Canadian Pacific announces its second-quarter 2009 results
July 30, 2009
“The recession continues to have a significant impact on our business and although freight volumes appear to have stabilized, we have not yet seen a sustained recovery in traffic,” said
“Our goal is to make sustainable reductions in our overall cost structure and strengthen our balance sheet. Our concentrated efforts to improve critical business processes will drive efficiency and ensure that CP is well-positioned to deliver value in the long term.”
For the second-quarter and the first-half of 2009, the results of the
SUMMARY OF SECOND-QUARTER 2009 COMPARED WITH SECOND-QUARTER 2008
EXCLUDING FOREIGN EXCHANGE GAIN AND LOSS ON LONG-TERM DEBT AND OTHER
SPECIFIED ITEMS ON A PRO FORMA BASIS:
- Total revenues were $1.0 billion, down 21 per cent from $1.3 billion
- Operating expenses were $797 million, down 23 percent from
$1.0 billion
- Income decreased to $100 million from $150 million, or 33 per cent
- Diluted earnings per share decreased to $0.59 from $0.97, or
39 per cent
- Operating ratio improved 120 basis points to 77.9 per cent
SUMMARY OF FIRST-HALF 2009 COMPARED WITH FIRST-HALF 2008
- Net income for the first half of 2009 was $220 million compared with
$245 million in 2008, a decrease of 10 per cent.
- Diluted earnings per share were $1.33 down from $1.58 or 16 per cent
EXCLUDING FOREIGN EXCHANGE GAIN AND LOSS ON LONG-TERM DEBT AND OTHER
SPECIFIED ITEMS ON A PRO FORMA BASIS:
- Total revenues decreased 17 per cent to $2.1 billion and operating
expenses decreased 15 per cent to $1.7 billion
- Income decreased 42 per cent to $154 million from $267 million
- Diluted earnings per share were $0.94 down from $1.72
- Operating ratio deteriorated 190 basis points to 82.6 per cent from
80.7 per cent
2009 CAPITAL PROGRAM
CP now expects its capital program in 2009 to be in the range of
FOREIGN EXCHANGE GAIN AND LOSS ON LONG-TERM DEBT AND OTHER SPECIFIED
ITEMS
CP had a foreign exchange loss on long-term debt of
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 U.S. subsidiaries. As a result, the tax on foreign exchange gains and losses on long-term debt in different taxing jurisdictions can vary significantly.
Other specified items in the second-quarter of 2009 included an after tax gain on the sale of a portion of CP’s interest in the Detroit River Tunnel Partnership of
For the first six months of 2009, CP had a foreign exchange loss on long-term debt of
Presentation of non-GAAP earnings
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. Additional non-GAAP measures include Operating income, Capital program and Financial data on a pro forma basis.
These non-GAAP earnings measures exclude foreign currency translation effects on long-term debt, 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.
Diluted earnings per share, excluding foreign exchange gains and losses on long-term debt and other specified items, is referred to in this news release as “adjusted diluted earnings per share”. Revenues less operating expenses are referred to as “Operating Income” and Additions to property is referred to as “Capital Program”.
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.
Financial data on a pro forma basis redistributes the DM E operating results originally reported on an equity income basis of accounting to a line-by-line consolidation of DM E revenues and expenses. Doing so provides a comparable measure for periods in 2008 that preceded the Surface Transportation Board’s approval of the change of control of the DM E on
The non-GAAP earnings measures described in this news release have no standardized meanings and are not defined by Canadian generally accepted accounting principles and, therefore, are unlikely to be comparable to similar measures presented by other companies.
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 ABCP; and various events that could disrupt operations, including severe weather conditions, security threats and governmental response to them, and technological changes.
There are factors that could cause actual results to differ from those described in the forward-looking statements contained in this news release. These more specific factors are identified and discussed elsewhere in this news release with the particular forward-looking statement in question.
Except as required by law, CP undertakes no obligation to update publicly or otherwise revise any forward-looking information, whether as a result of new information, future events or otherwise.
