339 |
|
|
345 |
|
|
18 |
|
|
19 |
Expected return on fund assets |
|
(564) |
|
|
(505) |
|
|
- |
|
|
- |
Recognized net actuarial loss |
|
156 |
|
|
106 |
|
|
5 |
|
|
4 |
Amortization of prior service costs |
|
- |
|
|
10 |
|
|
- |
|
|
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
$ |
30 |
|
$ |
34 |
|
$ |
37 |
|
$ |
34 |
9 Commitments and contingencies
In the normal course of its operations, the Company becomes
involved in various legal actions, including claims relating to
injuries and damages to property. The Company maintains
provisions it considers to be adequate for such actions.
While the final outcome with respect to actions outstanding or
pending at September 30, 2012 cannot
be predicted with certainty, it is the opinion of management that
their resolution will not have a material adverse effect on the
Company's financial position or results of operations.
At September 30, 2012, the Company
had committed to total future capital expenditures amounting to
$343 million and supplier purchases
amounting to approximately $1.7
billion for the years 2012-2031.
Minimum payments under operating leases were estimated at
$744 million in aggregate, with
annual payments in each of the five years following 2012 of (in
millions): 2013 - $138; 2014 -
$106; 2015 - $91; 2016 - $70 and
2017 - $53.
Environmental remediation accruals cover site-specific
remediation programs. Environmental remediation accruals are
measured on an undiscounted basis and are recorded when the costs
to remediate are probable and reasonably estimable.
The accruals for environmental remediation represent CP's best
estimate of its probable future obligation and include both
asserted and unasserted claims, without reduction for anticipated
recoveries from third parties. Although the recorded accruals
include CP's best estimate of all probable costs, CP's total
environmental remediation costs cannot be predicted with
certainty. Accruals for environmental remediation may change
from time to time as new information about previously untested
sites becomes known, environmental laws and regulations evolve and
advances are made in environmental remediation technology.
The accruals may also vary as the courts decide legal proceedings
against outside parties responsible for contamination. These
potential charges, which cannot be quantified at this time, are not
expected to be material to CP's financial position, but may
materially affect income in the particular period in which a charge
is recognized. Costs related to existing, but as yet unknown,
or future contamination will be accrued in the period in which they
become probable and reasonably estimable.
The expense included in "Purchased services and other" for the
three and nine months ended September 30,
2012 was $1 million and
$2 million, respectively (three and
nine months ended September 30, 2011
- recovery of $1 million and expense
of $1 million, respectively).
Provisions for environmental remediation costs are recorded in
"Other long-term liabilities", except for the current portion which
is recorded in "Accounts payable and accrued liabilities".
The total amount provided at September 30,
2012 was $92 million
(December 31, 2011 - $ 97 million). Payments are expected to be
made over 10 years to 2022.
The Dakota, Minnesota &
Eastern Railroad Corporation was purchased for $1.5 billion resulting in goodwill of
$150 million (US$147 million) as at September 30, 2012. Future contingent
payments of up to approximately US$1.2
billion consisting of US$447
million which would become due if construction of the Powder
River Basin expansion project starts prior to December 31, 2025 and up to approximately
US$780 million would become due upon
the movement of specified volumes over the Powder River Basin
extension prior to December 31,
2025. Certain interest and inflationary adjustments
would also become payable up to December 31,
2025 upon achievement of certain milestones. The
contingent payments would be accounted for as an increase in the
purchase price.
10 Insurance recovery
In 2010, the Company suffered losses due to flooding in southern
Alberta and Saskatchewan. An amount of $12 million for business interruption insurance
recoveries was recognized in "Purchased services and other" in the
first quarter of 2012. In addition, in the fourth quarter of
2011 the Company recorded $5 million
of insurance recoveries with respect to the same incident.
11 Management transition
On May 17, 2012, Mr. Fred Green resigned as a director from the Board
of Directors and left his position as President and Chief Executive
Officer of the Company. That same day, Mr. Stephen Tobias, a new Board member elected at
the Company's annual shareholders meeting held on May 17, 2012, was appointed by the Board as
Interim Chief Executive Officer and served in that role until
June 28, 2012.
