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Attention Business/Financial Editors
Canadian Pacific announces second-quarter results
CALGARY, July 28 /CNW/ - Canadian Pacific Railway Limited (TSX/NYSE: CP)
today announced second-quarter net income of $166.6 million. Diluted earnings
per share were $0.98, up 23 per cent from $0.80 in the second-quarter 2009
which included a $0.41 per share gain from an asset sale.
"We leveraged volume growth in the quarter to deliver a solid financial
performance through a keen focus on cost management," said Fred Green,
President and CEO. "Our emphasis on safety, productivity and asset velocity is
improving service reliability for our customers."
<<
SECOND-QUARTER 2010 COMPARED WITH SECOND-QUARTER 2009
- Adjusted diluted earnings per share increased 96 per cent to $0.92
- Total revenues were up 20 per cent to $1.23 billion
- Operating income increased 48 per cent to $274.1 million
- Adjusted earnings increased 97 per cent to $156.2 million
- Operating ratio improved 430 basis points to 77.8 per cent
>>
"Markets are likely to remain volatile," added Green. "Our proven track
record of quickly adjusting our resources to meet changing volume demands
position us well for the second half."
Presentation of non-GAAP earnings measures
CP presents non-GAAP earnings measures in this news release to provide an
additional basis for evaluating underlying earnings and liquidity trends in
its business that can be compared with prior periods' results of operations.
When foreign exchange gains and losses on long-term debt and other specified
items are excluded from diluted earnings per share, income and income tax
expense, these are non-GAAP measures.
These non-GAAP earnings measures exclude foreign currency translation
effects on long-term debt and related income taxes, which can be volatile and
short term. The impact of volatile short-term rate fluctuations on foreign-
denominated debt is only realized when long-term debt matures or is settled. A
reconciliation of income, excluding foreign exchange gains and losses on long-
term debt and other specified items, to net income as presented in the
financial statements is detailed in the attached Summary of Rail Data. In
addition, these non-GAAP measures exclude other specified items (described
below) that are not a part of CP's normal ongoing revenues and operating
expenses.
Net income and diluted earnings per share, excluding foreign exchange
gains and losses on long-term debt and other specified items, are referred to
in this news release as "Adjusted earnings" and "Adjusted diluted earnings per
share".
Other specified items are material transactions that may include, but are
not limited to, restructuring and asset impairment charges, gains and losses
on non-routine sales of assets, unusual income tax adjustments, and other
items that do not typify normal business activities.
The non-GAAP earnings measures described in this news release have no
standardized meanings and are not defined by accounting principles generally
accepted in the United States and, therefore, are unlikely to be comparable to
similar measures presented by other companies.
FOREIGN EXCHANGE GAIN AND LOSS ON LONG-TERM DEBT AND OTHER SPECIFIED
ITEMS
CP had a net foreign exchange gain on long-term debt of $9.4 million
after tax in the second-quarter of 2010, compared with a loss of $15.7 million
after tax in second-quarter of 2009.
As part of a consolidated financing strategy, CP structures its U.S.
dollar long-term debt in different taxing jurisdictions. As well, a portion of
this debt is designated as a net investment hedge against the net investment
in foreign subsidiaries. Although the taxes on foreign exchange gains and
losses on long-term debt generally offset one another, because they may be in
different tax jurisdictions, the resulting net tax can vary significantly.
In the second quarter of 2010 the Company recorded an unrealized gain of
$1.0 million after tax as a result of the change in the market assumptions
used to estimate the fair value of our investment in long-term floating rate
notes. Other specified items in the second-quarter of 2009 included an after
tax gain on the sale of a portion of CP's interest in the Detroit River Tunnel
Partnership of $68.7 million. There was also a gain in 2009 in the fair value
of long-term floating rates of $3.2 million after tax as a result of the
change in the market assumptions.
For the first six months of 2010, CP had a foreign exchange gain on long-
term debt of $6.3 million after tax, compared to a loss of $9.2 million after
tax in the first half of 2009. CP also had a gain on long-term floating rate
notes of $1.9 million after tax, down from $3.2 million after tax in the first
half of 2009.
CP began reporting its financial results in accordance with U.S. GAAP as
of January 1, 2010. All prior period comparative numbers contained in this
release are to U.S. GAAP. Additional historical U.S. GAAP financial reports
can be found at www.cpr.ca.
Note on forward-looking information
This news release contains certain forward-looking statements relating
but not limited to our operations, anticipated financial performance and
business prospects. Undue reliance should not be placed on forward-looking
information as actual results may differ materially.
By its nature, CP's forward-looking information involves numerous
assumptions, inherent risks and uncertainties, including but not limited to
the following factors: changes in business strategies; general North American
and global economic, credit and business conditions; risks in agricultural
production such as weather conditions and insect populations; the availability
and price of energy commodities; the effects of competition and pricing
pressures; industry capacity; shifts in market demand; changes in laws and
regulations, including regulation of rates; changes in taxes and tax rates;
potential increases in maintenance and operating costs; uncertainties of
litigation; labour disputes; risks and liabilities arising from derailments;
transportation of dangerous goods, timing of completion of capital and
maintenance projects; currency and interest rate fluctuations; effects of
changes in market conditions and discount rates on the financial position of
pension plans and investments, including long-term floating rate notes; and
various events that could disrupt operations, including severe weather
conditions, security threats and governmental response to them, and
technological changes.
There are factors that could cause actual results to differ from those
described in the forward-looking statements contained in this news release.
These more specific factors are identified and discussed elsewhere in this
news release with the particular forward-looking statement in question.
Except as required by law, CP undertakes no obligation to update publicly
or otherwise revise any forward-looking information, whether as a result of
new information, future events or otherwise.
About Canadian Pacific:
Canadian Pacific, through the ingenuity of its employees located across
Canada and in the United States, remains committed to being the safest, most
fluid railway in North America. Our people are the key to delivering
innovative transportation solutions to our customers and to ensuring the safe
operation of our trains through the more than 1,100 communities where we
operate. Our combined ingenuity makes Canadian Pacific a better place to work,
rail a better way to ship, and North America a better place to live. Come and
visit us at www.cpr.ca to see how we can put our ingenuity to work for you.
<<
CONSOLIDATED STATEMENT OF INCOME
(in millions of Canadian dollars, except per share data)
(unaudited)
For the three months For the six months
ended June 30 ended June 30
2010 2009 2010 2009
Restated Restated
(see Note 2) (see Note 2)
----------------------- -----------------------
Revenues
Freight $ 1,202.2 $ 1,001.4 $ 2,340.4 $ 2,077.4
Other 32.0 29.9 60.6 63.5
----------------------- -----------------------
1,234.2 1,031.3 2,401.0 2,140.9
Operating expenses
Compensation and
benefits 349.7 324.5 703.5 667.5
Fuel 177.9 117.7 359.6 288.7
Materials 51.0 53.5 115.0 130.2
Equipment rents 54.9 55.1 103.9 121.5
Depreciation and
amortization 123.3 123.2 244.5 239.4
Purchased services and
other 203.3 172.4 393.8 373.9
----------------------- -----------------------
960.1 846.4 1,920.3 1,821.2
----------------------- -----------------------
Operating income 274.1 184.9 480.7 319.7
Gain on sale of partnership
interest (Note 4) - 81.2 - 81.2
Less:
Other (income) and charges (3.4) 9.6 (8.3) 18.1
Interest expense 64.8 72.6 131.5 144.2
----------------------- -----------------------
Income before income tax
expense 212.7 183.9 357.5 238.6
Income tax expense
(Note 5) 46.1 48.4 89.9 44.1
----------------------- -----------------------
Net income $ 166.6 $ 135.5 $ 267.6 $ 194.5
----------------------- -----------------------
----------------------- -----------------------
Earnings per share
(Note 6)
Basic earnings per
share $ 0.99 $ 0.81 $ 1.59 $ 1.18
Diluted earnings per
share $ 0.98 $ 0.80 $ 1.58 $ 1.18
Weighted average number
of shares (millions)
Basic 168.6 168.0 168.6 164.5
Diluted 169.2 168.4 169.0 164.7
Dividends declared per
share $ 0.2700 $ 0.2475 $ 0.5175 $ 0.4950
See notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEET
(in millions of Canadian dollars)
(unaudited)
June 30 December 31
2010 2009
Restated
(see Note 2)
------------------------
Assets
Current assets
Cash and cash equivalents $ 373.6 $ 679.1
Accounts receivable, net 441.2 655.1
Materials and supplies 136.8 132.7
Deferred income taxes 137.6 128.1
Other current assets 62.2 46.5
------------------------
1,151.4 1,641.5
Investments 167.9 156.7
Net properties 12,044.5 11,978.5
Goodwill and intangible assets 204.0 202.3
Other assets 171.2 175.8
------------------------
Total assets $ 13,739.0 $ 14,154.8
------------------------
------------------------
Liabilities and shareholders' equity
Current liabilities
Accounts payable and accrued liabilities $ 897.7 $ 927.1
Income and other taxes payable 36.1 31.9
Dividends payable 45.5 41.7
Long-term debt maturing within one year 40.2 605.3
------------------------
1,019.5 1,606.0
Pension and other benefit liabilities 1,252.2 1,453.9
Other long-term liabilities 486.8 479.9
Long-term debt 4,160.4 4,138.2
Deferred income taxes 1,938.1 1,818.7
------------------------
Total liabilities 8,857.0 9,496.7
Shareholders' equity
Share capital 1,780.8 1,771.1
Additional paid-in capital 29.4 30.8
Accumulated other comprehensive loss (1,709.5) (1,744.7)
Retained earnings 4,781.3 4,600.9
------------------------
4,882.0 4,658.1
------------------------
Total liabilities and shareholders' equity $ 13,739.0 $ 14,154.8
------------------------
------------------------
Commitments and contingencies (Note 12)
See notes to consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions of Canadian dollars)
(unaudited)
For the three months For the six months
ended June 30 ended June 30
2010 2009 2010 2009
Restated Restated
(see Note 2) (see Note 2)
----------------------- -----------------------
Operating activities
Net income $ 166.6 $ 135.5 $ 267.6 $ 194.5
Reconciliation of net
income to cash provided
by operating activities:
Depreciation and
amortization 123.3 123.2 244.5 239.4
Deferred income taxes
(Note 5) 43.5 53.3 85.1 43.8
Gain on sale of
partnership interest - (81.2) - (81.2)
Restructuring and
environmental
payments (6.0) (10.5) (11.6) (19.0)
Pension funding in
excess of expense (150.7) (17.3) (160.0) (32.6)
Other operating
activities, net 0.4 (16.7) 17.8 (12.4)
Change in non-cash
working capital
balances related to
operations 10.0 (51.2) (72.0) (63.1)
----------------------- -----------------------
Cash provided by
operating activities 187.1 135.1 371.4 269.4
----------------------- -----------------------
Investing activities
Additions to properties (168.0) (246.4) (258.8) (368.6)
Proceeds from the sale
of properties and other
assets 17.4 144.3 26.4 152.3
Proceeds from sale of
long-term floating rate
notes - 12.3 - 12.3
----------------------- -----------------------
Cash used in investing
activities (150.6) (89.8) (232.4) (204.0)
----------------------- -----------------------
Financing activities
Dividends paid (41.7) (41.7) (83.4) (79.7)
Issuance of CP Common
Shares 3.9 3.4 6.9 499.2
Collection of receivable
from financial
institution 219.8 - 219.8 -
Net decrease in
short-term borrowing - (76.4) - (94.5)
Issuance of long-term
debt - 409.5 - 409.5
Repayment of long-term
debt (581.2) (593.3) (590.3) (606.5)
Other financing
activities 0.2 29.2 0.2 29.2
----------------------- -----------------------
Cash (used in) provided
by financing activities (399.0) (269.3) (446.8) 157.2
----------------------- -----------------------
Effect of foreign exchange
fluctuations on U.S.
