CANADIAN PACIFIC ANNOUNCES THIRD-QUARTER RESULTS
CALGARY, Oct. 27 /CNW/ - Canadian Pacific Railway Limited (TSX/NYSE: CP) announced a 15 per cent increase in third-quarter revenues with gains across most lines of business. Reported net income was $197.3 million and diluted earnings per share were $1.17, both down 6 per cent over third-quarter 2009 which included other specified items of $0.41 per share principally from significant real estate sales. Adjusted diluted earnings per share increased 27 per cent to $1.21.
"CP delivered another strong quarter of financial performance on double digit revenue growth and an improved operating ratio," said Fred Green, President and Chief Executive Officer. "We are building a solid foundation based on safety, service reliability and operational efficiencies that continue to drive value to our employees, customers and shareholders."
THIRD-QUARTER 2010 COMPARED WITH THIRD-QUARTER 2009
- Total revenues increased 15 per cent from $1.1 billion to
$1.3 billion
- Adjusted operating income increased 28 per cent from $263.8 million
to $337.7 million
- Adjusted operating ratio improved 270 basis points to 73.7 per cent
- Adjusted earnings increased 27 per cent from $160.9 million
to $204.7 million
- Adjusted diluted earnings per share increased 27 per cent from $0.95
per share to $1.21 per share
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.
Income, diluted earnings per share, operating expense and operating ratio, excluding foreign exchange gains and losses on long-term debt and other specified items, are referred to in this news release as "Adjusted earnings", "Adjusted diluted earnings per share", "Adjusted operating expense" and "Adjusted operating ratio".
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
In the third quarter of 2009 the Company recorded other specified items totaling $69.4 million, after tax. This was largely comprised of the after tax gain of $68.1 million on significant real estate sales.
CP had a foreign exchange loss on long-term debt of $7.7 million after tax in the third quarter of 2010, compared with a foreign exchange loss on long-term debt of $21.0 million after tax in the third 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 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.
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 conform 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.
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 (CP: TSX/NYSE) operates a North American transcontinental railroad providing freight transportation services, logistics solutions and supply chain expertise. Incorporating best-in-class technology and environmental practices, CP is re-defining itself as a modern 21st century transportation company built on safety, service reliability and operational efficiency. Visit cpr.ca and see how Canadian Pacific is Driving the Digital Railway.
CONSOLIDATED STATEMENT OF INCOME
(in millions of Canadian dollars, except per share data)
(unaudited)
For the three months For the nine months
ended September 30 ended September 30
2010 2009 2010 2009
Restated Restated
(see Note 2) (see Note 2)
------------------------ -----------------------
Revenues
Freight $ 1,250.8 $ 1,086.6 $ 3,591.2 $ 3,164.0
Other 35.4 31.5 96.0 95.0
------------------------ -----------------------
1,286.2 1,118.1 3,687.2 3,259.0
Operating expenses
Compensation and
benefits 365.2 322.4 1,068.7 989.9
Fuel 166.1 134.0 525.7 422.7
Materials 43.2 45.3 158.2 175.5
Equipment rents 53.6 51.5 157.5 173.0
Depreciation and
amortization 123.9 121.6 368.4 361.0
Purchased services and
other 196.5 179.5 590.3 553.4
Gain on sale of
significant
properties (Note 4) - (79.1) - (79.1)
------------------------ -----------------------
948.5 775.2 2,868.8 2,596.4
------------------------ -----------------------
Operating income 337.7 342.9 818.4 662.6
Gain on sale of
partnership
interest (Note 5) - - - 81.2
Less:
Other (income) and
charges 1.0 1.3 (7.3) 19.4
Interest expense 60.6 55.0 192.1 199.2
------------------------ -----------------------
Income before income tax
expense 276.1 286.6 633.6 525.2
Income tax expense
(Note 6) 78.8 77.3 168.7 121.4
------------------------ -----------------------
Net income $ 197.3 $ 209.3 $ 464.9 $ 403.8
------------------------ -----------------------
------------------------ -----------------------
Earnings per share
(Note 7)
Basic earnings per
share $ 1.17 $ 1.25 $ 2.76 $ 2.44
Diluted earnings per
share $ 1.17 $ 1.24 $ 2.75 $ 2.43
Weighted average number
of shares (millions)
Basic 168.8 168.1 168.6 165.7
Diluted 169.3 168.7 169.0 166.0
Dividends declared per
share $ 0.2700 $ 0.2475 $ 0.7875 $ 0.7425
See notes to interim consolidated financial statements.
CONSOLIDATED BALANCE SHEET
(in millions of Canadian dollars)
(unaudited)
September 30 December 31
2010 2009
Restated
(see Note 2)
------------------------
Assets
Current assets
Cash and cash equivalents $ 267.8 $ 679.1
Accounts receivable, net 533.3 655.1
Materials and supplies 124.5 132.7
Deferred income taxes 103.8 128.1
Other current assets 54.8 46.5
------------------------
1,084.2 1,641.5
Investments 154.6 156.7
Net properties 11,957.2 11,978.5
Goodwill and intangible assets 196.8 202.3
Other assets 138.0 175.8
------------------------
Total assets $ 13,530.8 $ 14,154.8
------------------------
------------------------
Liabilities and shareholders' equity
Current liabilities
Accounts payable and accrued liabilities $ 1,038.7 $ 1,000.7
Long-term debt maturing within one year 41.4 605.3
------------------------
1,080.1 1,606.0
Pension and other benefits liabilities (Note 11) 585.3 1,453.9
Other long-term liabilities 472.4 479.9
Long-term debt (Note 10) 4,389.0 4,138.2
Deferred income taxes 1,932.2 1,818.7
------------------------
Total liabilities 8,459.0 9,496.7
Shareholders' equity
Share capital 1,805.9 1,771.1
Additional paid-in capital 25.5 30.8
Accumulated other comprehensive loss (1,692.5) (1,744.7)
Retained earnings 4,932.9 4,600.9
------------------------
5,071.8 4,658.1
------------------------
Total liabilities and shareholders' equity $ 13,530.8 $ 14,154.8
------------------------
------------------------
Commitments and contingencies (Note 14)
See notes to interim consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions of Canadian dollars)
(unaudited)
For the three months For the nine months
ended September 30 ended September 30
2010 2009 2010 2009
----------------------- -----------------------
Operating activities
Net income $ 197.3 $ 209.3 $ 464.9 $ 403.8
Reconciliation of net
income to cash provided
by operating activities:
Depreciation and
amortization 123.9 121.6 368.4 361.0
Deferred income taxes
(Note 6) 75.4 114.8 160.4 158.6
Gain on sale of
partnership interest - - - (81.2)
Gain on sale of
significant properties - (79.1) - (79.1)
Pension funding in
excess of expense
(Note 11) (645.6) (15.0) (805.6) (47.6)
Other operating
activities, net (0.6) (9.6) 5.7 (41.0)
Change in non-cash
working capital
balances related to
operations (0.5) 59.6 (72.5) (3.5)
----------------------- -----------------------
Cash (used in) provided
by operating activities (250.1) 401.6 121.3 671.0
----------------------- -----------------------
Investing activities
Additions to properties (185.1) (195.5) (443.9) (564.1)
Proceeds from the sale
of properties and other
assets 19.8 122.9 46.2 287.5
----------------------- -----------------------
Cash used in investing
activities (165.3) (72.6) (397.7) (276.6)
----------------------- -----------------------
Financing activities
Dividends paid (45.5) (41.6) (128.9) (121.3)
Issuance of CP
Common Shares 20.0 5.3 26.9 504.5
Collection of receivable
from financial
institution - - 219.8 -
Net decrease in
short-term borrowing - 2.1 - (92.4)
Issuance of long-term
debt 355.2 - 355.2 409.5
Repayment of long-term
debt (14.2) (6.8) (604.5) (613.3)
Other financing
activities 2.9 4.9 3.1 34.1
----------------------- -----------------------
Cash provided by (used
in) financing activities 318.4 (36.1) (128.4) 121.1
----------------------- -----------------------
Effect of foreign exchange
fluctuations on U.S.