Canadian Pacific, through the ingenuity of its employees located across
CONSOLIDATED STATEMENT OF INCOME
(in millions, except per share data)
For the three months
ended June 30
2009 2008
Restated
(see Note 2)
-------------------------
(unaudited)
Revenues
Freight $ 972.5 $ 1,193.1
Other 49.9 27.2
-------------------------
1,022.4 1,220.3
Operating expenses
Compensation and benefits 301.6 315.5
Fuel 117.7 260.3
Materials 49.7 56.5
Equipment rents 43.2 46.1
Depreciation and amortization 135.2 124.7
Purchased services and other 149.2 166.3
-------------------------
796.6 969.4
-------------------------
Revenues less operating expenses 225.8 250.9
Gain on sale of partnership interest (Note 4) 81.2 -
Gain in fair value of long-term
floating rate notes (Note 12) 4.7 -
Foreign exchange gain on long-term debt 3.0 6.8
Equity income in Dakota, Minnesota & Eastern
Railroad Corporation (Note 12) - 13.4
Less:
Other income and charges (Note 6) 19.1 4.9
Net interest expense (Note 7) 73.3 62.9
-------------------------
Income before income tax expense 222.3 203.3
Income tax expense (Note 8) 65.0 48.6
-------------------------
Net income $ 157.3 $ 154.7
-------------------------
-------------------------
Basic earnings per share (Note 9) $ 0.94 $ 1.01
-------------------------
-------------------------
Diluted earnings per share (Note 9) $ 0.93 $ 1.00
-------------------------
-------------------------
See notes to interim consolidated financial statements.
CONSOLIDATED STATEMENT OF INCOME
(in millions, except per share data)
For the six months
ended June 30
2009 2008
Restated
(see Note 2)
-------------------------
(unaudited)
Revenues
Freight $ 2,022.7 $ 2,317.5
Other 70.4 49.7
-------------------------
2,093.1 2,367.2
Operating expenses
Compensation and benefits 642.5 643.8
Fuel 288.7 490.5
Materials 118.5 122.0
Equipment rents 96.9 92.0
Depreciation and amortization 267.6 244.6
Purchased services and other 313.7 325.4
-------------------------
1,727.9 1,918.3
-------------------------
Revenues less operating expenses 365.2 448.9
Gain on sale of partnership interest (Note 4) 81.2 -
Gain (loss) in fair value of long-term
floating rate notes/asset-backed
commercial paper (Note 12) 4.7 (21.3)
Foreign exchange gain (loss) on long-term debt 2.8 (9.5)
Equity income in Dakota, Minnesota & Eastern
Railroad Corporation (Note 12) - 24.4
Less:
Other income and charges (Note 6) 26.6 11.6
Net interest expense (Note 7) 145.7 122.8
-------------------------
Income before income tax expense 281.6 308.1
Income tax expense (Note 8) 61.8 62.7
-------------------------
Net income $ 219.8 $ 245.4
-------------------------
-------------------------
Basic earnings per share (Note 9) $ 1.34 $ 1.60
-------------------------
-------------------------
Diluted earnings per share (Note 9) $ 1.33 $ 1.58
-------------------------
-------------------------
See notes to interim consolidated financial statements.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(in millions)
For the three months
ended June 30
2009 2008
Restated
(see Note 2)
-------------------------
(unaudited)
Comprehensive income
Net income $ 157.3 $ 154.7
Other comprehensive income
Unrealized foreign exchange (loss) gain on:
Translation of the net investment in
U.S. subsidiaries (143.4) (9.1)
Translation of the U.S. dollar-denominated
long-term debt designated as a hedge of
the net investment in U.S. subsidiaries 142.1 8.0
Change in derivatives designated as
cash flow hedges:
Realized gain on cash flow hedges
settled in the period (1.4) (6.0)
Decrease in unrealized holding loss
on cash flow hedges 3.4 21.0
Realized loss on cash flow hedges
settled in prior periods 1.8 1.7
-------------------------
Other comprehensive income before income taxes 2.5 15.6
Income tax expense (20.2) (5.3)
-------------------------
Other comprehensive (loss) income (17.7) 10.3
-------------------------
Comprehensive income $ 139.6 $ 165.0
-------------------------
-------------------------
See notes to interim consolidated financial statements.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(in millions)
For the six months
ended June 30
2009 2008
Restated
(see Note 2)
-------------------------
(unaudited)
Comprehensive income
Net income $ 219.8 $ 245.4
Other comprehensive income
Unrealized foreign exchange (loss) gain on:
Translation of the net investment in
U.S. subsidiaries (85.6) 37.2
Translation of the U.S. dollar-denominated
long-term debt designated as a hedge of
the net investment in U.S. subsidiaries 82.1 (35.0)
Change in derivatives designated as
cash flow hedges:
Realized loss (gain) on cash flow hedges
settled in the period 2.8 (8.9)
Decrease in unrealized holding loss
on cash flow hedges 3.2 15.2
Realized loss on cash flow hedges
settled in prior periods 1.8 1.6
-------------------------
Other comprehensive income before income taxes 4.3 10.1
Income tax (expense) recovery (13.7) 2.7
-------------------------
Other comprehensive (loss) income (9.4) 12.8
-------------------------
Comprehensive income $ 210.4 $ 258.2
-------------------------
-------------------------
See notes to interim consolidated financial statements.