dollar-denominated cash
and cash equivalents 12.3 (8.2) 2.3 (5.8)
----------------------- -----------------------
Cash position
(Decrease) increase in
cash and cash
equivalents (350.2) (232.2) (305.5) 216.8
Cash and cash
equivalents at
beginning of period 723.8 566.5 679.1 117.5
----------------------- -----------------------
Cash and cash equivalents
at end of period $ 373.6 $ 334.3 $ 373.6 $ 334.3
----------------------- -----------------------
----------------------- -----------------------
Supplemental disclosures
of cash flow information
Income taxes paid $ 3.2 $ 0.3 $ 5.0 $ 3.7
----------------------- -----------------------
----------------------- -----------------------
Interest paid (see
Note 10) $ 174.0 $ 101.7 $ 219.1 $ 160.3
----------------------- -----------------------
----------------------- -----------------------
See notes to consolidated financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(in millions of Canadian dollars, except common share amounts)
(unaudited)
--------- -------------------------------------------------
Accumulated
Common other Total
shares Additional compre- share-
(in Share paid-in hensive Retained holders'
millions) capital capital loss earnings equity
--------- -------------------------------------------------
Balance at
December 31,
2009, as
previously
reported 168.5 $1,771.1 $ 30.8 $(1,746.3) $4,665.2 $4,720.8
Cumulative
adjustment
for change
in accounting
policy (see
Note 2) - - - 1.6 (64.3) (62.7)
--------- -------------------------------------------------
Balance at
December 31,
2009, as
restated 168.5 1,771.1 30.8 (1,744.7) 4,600.9 4,658.1
--------- -------------------------------------------------
Net income - - - - 267.6 267.6
Other
comprehensive
income - - - 35.2 - 35.2
--------- -------------------------------------------------
Comprehensive
income - - - 35.2 267.6 302.8
--------- -------------------------------------------------
Dividends
declared - - - - (87.2) (87.2)
Stock
compensation
expense - - 0.8 - - 0.8
Shares issued
under stock
option plans 0.2 9.7 (2.2) - - 7.5
--------- -------------------------------------------------
Balance at
June 30, 2010 168.7 $1,780.8 $ 29.4 $(1,709.5) $4,781.3 $4,882.0
--------- -------------------------------------------------
--------- -------------------------------------------------
Comprehensive
income -
three months
ended
June 30, 2010 - - - $ 25.1 $ 167.8 $ 192.9
--------- -------------------------------------------------
See notes to consolidated financial statements.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010
(unaudited)
1 Basis of presentation
These unaudited consolidated financial statements of Canadian Pacific
Railway Limited ("CP", "the Company" or "Canadian Pacific Railway")
reflect management's estimates and assumptions that are necessary for
their fair presentation in conformity with accounting principles
generally accepted in the United States ("GAAP"). They do not include
all disclosures required under GAAP for annual financial statements
and should be read in conjunction with the 2009 U.S. GAAP
consolidated financial statements. The policies used are consistent
with the policies used in preparing the 2009 U.S. GAAP consolidated
financial statements, except as discussed in Note 2. The Company's
investments in which CP has significant influence, which are not
consolidated, are accounted for using the equity method.
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. The 2009
global recession has affected financial results such that seasonal
fluctuations may not be consistent with those in prior years. The
timing of a return to seasonal trends consistent with prior years
will depend on the continued recovery of the economy and the related
impact on the Company's customers.
2 Accounting changes
Consolidations
In June 2009, the Financial Accounting Standards Board ("FASB")
issued Amendments to Consolidation of Variable Interest Entities. The
guidance retains the scope of the previous guidance and removes the
exemption of entities previously considered qualifying special
purpose entities. In addition, it replaces the previous quantitative
approach with a qualitative analysis approach for determining whether
the enterprise's variable interest or interests give it a controlling
financial interest in a variable interest entity. The guidance is
further amended to require ongoing reassessments of whether an
enterprise is the primary beneficiary of a variable interest entity
and requires enhanced disclosures about an enterprise's involvement
in a variable interest entity. The guidance is applicable to all
variable interest entities that existed at January 1, 2010, the date
of adoption, or are created thereafter. The Company has variable
interests in variable interest entities, however, the adoption of the
new guidance did not change the previous assessment that the Company
is not the primary beneficiary and as such does not consolidate the
variable interest entities. Additional note disclosure regarding the
nature of the Company's variable interests and where judgment was
required to assess the primary beneficiary of these variable interest
entities has been provided in Note 11.
Accounting for transfers of financial assets
The FASB has released additional guidance with respect to the
accounting and disclosure of transfers of financial assets such as
securitized accounts receivable. Although the Company currently does
not have an accounts receivable securitization program, the guidance,
which includes revisions to the derecognition criteria in a transfer
and the treatment of qualifying special purpose entities, would be
applicable to any future securitization. The new guidance is
effective for the Company from January 1, 2010. The adoption of this
guidance had no impact to the Company's financial statements.
Fair value measurement and disclosure
In January 2010, the FASB amended the disclosure requirements related
to fair value measurements. The update provides for new disclosures
regarding transfers in and out of Level 1 and Level 2 financial asset
and liability categories and expanded disclosures in the Level 3
reconciliation. The update also provides clarification that the level
of disaggregation should be at the class level and that disclosures
about inputs and valuation techniques are required for both recurring
and nonrecurring fair value measurements that fall in either Level 2
or Level 3. New disclosures and clarifications of existing
disclosures are effective for interim and annual reporting periods
beginning after December 15, 2009, except for the expanded
disclosures in the Level 3 reconciliation, which are effective for
fiscal years beginning after December 15, 2010. The Company has
adopted this guidance resulting in expanded note disclosure (Note 7).
Rail Grinding
During the second quarter of 2010, the Company changed its accounting
policy for the treatment of rail grinding costs. In prior periods, CP
had capitalized such costs and depreciated them over the expected
economic life of the rail grinding. The Company concluded that,
although the accounting treatment was within acceptable accounting
standards, it is preferable to expense the costs as incurred, given
the subjectivity in determining the expected economic life and the
associated depreciation methodology. The accounting policy change has
been accounted for on a retrospective basis. The effects of the
adjustment to January 1, 2010 resulted in an adjustment to decrease
net properties by $89.0 million, deferred income taxes by $26.3
million, and shareholders equity by $62.7 million. As a result of the
change the following increases (decreases) to financial statement
line items occurred:
(in millions of Canadian dollars, except per share data)
For the three For the six
months ended months ended For the year
June 30 June 30 ended December 31
2010 2009 2010 2009 2009 2008 2007
-------------------------------------------------------
Changes to Consolidated Statement of Income and Comprehensive Income
Depreciation and
amortization $ (3.8) $ (3.5) $ (7.6) $ (7.0) $(14.0) $ (8.9) $ (9.5)
Compensation and
benefits 0.3 0.7 0.6 0.8 2.8 2.7 2.0
Fuel - - - - 0.1 0.1 0.1
Materials 0.1 0.4 0.2 0.5 1.8 1.7 1.3
Purchased services
and other 2.1 4.1 3.9 4.8 15.9 15.4 11.3
-------------------------------------------------------
Total operating
expenses (1.3) 1.7 (2.9) (0.9) 6.6 11.0 5.2
Income tax
expense 0.2 (0.6) 0.6 0.3 (1.2) (3.2) 0.4
-------------------------------------------------------
Net income $ 1.1 $ (1.1) $ 2.3 $ 0.6 $ (5.4) $ (7.8) $ (5.6)
-------------------------------------------------------
Basic earnings
per share $ 0.01 $(0.01) $ 0.01 $ - $(0.03) $(0.05) $(0.04)
Diluted
earnings per
share $ 0.01 $(0.01) $ 0.01 $ - $(0.03) $(0.05) $(0.04)
Other
comprehensive
income (loss) (0.8) 1.3 (0.3) 0.7 2.4 (2.8) 2.0
-------------------------------------------------------
Comprehensive
income $ 0.3 $ 0.2 $ 2.0 $ 1.3 $ (3.0) $(10.6) $ (3.6)
-------------------------------------------------------
Changes to Consolidated Statement of Cash Flows
Cash provided by
operating
activities
(decrease) $ (2.5) $ (5.2) $ (4.7) $ (6.1) $(20.6) $(19.9) $(14.7)
Cash used in
investing
activities
(decrease) $ (2.5) $ (5.2) $ (4.7) $ (6.1) $(20.6) $(19.9) $(14.7)
Changes to Consolidated Balance Sheet
As at As at As at
June 30 December 31 December 31
2010 2009 2008
-----------------------------------
Net properties $ (86.4) $ (89.0) $ (86.2)
Deferred income tax liability (25.7) (26.3) (26.5)
Accumulated other comprehensive
loss (income) 1.3 1.6 (0.8)
Retained earnings (62.0) (64.3) (58.9)
3 Future accounting changes
There have been no new accounting pronouncements issued that are
expected to have a significant impact to the Company's financial
statements.
4 Gain on sale of partnership interest
During the second quarter of 2009, the Company completed a sale of a
portion of its investment in the Detroit River Tunnel Partnership
("DRTP") to its existing partner, reducing the Company's ownership
from 50% to 16.5%. The proceeds received in the quarter from the
transaction were $110 million. Additional proceeds of $22 million are
contingent on achieving certain future freight volumes through the
tunnel, and have not been recognized. The gain on this transaction
was $81.2 million ($68.7 million after tax).
5 Income taxes
For the three months For the six months
(in millions of ended June 30 ended June 30
Canadian dollars) 2010 2009 2010 2009
Restated Restated
(see Note 2) (see Note 2)
----------------------- -----------------------
Current income tax
expense $ 2.6 $ (4.9) $ 4.8 $ 0.3
Deferred income tax
expense 43.5 53.3 85.1 43.8
----------------------- -----------------------
Income tax expense $ 46.1 $ 48.4 $ 89.9 $ 44.1
----------------------- -----------------------
----------------------- -----------------------
During the first quarter of 2009, legislation was enacted to reduce
British Columbia provincial income tax rates. As a result, the
Company recorded in the first quarter of 2009 a $6.2 million income
tax benefit related to the revaluation of its deferred income tax
balances as at December 31, 2008. In addition, during the three and
six months ended June 30, 2009, the tax impact of foreign exchange
losses increased expected income tax expense, based on the expected
annual effective tax rate, by approximately $17 million and
$9 million, respectively. Also, for the three and six months ended
June 30, 2009, the tax impact of a gain on sale of partnership
interest reduced expected income tax expense by approximately
$9 million. In the three and six months ended June 30, 2010, the tax
impact of foreign exchange gains decreased expected income tax
expense by approximately $9 million and $3 million, respectively.
6 Earnings per share
At June 30, 2010, the number of shares outstanding was 168.7 million
(June 30, 2009 - 168.1 million).
Basic earnings per share have been calculated using net income for
the period divided by the weighted average number of Canadian Pacific
Railway Limited shares outstanding during the period.
Diluted earnings per share have been calculated using the treasury
stock method, which assumes that any proceeds received from the
exercise of in-the-money options would be used to purchase Common
Shares at the average market price for the period.
The number of shares used in earnings per share calculations is
reconciled as follows:
For the three months For the six months
ended June 30 ended June 30
(in millions) 2010 2009 2010 2009
----------------------- -----------------------
Weighted average
shares outstanding 168.6 168.0 168.6 164.5
Dilutive effect of
stock options 0.6 0.4 0.4 0.2
----------------------- -----------------------
Weighted average
diluted shares
outstanding 169.2 168.4 169.0 164.7
----------------------- -----------------------
----------------------- -----------------------
For the three and six months ended June 30, 2010, 1,711,200 and
2,120,421 options, respectively, were excluded from the computation
of diluted earnings per share because their effects were not dilutive
(three and six months ended June 30, 2009 - 2,809,967 and 3,101,592,
respectively).
7 Financial instruments
A. Fair values of financial instruments
The Company categorizes its financial assets and liabilities measured
at fair value into one of three different levels depending on the
observability of the inputs employed in the measurement.