dollar-denominated cash
and cash equivalents (8.8) (11.3) (6.5) (17.1)
----------------------- -----------------------
Cash position
(Decrease) increase in
cash and cash
equivalents (105.8) 281.6 (411.3) 498.4
Cash and cash
equivalents at
beginning of period 373.6 334.3 679.1 117.5
----------------------- -----------------------
Cash and cash equivalents
at end of period $ 267.8 $ 615.9 $ 267.8 $ 615.9
----------------------- -----------------------
----------------------- -----------------------
Supplemental disclosures
of cash flow information
Income taxes paid
(refunded) $ 0.3 $ (40.1) $ 6.5 $ (36.5)
----------------------- -----------------------
----------------------- -----------------------
Interest paid (Note 12) $ 33.2 $ 36.6 $ 252.3 $ 196.9
----------------------- -----------------------
----------------------- -----------------------
See notes to interim 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 (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 - - - - 464.9 464.9
Other
comprehensive
income - - - 52.2 - 52.2
---------- -------------------------------------------------
Comprehensive
income - - - 52.2 464.9 517.1
---------- -------------------------------------------------
Dividends
declared - - - - (132.9) (132.9)
Stock
compensation
expense - - 1.1 - - 1.1
Shares issued
under stock
option plans 0.6 34.8 (6.4) - - 28.4
---------- -------------------------------------------------
Balance at
September
30, 2010 169.1 $1,805.9 $ 25.5 $(1,692.5) $4,932.9 $5,071.8
---------- -------------------------------------------------
---------- -------------------------------------------------
-------------------------------
Other
compre- Compre-
hensive Net hensive
income income income
-------------------------------
Comprehensive income -
three months ended
September 30, 2010 $ 17.0 $ 197.3 $ 214.3
-------------------------------
-------------------------------
See notes to interim consolidated financial statements.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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
irregular pace of the recovery in 2010 from the 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 years prior to 2009 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 13.
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 (see Note 8 for a definition of Level 1, 2 and 3
financial asset and liability categories). 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 in Note 8.
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 nine
months ended months ended For the year
September 30 September 30 ended December 31
2010 2009 2010 2009 2009 2008 2007
-------------------------------------------------------
Changes to Consolidated Statement of Income and Comprehensive Income
Depreciation
and amortiz-
ation $ (3.8) $ (3.5) $(11.4) $(10.5) $(14.0) $ (8.9) $ (9.5)
Compensation
and benefits 0.9 1.0 1.5 1.8 2.8 2.7 2.0
Fuel - - - - 0.1 0.1 0.1
Materials 0.3 0.6 0.5 1.1 1.8 1.7 1.3
Purchased
services
and other 5.4 5.9 9.3 10.7 15.9 15.4 11.3
-------------------------------------------------------
Total operating
expenses 2.8 4.0 (0.1) 3.1 6.6 11.0 5.2
Income tax
expense (0.8) (1.3) (0.2) (1.0) (1.2) (3.2) 0.4
-------------------------------------------------------
Net income $ (2.0) $ (2.7) $ 0.3 $ (2.1) $ (5.4) $ (7.8) $ (5.6)
-------------------------------------------------------
Basic earnings
per share $(0.01) $(0.02) $ - $(0.01) $(0.03) $(0.05) $(0.04)
Diluted earnings
per share $(0.01) $(0.02) $ - $(0.01) $(0.03) $(0.05) $(0.04)
Other
comprehensive
income (loss) 0.6 1.4 0.3 2.1 2.4 (2.8) 2.0
-------------------------------------------------------
Comprehensive
income $ (1.4) $ (1.3) $ 0.6 $ - $ (3.0) $(10.6) $ (3.6)
-------------------------------------------------------
Changes to Consolidated Statement of Cash Flows
Cash provided
by operating
activities
(decrease) $ (6.6) $ (7.5) $(11.3) $(13.6) $(20.6) $(19.9) $(14.7)
Cash used in
investing
activities
(decrease) $ (6.6) $ (7.5) $(11.3) $(13.6) $(20.6) $(19.9) $(14.7)
Changes to Consolidated Balance Sheet
As at As at As at
September 30 December 31 December 31
2010 2009 2008
-------------------------------------
Net properties $ (88.2) $ (89.0) $ (86.2)
Deferred income tax liability (26.1) (26.3) (26.5)
Accumulated other
comprehensive loss (income) 1.9 1.6 (0.8)
Retained earnings (64.0) (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 significant properties
During the third quarter of 2009, the Company completed two
significant real estate sales, resulting in gains of $79.1 million
($68.1 million after tax).
The Company sold Windsor Station, its former head office in Montreal,
for proceeds of $80.0 million, including the assumption of a mortgage
of $16 million due in 2011. CP will continue to occupy a portion of
Windsor Station through a lease for a 10-year period after the sale.
As a result, part of the transaction is considered to be a sale-
leaseback and consequently a gain of $19.5 million related to this
part of the transaction has been deferred and is being amortized over
the remainder of the lease term.
The Company sold land in Western Canada for transit purposes for
proceeds of $43.0 million.
5 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).
6 Income taxes
For the three months For the nine months
(in millions of ended September 30 ended September 30
Canadian dollars) 2010 2009 2010 2009
Restated Restated
(see Note 2) (see Note 2)
----------------------- -----------------------
Current income tax
expense (recovery) $ 3.4 $ (37.5) $ 8.3 $ (37.2)
Deferred income
tax expense 75.4 114.8 160.4 158.6
----------------------- -----------------------
Income tax expense $ 78.8 $ 77.3 $ 168.7 $ 121.4
----------------------- -----------------------
----------------------- -----------------------
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
nine months ended September 30, 2009, the tax impact of foreign
exchange losses increased expected income tax expense, based on the
expected annual effective tax rate, by approximately $18 million and
$27 million, respectively. Also, for the nine months ended September
30, 2009, the tax impact of a gain on sale of partnership interest
reduced expected income tax expense by approximately $9 million.
Additionally, for the three and nine months ended September 30, 2009,
the tax impact of gains on sales of significant properties reduced
expected income tax expense by approximately $10 million. In the
three and nine months ended September 30, 2010, the tax impact of
foreign exchange losses and gains increased expected income tax
expense by approximately $7 million and $4 million, respectively.
7 Earnings per share
At September 30, 2010, the number of shares outstanding was 169.1
million (September 30, 2009 - 168.2 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 nine months
ended September 30 ended September 30
(in millions) 2010 2009 2010 2009
----------------------- -----------------------
Weighted average
shares outstanding 168.8 168.1 168.6 165.7
Dilutive effect of
stock options 0.5 0.6 0.4 0.3
----------------------- -----------------------
Weighted average
diluted shares
outstanding 169.3 168.7 169.0 166.0
----------------------- -----------------------
----------------------- -----------------------
For the three and nine months ended September 30, 2010, 1,416,783 and
1,885,875 options, respectively, were excluded from the computation
of diluted earnings per share because their effects were not dilutive
(three and nine months ended September 30, 2009 - 2,542,300 and
2,540,740, respectively).
8 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 September 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 $76.8 million and $69.3 million, respectively. The carrying
values, being the estimated fair values, are reported in
"Investments".