CONSOLIDATED BALANCE SHEET
(in millions)
June 30 December 31
2009 2008
Restated
(see Note 2)
-------------------------
(unaudited)
Assets
Current assets
Cash and cash equivalents (Note 5) $ 334.3 $ 117.6
Accounts receivable (Note 16) 488.5 647.4
Materials and supplies 203.8 215.8
Future income taxes 69.1 76.5
Other 88.0 65.7
-------------------------
1,183.7 1,123.0
Investments (Note 12) 151.5 151.1
Net properties 12,499.8 12,576.3
Assets held for sale (Note 14) 26.5 39.6
Other assets 1,298.5 1,326.1
Goodwill and intangible assets 224.8 237.2
-------------------------
Total assets $ 15,384.8 $ 15,453.3
-------------------------
-------------------------
Liabilities and shareholders' equity
Current liabilities
Short-term borrowing $ 55.6 $ 150.1
Accounts payable and accrued liabilities 834.6 1,034.9
Income and other taxes payable 40.2 42.2
Dividends payable 41.6 38.1
Long-term debt maturing within one year 386.6 44.0
-------------------------
1,358.6 1,309.3
Deferred liabilities 819.2 865.2
Long-term debt (Note 13) 3,977.8 4,685.8
Future income taxes 2,622.7 2,610.0
Shareholders' equity
Share capital (Note 15) 1,722.2 1,220.8
Contributed surplus 35.1 40.2
Accumulated other comprehensive income 68.9 78.3
Retained income 4,780.3 4,643.7
-------------------------
6,606.5 5,983.0
-------------------------
Total liabilities and shareholders' equity $ 15,384.8 $ 15,453.3
-------------------------
-------------------------
Commitments and contingencies (Note 20)
See notes to interim consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
For the three months
ended June 30
2009 2008
Restated
(see Note 2)
-------------------------
(unaudited)
Operating activities
Net income $ 157.3 $ 154.7
Add (deduct) items not affecting cash:
Depreciation and amortization 135.2 124.7
Future income taxes 69.8 32.4
Gain in fair value of long-term
floating rate notes (Note 12) (4.7) -
Foreign exchange gain on long-term debt (3.0) (6.8)
Amortization and accretion charges 3.2 2.6
Equity income, net of cash received 1.0 (12.5)
Gain on sale of partnership interest (Note 4) (81.2) -
Net loss on repurchase of debt (Note 13) 16.6 -
Restructuring and environmental remediation
payments (Note 10) (10.5) (10.8)
Pension funding in excess of expense (20.4) (14.3)
Other operating activities, net (22.7) 45.6
Change in non-cash working capital balances
related to operations (Note 11) (51.2) (132.5)
-------------------------
Cash provided by operating activities 189.4 183.1
-------------------------
Investing activities
Additions to properties (266.9) (237.3)
Additions to investments and other assets - (57.4)
Reductions to investments and other assets 12.3 (0.4)
Additions to investment in Dakota, Minnesota
& Eastern Railroad Corporation (Note 12) - (1.2)
Net proceeds (cost) from disposal of
transportation properties (Note 4) 110.7 (0.1)
-------------------------
Cash used in investing activities (143.9) (296.4)
-------------------------
Financing activities
Dividends paid (41.7) (38.0)
Issuance of CP Common Shares 3.4 4.8
Net (decrease) increase in short-term borrowing (76.4) 188.3
Issuance of long-term debt (Note 13) 409.5 1,068.7
Repayment of long-term debt (Note 13) (593.5) (1,069.9)
Settlement of treasury rate lock - (30.9)
Settlement of foreign exchange forward on
long-term debt (Note 16) 29.2 -
-------------------------
Cash (used in) provided by financing
activities (269.5) 123.0
-------------------------
Effect of foreign exchange fluctuations on U.S.
dollar-denominated cash and cash equivalents (8.2) (0.1)
-------------------------
Cash position
(Decrease) increase in cash and cash equivalents (232.2) 9.6
Cash and cash equivalents at beginning of period 566.5 71.3
-------------------------
Cash and cash equivalents at
end of period (Note 5) $ 334.3 $ 80.9
-------------------------
-------------------------
Certain of the comparative figures have been reclassified in order to be
consistent with the 2009 presentation.