- Level 1: Unadjusted quoted prices for identical assets and
liabilities in active markets that are accessible at the
measurement date.
- Level 2: Directly or indirectly observable inputs other than
quoted prices included within Level 1 or quoted prices for
similar assets and liabilities. Derivative instruments in this
category are valued using models or other industry standard
valuation techniques derived from observable market data.
- Level 3: Valuations based on inputs which are less observable,
unavailable or where the observable data does not support a
significant portion of the instruments' fair value. Generally,
Level 3 valuations are longer dated transactions, occur in less
active markets, occur at locations where pricing information is
not available or have no binding broker quote to support Level
2 classifications.
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. These
methods include discounted mark to market for forwards, futures and
swaps. 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. Wherever possible the Company uses
observable inputs. All derivatives 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.
Gain/loss in fair value of long-term floating rate notes
At June 30, 2010 and December 31, 2009, the Company held long-term
floating rate notes with a total settlement value of $129.0 million
and $129.1 million, respectively, and carrying values of $74.9
million and $69.3 million, respectively. The carrying values, being
the estimated fair values, are reported in "Investments".
During the three and six months ended June 30, 2010, the Company
received $nil and $0.1 million, respectively, in partial redemption
of certain of the notes held. At June 30, 2010, the Company held
long-term floating rate notes with settlement value, as follows:
- $116.7 million Master Asset Vehicle ("MAV") 2 notes with eligible
assets;
- $12.1 million MAV 2 Ineligible Asset ("IA") Tracking notes; and
- $0.2 million MAV 3 Class 9 Traditional Asset ("TA") Tracking
notes.
The MAV 2 Class A-1 notes have received a rating of A Under Review
with Positive Implications from DBRS. The MAV 2 Class A-2 notes have
received a BBB (low) rating from DBRS.
The valuation technique used by the Company to estimate the fair
value of its investment in long-term floating rate notes at June 30,
2010 and December 31, 2009 incorporates probability weighted
discounted cash flows considering the best available public
information regarding market conditions and other factors that a
market participant would consider for such investments. The above
noted redemption of notes, accretion and other minor changes in
assumptions have resulted in gains of $3.1 million and $5.6 million
in the three and six months ended June 30, 2010, respectively (three
and six months ended June 30, 2009 - $5.3 million and $5.3 million,
respectively). The interest rates and maturities of the various long-
term floating rate notes, discount rates and credit losses modelled
at June 30, 2010 and December 31, 2009, respectively, are:
June 30, 2010 December 31, 2009
Probability weighted 0.4% Nil
average coupon
interest rate
Weighted average 7.5% 7.9%
discount rate
Expected repayments Three to 19 years Three and a half
of long-term to 19 years
floating rate notes
Credit losses MAV 2 eligible asset MAV 2 eligible asset
notes: nil to 100% notes: nil to 100%
MAV 2 IA Tracking MAV 2 IA Tracking
notes: 25% notes: 25%
MAV 3 Class 9 TA MAV 3 Class 9 TA
Tracking notes: nil Tracking notes: nil
The probability weighted discounted cash flows resulted in an
estimated fair value of the Company's long-term floating rate notes
of $74.9 million at June 30, 2010 (December 31, 2009 - $69.3
million). The change in the original cost and estimated fair value of
the Company's long-term floating rate notes is as follows
(representing a roll-forward of assets measured at fair value using
Level 3 inputs):
Original Estimated
(in millions of Canadian dollars) cost fair value
-----------------------
As at January 1, 2010 $ 129.1 $ 69.3
Redemption of notes (0.1) -
Accretion - 2.9
Change in market assumptions - 2.7
-----------------------
As at June 30, 2010 $ 129.0 $ 74.9
-----------------------
-----------------------
Accretion and gains and losses from the redemption of notes and
change in market assumptions are reported in "Other income and
charges".
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.
Financial derivatives or commodity instruments are used to mitigate
financial risk and are not 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 Canada,
the United States and other countries; 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.
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. A portion 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 long-term debt against gains and losses on its
net investment. In addition, 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.
Occasionally the Company will enter into short-term FX forward
contracts as part of its cash management strategy.
Foreign exchange forward contracts
In 2007, the Company entered into a FX forward contract to fix the
exchange rate on US$400 million 6.250% Notes due 2011. This
derivative guaranteed the amount of Canadian dollars that the Company
will repay when its US$400 million 6.250% Notes mature in October
2011. This derivative was not designated as a hedge and changes in
fair value are recognized in net income in the period in which the
change occurs. During the first quarter of 2009, CP unwound and
settled US$25 million of the US$400 million currency forward for
total proceeds of $4.5 million received in the second quarter. In the
second quarter of 2009, a further US$275 million of the currency
forward was unwound and settled for total proceeds of $26.6 million.
During the remainder of 2009, CP unwound a further US$30 million for
total proceeds of $3.0 million. During the three months ended June
30, 2010, CP unwound the remaining US$70 million for total proceeds
of $0.2 million.
During the three months ended June 30, 2010, the Company recognized a
foreign exchange gain on long-term debt of $1.9 million recorded to
"Other income and charges" related to the currency forward comprised
of unrealized and realized gains. For the six months ended June 30,
2010, no gain or loss was reported. For the same periods in 2009, the
Company recorded a net loss of $30.9 million and $16.8 million,
respectively, inclusive of both realized and unrealized losses.
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 to manage the mix of
fixed and floating rate debt.
Interest rate swaps
During the three months ended June 30, 2010, the Company entered into
interest rate swaps, classified as fair value hedges, for a notional
amount of US$101.4 million. The swap agreements converted the
Company's outstanding fixed interest rate liability into variable
rate liability for the 5.75% Notes due in May 2013. During the three
months ended June 30, 2010, accounting for the associated debt at the
floating interest rate decreased "Interest expense" by $0.1 million.
At June 30, 2010, the unrealized gain derived from the fair value of
these swap agreements was $1.6 million of which $0.5 million was
reflected in "Other current assets" and $1.1 million in "Other
assets" with an offset reflected in "Long-term debt". At December 31,
2009, the Company had no outstanding interest rate swaps.
During the second quarter of 2009, CP unwound its outstanding fixed-
to-floating interest rate swap, which converted a portion of its
US$400 million 6.250% Notes to floating-rate debt, for a gain of
$16.8 million. The gain was deferred as a fair value adjustment to
the underlying debt that was hedged and will be amortized to
"Interest expense" until such time the 6.250% Notes are repaid.
Subsequently, in the second quarter of 2009, CP repurchased a portion
of the underlying debt as part of a tender offer and recognized $6.5
million of the deferred gain to "Other income and charges" offsetting
part of the loss on repurchase of debt recognized in the second
quarter of 2009. During the three and six months ended June 30, 2010,
the Company amortized $1.1 million and $2.1 million, respectively, of
the remaining deferred gain to "Interest expense". Prior to the
unwind, accounting for the associated debt at the floating interest
rate decreased "Interest expense" by $1.7 million and $3.1 million
for the three and six months ended June 30, 2009, respectively.
The combined impact of current and previously settled interest rate
swaps reduced interest expense in the three months ended June 30,
2010 by $1.2 million and $2.2 million for the six months ended June
30, 2010 (three and six months ended June 30, 2009 - $1.7 million and
$3.1 million, respectively).
Treasury rate locks
At June 30, 2010, the Company had net unamortized losses related to
interest rate locks, which are accounted for as cash flow hedges,
settled in previous years totalling $22.2 million (December 31, 2009
- $23.9 million). This amount is composed of various unamortized
gains and losses related to specific debts which are reflected in
"Accumulated other comprehensive loss" and are amortized to "Interest
expense" in the period that interest on the related debt is charged.
The amortization of these gains and losses resulted in an increase in
"Interest expense" and "Other comprehensive income" of $1.8 million
and $1.7 million for the three and six months ended June 30, 2010,
respectively (three and six months ended June 30, 2009 - $1.9 million
and $1.8 million, respectively).
Stock-based compensation expense management
-------------------------------------------
The Company is exposed to stock-based compensation risk, which is the
probability of increased compensation expense due to the increase in
the Company's share price.
The Company's compensation expense is subject to volatility due to
the movement of CP's share price and its impact on the value of
certain management and director stock-based compensation programs.
These programs include tandem share appreciation rights ("TSARs"),
deferred share units ("DSUs"), restricted share units ("RSUs"), and
performance share units ("PSUs"). As the share price appreciates,
these instruments create increased compensation expense.
The Company entered into a Total Return Swap ("TRS") to reduce the
volatility to the Company over time on three types of stock-based
compensation programs: TSARs, DSUs and RSUs. The TRS is a derivative
that provides price appreciation and dividends, in return for a
charge by the counterparty. The swaps were intended to minimize
volatility to "Compensation and benefits" expense by providing a gain
to offset increased compensation expense as the share price increased
and a loss to offset reduced compensation expense when the share
price falls. 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 compensation expense reductions,
which would reduce the effectiveness of the swap. During 2009, the
Company decided not to expand its TRS program.
"Compensation and benefits" expense included an unrealized loss on
these swaps of $0.4 million for the three months ended June 30, 2010,
and an unrealized gain of $0.4 million for the six months ended June
30, 2010. For the same periods in 2009, the Company recorded an
unrealized gain of $13.6 million and a net gain of $2.9 million which
was inclusive of both realized losses and unrealized gains,
respectively. During the first quarter of 2009, in order to improve
the effectiveness of the TRS in mitigating the volatility of stock-
based compensation programs, CP unwound a portion of the program for
a total cost of $31.1 million. This cost had previously been
recognized in "Compensation and benefits" expense and was settled in
the second quarter of 2009. At June 30, 2010, the unrealized loss on
the TRS of $17.8 million was included in "Accounts payable and
accrued liabilities" (December 31, 2009 - $18.2 million).
Fuel price management
---------------------
The Company is exposed to potential volatility in net income due to
increases or decreases in the price of diesel. Volatility in diesel
fuel prices can have a significant impact on the Company's income.
The impact of variable fuel expense is mitigated substantially
through fuel cost recovery programs. 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.
Derivative instruments used by the Company to manage fuel expense
risk may include, but are not limited to, swaps and options for
diesel and crude oil. In addition, the Company may combine FX
forward contracts with fuel derivatives to effectively hedge the
risk associated with FX variability on fuel purchases and commodity
hedges.
At June 30, 2010, the Company had diesel futures contracts, which are
accounted for as cash flow hedges, to purchase approximately 14.7
million US gallons during the period July 2010 to June 2011 at an
average price of US$2.16 per US gallon. This represents approximately
5% of estimated fuel purchases for this period. At June 30, 2010, the
unrealized loss on these futures contracts was $0.9 million and was
reflected in "Accounts payable and accrued liabilities" with the
offset, net of tax, reflected in "Accumulated other comprehensive
loss". At December 31, 2009, the unrealized gain on these futures
contracts was $2.5 million and was reflected in "Other current
assets" with the offset, net of tax, reflected in "Accumulated other
comprehensive loss".
At June 30, 2010 and December 31, 2009, the Company had no remaining
crude futures and associated FX forward contracts.
During the three and six months ended June 30, 2010, the impact of
settled commodity swaps benefited "Fuel" expense by $0.7 million and
$1.6 million, respectively, as a result of realized gains on diesel
swaps. For the three months ended June 30, 2009, the net impact of
settled commodity swaps decreased "Fuel" expense by $0.9 million as a
result of realized gains on diesel swaps and crude oil swaps. For the
six months ended June 30, 2009, the net impact of settled commodity
swaps increased "Fuel" expense by $4.8 million, as a result of
realized losses on diesel swaps, offset in part by gains on crude oil
swaps.