During the three and nine months ended September 30, 2010, the
Company received $nil and $0.1 million, respectively, in partial
redemption of certain of the notes held. At September 30, 2010, the
Company held long-term floating rate notes with settlement value, as
follows:
- $116.8 million Master Asset Vehicle ("MAV") 2 notes with eligible
assets;
- $12.0 million MAV 2 Ineligible Asset ("IA") Tracking notes; and
- $0.2 million MAV 3 Class 9 Traditional Asset ("TA") Tracking notes.
During the third quarter of 2010, DBRS upgraded the rating of the MAV
2 Class A-1 notes from A Under Review with Positive Implications to A
(high). The MAV 2 Class A-2 notes have received a BBB (low) rating
from DBRS, unchanged from the second quarter of 2010.
The valuation technique used by the Company to estimate the fair
value of its investment in long-term floating rate notes at September
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 $2.0 million and $7.6 million
in the three and nine months ended September 30, 2010, respectively
(three and nine months ended September 30, 2009 - $2.8 million and
$8.1 million, respectively). The interest rates and maturities of the
various long-term floating rate notes, discount rates and credit
losses modelled at September 30, 2010 and December 31, 2009,
respectively, are:
September 30, 2010 December 31, 2009
Probability weighted 0.8% Nil
average coupon
interest rate
Weighted average 7.0% 7.9%
discount rate
Expected repayments 2 3/4 to 18 1/2 years 3 1/2 to 19 years
of long-term
floating rate notes
Credit losses MAV 2 eligible asset MAV 2 eligible asset
notes: 1% 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: 1% 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 $76.8 million at September 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 - 4.4
Change in market assumptions - 3.1
------------------------
As at September 30, 2010 $ 129.0 $ 76.8
------------------------
------------------------
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, and
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 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 partially mitigating volatility in 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 of
2009. 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 the third quarter of 2009, CP unwound a
further US$30 million for total proceeds of $3.0 million. During the
second quarter of 2010, CP unwound the remaining US$70 million for
total proceeds of $0.2 million.
For the three and nine months ended September 30, 2010, no gain or
loss was reported. For the same periods in 2009, the Company recorded
a net loss of $5.0 million and $21.8 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 second quarter of 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 September 30, 2010, these swap agreements were unwound
for a gain of $2.9 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 5.75% Notes are
repaid. At September 30, 2010 and 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 nine months ended September 30, 2010, the impact
of settled interest rate swaps reduced interest expense in the three
months ended September 30, 2010 by $1.4 million and $3.6 million for
the nine months ended September 30, 2010 (three and nine months ended
September 30, 2009 - $1.4 million and $4.5 million, respectively).
Treasury rate locks
At September 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 $22.3 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 a decrease in
"Interest expense" and "Other comprehensive income" of $0.1 million
for the three months ended September 30, 2010 and an increase of
$1.6 million for the nine months ended September 30, 2010 (three and
nine months ended September 30, 2009 - $0.1 million and $1.7 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 gain on
these swaps of $8.8 million for the three months ended September 30,
2010, and an unrealized gain of $9.2 million for the nine months
ended September 30, 2010. For the same periods in 2009, the Company
recorded an unrealized gain of $5.5 million and a net gain of
$8.4 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 September 30, 2010, the
unrealized loss on the TRS of $9.0 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 September 30, 2010, the Company had diesel futures contracts,
which are accounted for as cash flow hedges, to purchase
approximately 14.0 million US gallons during the period October 2010
to September 2011 at an average price of US$2.18 per US gallon. This
represents approximately 5% of estimated fuel purchases for this
period. At September 30, 2010, the unrealized gain on these futures
contracts was $1.8 million and was reflected in "Other current
assets" 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".
During the three months ended September 30, 2010, the impact of
settled commodity swaps increased "Fuel" expense by $0.2 million as a
result of realized losses on diesel swaps. During the nine months
ended September 30, 2010, the impact of settled commodity swaps
decreased "Fuel" expense by $1.4 million as a result of realized
gains on diesel swaps.
For the three months ended September 30, 2009, the net impact of
settled commodity swaps decreased "Fuel" expense by $1.5 million due
to a combination of realized gains of $1.7 million from settled
swaps, partially offset by realized losses of $0.2 million from
settled FX forward contracts. For the nine months ended September 30,
2009, the net impact of settled commodity swaps increased "Fuel"
expense by $3.3 million due to a combination of realized losses of
$3.1 million from settled swaps and $0.2 million from settled FX
forward contracts. Included in the settled swaps for the three and
nine months ended September 30, 2009 were $0.1 million in realized
gains from settled derivatives that were not designated as hedges.
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 nine months ended September 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
September 30 September 30
2010 2009 2010 2009
------------------------------------
Derivatives
designated
as hedging
instruments
Effective
portion
Crude oil
swaps Fuel expense $ - $ 1.5 $ - $ (1.9)
Diesel future
contracts Fuel expense (0.2) 0.1 2.7 (0.5)
FX contracts
on fuel Fuel expense - (0.2) - -
Interest
rate swap Interest expense 1.4 1.4 - -
Treasury rate
locks Interest expense 0.1 0.1 (0.1) (0.1)
Derivatives
not designated
as hedging
instruments
Total return Compensation
swap and benefits 8.8 5.5 - -
Heating oil
crack spreads Fuel expense - 0.1 - -
FX forward Other income
contracts and charges - (5.0) - -
------------------------------------
$ 10.1 $ 3.5 $ 2.6 $ (2.5)
------------------------------------
------------------------------------
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
nine months nine months
ended ended
September 30 September 30
2010 2009 2010 2009
------------------------------------
Derivatives
designated
as hedging
instruments
Effective
portion
Crude oil
swaps Fuel expense $ - $ 2.5 $ - $ (1.6)
Diesel
future
contracts Fuel expense 1.4 (5.7) (0.7) 5.5
FX contracts
on fuel Fuel expense - (0.2) - (0.2)
Interest rate
swap Interest expense 3.6 4.5 - -
Other income
and charges - 6.5 - -
Treasury rate
locks Interest expense (1.6) (1.7) 1.6 1.7
Derivatives
not designated
as hedging
instruments
Total return Compensation
swap and benefits 9.2 8.4 - -
Heating oil
crack spreads Fuel expense - 0.1
FX forward Other income
contracts and charges - (21.8) - -
Treasury rate
locks Interest expense - (0.7) - -
------------------------------------
$ 12.6 $ (8.1) $ 0.9 $ 5.4
------------------------------------
------------------------------------
At September 30, 2010, the Company expected that, during the next
12 months, $1.8 million of unrealized holding gains 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 nine months ended September 30, 2010 and
2009:
Effective
portion
Location of Ineffective recognized in
ineffective portion other
(in millions portion recognized in comprehensive
of Canadian recognized in income - gain income - gain
dollars) income (loss) (loss)
----------------------------------------------------
For the three For the three
months ended months ended
September 30 September 30
2010 2009 2010 2009
------------------------------------
FX on LTD within
net investment Other income
hedge and charges $ - $ (1.4) $ 56.6 $ 135.6
------------------------------------
------------------------------------
Effective
Location of portion
ineffective Ineffective recognized in
(in millions portion portion other
of Canadian recognized in recognized in comprehensive
dollars) income income income
----------------------------------------------------
For the nine For the nine
months ended months ended
September 30 September 30
2010 2009 2010 2009
------------------------------------
FX on LTD within
net investment Other income
hedge and charges $ 2.6 $ (6.3) $ 31.4 $ 221.2
------------------------------------
------------------------------------
9 Stock-based compensation
At September 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 nine months ended
September 30, 2010 of $27.5 million and $58.3 million, respectively
(three and nine months ended September 30, 2009 - $12.6 million and
$50.4 million, respectively).