On June 28, 2012, Mr. E. Hunter Harrison was appointed by the Board as
President and Chief Executive Officer. As a result of the
appointment of Mr. Harrison, the Company recorded a charge of
$38 million with respect to
compensation and other transition costs, including $2 million of associated costs, in the second
quarter of 2012. This charge was recorded in "Compensation
and benefits" and "Purchased services and other", $16 million and $22
million, respectively.
Included in this charge were amounts totalling $16 million in respect of deferred retirement
compensation for Mr. Harrison and $20
million to Pershing Square Capital Management, L.P.
("Pershing Square") and related entities. Pershing Square and
related entities own or control approximately 14% of the Company's
outstanding shares, and two Board members, Mr. William Ackman and Mr. Paul Hilal, are partners
of Pershing Square. The amount payable to Pershing Square and
related entities was to reimburse them, on behalf of Mr. Harrison,
for certain amounts they had previously paid to or incurred on
behalf of Mr. Harrison pursuant to an indemnity in favour of Mr.
Harrison in connection with losses suffered in legal proceedings
commenced against Mr. Harrison by his former employer.
Reimbursement on behalf of Mr. Harrison was a precondition of Mr.
Harrison accepting the Company's offer of employment. As a
result of the payment, the Company would be entitled to enforce Mr.
Harrison's rights in the aforementioned legal proceedings, which
will allow the Company to recover to the extent of Mr. Harrison's
success in those proceedings. The Company may also receive
repayment in other circumstances in the event of certain breaches
of Mr. Harrison's employment obligations to it. Mr. Harrison
was also granted stock options and DSUs upon commencing employment
that had a grant date fair value of $12
million (see Note 7).
In addition, the Company agreed to indemnify Mr. Harrison for
certain other amounts, to a maximum of $3
million plus legal fees. No amount has been accrued at
September 30, 2012.
The Company also recorded a charge of $4
million in the second quarter of 2012 with respect to a
retirement allowance for Mr. Green.
Summary of Rail
Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
|
|
|
Year-to-date |
|
2012 |
|
|
2011 |
Fav/(Unfav) |
|
% |
|
Financial
(millions, except per share data) |
|
|
2012 |
|
|
2011 |
Fav/(Unfav) |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
$ |
1,414 |
|
$ |
1,309 |
|
$ |
105 |
|
8 |
|
|
Freight revenue |
|
$ |
4,086 |
|
$ |
3,677 |
|
$ |
409 |
|
11 |
|
37 |
|
|
32 |
|
|
5 |
|
16 |
|
|
Other revenue |
|
|
107 |
|
|
92 |
|
|
15 |
|
16 |
|
1,451 |
|
|
1,341 |
|
|
110 |
|
8 |
|
Total revenues |
|
|
4,193 |
|
|
3,769 |
|
|
424 |
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
371 |
|
|
336 |
|
|
(35) |
|
(10) |
|
|
Compensation and benefits |
|
|
1,128 |
|
|
1,037 |
|
|
(91) |
|
(9) |
|
232 |
|
|
238 |
|
|
6 |
|
3 |
|
|
Fuel |
|
|
743 |
|
|
701 |
|
|
(42) |
|
(6) |
|
57 |
|
|
56 |
|
|
(1) |
|
(2) |
|
|
Materials |
|
|
178 |
|
|
185 |
|
|
7 |
|
4 |
|
52 |
|
|
53 |
|
|
1 |
|