The following table summarizes information on the location and
amounts of gains and losses, before tax, related to derivatives on
the Consolidated Statement of Income and in comprehensive income for
the three and six months ended June 30, 2010 and 2009:
Amount of
gain (loss)
Location of Amount of recognized
gain (loss) gain (loss) in other
(in millions recognized recognized comprehensive
of Canadian in income on in income on income on
dollars) derivatives derivatives derivatives
-----------------------------------------------------
For the For the
three months three months
ended ended
June 30 June 30
2010 2009 2010 2009
-----------------------------------
Derivatives
designated
as hedging
instruments
Effective
portion
Crude oil
swaps Fuel expense $ - $ 0.8 $ - $ 0.9
Diesel future
contracts Fuel expense 0.7 0.1 (3.7) 1.6
FX contracts
on fuel Fuel expense - - - (0.4)
Interest
rate swap Interest expense 1.2 1.7 - -
Other income
and charges - 6.5 - -
Treasury rate
locks Interest expense (1.8) (1.9) 1.8 1.9
Derivatives
not designated
as hedging
instruments
Total return Compensation
swap and benefits (0.4) 13.6 - -
FX forward Other income
contracts and charges 1.9 (30.9) - -
Treasury rate
locks Interest expense - (0.7) - -
-----------------------------------
$ 1.6 $ (10.8) $ (1.9) $ 4.0
-----------------------------------
-----------------------------------
Amount of
gain (loss)
Location of Amount of recognized
gain (loss) gain (loss) in other
(in millions recognized recognized comprehensive
of Canadian in income on in income on income on
dollars) derivatives derivatives derivatives
-----------------------------------------------------
For the For the
six months six months
ended ended
June 30 June 30
2010 2009 2010 2009
-----------------------------------
Derivatives
designated
as hedging
instruments
Effective
portion
Crude oil
swaps Fuel expense $ - $ 1.0 $ - $ 0.3
Diesel future
contracts Fuel expense 1.6 (5.8) (3.4) 6.0
FX contracts
on fuel Fuel expense - - - (0.2)
Interest rate
swap Interest expense 2.2 3.1 - -
Other income
and charges - 6.5 - -
Treasury rate
locks Interest expense (1.7) (1.8) 1.7 1.8
Derivatives
not designated
as hedging
instruments
Total return
swap Compensation
and benefits 0.4 2.9 - -
FX forward
contracts Other income
and charges - (16.8) - -
Treasury rate
locks Interest expense - (0.7) - -
-----------------------------------
$ 2.5 $ (11.6) $ (1.7) $ 7.9
-----------------------------------
-----------------------------------
At June 30, 2010, the Company expected that, during the next 12
months, $0.9 million of unrealized holding losses on diesel future
contracts will be realized and recognized in the consolidated
statement of income, reported in "Fuel" expense as a result of these
derivatives being settled.
The following table summarizes information on the effective and
ineffective portions, before tax, of the Company's net investment
hedge on the Consolidated Statement of Income and in comprehensive
income for the three and six months ended June 30, 2010 and 2009:
Effective
Location of portion
ineffective Ineffective recognized in
portion portion other
(in millions of recognized in recognized comprehensive
Canadian dollars) income in income income
--------------------------------------------------
For the three For the three
months ended months ended
June 30 June 30
2010 2009 2010 2009
-------------------------------
FX on LTD within net
investment hedge Other income
and charges $ 0.6 $ (1.3) $(75.4) $143.5
-------------------------------
-------------------------------
Effective
Location of portion
ineffective Ineffective recognized in
portion portion other
(in millions of recognized in recognized comprehensive
Canadian dollars) income in income income
-----------------------------------------------------
For the six For the six
months ended months ended
June 30 June 30
2010 2009 2010 2009
-------------------------------
FX on LTD within net
investment hedge Other income
and charges $ 2.6 $ (4.9) $(25.2) $ 85.6
-------------------------------
-------------------------------
8 Stock-based compensation
At June 30, 2010, the Company had several stock-based compensation
plans, including stock option plans, various cash settled liability
plans and an employee stock savings plan. These plans resulted in an
expense for the three and six months ended June 30, 2010 of $12.9
million and $30.8 million, respectively (three and six months ended
June 30, 2009 - $41.8 million and $37.8 million, respectively).
Tandem stock appreciation rights ("TSARs")
In the first six months of 2010, under CP's stock option plans, the
Company issued 812,900 TSARs at the weighted average exercise price
of $51.81 per share, based on the closing price on the grant date.
Pursuant to the employee plan, these TSARs may be exercised upon
vesting, which is between 24 months and 36 months after the grant
date, and will expire after 10 years.
Under the fair value method, the fair value at the grant date was
$11.6 million for TSARs issued in the first six months of 2010 (first
six months of 2009 - $5.4 million). The weighted average fair value
assumptions were approximately:
For the six months
ended June 30
2010 2009
------------------------
Grant price $ 51.81 $ 36.29
Expected life (years)(1) 6.25 5.00
Risk-free interest rate(2) 2.74% 2.14%
Expected stock price volatility(3) 30% 30%
Expected annual dividends per share(4) $ 0.99 $ 0.99
Weighted average fair value of TSARs
granted during the period $ 14.27 $ 7.24
------------------------
(1) Represents the period of time that awards are expected to be
outstanding. Historical data on exercise behaviour was 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) Based on the annualized dividend rate on the date of grant.
Regular options
In the first six months of 2010, under CP's stock option plans, the
Company issued 29,800 regular options at the weighted average
exercise price of $56.69 per share, based on the closing price on the
grant date.
Under the fair value method, the fair value at the grant date was
$0.5 million for options issued in the first six months of 2010
(first six months of 2009 - $nil).
Performance share unit ("PSU") plan
In the first six months of 2010, the Company issued 328,020 PSUs with
a grant date fair value of $15.4 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 are 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 condition
stipulated in the grant.
9 Pensions and other benefits
At June 30, the elements of net periodic benefit cost for defined
benefit pension plans and other benefits recognized in the three and
six months ended June 30, 2010, included the following components:
For the three months
ended June 30
Pensions Other benefits
----------------------------------------
(in millions of
Canadian dollars) 2010 2009 2010 2009
----------------------------------------
Current service cost
(benefits earned by
employees in the period) $ 21.6 $ 16.8 $ 3.9 $ 3.1
Interest cost on benefit
obligation 116.1 120.6 7.0 6.8
Expected return on fund
assets (149.6) (139.4) (0.2) (0.2)
Recognized net actuarial loss 17.8 1.9 1.3 0.9
Amortization of prior
service costs 3.3 5.7 (0.4) (0.4)
Settlement gain(1) - - - (8.7)
----------------------------------------
Net periodic benefit cost $ 9.2 $ 5.6 $ 11.6 $ 1.5
----------------------------------------
----------------------------------------
For the six months
ended June 30
Pensions Other benefits
----------------------------------------
(in millions of
Canadian dollars) 2010 2009 2010 2009
----------------------------------------
Current service cost
(benefits earned by
employees in the period) $ 43.2 $ 33.7 $ 7.8 $ 7.3
Interest cost on benefit
obligation 232.2 241.3 14.0 14.7
Expected return on fund
assets (299.2) (278.9) (0.4) (0.5)
Recognized net actuarial
loss 35.6 3.8 2.6 1.9
Amortization of prior
service costs 6.6 11.4 (0.8) (0.8)
Settlement gain(1) - - - (8.7)
----------------------------------------
Net periodic benefit cost $ 18.4 $ 11.3 $ 23.2 $ 13.9
----------------------------------------
----------------------------------------
(1) Settlement gains resulted from certain post-retirement benefit
obligations being assumed by a U.S. national multi-employer
benefit plan.
In the three months ended June 30, 2010, the Company made
contributions of $159.7 million and $178.4 million, respectively
(2009 - $21.4 million and $43.7 million, respectively) to its defined
benefit pension plans. The contributions made in the second quarter
of 2010 included, at the Company's option, amounts equivalent to the
estimated current and past service contribution requirements for the
Company's main Canadian defined benefit plan for the balance of 2010.
10 Interest paid
Interest paid in the three and six months ended June 30, 2010,
included an amount of $71.7 million of accrued interest in relation
to a long-term debt that matured in June 2010.
11 Variable interest entities
The Company leases equipment from certain trusts, which have been
determined to be variable interest entities financed by a combination
of debt and equity provided by unrelated third parties. The lease
agreements, which are classified as operating leases, have a fixed
price purchase option which create the Company's variable interest
and result in the trusts being considered variable interest entities.
These fixed price purchase options are set at the estimated fair
market value as determined at the inception of the lease and could
provide the Company with potential gains. These options are
considered variable interests, however, they are not expected to
provide a significant benefit to the Company.
The Company is responsible for maintaining and operating the leased
assets according to specific contractual obligations outlined in the
terms of the lease agreements and industry standards. The rigor of
the contractual terms of the lease agreements and industry standards
are such that the Company has limited discretion over the maintenance
activities associated with these assets. As such the Company
concluded these terms do not provide the Company with the power to
direct the activities of the variable interest entities in a way that
has a significant impact on the entities' economic performance.
The Company's financial exposure as a result of its involvement with
the variable interest entities is equal to the fixed lease payments
due to the trusts. In 2010 lease payments after tax will amount to
$9.3 million. Future minimum lease payments, before tax, of
$256.2 million will be payable over the next 20 years (Note 12).
The Company does not guarantee the residual value of the assets to
the lessor, however, it must deliver to the lessor the assets in good
operating condition, subject to normal wear and tear, at the end of
the lease term.
As the Company's actions and decisions do not significantly effect on
the variable interest entities' performance, and the Company's fixed
purchase price option is not considered to be potentially significant
to the variable interest entities, the Company is not considered to
be the primary beneficiary, and does not consolidate these variable
interest entities. As the leases are considered to be operating
leases, the Company does not recognize any balances in the
Consolidated Balance Sheet in relation to the variable interest
entities.
12 Commitments and contingencies
In the normal course of its operations, the Company becomes involved
in various legal actions, including claims relating to injuries and
damage to property. The Company maintains provisions it considers to
be adequate for such actions. While the final outcome with respect to
actions outstanding or pending at June 30, 2010, 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 June 30, 2010, the Company had committed to total future capital
expenditures amounting to $177.7 million and operating expenditures
amounting to $1,750.1 million for the years 2010-2028.
Operating lease commitments
At June 30, 2010, minimum payments under operating leases were
estimated at $876.8 million in aggregate, with annual payments in
each of the next five years of: balance of 2010 - $72.7 million;
2011 - $131.9 million; 2012 - $121.0 million; 2013 - $106.4 million;
2014 - $79.9 million.
Environmental remediation accruals
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 estimate of the probable costs
to be incurred in the remediation of properties contaminated by past
railway use reflects the nature of contamination at individual sites
according to typical activities and scale of operations conducted.
CP has developed remediation strategies for each property based on
the nature and extent of the contamination, as well as the location
of the property and surrounding areas that may be adversely affected
by the presence of contaminants, considering available technologies,
treatment and disposal facilities and the acceptability of site-
specific plans based on the local regulatory environment. Site-
specific plans range from containment and risk management of the
contaminants through to the removal and treatment of the contaminants
and affected soils and ground water. The details of the estimates
reflect the environmental liability at each property. 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". Payments are expected to
be made over 10 years to 2020.
The accruals for environmental remediation represent CP's best
estimate of its probable future obligation and includes 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. Changes to costs are
reflected as changes to "Other long-term liabilities" or "Accounts
payable and accrued liabilities" and to "Purchased services and
other" within operating expenses. The amount credited to income in
the three months ended June 30, 2010 was $0.1 million and charged to
income in the six months ended June 30, 2010 was $1.5 million (three
and six months ended June 30, 2009 - charges of $0.6 million and $1.6
million, respectively).
Guarantees
At June 30, 2010, the Company had residual value guarantees on
operating lease commitments of $169.9 million. The maximum amount
that could be payable under these and all of the Company's other
guarantees cannot be reasonably estimated due to the nature of
certain of the guarantees. All or a portion of amounts paid under
certain guarantees could be recoverable from other parties or through
insurance. The Company accrues for all guarantees that it expects to
pay. At June 30, 2010, these accruals amounted to $9.4 million.