Tandem stock appreciation rights ("TSARs")
In the first nine 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 nine months of 2010
(first nine months of 2009 - $5.4 million). The weighted average fair
value assumptions were approximately:
For the nine months
ended September 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 nine months of 2010, under CP's stock option plans, the
Company issued 31,900 regular options at the weighted average
exercise price of $57.10 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 nine months of 2010
(first nine months of 2009 - $nil).
Performance share unit ("PSU") plan
In the first nine 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.
10 Long-term debt
During the third quarter of 2010, the Company issued US$350 million
of 4.45% Notes due March 15, 2023. Net proceeds from this offering
were $355.2 million and were used to make a voluntary prepayment to
the Company's main Canadian defined benefit pension plan. The notes
are unsecured and carry a negative pledge.
11 Pensions and other benefits
In the three months and nine months ended September 30, 2010, the
Company made contributions of $654.8 million and $833.2 million,
respectively (2009 - $20.6 million and $64.3 million, respectively)
to its defined benefit pension plans. The contributions made in the
third quarter of 2010 included, at the Company's option, a
$650 million prepayment to the Company's main Canadian defined
benefit pension plan.
Net periodic benefit cost for defined benefit pension plans and other
benefits recognized in the three and nine months ended September 30,
2010, included the following components:
For the three months
ended September 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 $ 3.5
Interest cost on benefit
obligation 116.1 120.5 7.0 7.2
Expected return on fund
assets (149.6) (139.3) (0.2) (0.2)
Recognized net actuarial
loss 17.8 1.7 1.3 0.7
Amortization of prior
service costs 3.3 5.7 (0.4) (0.3)
----------------------------------------
Net periodic benefit cost $ 9.2 $ 5.4 $ 11.6 $ 10.9
----------------------------------------
----------------------------------------
For the nine months
ended September 30
Pensions Other benefits
----------------------------------------
(in millions of
Canadian dollars) 2010 2009 2010 2009
----------------------------------------
Current service cost
(benefits earned by
employees in the period) $ 64.8 $ 50.6 $ 11.7 $ 10.8
Interest cost on benefit
obligation 348.3 361.8 21.0 21.9
Expected return on fund
assets (448.8) (418.3) (0.6) (0.7)
Recognized net actuarial
loss 53.4 5.5 3.9 2.6
Amortization of prior
service costs 9.9 17.1 (1.2) (1.1)
Settlement gain(1) - - - (8.7)
----------------------------------------
Net periodic benefit cost $ 27.6 $ 16.7 $ 34.8 $ 24.8
----------------------------------------
----------------------------------------
(1) Settlement gains resulted from certain post-retirement benefit
obligations being assumed by a U.S. national multi-employer
benefit plan.
12 Interest paid
Interest paid in the nine months ended September 30, 2010, included
an amount previously accrued of $71.7 million in relation to a
long-term debt that matured in June 2010.
13 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.
Responsibility for maintaining and operating the leased assets
according to specific contractual obligations outlined in the terms
of the lease agreements and industry standards is the Company's. 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 financial exposure to the Company 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 $9.8 million. Future minimum lease payments, before tax, of
$245.8 million will be payable over the next 20 years (Note 14).
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
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.
14 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 September 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 September 30, 2010, the Company had committed to total future
capital expenditures amounting to $231.8 million and operating
expenditures amounting to $1,639.6 million for the years 2010-2028.
Operating lease commitments
At September 30, 2010, minimum payments under operating leases were
estimated at $827.5 million in aggregate, with annual payments in
each of the next five years of: balance of 2010 - $37.8 million;
2011 - $132.4 million; 2012 - $120.2 million; 2013 - $104.6 million;
2014 - $78.2 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 charged to income in the
three and nine months ended September 30, 2010 was $1.2 million and
$2.7 million respectively (three and nine months ended September 30,
2009 - charges of $0.8 million and $2.4 million, respectively).
Guarantees
At September 30, 2010, the Company had residual value guarantees on
operating lease commitments of $166.7 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 September 30, 2010, these accruals amounted to $8.8 million.
15 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 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. In addition, U.S. GAAP includes investment tax
credit carryforwards within "Deferred income taxes" on the
balance sheet while these are included in "Other assets" under
Canadian GAAP.
(l) Gain on sale of significant properties: Under U.S. GAAP these
gains are credited against operating expenses while Canadian GAAP
permits recognition of these gains after operating income.
(m) 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 September 30
2010
-----------------------------------
Canadian U.S. GAAP U.S.
GAAP adjustments GAAP
Revenues
Freight (h) $ 1,250.8 $ - $ 1,250.8
Other (h) 35.4 - 35.4
-----------------------------------
1,286.2 - 1,286.2
Operating expenses
Compensation and benefits
(b, c, d, e, f) 366.6 (1.4) 365.2
Fuel 166.1 - 166.1
Materials (f) 38.9 4.3 43.2
Equipment rents (j) 53.2 0.4 53.6
Depreciation and amortization
(f, g, h, j, k) 123.5 0.4 123.9
Purchased services and other
(c, f, h, k) 200.9 (4.4) 196.5
Gain on sale of significant
properties (l) - - -
-----------------------------------
949.2 (0.7) 948.5
Operating income 337.0 0.7 337.7
Gain on sale of significant
properties (l) - - -
Less:
Other (income) and charges (a) 3.2 (2.2) 1.0
Interest expense (g, j) 59.9 0.7 60.6
-----------------------------------
Income before income tax expense 273.9 2.2 276.1
Income tax expense (recovery)
(k)(2) 79.8 (1.0) 78.8
-----------------------------------
Net income $ 194.1 $ 3.2 $ 197.3
-----------------------------------
-----------------------------------
Basic earnings per share $ 1.15 $ 0.02 $ 1.17
Diluted earnings per share $ 1.15 $ 0.02 $ 1.17
(in millions of Canadian dollars,
except per share data)
Three months ended September 30
2009
-----------------------------------
Canadian U.S. GAAP U.S.
GAAP(1) adjustments GAAP
Revenues
Freight (h) $ 1,086.6 $ - $ 1,086.6
Other (h) 34.9 (3.4) 31.5
-----------------------------------
1,121.5 (3.4) 1,118.1
Operating expenses
Compensation and benefits
(b, c, d, e, f) 321.4 1.0 322.4
Fuel 134.0 - 134.0
Materials (f) 46.5 (1.2) 45.3
Equipment rents (j) 51.2 0.3 51.5
Depreciation and amortization
(f, g, h, j, k) 118.3 3.3 121.6
Purchased services and other
(c, f, h, k) 185.6 (6.1) 179.5
Gain on sale of significant
properties (l) - (79.1) (79.1)
-----------------------------------
857.0 (81.8) 775.2
Operating income 264.5 78.4 342.9
Gain on sale of significant
properties (l) 79.1 (79.1) -
Less:
Other (income) and charges (a) 0.1 1.2 1.3
Interest expense (g, j) 64.7 (9.7) 55.0
-----------------------------------
Income before income tax expense 278.8 7.8 286.6
Income tax expense (recovery)
(k)(2) 80.4 (3.1) 77.3
-----------------------------------
Net income $ 198.4 $ 10.9 $ 209.3
-----------------------------------
-----------------------------------
Basic earnings per share $ 1.19 $ 0.06 $ 1.25
Diluted earnings per share $ 1.18 $ 0.06 $ 1.24
(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)
Nine months ended September 30
2010
-----------------------------------
Canadian U.S. GAAP U.S.