2 |
|
|
Equipment rents |
|
|
158 |
|
|
158 |
|
|
- |
|
- |
|
137 |
|
|
123 |
|
|
(14) |
|
(11) |
|
|
Depreciation and amortization |
|
|
399 |
|
|
367 |
|
|
(32) |
|
(9) |
|
226 |
|
|
211 |
|
|
(15) |
|
(7) |
|
|
Purchased services and other |
|
|
698 |
|
|
657 |
|
|
(41) |
|
(6) |
|
1,075 |
|
|
1,017 |
|
|
(58) |
|
(6) |
|
Total operating expenses (OE) |
|
|
3,304 |
|
|
3,105 |
|
|
(199) |
|
(6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
376 |
|
|
324 |
|
|
52 |
|
16 |
|
Operating income |
|
|
889 |
|
|
664 |
|
|
225 |
|
34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
14 |
|
|
12 |
|
86 |
|
|
Other income and charges |
|
|
34 |
|
|
8 |
|
|
(26) |
|
- |
|
69 |
|
|
64 |
|
|
(5) |
|
(8) |
|
|
Net interest expense |
|
|
207 |
|
|
191 |
|
|
(16) |
|
(8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
305 |
|
|
246 |
|
|
59 |
|
24 |
|
Income before income tax expense |
|
|
648 |
|
|
465 |
|
|
183 |
|
39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81 |
|
|
59 |
|
|
(22) |
|
(37) |
|
|
Income tax expense |
|
|
179 |
|
|
116 |
|
|
(63) |
|
(54) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
224 |
|
$ |
187 |
|
$ |
37 |
|
20 |
|
Net income |
|
$ |
469 |
|
$ |
349 |
|
$ |
120 |
|
34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74.1 |
|
|
75.8 |
|
|
1.7 |
170 |
bps |
|
Operating ratio (%) |
|
|
78.8 |
|
|
82.4 |
|
|
3.6 |
360 |
bps |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1.31 |
|
$ |
1.10 |
|
$ |
0.21 |
|
19 |
|
|
Basic earnings per share |
|
$ |
2.74 |
|
$ |
2.06 |
|
$ |
0.68 |
|
33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1.30 |
|
$ |
1.10 |
|
$ |
0.20 |
|
18 |
|
|
Diluted earnings per share |
|
$ |
2.72 |
|
$ |
2.04 |
|
$ |
0.68 |
|
33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
172.2 |
|
|
169.4 |
|
|
2.8 |
|
2 |
|
|
Weighted average number of shares outstanding (millions) |
|
|
171.3 |
|
|
169.4 |
|
|
1.9 |
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
173.4 |
|
|
170.5 |
|
|
2.9 |
|
2 |
|
|
Weighted average number of diluted shares outstanding
(millions) |
|
|
172.6 |
|
|
170.6 |
|
|
2.0 |
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Exchange |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.00 |
|
|
1.03 |
|
|
0.03 |
|
3 |
|
|
Average foreign exchange rate (US$/Canadian$) |
|
|
1.00 |
|
|
1.03 |
|
|
0.03 |
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.00 |
|
|
0.97 |
|
|
0.03 |
|
3 |
|
|
Average foreign exchange rate (Canadian$/US$) |
|
|
1.00 |
|
|
0.97 |
|
|
0.03 |
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summary of Rail
Data (Page 2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
|
|
|
|
|
Year-to-date |
|
2012 |
|
2011 |
|
Fav/(Unfav) |
|
% |
|
|
|
|
|
2012 |
|
2011 |
|
Fav/(Unfav) |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freight Revenues (millions) |
|
|
|
|
|
|
|
|
|
|
|
$ |
296 |
|
$ |
290 |
|
$ |
6 |
|
2 |
|
|
|
- Grain |
|
$ |
817 |
|
$ |
777 |
|
$ |
40 |
|
5 |
|
161 |
|
|
147 |
|
|
14 |
|
10 |
|
|
|
- Coal |
|
|
446 |
|
|
398 |
|
|
48 |
|
12 |
|
111 |
|
|
137 |
|
|
(26) |
|
(19) |
|
|
|
- Sulphur and fertilizers |
|
|
387 |
|