13 Reconciliation of U.S. GAAP to Canadian GAAP
The unaudited consolidated financial statements of the Company
have been prepared in accordance with U.S. GAAP. The material
differences between U.S. GAAP and Canadian generally accepted
accounting principles ("Canadian GAAP") as they relate to the
Company are explained and quantified below, along with their
effect on the Company's Consolidated Statement of Income and
Consolidated Balance Sheet.
(a) Accounting for derivative instruments and hedging: The
measurement and recognition rules for derivative instruments and
hedging under Canadian GAAP are largely harmonized with U.S.
GAAP. However, under Canadian GAAP, only the ineffective portion
of a net investment hedge that represents an over hedge is
recognized in income, whereas under U.S. GAAP, any ineffective
portion is recognized in income immediately.
(b) Pensions and post-retirement benefits: The Company is required to
recognize the over or under funded status of defined benefit
pension and other post-retirement benefit plans on the balance
sheet under U.S. GAAP. The over or under funded status is
measured as the difference between the fair value of the plan
assets and the benefit obligation, being the projected benefit
obligation for pension plans and the accumulated benefit
obligation for other post-retirement benefit plans. In addition,
any previously unrecognized actuarial gains and losses and prior
service costs and credits that arise during the period will be
recognized as a component of other comprehensive income ("OCI"),
net of tax. Under Canadian GAAP the over or under funded status
of defined benefit pension and post-retirement benefit plans is
not recognized in the balance sheet. Canadian GAAP recognizes an
asset for contributions made in excess of amounts recognized as
expense in the Consolidated Statement of Income and a liability
when contributions are less than amounts recognized as expense.
Prior service costs are amortized under Canadian GAAP and U.S.
GAAP. However, the period over which costs related to events
before 2000 are amortized differs between Canadian GAAP and U.S.
GAAP.
(c) Post-employment benefits: Post-employment benefits are covered by
the CICA Section 3461 "Employee Future Benefits". Consistent with
accounting for post-retirement benefits, the policy permits
amortization of actuarial gains and losses if they fall outside
of the corridor. Under U.S. GAAP, such gains and losses on post-
employment benefits that do not vest or accumulate are included
immediately in income.
(d) Termination and severance benefits: Termination and severance
benefits are covered by the CICA Section 3461 "Employee Future
Benefits" and the CICA Emerging Issues Committee Abstract 134
"Accounting for Severance and Termination Benefits" ("EIC 134").
Upon transition to the CICA Section 3461 effective January 1,
2000, a net transitional asset was created and was being
amortized to income. During the first quarter of 2009 this
transitional asset was fully amortized. Under U.S. GAAP, the
expected benefits were not accrued and are expensed when paid.
(e) Stock-based compensation: U.S. GAAP requires the use of an
option-pricing model to fair value, at the grant date, share-
based awards issued to employees, including stock options, TSARs,
PSUs, RSUs, and DSUs. TSARs, PSUs, RSUs, and DSUs are
subsequently re-measured at fair value each reporting period.
Under Canadian GAAP, liability awards that are settled, such as
TSARs, PSUs, RSUs and DSUs, are accounted for using the intrinsic
method. U.S. GAAP also requires that CP accounts for forfeitures
on an estimated basis. Under Canadian GAAP, CP has elected to
account for forfeitures on an actual basis as they occur.
(f) Internal use software: Under U.S. GAAP certain costs, including
preliminary project phase costs, are expensed as incurred. These
costs are capitalized and depreciated under Canadian GAAP.
(g) Capitalization of interest: U.S. GAAP requires interest costs to
be capitalized for all qualifying capital programs. Under
Canadian GAAP capitalization of interest is a policy choice and
the Company expenses interest related to capital projects
undertaken during the year unless specific debt is attributed to
a capital program. Differences in GAAP result in additional
capitalization of interest under U.S. GAAP and subsequent related
depreciation.
(h) Joint venture: The CICA Section 3055 "Interest in Joint
Ventures" requires the proportionate consolidation method to be
applied to the recognition of interests in joint ventures in
consolidated financial statements. Until April 1, 2009, the
Company accounted for its joint-venture interest in the DRTP
under Canadian GAAP using the proportionate consolidation method.
During the second quarter of 2009, the Company completed a sale
of a portion of its investment in the DRTP to its existing
partner, reducing the Company's ownership from 50% to 16.5%.
Effective April 1, 2009, the Company discontinued proportionate
consolidation and accounts for its remaining investment in the
DRTP under the equity method of accounting. U.S. GAAP requires
the equity method of accounting to be applied to interests in
joint ventures. This had no effect on net income as it represents
a classification difference within the Consolidated Statement of
Income and Consolidated Balance Sheet for periods prior to
April, 2009.
(i) Long-term debt: Under Canadian GAAP, offsetting amounts with the
same party and with a legal right to offset are netted against
each other. U.S. GAAP does not allow netting of assets and
liabilities among three parties. In 2003, the Company and one of
its subsidiaries entered into a contracts with a financial
institution resulting in a receivable amount and long-term debt
payable. In the second quarter of 2010, these contracts were
unwound eliminating this difference.
As well, transaction costs have been added to the fair value of
the "Long-term debt" under Canadian GAAP whereas under U.S. GAAP
such costs are recorded separately with "Other assets".
(j) Capital leases: Under U.S. GAAP, certain leases, which are
recorded as capital leases under Canadian GAAP, do not meet the
criteria for capital leases and are recorded as operating leases.
These relate to equipment leases, previously recorded as
operating leases under Canadian and U.S. GAAP, which were renewed
within the last 25 percent of the equipment's useful life.
(k) Investment tax credits: Under U.S. GAAP investment tax credits
are credited against income tax expense whereas under Canadian
GAAP these tax credits are offset against the related operating
expense. There is no impact to net income as a result of this
GAAP difference.
(l) Cash flows: There are no material differences between cash flows
under U.S. GAAP and Canadian GAAP.
Comparative income statement
Consolidated net income is reconciled from Canadian to U.S. GAAP
below.
(in millions of Canadian
dollars, except per
share data) Three months ended June 30
2010
----------------------------------
Canadian U.S. GAAP U.S.
GAAP adjustments GAAP
Revenues
Freight (h) $1,202.2 $ - $1,202.2
Other (h) 32.0 - 32.0
----------------------------------
1,234.2 - 1,234.2
Operating expenses
Compensation and benefits
(b, c, d, e, f) 349.1 0.6 349.7
Fuel 177.9 - 177.9
Materials (f) 48.5 2.5 51.0
Equipment rents (j) 54.6 0.3 54.9
Depreciation and amortization
(f, g, h, j, k) 122.7 0.6 123.3
Purchased services and other
(c, f, h, k) 207.7 (4.4) 203.3
----------------------------------
960.5 (0.4) 960.1
Operating income 273.7 0.4 274.1
Gain on sale of partnership
interest - - -
Less:
Other (income) and charges (a) (2.6) (0.8) (3.4)
Interest expense (g, j) 67.3 (2.5) 64.8
----------------------------------
Income before income tax expense 209.0 3.7 212.7
Income tax expense
(recovery) (k)(2) 46.0 0.1 46.1
----------------------------------
Net income $ 163.0 $ 3.6 $ 166.6
----------------------------------
----------------------------------
Basic earnings per share $ 0.97 $ 0.2 $ 0.99
Diluted earnings per share $ 0.96 $ 0.2 $ 0.98
(in millions of Canadian
dollars, except per
share data) Three months ended June 30
2009
----------------------------------
Canadian U.S. GAAP U.S.
GAAP(1) adjustments GAAP
Revenues
Freight (h) $1,000.8 $ 0.6 $1,001.4
Other (h) 56.3 (26.4) 29.9
----------------------------------
1,057.1 (25.8) 1,031.3
Operating expenses
Compensation and benefits
(b, c, d, e, f) 302.5 22.0 324.5
Fuel 117.7 - 117.7
Materials (f) 52.4 1.1 53.5
Equipment rents (j) 54.7 0.4 55.1
Depreciation and amortization
(f, g, h, j, k) 120.8 2.4 123.2
Purchased services and other
(c, f, h, k) 183.3 (10.9) 172.4
----------------------------------
831.4 15.0 846.4
Operating income 225.7 (40.8) 184.9
Gain on sale of partnership
interest 81.2 - 81.2
Less:
Other (income) and charges (a) 14.0 (4.4) 9.6
Interest expense (g, j) 73.4 (0.8) 72.6
----------------------------------
Income before income tax expense 219.5 (35.6) 183.9
Income tax expense
(recovery) (k)(2) 64.3 (15.9) 48.4
----------------------------------
Net income $ 155.2 $ (19.7) $ 135.5
----------------------------------
----------------------------------
Basic earnings per share $ 0.92 $ (0.11) $ 0.81
Diluted earnings per share $ 0.92 $ (0.12) $ 0.80
(1) Restated for the Company's changes in accounting policies in
relation to the accounting for rail grinding, discussed in Note 2
to these consolidated financial statements, and for locomotive
overhauls and amortization of pension plan amendments for
unionized employees, discussed in Note 2 of the Company's 2009
annual consolidated financial statements. In addition, certain
revenue and operating expense items have been reclassified in
order to be consistent with U.S. GAAP presentation.
(2) Adjustment for income tax expense (recovery) includes the tax
effect of other U.S. to Canadian GAAP differences, in addition to
the impact of difference (k) Investment tax credits.
Comparative income statement
Consolidated net income is reconciled from Canadian to U.S. GAAP
below:
(in millions of Canadian
dollars, except per
share data) Six months ended June 30
2010
----------------------------------
Canadian U.S. GAAP U.S.
GAAP adjustments GAAP
Revenues
Freight (h) $2,340.4 $ - $2,340.4
Other (h) 60.6 - 60.6
----------------------------------
2,401.0 - 2,401.0
Operating expenses
Compensation and benefits
(b, c, d, e, f) 694.4 9.1 703.5
Fuel 359.6 - 359.6
Materials (f) 110.6 4.4 115.0
Equipment rents (j) 103.3 0.6 103.9
Depreciation and amortization
(f, g, h, j, k) 243.2 1.3 244.5
Purchased services and other
(c, f, h, k) 402.8 (9.0) 393.8
----------------------------------
1,913.9 6.4 1,920.3
Operating income 487.1 (6.4) 480.7
Gain on sale of partnership
interest - - -
Less:
Other (income) and charges (a) (5.6) (2.7) (8.3)
Interest expense (g, j) 136.5 (5.0) 131.5
----------------------------------
Income before income tax expense 356.2 1.3 357.5
Income tax expense
(recovery) (k)(2) 88.3 1.6 89.9
----------------------------------
Net income $ 267.9 $ (0.3) $ 267.6
----------------------------------
----------------------------------
Basic earnings per share $ 1.59 $ - $ 1.59
Diluted earnings per share $ 1.59 $ (0.01) $ 1.58
(in millions of Canadian
dollars, except per
share data) Six months ended June 30
2009
----------------------------------
Canadian U.S. GAAP U.S.