GAAP adjustments GAAP
Revenues
Freight (h) $ 3,591.2 $ - $ 3,591.2
Other (h) 96.0 - 96.0
-----------------------------------
3,687.2 - 3,687.2
Operating expenses
Compensation and benefits
(b, c, d, e, f) 1,061.0 7.7 1,068.7
Fuel 525.7 - 525.7
Materials (f) 149.5 8.7 158.2
Equipment rents (j) 156.5 1.0 157.5
Depreciation and amortization
(f, g, h, j, k) 366.7 1.7 368.4
Purchased services and other
(c, f, h, k) 603.7 (13.4) 590.3
Gain on sale of significant
properties (l) - - -
-----------------------------------
2,863.1 5.7 2,868.8
Operating income 824.1 (5.7) 818.4
Gain on sale of significant
properties (l) - - -
Gain on sale of partnership
interest - - -
Less:
Other (income) and charges (a) (2.4) (4.9) (7.3)
Interest expense (g, j) 196.4 (4.3) 192.1
-----------------------------------
Income before income tax expense 630.1 3.5 633.6
Income tax expense (recovery)
(k)(2) 168.1 0.6 168.7
-----------------------------------
Net income $ 462.0 $ 2.9 $ 464.9
-----------------------------------
-----------------------------------
Basic earnings per share $ 2.74 $ 0.02 $ 2.76
Diluted earnings per share $ 2.73 $ 0.02 $ 2.75
(in millions of Canadian dollars,
except per share data)
Nine months ended September 30
2009
-----------------------------------
Canadian U.S. GAAP U.S.
GAAP(1) adjustments GAAP
Revenues
Freight (h) $ 3,166.5 $ (2.5) $ 3,164.0
Other (h) 121.2 (26.2) 95.0
-----------------------------------
3,287.7 (28.7) 3,259.0
Operating expenses
Compensation and benefits
(b, c, d, e, f) 965.2 24.7 989.9
Fuel 422.7 - 422.7
Materials (f) 175.1 0.4 175.5
Equipment rents (j) 172.0 1.0 173.0
Depreciation and amortization
(f, g, h, j, k) 357.1 3.9 361.0
Purchased services and other
(c, f, h, k) 565.9 (12.5) 553.4
Gain on sale of significant
properties (l) - (79.1) (79.1)
-----------------------------------
2,658.0 (61.6) 2,596.4
Operating income 629.7 32.9 662.6
Gain on sale of significant
properties (l) 79.1 (79.1) -
Gain on sale of partnership
interest 81.2 - 81.2
Less:
Other (income) and charges (a) 21.8 (2.4) 19.4
Interest expense (g, j) 210.4 (11.2) 199.2
-----------------------------------
Income before income tax expense 557.8 (32.6) 525.2
Income tax expense (recovery)
(k)(2) 142.4 (21.0) 121.4
-----------------------------------
Net income $ 415.4 $ (11.6) $ 403.8
-----------------------------------
-----------------------------------
Basic earnings per share $ 2.51 $ (0.07) $ 2.44
Diluted earnings per share $ 2.50 $ (0.07) $ 2.43
(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 September 30, 2010
Canadian dollars) -----------------------------------
Canadian U.S. GAAP U.S.
GAAP adjustments GAAP
Assets
Current assets
Cash and cash equivalents $ 267.8 $ - $ 267.8
Accounts receivable, net (i) 533.3 - 533.3
Materials and supplies 124.5 - 124.5
Deferred income taxes 103.8 - 103.8
Other current assets 54.8 - 54.8
-----------------------------------
1,084.2 - 1,084.2
Investments 154.6 - 154.6
Net properties (e, f, g, j) 11,861.3 95.9 11,957.2
Goodwill and intangible assets 196.8 - 196.8
Other assets (b, i, k) 2,676.3 (2,538.3) 138.0
-----------------------------------
Total assets $15,973.2 $(2,442.4) $13,530.8
-----------------------------------
-----------------------------------
Liabilities and shareholders'
equity
Current liabilities
Accounts payable and accrued
liabilities (e) $ 1,025.2 $ 13.5 $ 1,038.7
Long-term debt maturing within
one year (i, j) 42.3 (0.9) 41.4
-----------------------------------
1,067.5 12.6 1,080.1
Pension and other benefits
liabilities (b, c) - 585.3 585.3
Other long-term liabilities
(b, c, e) 795.0 (322.6) 472.4
Long-term debt (i, j) 4,439.1 (50.1) 4,389.0
Future/deferred income taxes
(b, c, e, f, g, j, k) 2,668.7 (736.5) 1,932.2
-----------------------------------
Total liabilities 8,970.3 (511.3) 8,459.0
Shareholders' equity
Share capital (e) 1,779.8 26.1 1,805.9
Contributed surplus/Additional
paid-in capital (e) 29.8 (4.3) 25.5
Accumulated other comprehensive
income (loss) (a, b) 52.0 (1,744.5) (1,692.5)
Retained income/earnings
(a, b, c, e, f, g, j) 5,141.3 (208.4) 4,932.9
-----------------------------------
7,002.9 (1,931.1) 5,071.8
-----------------------------------
Total liabilities and
shareholders' equity $15,973.2 $(2,442.4) $13,530.8
-----------------------------------
-----------------------------------
(in millions of December 31, 2009
Canadian dollars) -----------------------------------
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, k) 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) $ 990.9 $ 9.8 $ 1,000.7
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 benefits
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, k) 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
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 September September
dollars, U.S. GAAP) 30, 2010 30, 2009
Restated
(See Note 2)
---------------------------------------------------------------------
Long-term debt $ 4,389.0 $ 3,732.6
Long-term debt maturing
within one year 41.4 600.0
Short-term borrowing - 57.7
---------------------------------------------------------------------
Total debt $ 4,430.4 $ 4,390.3
---------------------------------------------------------------------
---------------------------------------------------------------------
Shareholders' equity $ 5,071.8 $ 5,065.5
Total debt 4,430.4 4,390.3
---------------------------------------------------------------------
Total debt plus equity $ 9,502.2 $ 9,455.8
---------------------------------------------------------------------
---------------------------------------------------------------------
Operating income for the
twelve months ended September 30 $ 985.9 $ 949.8
Gain on sale of significant
properties - (79.1)
Loss on termination of lease
with shortline railway 54.5 -
Other income and charges 14.3 (22.2)
Gain in long-term floating
rate notes/ABCP (3.1) (6.3)
Foreign exchange gain on
long-term debt (10.8) (0.5)
Equity income in DM&E - 10.4
---------------------------------------------------------------------
Adjusted EBIT(1)(2) for the
twelve months ended September 30 $ 1,040.8 $ 852.1
---------------------------------------------------------------------
---------------------------------------------------------------------
Total debt $ 4,430.4 $ 4,390.3
Total debt plus equity $ 9,502.2 $ 9,455.8
---------------------------------------------------------------------
Total debt to total No more 46.6% 46.4%
capitalization than 50.0%
---------------------------------------------------------------------
---------------------------------------------------------------------
Adjusted EBIT(1)(2) $ 1,040.8 $ 852.1
Interest expense(2) $ 260.5 $ 272.3
---------------------------------------------------------------------
Interest coverage ratio(1)(2) No less 4.0 3.1
than 4.0
---------------------------------------------------------------------
---------------------------------------------------------------------
(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 September 30, 2010 due to an increase in year-over-year
adjusting earnings and a reduction in year-over-year interest
expense.
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.
16 Reclassification of comparative figures
Certain comparative figures have been reclassified in order to be
consistent with the 2010 presentation.