|
416 |
|
|
(29) |
|
(7) |
|
329 |
|
|
266 |
|
|
63 |
|
24 |
|
|
|
- Industrial and consumer
products |
|
|
933 |
|
|
729 |
|
|
204 |
|
28 |
|
105 |
|
|
80 |
|
|
25 |
|
31 |
|
|
|
- Automotive |
|
|
326 |
|
|
244 |
|
|
82 |
|
34 |
|
49 |
|
|
51 |
|
|
(2) |
|
(4) |
|
|
|
- Forest products |
|
|
147 |
|
|
142 |
|
|
5 |
|
4 |
|
363 |
|
|
338 |
|
|
25 |
|
7 |
|
|
|
- Intermodal |
|
|
1,030 |
|
|
971 |
|
|
59 |
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,414 |
|
$ |
1,309 |
|
$ |
105 |
|
8 |
|
|
Total Freight Revenues |
|
$ |
4,086 |
|
$ |
3,677 |
|
$ |
409 |
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Revenue Ton-Miles (RTM) |
|
|
|
|
|
|
|
|
|
|
|
|
8,142 |
|
|
8,294 |
|
|
(152) |
|
(2) |
|
|
|
- Grain |
|
|
23,454 |
|
|
23,370 |
|
|
84 |
|
- |
|
6,032 |
|
|
5,647 |
|
|
385 |
|
7 |
|
|
|
- Coal |
|
|
16,566 |
|
|
15,181 |
|
|
1,385 |
|
9 |
|
3,561 |
|
|
5,057 |
|
|
(1,496) |
|
(30) |
|
|
|
- Sulphur and fertilizers |
|
|
13,220 |
|
|
15,569 |
|
|
(2,349) |
|
(15) |
|
8,066 |
|
|
6,167 |
|
|
1,899 |
|
31 |
|
|
|
- Industrial and consumer
products |
|
|
22,122 |
|
|
17,644 |
|
|
4,478 |
|
25 |
|
604 |
|
|
477 |
|
|
127 |
|
27 |
|
|
|
- Automotive |
|
|
1,921 |
|
|
1,545 |
|
|
376 |
|
24 |
|
1,200 |
|
|
1,313 |
|
|
(113) |
|
(9) |
|
|
|
- Forest products |
|
|
3,584 |
|
|
3,784 |
|
|
(200) |
|
(5) |
|
6,528 |
|
|
6,113 |
|
|
415 |
|
7 |
|
|
|
- Intermodal |
|
|
18,636 |
|
|
17,882 |
|
|
754 |
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,133 |
|
|
33,068 |
|
|
1,065 |
|
3 |
|
|
Total RTMs |
|
|
99,503 |
|
|
94,975 |
|
|
4,528 |
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freight Revenue per RTM (cents) |
|
|
|
|
|
|
|
|
|
|
|
|
3.64 |
|
|
3.50 |
|
|
0.14 |
|
4 |
|
|
|
- Grain |
|
|
3.48 |
|
|
3.32 |
|
|
0.16 |
|
5 |
|
2.67 |
|
|
2.60 |
|
|
0.07 |
|
3 |
|
|
|
- Coal |
|
|
2.69 |
|
|
2.62 |
|
|
0.07 |
|
3 |
|
3.12 |
|
|
2.71 |
|
|
0.41 |
|
15 |
|
|
|
- Sulphur and fertilizers |
|
|
2.93 |
|
|
2.67 |
|
|
0.26 |
|
10 |
|
4.08 |
|
|
4.31 |
|
|
(0.23) |
|
(5) |
|
|
|
- Industrial and consumer
products |
|
|
4.22 |
|
|
4.13 |
|
|
0.09 |
|
2 |
|
17.38 |
|
|
16.77 |
|
|
0.61 |
|
4 |
|
|
|
- Automotive |
|
|
16.97 |
|
|
15.79 |
|
|
1.18 |
|
7 |
|
4.08 |
|
|
3.88 |
|
|
0.20 |
|
5 |
|
|
|
- Forest products |
|
|
4.10 |
|
|
3.75 |
|
|
0.35 |
|
9 |
|
5.56 |
|
|
5.53 |
|
|
0.03 |
|
1 |
|
|
|
- Intermodal |
|
|
5.53 |
|
|
5.43 |
|
|
0.10 |
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.14 |
|
|
3.96 |
|
|
0.18 |
|
5 |
|
|
Total Freight Revenue per RTM |
|
|
4.11 |
|
|
3.87 |
|
|
0.24 |
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carloads (thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
110 |
|
|
117 |
|
|
(7) |
|
(6) |
|
|
|
- Grain |
|
|
311 |
|
|
329 |
|
|
(18) |
|
(5) |
|
89 |
|
|
85 |
|
|
4 |
|
5 |
|
|
|
- Coal |
|
|
249 |
|
|
226 |
|
|
23 |
|
10 |
|
38 |
|
|
48 |
|
|
(10) |
|
(21) |
|
|
|
- Sulphur and fertilizers |
|
|
134 |
|
|
151 |
|
|
(17) |
|
(11) |
|
122 |
|
|
111 |
|
|
11 |
|
10 |
|
|
|
- Industrial and consumer
products |
|
|
350 |
|
|
307 |
|
|
43 |
|
14 |
|
39 |
|
|
33 |
|
|
6 |
|
18 |
|
|
|
- Automotive |
|
|