GAAP(1) adjustments GAAP
Revenues
Freight (h) $2,079.9 $ (2.5) $2,077.4
Other (h) 86.3 (22.8) 63.5
----------------------------------
2,166.2 (25.3) 2,140.9
Operating expenses
Compensation and benefits
(b, c, d, e, f) 643.8 23.7 667.5
Fuel 288.7 - 288.7
Materials (f) 128.6 1.6 130.2
Equipment rents (j) 120.8 0.7 121.5
Depreciation and amortization
(f, g, h, j, k) 238.8 0.6 239.4
Purchased services and other
(c, f, h, k) 380.3 (6.4) 373.9
----------------------------------
1,801.0 20.2 1,821.2
Operating income 365.2 (45.5) 319.7
Gain on sale of partnership
interest 81.2 - 81.2
Less:
Other (income) and charges (a) 21.7 (3.6) 18.1
Interest expense (g, j) 145.7 (1.5) 144.2
----------------------------------
Income before income tax expense 279.0 (40.4) 238.6
Income tax expense
(recovery) (k)(2) 62.0 (17.9) 44.1
----------------------------------
Net income $ 217.0 $ (22.5) $ 194.5
----------------------------------
----------------------------------
Basic earnings per share $ 1.32 $ (0.14) $ 1.18
Diluted earnings per share $ 1.32 $ (0.14) $ 1.18
(1) Restated for the Company's changes in accounting policies in
relation to the accounting for rail grinding, discussed in Note 2
to these consolidated financial statements, and for locomotive
overhauls and amortization of pension plan amendments for
unionized employees, discussed in Note 2 of the Company's 2009
annual consolidated financial statements. In addition, certain
revenue and operating expense items have been reclassified in
order to be consistent with U.S. GAAP presentation.
(2) Adjustment for income tax expense (recovery) includes the tax
effect of other U.S. to Canadian GAAP differences, in addition to
the impact of difference (k) Investment tax credits.
Consolidated balance sheet
The Consolidated Balance Sheet is reconciled from Canadian to U.S.
GAAP below:
(in millions of
Canadian dollars) June 30, 2010
-----------------------------------
Canadian U.S. GAAP U.S.
GAAP adjustments GAAP
Assets
Current assets
Cash and cash equivalents $ 373.6 $ - $ 373.6
Accounts receivable, net (i) 441.2 - 441.2
Materials and supplies 136.8 - 136.8
Deferred income taxes 137.6 - 137.6
Other current assets 62.2 - 62.2
-----------------------------------
1,151.4 - 1,151.4
Investments 167.9 - 167.9
Net properties (e, f, g, j) 11,946.0 98.5 12,044.5
Goodwill and intangible assets 204.0 - 204.0
Other assets (b, i) 2,013.2 (1,842.0) 171.2
-----------------------------------
Total assets $15,482.5 $(1,743.5) $13,739.0
-----------------------------------
-----------------------------------
Liabilities and shareholders'
equity
Current liabilities
Accounts payable and accrued
liabilities (e) $ 882.6 $ 15.1 $ 897.7
Income and other taxes payable 36.1 - 36.1
Dividends payable 45.5 - 45.5
Long-term debt maturing within
one year (i, j) 41.1 (0.9) 40.2
-----------------------------------
1,005.3 14.2 1,019.5
Pension and other benefit
liabilities (b, c) - 1,252.2 1,252.2
Other long-term liabilities
(b, c, e) 803.9 (317.1) 486.8
Long-term debt (i, j) 4,210.5 (50.1) 4,160.4
Future/deferred income taxes
(b, c, e, f, g, j) 2,628.6 (690.5) 1,938.1
-----------------------------------
Total liabilities 8,648.3 208.7 8,857.0
Shareholders' equity
Share capital (e) 1,755.0 25.8 1,780.8
Contributed surplus/Additional
paid-in capital (e) 33.4 (4.0) 29.4
Accumulated other comprehensive
income (loss) (a, b) 52.9 (1,762.4) (1,709.5)
Retained income/earnings
(a, b, c, e, f, g, j) 4,992.9 (211.6) 4,781.3
-----------------------------------
6,834.2 (1,952.2) 4,882.0
-----------------------------------
Total liabilities and
shareholders' equity $15,482.5 $(1,743.5) $13,739.0
-----------------------------------
-----------------------------------
(in millions of
Canadian dollars) December 31, 2009
-----------------------------------
Canadian U.S. GAAP U.S.
GAAP(1) adjustments GAAP
Assets
Current assets
Cash and cash equivalents $ 679.1 $ - $ 679.1
Accounts receivable, net (i) 441.0 214.1 655.1
Materials and supplies 132.7 - 132.7
Deferred income taxes 128.1 - 128.1
Other current assets 46.5 - 46.5
-----------------------------------
1,427.4 214.1 1,641.5
Investments 156.7 - 156.7
Net properties (e, f, g, j) 11,878.8 99.7 11,978.5
Goodwill and intangible assets 202.3 - 202.3
Other assets (b, i) 1,777.2 (1,601.4) 175.8
-----------------------------------
Total assets $15,442.4 $(1,287.6) $14,154.8
-----------------------------------
-----------------------------------
Liabilities and shareholders'
equity
Current liabilities
Accounts payable and accrued
liabilities (e) $ 917.3 $ 9.8 $ 927.1
Income and other taxes payable 31.9 - 31.9
Dividends payable 41.7 - 41.7
Long-term debt maturing within
one year (i, j) 392.1 213.2 605.3
-----------------------------------
1,383.0 223.0 1,606.0
Pension and other benefit
liabilities (b, c) - 1,453.9 1,453.9
Other long-term liabilities
(b, c, e) 790.2 (310.3) 479.9
Long-term debt (i, j) 4,102.7 35.5 4,138.2
Future/deferred income taxes
(b, c, e, f, g, j) 2,523.2 (704.5) 1,818.7
-----------------------------------
Total liabilities 8,799.1 697.6 9,496.7
Shareholders' equity
Share capital (e) 1,746.4 24.7 1,771.1
Contributed surplus/Additional
paid-in capital (e) 33.5 (2.7) 30.8
Accumulated other comprehensive
income (loss) (a, b) 51.1 (1,795.8) (1,744.7)
Retained income/earnings
(a, b, c, e, f, g, j) 4,812.3 (211.4) 4,600.9
-----------------------------------
6,643.3 (1,985.2) 4,658.1
-----------------------------------
Total liabilities and
shareholders' equity $15,442.4 $(1,287.6) $14,154.8
-----------------------------------
-----------------------------------
(1) Restated for the Company's changes in accounting policies in
relation to the accounting for rail grinding, discussed in Note 2
to these consolidated financial statements, and for locomotive
overhauls and amortization of pension plan amendments for
unionized employees, discussed in Note 2 of the Company's 2009
annual consolidated financial statements. In addition, certain
revenue and operating expense items have been reclassified in
order to be consistent with U.S. GAAP presentation.
Disclosures required by Canadian GAAP
Future accounting changes
-------------------------
U.S. GAAP/International Financial Reporting Standards ("IFRS")
On February 13, 2008, the Canadian Accounting Standards Board
("AcSB") confirmed that publicly accountable enterprises will be
required to adopt IFRS in place of Canadian GAAP for interim and
annual reporting purposes for fiscal years beginning on or after
January 1, 2011, unless, as permitted by Canadian securities
regulations, SEC registrants were to adopt U.S. GAAP on or before
this date. Commencing on January 1, 2010, CP adopted U.S. GAAP for
its financial reporting, which is consistent with the reporting of
other North American Class I railways. As a result, CP will not be
adopting IFRS in 2011.
Business combinations, consolidated financial statements and non-
controlling interests
In January 2009, the CICA issued three new standards:
Business Combinations, Section 1582
This section which replaces the former Section 1581 "Business
Combinations" and provides the Canadian equivalent to IFRS 3
"Business Combinations" (January 2008). The new standard requires the
acquiring entity in a business combination to recognize most of the
assets acquired and liabilities assumed in the transaction at fair
value including contingent assets and liabilities; and to recognize
and measure the goodwill acquired in the business combination or a
gain from a bargain purchase. Acquisition-related costs are also to
be expensed.
Consolidated Financial Statements, Section 1601 and Non-controlling
Interests, Section 1602
These two sections replace Section 1600 "Consolidated Financial
Statements". Section 1601 "Consolidated Financial Statements" carries
forward guidance from Section 1600 "Consolidated Financial
Statements" with the exception of non-controlling interests which are
addressed in a separate section. Section 1602 "Non-controlling
Interests", requires the Company to report non-controlling interests
within equity, separately from the equity of the owners of the
parent, and transactions between an entity and non-controlling
interests as equity transactions.
All three standards are effective January 1, 2011 and therefore will
not impact the Company as it has adopted U.S. GAAP for financial
reporting.
Capital disclosures
-------------------
The Company's objectives when managing its capital are:
- to maintain a flexible capital structure which optimizes the cost
of capital at acceptable risk while providing an appropriate
return to its shareholders;
- to manage capital in a manner which balances the interests of
equity and debt holders;
- to manage capital in a manner that will maintain compliance with
its financial covenants;
- to manage its long-term financing structure to maintain its
investment grade rating; and
- to maintain a strong capital base so as to maintain investor,
creditor and market confidence and to sustain future development
of the business.
The Company defines its capital as follows:
- shareholders' equity;
- long-term debt, including the current portion thereof; and
- short-term borrowing.
The Company manages its capital structure and makes adjustments to it
in accordance with the aforementioned objectives, as well as in light
of changes in economic conditions and the risk characteristics of the
underlying assets. In order to maintain or adjust its capital
structure, the Company may, among other things, adjust the amount of
dividends paid to shareholders, purchase shares for cancellation
pursuant to normal course issuer bids, issue new shares, issue new
debt, and/or issue new debt to replace existing debt with different
characteristics.
The Company monitors capital using a number of key financial metrics,
including:
- debt to total capitalization; and
- interest coverage ratio.
The calculations for the aforementioned key financial metrics are as
follows:
Debt to total capitalization
----------------------------
Debt is the sum of long-term debt, long-term debt maturing within one
year and short-term borrowing. This sum is divided by debt plus total
shareholders' equity as presented on our Consolidated Balance Sheet.
Interest coverage ratio
-----------------------
Interest coverage ratio is measured, on a twelve month rolling basis,
as adjusted EBIT divided by interest expense. Adjusted EBIT excludes
changes in the estimated fair value of the Company's investment in
long-term floating rate notes/asset-backed commercial paper ("ABCP"),
the gains on sales of partnership interest and significant
properties and the loss on termination of a lease with a shortline
railway as these are not in the normal course of business and
foreign exchange gains and losses on long-term debt, which can be
volatile and short term. The interest coverage ratio and adjusted
EBIT are non-GAAP measures and do not have standardized meanings
prescribed by GAAP and, therefore, are unlikely to be comparable to
similar measures of other companies.
The following table illustrates the financial metrics and their
corresponding guidelines currently in place:
---------------------------------------------------------------------
(in millions of Canadian Guidelines June 30, June 30,
dollars, U.S. GAAP) 2010 2009
Restated
(See Note 2)
---------------------------------------------------------------------
Long-term debt $ 4,160.4 $ 4,218.1
Long-term debt maturing
within one year 40.2 385.7
Short-term borrowing - 55.6
---------------------------------------------------------------------
Total debt $ 4,200.6 $ 4,659.4
---------------------------------------------------------------------
---------------------------------------------------------------------
Shareholders' equity $ 4,882.0 $ 4,887.5
Total debt 4,200.6 4,659.4
---------------------------------------------------------------------
Total debt plus equity $ 9,082.6 $ 9,546.9
---------------------------------------------------------------------
---------------------------------------------------------------------
Operating income for the
twelve months ended June 30 $ 966.5 $ 910.6
Other income and charges 1.2 (30.5)
(Gain) loss in long-term
floating rate notes/ABCP (4.3) 23.4
Foreign exchange (gain)
loss on long-term debt (8.5) (3.1)
Equity income in DM&E - 26.8
Gain on sales of
significant properties (79.1) -
Loss on termination of lease
with shortline railway 54.5 -
---------------------------------------------------------------------
Adjusted EBIT(1)(2) for the
twelve months ended June 30 $ 930.3 $ 927.2
---------------------------------------------------------------------
---------------------------------------------------------------------
Total debt $ 4,200.6 $ 4,659.4
Total debt plus equity $ 9,082.6 $ 9,546.9
---------------------------------------------------------------------
Total debt to total No more
capitalization(1) than 50.0% 46.2% 48.8%
---------------------------------------------------------------------
Adjusted EBIT(1)(2) $ 930.3 $ 927.2
Interest expense(2) $ 254.9 $ 272.7
---------------------------------------------------------------------
No less
Interest coverage ratio(1)(2) than 4.0 3.6 3.4
---------------------------------------------------------------------
---------------------------------------------------------------------
(1) These earnings measures have no standardized meanings prescribed
by GAAP and, therefore, are unlikely to be comparable to similar
measures of other companies.