Summary of Rail Data
--------------------
(Reconciliation of GAAP earnings to non-GAAP earnings on pages 2 and 3)
-----------------------------------------------------------------------
Third Quarter
--------------------------------------------
2010 2009(1) Fav/(Unfav) %
--------------------------------------------
Financial (millions, except
---------------------------
per share data)
---------------
Revenues
--------
Freight revenue $ 1,250.8 $ 1,086.6 $ 164.2 15.1
Other revenue 35.4 31.5 3.9 12.4
---------------------------------
1,286.2 1,118.1 168.1 15.0
---------------------------------
Operating expenses
------------------
Compensation and benefits 365.2 322.4 (42.8) (13.3)
Fuel 166.1 134.0 (32.1) (24.0)
Materials 43.2 45.3 2.1 4.6
Equipment rents 53.6 51.5 (2.1) (4.1)
Depreciation and amortization 123.9 121.6 (2.3) (1.9)
Purchased services and other 196.5 179.5 (17.0) (9.5)
Gain on sale of significant
properties - (79.1) (79.1) (100.0)
---------------------------------
948.5 775.2 (173.3) (22.4)
---------------------------------
Operating income 337.7 342.9 (5.2) (1.5)
Gain on sale of partnership
interest - - - -
Less:
Other (income) and charges 1.0 1.3 0.3 23.1
Interest expense 60.6 55.0 (5.6) (10.2)
---------------------------------
Income before income tax
expense 276.1 286.6 (10.5) (3.7)
Income tax expense 78.8 77.3 (1.5) (1.9)
---------------------------------
Net income $ 197.3 $ 209.3 $ (12.0) (5.7)
---------------------------------
---------------------------------
Basic earnings per share $ 1.17 $ 1.25 $ (0.08) (6.4)
---------------------------------
---------------------------------
Diluted earnings per share $ 1.17 $ 1.24 $ (0.07) (5.6)
---------------------------------
---------------------------------
Shares Outstanding
------------------
Weighted average (avg)
number of shares outstanding
(millions) 168.8 168.1 0.7 0.4
Weighted avg number of
diluted shares outstanding
(millions) 169.3 168.7 0.6 0.4
Foreign Exchange
----------------
Average foreign exchange
rate (US$/Canadian$) 0.96 0.90 (0.06) (6.7)
Average foreign exchange
rate (Canadian$/US$) 1.04 1.11 (0.07) (6.3)
Year-to-date
--------------------------------------------
2010 2009(1) Fav/(Unfav) %
--------------------------------------------
Financial (millions, except
---------------------------
per share data)
---------------
Revenues
--------
Freight revenue $ 3,591.2 $ 3,164.0 $ 427.2 13.5
Other revenue 96.0 95.0 1.0 1.1
---------------------------------
3,687.2 3,259.0 428.2 13.1
---------------------------------
Operating expenses
------------------
Compensation and benefits 1,068.7 989.9 (78.8) (8.0)
Fuel 525.7 422.7 (103.0) (24.4)
Materials 158.2 175.5 17.3 9.9
Equipment rents 157.5 173.0 15.5 9.0
Depreciation and amortization 368.4 361.0 (7.4) (2.0)
Purchased services and other 590.3 553.4 (36.9) (6.7)
Gain on sale of significant
properties - (79.1) (79.1) (100.0)
---------------------------------
2,868.8 2,596.4 (272.4) (10.5)
---------------------------------
Operating income 818.4 662.6 155.8 23.5
Gain on sale of partnership
interest - 81.2 (81.2) (100.0)
Less:
Other (income) and charges (7.3) 19.4 26.7 137.6
Interest expense 192.1 199.2 7.1 3.6
---------------------------------
Income before income tax
expense 633.6 525.2 108.4 20.6
Income tax expense 168.7 121.4 (47.3) (39.0)
---------------------------------
Net income $ 464.9 $ 403.8 $ 61.1 15.1
---------------------------------
---------------------------------
Basic earnings per share $ 2.76 $ 2.44 $ 0.32 13.1
---------------------------------
---------------------------------
Diluted earnings per share $ 2.75 $ 2.43 $ 0.32 13.2
---------------------------------
---------------------------------
Shares Outstanding
------------------
Weighted average (avg)
number of shares outstanding
(millions) 168.6 165.7 2.9 1.8
Weighted avg number of
diluted shares outstanding
(millions) 169.0 166.0 3.0 1.8
Foreign Exchange
----------------
Average foreign exchange
rate (US$/Canadian$) 0.96 0.85 (0.11) (12.9)
Average foreign exchange
rate (Canadian$/US$) 1.04 1.18 (0.14) (11.9)
(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
-----------------
Third Quarter 2010
-----------------------------------
Adjusted
In millions, except Reported Adjustments (Non-GAAP)
per share data (GAAP) Fav/(Unfav) (2)
------------------------- -----------------------------------
Revenues $ 1,286.2 $ - $ 1,286.2
Expenses 948.5 - 948.5
------------------------- -----------------------------------
Operating income 337.7 - 337.7
Less:
Other (income) and charges 1.0 0.6(3) 0.4
Interest expense 60.6 - 60.6
------------------------- -----------------------------------
Income before income
tax expense 276.1 0.6 276.7
Income tax expense 78.8 6.8(4) 72.0
-------------------------------------
Net income $ 197.3 $ 7.4 $ 204.7(5)
------------------------- -------------------------------------
------------------------- -------------------------------------
Operating ratio (%) 73.7 - 73.7
Basic earnings per share $ 1.17 $ 0.04 $ 1.21
Diluted earnings per share $ 1.17 $ 0.04 $ 1.21
Third Quarter 2009(1) %
----------------------------------- Adjusted
Adjusted (Non-GAAP)
In millions, except Reported Adjustments (Non-GAAP) (2)
per share data (GAAP) Fav/(Unfav) (2) Fav/(Unfav)
------------------------- -----------------------------------------------
Revenues $ 1,118.1 $ - $ 1,118.1 15.0
Expenses 775.2 (79.1)(6) 854.3 (11.0)
------------------------- -----------------------------------
Operating income 342.9 (79.1) 263.8 28.0
Less:
Other (income) and charges 1.3 1.7(7) (0.4) -
Interest expense 55.0 - 55.0 (10.2)
------------------------- -----------------------------------
Income before income
tax expense 286.6 (77.4) 209.2 32.3
Income tax expense 77.3 29.0(8) 48.3 (49.1)
-------------------------------------
Net income $ 209.3 $ (48.4) $ 160.9(5) 27.2
------------------------- -------------------------------------
------------------------- -------------------------------------
Operating ratio (%) 69.3 (7.1) 76.4 270 bps
Basic earnings per share $ 1.25 $ (0.29) $ 0.96 26.0
Diluted earnings per share $ 1.24 $ (0.29) $ 0.95 27.4
(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 are unlikely to be comparable to similar measures of other
companies.
(3) To exclude the gain in fair value of long-term floating rate notes
of $0.4 million due to short-term market changes and a loss in
foreign exchange on long-term debt (FX on LTD) of $1.0 million in
order to eliminate the impact of volatile short-term exchange rate
fluctuations.
(4) To exclude the tax expense associated with the gain in fair value of
long-term floating rate notes of $0.1 million and the tax expense
associated with the loss on FX on LTD of $6.7 million.
(5) These adjusted figures are also referred to as "Income, before FX on
LTD and other specified items".
(6) To exclude the gain of $79.1 million before tax which arose from the
sale of significant properties.
(7) To exclude the gain in fair value of long-term floating rate notes
of $1.6 million due to short-term market changes and a loss in FX on
LTD of $3.3 million in order to eliminate the impact of volatile
short-term exchange rate fluctuations.