123 |
|
|
106 |
|
|
17 |
|
16 |
|
17 |
|
|
19 |
|
|
(2) |
|
(11) |
|
|
|
- Forest products |
|
|
51 |
|
|
55 |
|
|
(4) |
|
(7) |
|
272 |
|
|
255 |
|
|
17 |
|
7 |
|
|
|
- Intermodal |
|
|
771 |
|
|
747 |
|
|
24 |
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
687 |
|
|
668 |
|
|
19 |
|
3 |
|
|
Total Carloads |
|
|
1,989 |
|
|
1,921 |
|
|
68 |
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freight Revenue per Carload |
|
|
|
|
|
|
|
|
|
|
|
$ |
2,691 |
|
$ |
2,479 |
|
$ |
212 |
|
9 |
|
|
|
- Grain |
|
$ |
2,627 |
|
$ |
2,362 |
|
$ |
265 |
|
11 |
|
1,809 |
|
|
1,729 |
|
|
80 |
|
5 |
|
|
|
- Coal |
|
|
1,791 |
|
|
1,761 |
|
|
30 |
|
2 |
|
2,921 |
|
|
2,854 |
|
|
67 |
|
2 |
|
|
|
- Sulphur and fertilizers |
|
|
2,888 |
|
|
2,755 |
|
|
133 |
|
5 |
|
2,697 |
|
|
2,396 |
|
|
301 |
|
13 |
|
|
|
- Industrial and consumer
products |
|
|
2,666 |
|
|
2,375 |
|
|
291 |
|
12 |
|
2,692 |
|
|
2,424 |
|
|
268 |
|
11 |
|
|
|
- Automotive |
|
|
2,650 |
|
|
2,302 |
|
|
348 |
|
15 |
|
2,882 |
|
|
2,684 |
|
|
198 |
|
7 |
|
|
|
- Forest products |
|
|
2,882 |
|
|
2,582 |
|
|
300 |
|
12 |
|
1,335 |
|
|
1,325 |
|
|
10 |
|
1 |
|
|
|
- Intermodal |
|
|
1,336 |
|
|
1,300 |
|
|
36 |
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,058 |
|
$ |
1,960 |
|
$ |
98 |
|
5 |
|
|
Total Freight Revenue per Carload |
|
$ |
2,054 |
|
$ |
1,914 |
|
$ |
140 |
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summary of Rail
Data (Page 3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
|
|
Year-to-date |
2012 |
|
2011 (1) |
|
Fav/(Unfav) |
|
% |
|
|
|
2012 |
|
2011 (1) |
|
Fav/(Unfav) |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations Performance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.67 |
|
1.60 |
|
(0.07) |
|
(4) |
|
OE per GTM (cents)(2) |
|
1.76 |
|
1.70 |
|
(0.06) |
|
(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.70 |
|
1.61 |
|
(0.09) |
|
(6) |
|
OE, less land sales, fuel price impact, and CEO
transition costs, per GTM (cents)(3) |
|
1.73 |
|
1.70 |
|
(0.03) |
|
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,366 |
|
16,639 |
|
(727) |
|
(4) |
|
Average number of active employees - Total |
|
16,782 |
|
15,924 |
|
(858) |
|
(5) |
14,832 |
|
14,262 |
|
(570) |
|
(4) |
|
Average number of active employees - Expense |
|
14,755 |
|
14,073 |
|
(682) |
|
(5) |
17,026 |
|
16,675 |
|
(351) |
|
(2) |
|
Number of employees at end of period - Total |
|
17,026 |
|
16,675 |
|
(351) |
|
(2) |
14,545 |
|
14,295 |
|
(250) |
|
(2) |
|
Number of employees at end of period - Expense |
|
14,545 |
|
14,295 |
|
(250) |
|
(2) |
40.6 |
|
49.6 |
|
9.0 |
|
18 |
|
Average daily active cars on-line (thousands) |
|
40.5 |
|
53.0 |
|
12.5 |
|
24 |
983 |
|
1,081 |
|
98 |
|
9 |
|
Average daily active road locomotives on-line |
|
1,025 |
|
1,086 |
|
61 |
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64,536 |
|
63,485 |
|
1,051 |
|
2 |
|
Freight gross ton-miles (millions) |
|
188,150 |
|
182,483 |
|
5,667 |
|
3 |
10,201 |
|
10,230 |
|
(29) |
|
- |
|
Train miles (thousands) |
|
30,224 |
|
29,534 |
|
690 |
|
2 |
6,723 |
|
6,627 |
|
96 |
|
1 |
|