(2) The amount is calculated on a twelve month rolling basis.
The Company's financial objectives and strategy as described above
have remained substantially unchanged over the last two fiscal years.
The objectives are reviewed on an annual basis and financial metrics
and their management targets are monitored on a quarterly basis. The
interest coverage ratio has improved during the twelve-month period
ended June 30, 2010 due to an increase in year-over-year adjusting
earnings and a reduction in year-over- year interest expense. The
interest coverage ratio for the period is below the management target
provided in the above table, due to lower volumes as a result of the
global recession that occurred during the period.
The Company is subject to a financial covenant of funded debt to
total capitalization in the revolver loan agreement. Performance to
this financial covenant is well within permitted limits.
Summary of Rail Data
--------------------
(Reconciliation of GAAP earnings to non-GAAP earnings on pages 2 and 3)
-----------------------------------------------------------------------
Financial (millions, except Second Quarter
--------------------------- -------------------------------------------
per share data) 2010 2009(1) Fav/(Unfav) %
--------------- -------------------------------------------
Revenues
--------
Freight revenue $ 1,202.2 $ 1,001.4 $ 200.8 20.1
Other revenue 32.0 29.9 2.1 7.0
--------------------------------
1,234.2 1,031.3 202.9 19.7
--------------------------------
Operating expenses
------------------
Compensation and benefits 349.7 324.5 (25.2) (7.8)
Fuel 177.9 117.7 (60.2) (51.1)
Materials 51.0 53.5 2.5 4.7
Equipment rents 54.9 55.1 0.2 0.4
Depreciation and
amortization 123.3 123.2 (0.1) (0.1)
Purchased services
and other 203.3 172.4 (30.9) (17.9)
--------------------------------
960.1 846.4 (113.7) (13.4)
--------------------------------
Operating income 274.1 184.9 89.2 48.2
Gain on sale of
partnership interest - 81.2 (81.2) (100.0)
Less:
Other (income) and
charges (3.4) 9.6 13.0 135.4
Interest expense 64.8 72.6 7.8 10.7
--------------------------------
Income before income tax
expense 212.7 183.9 28.8 15.7
Income tax expense 46.1 48.4 2.3 4.8
--------------------------------
Net income $ 166.6 $ 135.5 $ 31.1 23.0
--------------------------------
--------------------------------
Basic earnings per share $ 0.99 $ 0.81 $ 0.18 22.2
--------------------------------
--------------------------------
Diluted earnings per share $ 0.98 $ 0.80 $ 0.18 22.5
--------------------------------
--------------------------------
Operating ratio (%) 77.8 82.1 4.3 -
Shares Outstanding
------------------
Weighted average (avg)
number of shares
outstanding (millions) 168.6 168.0 0.6 0.4
Weighted avg number
of diluted shares
outstanding (millions) 169.2 168.4 0.8 0.5
Foreign Exchange
----------------
Average foreign exchange
rate (US$/Canadian$) 0.98 0.85 (0.13) (15.3)
Average foreign exchange
rate (Canadian$/US$) 1.02 1.18 (0.16) (13.6)
Financial (millions, except Year-to-date
--------------------------- -------------------------------------------
per share data) 2010 2009(1) Fav/(Unfav) %
--------------- -------------------------------------------
Revenues
--------
Freight revenue $ 2,340.4 $ 2,077.4 $ 263.0 12.7
Other revenue 60.6 63.5 (2.9) (4.6)
--------------------------------
2,401.0 2,140.9 260.1 12.1
--------------------------------
Operating expenses
------------------
Compensation and benefits 703.5 667.5 (36.0) (5.4)
Fuel 359.6 288.7 (70.9) (24.6)
Materials 115.0 130.2 15.2 11.7
Equipment rents 103.9 121.5 17.6 14.5
Depreciation and
amortization 244.5 239.4 (5.1) (2.1)
Purchased services
and other 393.8 373.9 (19.9) (5.3)
--------------------------------
1,920.3 1,821.2 (99.1) (5.4)
--------------------------------
Operating income 480.7 319.7 161.0 50.4
Gain on sale of
partnership interest - 81.2 (81.2) (100.0)
Less:
Other (income) and
charges (8.3) 18.1 26.4 145.9
Interest expense 131.5 144.2 12.7 8.8
--------------------------------
Income before income tax
expense 357.5 238.6 118.9 49.8
Income tax expense 89.9 44.1 (45.8) (103.9)
--------------------------------
Net income $ 267.6 $ 194.5 $ 73.1 37.6
--------------------------------
--------------------------------
Basic earnings per share $ 1.59 $ 1.18 $ 0.41 34.7
--------------------------------
--------------------------------
Diluted earnings per share $ 1.58 $ 1.18 $ 0.40 33.9
--------------------------------
--------------------------------
Operating ratio (%) 80.0 85.1 5.1 -
Shares Outstanding
------------------
Weighted average (avg)
number of shares
outstanding (millions) 168.6 164.5 4.1 2.5
Weighted avg number
of diluted shares
outstanding (millions) 169.0 164.7 4.3 2.6
Foreign Exchange
----------------
Average foreign exchange
rate (US$/Canadian$) 0.97 0.83 (0.14) (16.9)
Average foreign exchange
rate (Canadian$/US$) 1.03 1.21 (0.18) (14.9)
(1) Restated for the Company's change in accounting policy in relation to
the accounting for rail grinding.
Summary of Rail Data (Page 2)
-----------------------------
Adjusted Earnings Performance - Quarter
---------------------------------------
Non-GAAP Measures
-----------------
Second Quarter 2010
In millions, except ----------------------------------
------------------- Adjusted
per share data Reported Adjustments (Non-GAAP)
-------------- (GAAP) Fav/(Unfav) (2)
----------------------------------
Operating income $274.1 $ - $274.1
Gain on sale of
partnership interest - - -
Less:
Other (income) and
charges (3.4) (1.8)(3) (1.6)
Interest expense 64.8 - 64.8
---------------- ----------------------------------
Income before tax $212.7 $(1.8) $210.9
Income tax expense 46.1 (8.6)(4) 54.7
----------------------------------
Net income $166.6 $(10.4) $156.2(8)
---------- ----------------------------------
---------- ----------------------------------
Basic earnings per share $0.99 $(0.06) $0.93
Diluted earnings per share $0.98 $(0.06) $0.92
Second Quarter 2009(1) %
In millions, except ---------------------------------- Adjusted
------------------- Adjusted (Non-GAAP)
per share data Reported Adjustments (Non-GAAP) (2)
-------------- (GAAP) Fav/(Unfav) (2) Fav/(Unfav)
----------------------------------------------
Operating income $184.9 $ - $184.9 48.2
Gain on sale of
partnership interest 81.2 (81.2)(5) - -
Less:
Other (income) and
charges 9.6 (6.4)(6) 16.0 110.0
Interest expense 72.6 - 72.6 10.7
---------------- ----------------------------------
Income before tax $183.9 $(87.6) $96.3 119.0
Income tax expense 48.4 31.4(7) 17.0 (221.8)
----------------------------------
Net income $135.5 $(56.2) $79.3(8) 97.0
---------- ----------------------------------
---------- ----------------------------------
Basic earnings per share $0.81 $(0.34) $0.47 97.9
Diluted earnings per share $0.80 $(0.33) $0.47 95.7
2010:
(2) These earnings measures have no standardized meanings prescribed by
GAAP and may not be comparable to similar measures of other
companies.
(3) To exclude the gain in fair value of long-term floating rate notes of
$1.7 million and a gain in foreign exchange on long-term debt (FX on
LTD) of $0.1 million in order to eliminate the impact of volatile
short-term exchange rate fluctuations.
(4) A tax adjustment to exclude the tax expense associated with the gain
in fair value of long-term floating rate notes of $0.7 million and
the tax recovery on FX on LTD of $9.3 million.
(8) These adjusted figures are also referred to as "Income, before FX on
LTD and other specified items".
2009:
(1) Restated for the Company's change in accounting policy in relation to
the accounting for rail grinding.
(2) These earnings measures have no standardized meanings prescribed by
GAAP and may not be comparable to similar measures of other
companies.
(5) To exclude the gain of $81.2 million before tax which arose from the
partial sale of the investment in the Detroit River Tunnel
Partnership.
(6) To exclude the gain in fair value of long-term floating rate notes of
$4.7 million and a gain in FX on LTD of $1.7 million in order to
eliminate the impact of volatile short-term exchange rate
fluctuations.
(7) A tax adjustment to exclude the tax expense of the sale of the
partnership interest of $12.5 million, the tax expense associated
with the gain in fair value of long-term floating rate notes of
$1.5 million and the tax expense on FX on LTD of $17.4 million.
(8) These adjusted figures are also referred to as "Income, before FX on
LTD and other specified items".
Summary of Rail Data (Page 3)
-----------------------------
Adjusted Earnings Performance - Year-to-date
--------------------------------------------
Non-GAAP Measures
-----------------
Year-to-date 2010
In millions, except ----------------------------------
------------------- Adjusted
per share data Reported Adjustments (Non-GAAP)
-------------- (GAAP) Fav/(Unfav) (2)
----------------------------------
Operating income $480.7 $ - $480.7
Gain on sale of
partnership interest - - -
Less:
Other (income) and
charges (8.3) (6.9)(3) (1.4)
Interest expense 131.5 - 131.5
---------------- ----------------------------------
Income before tax $357.5 $(6.9) $350.6
Income tax expense 89.9 (1.3)(4) 91.2
----------------------------------
Net income $267.6 $(8.2) $259.4(8)
---------- ----------------------------------
---------- ----------------------------------
Basic earnings per share $1.59 $(0.05) $1.54
Diluted earnings per share $1.58 $(0.05) $1.53
Year-to-date 2009(1) %
In millions, except ---------------------------------- Adjusted
------------------- Adjusted (Non-GAAP)
per share data Reported Adjustments (Non-GAAP) (2)
-------------- (GAAP) Fav/(Unfav) (2) Fav/(Unfav)
----------------------------------------------
Operating income $319.7 $ - $319.7 50.4
Gain on sale of
partnership interest 81.2 (81.2)(5) - -
Less:
Other (income) and
charges 18.1 (4.0)(6) 22.1 106.3
Interest expense 144.2 - 144.2 8.8
---------------- ----------------------------------
Income before tax $238.6 $(85.2) $153.4 128.6
Income tax expense 44.1 22.5(7) 21.6 (322.2)
----------------------------------
Net income $194.5 $(62.7) $131.8(8) 96.8
---------- ----------------------------------
---------- ----------------------------------
Basic earnings per share $1.18 $(0.38) $0.80 92.5
Diluted earnings per share $1.18 $(0.38) $0.80 91.3
2010:
(2) These earnings measures have no standardized meanings prescribed by
GAAP and may not be comparable to similar measures of other
companies.
(3) To exclude the gain in fair value of long-term floating rate notes of
$2.7 million and a gain in foreign exchange on long-term debt (FX on
LTD) of $4.2 million in order to eliminate the impact of volatile
short-term exchange rate fluctuations.
(4) A tax adjustment to exclude the tax expense associated with the gain
in fair value of long-term floating rate notes of $0.8 million and
the tax recovery on FX on LTD of $2.1 million.
(8) These adjusted figures are also referred to as "Income, before FX on
LTD and other specified items".
2009:
(1) Restated for the Company's change in accounting policy in relation to
the accounting for rail grinding.
(2) These earnings measures have no standardized meanings prescribed by
GAAP and may not be comparable to similar measures of other
companies.
(5) To exclude the gain of $81.2 million before tax which arose from the
partial sale of the investment in the Detroit River Tunnel
Partnership.