(8) To exclude the tax expense associated with the gain on sale of
significant properties of $11.0 million, the tax expense associated
with the gain in fair value of long-term floating rate notes of
$0.3 million and the tax expense associated with the loss on FX on
LTD of $17.7 million.
-------------------------------------------------------------------------
Summary of Rail Data (Page 3)
-----------------------------
Adjusted Earnings Performance - Year-to-date
--------------------------------------------
Non-GAAP Measures
-----------------
Year-to-date 2010
-----------------------------------
Adjusted
In millions, except Reported Adjustments (Non-GAAP)
per share data (GAAP) Fav/(Unfav) (2)
------------------------- -----------------------------------
Revenues $ 3,687.2 $ - $ 3,687.2
Expenses 2,868.8 - 2,868.8
------------------------- -----------------------------------
Operating income 818.4 - 818.4
Gain on sale of
partnership interest - - -
Less:
Other (income) and charges (7.3) (6.3)(3) (1.0)
Interest expense 192.1 - 192.1
------------------------- -----------------------------------
Income before income
tax expense 633.6 (6.3) 627.3
Income tax expense 168.7 5.5(4) 163.2
-------------------------------------
Net income $ 464.9 $ (0.8) $ 464.1(5)
------------------------- -------------------------------------
------------------------- -------------------------------------
Operating ratio (%) 77.8 - 77.8
Basic earnings per share $ 2.76 $ (0.01) $ 2.75
Diluted earnings per share $ 2.75 $ - $ 2.75
Year-to-date 2009(1) %
----------------------------------- Adjusted
Adjusted (Non-GAAP)
In millions, except Reported Adjustments (Non-GAAP) (2)
per share data (GAAP) Fav/(Unfav) (2) Fav/(Unfav)
------------------------- -----------------------------------------------
Revenues $ 3,259.0 $ - $ 3,259.0 13.1
Expenses 2,596.4 (79.1)(6) 2,675.5 (7.2)
------------------------- -----------------------------------
Operating income 662.6 (79.1) 583.5 40.3
Gain on sale of
partnership interest 81.2 (81.2)(7) - -
Less:
Other (income) and charges 19.4 (2.3)(8) 21.7 -
Interest expense 199.2 - 199.2 3.6
------------------------- -----------------------------------
Income before income
tax expense 525.2 (162.6) 362.6 73.0
Income tax expense 121.4 51.5(9) 69.9 (133.5)
-------------------------------------
Net income $ 403.8 $ (111.1) $ 292.7(5) 58.6
------------------------- -------------------------------------
------------------------- -------------------------------------
Operating ratio (%) 79.7 (2.4) 82.1 430 bps
Basic earnings per share $ 2.44 $ (0.67) $ 1.77 55.4
Diluted earnings per share $ 2.43 $ (0.67) $ 1.76 56.3
(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 are unlikely to be comparable to similar measures of other
companies.
(3) To exclude the gain in fair value of long-term floating rate notes
of $3.1 million due to short-term market changes and a gain in
foreign exchange on long-term debt (FX on LTD) of $3.2 million in
order to eliminate the impact of volatile short-term exchange rate
fluctuations.
(4) To exclude the tax expense associated with the gain in fair value of
long-term floating rate notes of $0.9 million and the tax expense
associated with the gain on FX on LTD of $4.6 million.
(5) These adjusted figures are also referred to as "Income, before FX on
LTD and other specified items".
(6) To exclude the gain of $79.1 million before tax which arose from the
sale of significant properties.
(7) 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 ("DRTP").
(8) To exclude the gain in fair value of long-term floating rate notes
of $6.3 million due to short-term market changes and a loss in FX on
LTD of $4.0 million in order to eliminate the impact of volatile
short-term exchange rate fluctuations.
(9) To exclude the tax expense associated with the partial sale of the
investment in DRTP of $12.5 million, the tax expense associated with
the sale of significant properties of $11.0 million, the tax expense
associated with the gain in fair value of long-term floating rate
notes of $1.8 million and the tax expense associated with the loss
on FX on LTD of $26.2 million.
-------------------------------------------------------------------------
Summary of Rail Data (Page 4)
-----------------------------
Third Quarter
--------------------------------------------
2010 2009 Fav/(Unfav) %
--------------------------------------------
Commodity Data
--------------
Freight Revenues (millions)
- Grain $ 300.2 $ 281.2 $ 19.0 6.8
- Coal 118.4 119.7 (1.3) (1.1)
- Sulphur and fertilizers 110.1 81.4 28.7 35.3
- Forest products 47.1 45.8 1.3 2.8
- Industrial and consumer
products 240.3 195.5 44.8 22.9
- Automotive 74.5 59.6 14.9 25.0
- Intermodal 360.2 303.4 56.8 18.7
---------------------------------
Total Freight Revenues $ 1,250.8 $ 1,086.6 $ 164.2 15.1
---------------------------------
Millions of Revenue Ton-Miles
(RTM)
- Grain 8,842 8,458 384 4.5
- Coal 4,631 4,784 (153) (3.2)
- Sulphur and fertilizers 3,997 2,747 1,250 45.5
- Forest products 1,241 1,216 25 2.1
- Industrial and consumer
products 5,897 4,570 1,327 29.0
- Automotive 461 417 44 10.6
- Intermodal 6,848 5,829 1,019 17.5
---------------------------------
Total RTMs 31,917 28,021 3,896 13.9
---------------------------------
Freight Revenue per RTM (cents)
- Grain 3.40 3.32 0.08 2.4
- Coal 2.56 2.50 0.06 2.4
- Sulphur and fertilizers 2.75 2.96 (0.21) (7.1)
- Forest products 3.80 3.77 0.03 0.8
- Industrial and consumer
products 4.07 4.28 (0.21) (4.9)
- Automotive 16.16 14.29 1.87 13.1
- Intermodal 5.26 5.21 0.05 1.0
Total Freight Revenue per RTM 3.92 3.88 0.04 1.0
Carloads (thousands)
- Grain 119.9 117.6 2.3 2.0
- Coal 83.2 84.2 (1.0) (1.2)
- Sulphur and fertilizers 41.8 29.7 12.1 40.7
- Forest products 18.2 17.4 0.8 4.6
- Industrial and consumer
products 106.4 86.6 19.8 22.9
- Automotive 32.3 27.2 5.1 18.8
- Intermodal 283.9 239.7 44.2 18.4
---------------------------------
Total Carloads 685.7 602.4 83.3 13.8
---------------------------------
Freight Revenue per Carload
- Grain $ 2,504 $ 2,391 $ 113 4.7
- Coal 1,423 1,422 1 0.1
- Sulphur and fertilizers 2,634 2,741 (107) (3.9)
- Forest products 2,588 2,632 (44) (1.7)
- Industrial and consumer
products 2,258 2,258 - -
- Automotive 2,307 2,191 116 5.3
- Intermodal 1,269 1,266 3 0.2
Total Freight Revenue per
Carload $ 1,824 $ 1,804 $ 20 1.1
Year-to-date
--------------------------------------------
2010 2009 Fav/(Unfav) %
--------------------------------------------
Commodity Data
--------------
Freight Revenues (millions)
- Grain $ 835.9 $ 843.5 $ (7.6) (0.9)
- Coal 365.6 331.5 34.1 10.3