Average train weight - excluding local traffic (tons) |
|
6,608 |
|
6,595 |
|
13 |
|
- |
5,878 |
|
5,667 |
|
211 |
|
4 |
|
Average train length - excluding local traffic (feet) |
|
5,742 |
|
5,669 |
|
73 |
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24.5 |
|
22.1 |
|
2.4 |
|
11 |
|
Average train speed - AAR definition (mph) |
|
24.5 |
|
20.6 |
|
3.9 |
|
19 |
17.7 |
|
18.5 |
|
0.8 |
|
4 |
|
Average terminal dwell - AAR definition (hours) |
|
17.7 |
|
20.7 |
|
3.0 |
|
14 |
205.4 |
|
168.7 |
|
36.7 |
|
22 |
|
Car miles per car day |
|
202.6 |
|
153.2 |
|
49.4 |
|
32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
184.3 |
|
170.1 |
|
14.2 |
|
8 |
|
Locomotive productivity (daily average GTMs/active HP) |
|
174.4 |
|
163.9 |
|
10.5 |
|
6 |
4.4 |
|
4.5 |
|
(0.1) |
|
(2) |
|
Employee productivity (million GTMs/expense employee) |
|
12.8 |
|
13.0 |
|
(0.2) |
|
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.09 |
|
1.13 |
|
0.04 |
|
4 |
|
Fuel efficiency(4) |
|
1.15 |
|
1.19 |
|
0.04 |
|
3 |
69.4 |
|
71.5 |
|
2.1 |
|
3 |
|
U.S. gallons of locomotive fuel consumed
(millions)(5) |
|
214.8 |
|
214.8 |
|
- |
|
- |
3.35 |
|
3.44 |
|
0.09 |
|
3 |
|
Average fuel price (U.S. dollars per U.S. gallon) |
|
3.45 |
|
3.35 |
|
(0.10) |
|
(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Safety |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.36 |
|
2.18 |
|
0.82 |
|
38 |
|
FRA personal injuries per 200,000 employee-hours |
|
1.26 |
|
1.90 |
|
0.64 |
|
34 |
2.09 |
|
1.81 |
|
(0.28) |
|
(15) |
|
FRA train accidents per million train-miles |
|
1.69 |
|
2.05 |
|
0.36 |
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Certain prior period figures have been revised to conform with
current presentation or have been updated to reflect new
information. |
(2) |
Gross Ton-Mile (GTM) is the movement of the combined tons
(freight car tare, inactive locomotive tare, and contents) a
distance of one mile. |
(3) |
OE, less land sales, fuel price impact, and CEO transition
costs, per GTM is calculated consistently with OE per GTM except
for the exclusion of net gains on land sales, fuel price impact,
the latter to remove the volatility of fuel prices and to provide
comparative fuel expenses at the 2011 fuel price, and CEO
transition costs. Net gains on land sales were $15 million
and $3 million for the three months ended September 30, 2012 and
2011, respectively, and $22 million and $5 million for the nine
months ended September 30, 2012 and 2011, respectively. The impact
in fuel price, net of hedging and B.C. carbon tax was favourable $6
million for the three months ended September 30, 2012 and
unfavourable $23 million for the nine months ended September 30,
2012. CEO transition costs were nil for the three months ended
September 30, 2012 and $42 million for the nine months ended
September 30, 2012. |
(4) |
Fuel efficiency is defined as U.S. gallons of locomotive fuel
consumed per 1,000 GTMs - freight and yard. |
(5) |
Includes gallons of fuel consumed from freight, yard and
commuter service but excludes fuel used in capital projects and
other non-freight activities. |
SOURCE Canadian Pacific