(6) To exclude the gain in fair value of long-term floating rate notes of
$4.7 million, and a loss in FX on LTD of $0.7 million in order to
eliminate the impact of volatile short-term exchange rate
fluctuations.
(7) A tax adjustment to exclude the tax expense of the sale of the
partnership interest of $12.5 million, the tax expense associated
with the gain in fair value of long-term floating rate notes of $1.5
million and the tax expense on FX on LTD of $8.5 million.
(8) These adjusted figures are also referred to as "Income, before FX on
LTD and other specified items".
Summary of Rail Data (Page 4)
-----------------------------
Second Quarter
-------------------------------------------
2010 2009 Fav/(Unfav) %
-------------------------------------------
Commodity Data
--------------
Freight Revenues (millions)
- Grain $ 264.4 $ 274.6 $ (10.2) (3.7)
- Coal 136.7 95.3 41.4 43.4
- Sulphur and fertilizers 114.9 66.6 48.3 72.5
- Forest products 44.4 42.1 2.3 5.5
- Industrial and consumer
products 217.0 179.6 37.4 20.8
- Automotive 89.0 49.9 39.1 78.4
- Intermodal 335.8 293.3 42.5 14.5
--------------------------------
Total Freight Revenues $ 1,202.2 $ 1,001.4 $ 200.8 20.1
--------------------------------
Millions of Revenue
Ton-Miles (RTM)
- Grain 8,303 8,696 (393) (4.5)
- Coal 5,268 3,888 1,380 35.5
- Sulphur and fertilizers 4,335 1,719 2,616 152.2
- Forest products 1,275 1,092 183 16.8
- Industrial and consumer
products 5,166 3,971 1,195 30.1
- Automotive 560 347 213 61.4
- Intermodal 6,518 5,819 699 12.0
--------------------------------
Total RTMs 31,425 25,532 5,893 23.1
--------------------------------
Freight Revenue per RTM (cents)
- Grain 3.18 3.16 0.02 0.6
- Coal 2.59 2.45 0.14 5.7
- Sulphur and fertilizers 2.65 3.87 (1.22) (31.5)
- Forest products 3.48 3.86 (0.38) (9.8)
- Industrial and consumer
products 4.20 4.52 (0.32) (7.1)
- Automotive 15.89 14.38 1.51 10.5
- Intermodal 5.15 5.04 0.11 2.2
Total Freight Revenue per RTM 3.83 3.92 (0.09) (2.3)
Carloads (thousands)
- Grain 115.9 119.3 (3.4) (2.8)
- Coal 94.6 66.2 28.4 42.9
- Sulphur and fertilizers 43.2 22.3 20.9 93.7
- Forest products 17.2 15.5 1.7 11.0
- Industrial and consumer
products 96.6 80.1 16.5 20.6
- Automotive 37.5 22.6 14.9 65.9
- Intermodal 271.4 238.2 33.2 13.9
--------------------------------
Total Carloads 676.4 564.2 112.2 19.9
--------------------------------
Freight Revenue per Carload
- Grain $ 2,281 $ 2,302 $ (21) (0.9)
- Coal 1,445 1,440 5 0.3
- Sulphur and fertilizers 2,660 2,987 (327) (10.9)
- Forest products 2,581 2,716 (135) (5.0)
- Industrial and consumer
products 2,246 2,242 4 0.2
- Automotive 2,373 2,208 165 7.5
- Intermodal 1,237 1,231 6 0.5
Total Freight Revenue per
Carload $ 1,777 $ 1,775 $ 2 0.1
Year-to-date
-------------------------------------------
2010 2009 Fav/(Unfav) %
-------------------------------------------
Commodity Data
--------------
Freight Revenues (millions)
- Grain $ 535.7 $ 562.3 $ (26.6) (4.7)
- Coal 247.2 211.8 35.4 16.7
- Sulphur and fertilizers 232.7 142.8 89.9 63.0
- Forest products 87.6 87.5 0.1 0.1
- Industrial and consumer
products 422.5 385.4 37.1 9.6
- Automotive 166.6 101.8 64.8 63.7
- Intermodal 648.1 585.8 62.3 10.6
--------------------------------
Total Freight Revenues $ 2,340.4 $ 2,077.4 $ 263.0 12.7
--------------------------------
Millions of Revenue
Ton-Miles (RTM)
- Grain 16,939 17,224 (285) (1.7)
- Coal 9,576 7,720 1,856 24.0
- Sulphur and fertilizers 8,727 3,899 4,828 123.8
- Forest products 2,653 2,156 497 23.1
- Industrial and consumer
products 10,053 8,321 1,732 20.8
- Automotive 1,105 710 395 55.6
- Intermodal 12,575 11,427 1,148 10.0
--------------------------------
Total RTMs 61,628 51,457 10,171 19.8
--------------------------------
Freight Revenue per RTM (cents)
- Grain 3.16 3.26 (0.10) (3.1)
- Coal 2.58 2.74 (0.16) (5.8)
- Sulphur and fertilizers 2.67 3.66 (0.99) (27.0)
- Forest products 3.30 4.06 (0.76) (18.7)
- Industrial and consumer
products 4.20 4.63 (0.43) (9.3)
- Automotive 15.08 14.34 0.74 5.2
- Intermodal 5.15 5.13 0.02 0.4
Total Freight Revenue per RTM 3.80 4.04 (0.24) (5.9)
Carloads (thousands)
- Grain 229.1 230.8 (1.7) (0.7)
- Coal 170.6 137.0 33.6 24.5
- Sulphur and fertilizers 87.5 47.2 40.3 85.4
- Forest products 34.8 33.0 1.8 5.5
- Industrial and consumer
products 188.4 166.7 21.7 13.0
- Automotive 71.0 43.6 27.4 62.8
- Intermodal 520.0 482.2 37.8 7.8
--------------------------------
Total Carloads 1,301.4 1,140.5 160.9 14.1
--------------------------------
Freight Revenue per Carload
- Grain $ 2,338 $ 2,436 $ (98) (4.0)
- Coal 1,449 1,546 (97) (6.3)
- Sulphur and fertilizers 2,659 3,025 (366) (12.1)
- Forest products 2,517 2,652 (135) (5.1)
- Industrial and consumer
products 2,243 2,312 (69) (3.0)
- Automotive 2,346 2,335 11 0.5
- Intermodal 1,246 1,215 31 2.6
Total Freight Revenue per
Carload $ 1,798 $ 1,821 $ (23) (1.3)
Summary of Rail Data (Page 5)
-----------------------------
Second Quarter
-------------------------------------------
2010 2009(1) Fav/(Unfav) %
-------------------------------------------
Operations Performance
----------------------
Total operating expenses
per GTM (cents)(2) 1.58 1.71 0.13 7.6
Operating expenses exclusive
of land sales per GTM
(cents)(2)(3) 1.58 1.75 0.17 9.7
Freight gross ton-miles
(GTM) (millions) 60,766 49,635 11,131 22.4
Train miles (000) 9,920 8,391 1,529 18.2
Average number of active
employees - Total 15,726 15,156 (570) (3.8)
Average number of active
employees - Expense 13,813 13,270 (543) (4.1)
Number of employees at
end of period - Total 15,975 15,178 (797) (5.3)
Number of employees at
end of period - Expense 13,887 13,120 (767) (5.8)
U.S. gallons of locomotive
fuel per 1,000 GTMs
- freight & yard 1.13 1.14 0.01 0.9
U.S. gallons of locomotive
fuel consumed - total
(millions)(4) 68.3 56.1 (12.2) (21.7)
Average fuel price (U.S.
dollars per U.S. gallon) 2.55 1.78 (0.77) (43.3)
Fluidity Data (including DM&E)
------------------------------
Average terminal dwell - AAR
definition (hours) 19.9 n/a - -
Average train speed - AAR
definition (mph) 23.2 n/a - -
Car miles per car day 147.0 n/a - -
Average daily active cars
on-line (000) 55.3 n/a - -
Average daily active road
locomotives on-line 1,013 n/a - -
Fluidity Data (excluding DM&E)
------------------------------
Average terminal dwell - AAR
definition (hours) 19.9 20.4 0.5 2.5
Average train speed - AAR
definition (mph) 24.6 26.4 (1.8) (6.8)
Car miles per car day 160.6 144.6 16.0 11.1
Average daily active cars
on-line (000) 48.1 42.5 (5.6) (13.2)
Average daily active road
locomotives on-line 901 723 (178) (24.6)
Safety
------
FRA personal injuries per
200,000 employee-hours 1.36 1.60 0.24 15.0
FRA train accidents per
million train-miles 1.46 1.92 0.46 24.0
Year-to-date
-------------------------------------------
2010 2009(1) Fav/(Unfav) %
-------------------------------------------
Operations Performance
----------------------
Total operating expenses
per GTM (cents)(2) 1.61 1.81 0.20 11.0
Operating expenses exclusive
of land sales per GTM
(cents)(2)(3) 1.61 1.84 0.23 12.5
Freight gross ton-miles
(GTM) (millions) 119,290 100,568 18,722 18.6
Train miles (000) 19,477 17,298 2,179 12.6
Average number of active
employees - Total 15,079 15,103 24 0.2
Average number of active
employees - Expense 13,818 13,827 9 0.1
Number of employees at
end of period - Total 15,975 15,178 (797) (5.3)
Number of employees at
end of period - Expense 13,887 13,120 (767) (5.8)
U.S. gallons of locomotive
fuel per 1,000 GTMs
- freight & yard 1.18 1.24 0.06 4.8
U.S. gallons of locomotive
fuel consumed - total
(millions)(4) 139.8 123.8 (16.0) (12.9)
Average fuel price (U.S.
dollars per U.S. gallon) 2.49 1.93 (0.56) (29.0)
Fluidity Data (including DM&E)
------------------------------
Average terminal dwell - AAR
definition (hours) 21.9 n/a - -
Average train speed - AAR
definition (mph) 23.1 n/a - -
Car miles per car day 139.2 n/a - -
Average daily active cars
on-line (000) 57.8 n/a - -
Average daily active road
locomotives on-line 1,006 n/a - -
Fluidity Data (excluding DM&E)
------------------------------
Average terminal dwell - AAR
definition (hours) 21.9 21.8 (0.1) (0.5)
Average train speed - AAR
definition (mph) 24.4 25.7 (1.3) (5.1)
Car miles per car day 152.1 142.2 9.9 7.0
Average daily active cars
on-line (000) 50.3 45.6 (4.7) (10.3)
Average daily active road
locomotives on-line 886 777 (109) (14.0)
Safety
------
FRA personal injuries per
200,000 employee-hours 1.64 1.71 0.07 4.1
FRA train accidents per
million train-miles 1.36 1.94 0.58 29.9
(1) Certain prior period figures have been revised to conform with
current presentation or have been updated to reflect new information.
(2) Restated for the Company's change in accounting policy in relation to
the accounting for rail grinding.
(3) These earnings measures have no standardized meanings prescribed by
GAAP and may not be comparable to similar measures of other
companies. Operating expenses exclusive of land sales per GTM is
calculated consistently with total operating expenses per GTM except
for the exclusion of net gains on land sales of $0.8 million and
$22.9 million for the three months ended June 30, 2010 and 2009, and
$3.2 million and $24.5 million for the six months ended June 30, 2010
and 2009 respectively.
Please refer to pages 2 and 3, Adjusted Earnings Performance, Quarter
and Year-to-date, Non-GAAP measures.
(4) Includes gallons of fuel consumed from freight, yard and commuter
service but excludes fuel used in capital projects and other non-
freight activities.
n/a - not available
>>
-30-
/For further information: Media: Mike LoVecchio, Senior Manager, Media
Relations, Tel.: (778) 772-9636, 24/7 Media Pager: (416) 814-0948, e-mail:
mike_lovecchio@cpr.ca; Investment Community: Janet Weiss, Assistant Vice
President, Investor Relations, Tel.: (403) 319-3591, e-mail: investor@cpr.ca/
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