- Sulphur and fertilizers 342.8 224.2 118.6 52.9
- Forest products 134.7 133.3 1.4 1.1
- Industrial and consumer
products 662.8 580.9 81.9 14.1
- Automotive 241.1 161.4 79.7 49.4
- Intermodal 1,008.3 889.2 119.1 13.4
---------------------------------
Total Freight Revenues $ 3,591.2 $ 3,164.0 $ 427.2 13.5
---------------------------------
Millions of Revenue Ton-Miles
(RTM)
- Grain 25,781 25,682 99 0.4
- Coal 14,207 12,504 1,703 13.6
- Sulphur and fertilizers 12,724 6,646 6,078 91.5
- Forest products 3,894 3,372 522 15.5
- Industrial and consumer
products 15,950 12,891 3,059 23.7
- Automotive 1,566 1,127 439 39.0
- Intermodal 19,423 17,256 2,167 12.6
---------------------------------
Total RTMs 93,545 79,478 14,067 17.7
---------------------------------
Freight Revenue per RTM (cents)
- Grain 3.24 3.28 (0.04) (1.2)
- Coal 2.57 2.65 (0.08) (3.0)
- Sulphur and fertilizers 2.69 3.37 (0.68) (20.2)
- Forest products 3.46 3.95 (0.49) (12.4)
- Industrial and consumer
products 4.16 4.51 (0.35) (7.8)
- Automotive 15.40 14.32 1.08 7.5
- Intermodal 5.19 5.15 0.04 0.8
Total Freight Revenue per RTM 3.84 3.98 (0.14) (3.5)
Carloads (thousands)
- Grain 349.0 348.4 0.6 0.2
- Coal 253.8 221.2 32.6 14.7
- Sulphur and fertilizers 129.3 76.9 52.4 68.1
- Forest products 53.0 50.4 2.6 5.2
- Industrial and consumer
products 294.8 253.3 41.5 16.4
- Automotive 103.3 70.8 32.5 45.9
- Intermodal 803.9 721.9 82.0 11.4
---------------------------------
Total Carloads 1,987.1 1,742.9 244.2 14.0
---------------------------------
Freight Revenue per Carload
- Grain $ 2,395 $ 2,421 $ (26) (1.1)
- Coal 1,441 1,499 (58) (3.9)
- Sulphur and fertilizers 2,651 2,915 (264) (9.1)
- Forest products 2,542 2,645 (103) (3.9)
- Industrial and consumer
products 2,248 2,293 (45) (2.0)
- Automotive 2,334 2,280 54 2.4
- Intermodal 1,254 1,232 22 1.8
Total Freight Revenue per
Carload $ 1,807 $ 1,815 $ (8) (0.4)
Summary of Rail Data (Page 5)
-----------------------------
Third Quarter
-------------------------------------------
2010 2009(1) Fav/(Unfav) %
-------------------------------------------
Operations Performance
----------------------
Total operating expenses per
GTM (cents)(2) 1.56 1.44 (0.12) (8.3)
Adjusted operating expenses
exclusive of land sales per
GTM (cents)(2)(3) 1.56 1.60 0.04 2.5
Freight gross ton-miles (GTM)
(millions) 60,969 53,709 7,260 13.5
Train miles (000) 9,967 8,562 1,405 16.4
Average number of active
employees - Total 16,046 15,420 (626) (4.1)
Average number of active
employees - Expense 13,961 13,352 (609) (4.6)
Number of employees at end of
period - Total 16,042 15,416 (626) (4.1)
Number of employees at end of
period - Expense 13,950 13,371 (579) (4.3)
U.S. gallons of locomotive
fuel per 1,000 GTMs -
freight & yard 1.12 1.09 (0.03) (2.8)
U.S. gallons of locomotive
fuel consumed - total
(millions)(4) 67.9 58.1 (9.8) (16.9)
Average fuel price (U.S.
dollars per U.S. gallon) 2.34 2.07 (0.27) (13.0)
Fluidity Data (including DM&E)
------------------------------
Average terminal dwell - AAR
definition (hours) 19.6 n/a - -
Average train speed - AAR
definition (mph) 23.0 n/a - -
Car miles per car day 146.8 n/a - -
Average daily active cars
on-line (000) 55.1 n/a - -
Average daily active road
locomotives on-line 1,002 n/a - -
Fluidity Data (excluding DM&E)
------------------------------
Average terminal dwell - AAR
definition (hours) 19.6 20.7 1.1 5.3
Average train speed - AAR
definition (mph) 24.1 25.7 (1.6) (6.2)
Car miles per car day 159.2 147.1 12.1 8.2
Average daily active cars
on-line (000) 48.3 44.5 (3.8) (8.5)
Average daily active road
locomotives on-line 887 694 (193) (27.8)
Safety
------
FRA personal injuries per
200,000 employee-hours 1.58 2.13 0.55 25.8
FRA train accidents per
million train-miles 1.73 1.80 0.07 3.9
Year-to-date
-------------------------------------------
2010 2009(1) Fav/(Unfav) %
-------------------------------------------
Operations Performance
----------------------
Total operating expenses per
GTM (cents)(2) 1.59 1.68 0.09 5.4
Adjusted operating expenses
exclusive of land sales per
GTM (cents)(2)(3) 1.59 1.75 0.16 9.1
Freight gross ton-miles (GTM)
(millions) 180,259 154,277 25,982 16.8
Train miles (000) 29,444 25,860 3,584 13.9
Average number of active
employees - Total 15,401 15,209 (192) (1.3)
Average number of active
employees - Expense 13,866 13,669 (197) (1.4)
Number of employees at end of
period - Total 16,042 15,416 (626) (4.1)
Number of employees at end of
period - Expense 13,950 13,371 (579) (4.3)
U.S. gallons of locomotive
fuel per 1,000 GTMs -
freight & yard 1.16 1.19 0.03 2.5
U.S. gallons of locomotive
fuel consumed - total
(millions)(4) 207.7 181.9 (25.8) (14.2)
Average fuel price (U.S.
dollars per U.S. gallon) 2.44 1.97 (0.47) (23.9)
Fluidity Data (including DM&E)
------------------------------
Average terminal dwell - AAR
definition (hours) 21.2 n/a - -
Average train speed - AAR
definition (mph) 23.1 n/a - -
Car miles per car day 141.7 n/a - -
Average daily active cars
on-line (000) 56.9 n/a - -
Average daily active road
locomotives on-line 1,005 n/a - -
Fluidity Data (excluding DM&E)
------------------------------
Average terminal dwell - AAR
definition (hours) 21.2 21.5 0.3 1.4
Average train speed - AAR
definition (mph) 24.3 25.7 (1.4) (5.4)
Car miles per car day 154.4 144.0 10.4 7.2
Average daily active cars
on-line (000) 49.6 45.2 (4.4) (9.7)
Average daily active road
locomotives on-line 886 750 (136) (18.1)
Safety
------
FRA personal injuries per
200,000 employee-hours 1.58 1.85 0.27 14.6
FRA train accidents per
million train-miles 1.67 1.90 0.23 12.1
(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 are unlikely to be comparable to similar measures of other
companies. Adjusted operating expenses exclusive of land sales per
GTM is calculated consistently with total operating expenses per GTM
except for the exclusion of a gain on sale of significant properties
for the three and nine months ended September 30, 2009 of
$79.1 million and the exclusion of net gains on land sales of
$2.8 million and $3.3 million for the three months ended
September 30, 2010 and 2009, respectively, and $6.0 million and
$27.8 million for the nine months ended September 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
For further information: Media: Mike LoVecchio, Senior Manager - Media Relations, Canadian Pacific, Tel.: (778) 772-9636, 24/7 Media Pager: (416) 814-0948, e-mail: [email protected]; Investment Community: Janet Weiss, Assistant Vice President - Investor Relations, Canadian Pacific, Tel.: (403) 319-3591, e-mail: [email protected]
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