See notes to interim consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
For the six months
ended June 30
2009 2008
Restated
(see Note 2)
-------------------------
(unaudited)
Operating activities
Net income $ 219.8 $ 245.4
Add (deduct) items not affecting cash:
Depreciation and amortization 267.6 244.6
Future income taxes 61.4 27.8
(Gain)/loss in fair value of long-term
floating rate notes/asset-backed
commercial paper (Note 12) (4.7) 21.3
Foreign exchange (gain) loss on long-term debt (2.8) 9.5
Amortization and accretion charges 6.5 5.1
Equity income, net of cash received 1.1 (23.4)
Gain on sale of partnership interest (Note 4) (81.2) -
Net loss on repurchase of debt (Note 13) 16.6 -
Restructuring and environmental
remediation payments (Note 10) (19.0) (24.5)
Pension funding in excess of expense (41.5) (26.5)
Other operating activities, net (14.1) 32.6
Change in non-cash working capital balances
related to operations (Note 11) (63.1) (170.2)
-------------------------
Cash provided by operating activities 346.6 341.7
-------------------------
Investing activities
Additions to properties (404.9) (364.7)
Additions to investments and other assets - (192.1)
Reductions to investments and other assets 12.3 (0.4)
Additions to investment in Dakota, Minnesota
& Eastern Railroad Corporation (Note 12) - (7.5)
Net proceeds (cost) from disposal of
transportation properties (Note 4) 111.6 (2.6)
-------------------------
Cash used in investing activities (281.0) (567.3)
-------------------------
Financing activities
Dividends paid (79.7) (72.5)
Issuance of CP Common Shares (Note 15) 499.2 17.0
Net (decrease) increase in short-term borrowing (94.5) 25.3
Issuance of long-term debt (Note 13) 409.5 1,068.7
Repayment of long-term debt (Note 13) (606.8) (1,080.5)
Settlement of treasury rate lock - (30.9)
Settlement of foreign exchange forward
on long-term debt (Note 16) 29.2 -
-------------------------
Cash provided by (used in) financing activities 156.9 (72.9)
-------------------------
Effect of foreign exchange fluctuations on
U.S. dollar-denominated cash and cash
equivalents (5.8) 1.3
-------------------------
Cash position
Increase (decrease) in cash and cash equivalents 216.7 (297.2)
Cash and cash equivalents at beginning of period 117.6 378.1
-------------------------
Cash and cash equivalents at
end of period (Note 5) $ 334.3 $ 80.9
-------------------------
-------------------------
Certain of the comparative figures have been reclassified in order to be
consistent with the 2009 presentation.
See notes to interim consolidated financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(in millions)
(unaudited) For the six months ended June 30, 2009
--------------------------------------------------
Accumulated
other
Share Contributed comprehensive Retained
Capital Surplus income income
--------------------------------------------------
Balance at December 31,
2008, as previously
reported $ 1,220.8 $ 40.2 $ 78.3 $ 4,654.1
Adjustment for change
in accounting policy
(Note 2) (10.4)
-----------
Balance at December 31,
2008, as restated 4,643.7
Net Income 219.8
Other comprehensive loss (9.4)
Dividends (83.2)
Shares issued (Note 15) 488.9
Stock compensation
(recovery) expense (2.9)
Shares issued under
stock option plans 12.5 (2.2)
--------------------------------------------------
Balance at June 30,
2009 $ 1,722.2 $ 35.1 $ 68.9 $ 4,780.3
--------------------------------------------------
--------------------------------------------------
For the six months ended June 30, 2008
--------------------------------------------------
Balance at December 31,
2007, as previously
reported $ 1,188.6 $ 42.4 $ 39.6 $ 4,187.3
Adjustment for change
in accounting policy
(Note 2) (7.4)
-----------
Balance at December 31,
2007, as restated 4,179.9
Net Income 245.4
Other comprehensive income 12.8
Dividends (76.1)
Stock compensation expense 6.8
Shares issued under
stock option plans 28.3 (9.4)
--------------------------------------------------
Balance at June 30,
2008 $ 1,216.9 $ 39.8 $ 52.4 $ 4,349.2
--------------------------------------------------
--------------------------------------------------
See notes to interim consolidated financial statements.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2009
(unaudited)
1 Basis of presentation
These unaudited interim consolidated financial statements and notes
have been prepared using accounting policies that are consistent with
the policies used in preparing Canadian Pacific Railway Limited's
("CP", "the Company" or "Canadian Pacific Railway") 2008 annual
consolidated financial statements, except as discussed below and in
Note 2 for the adoption of new accounting standards. They do not
include all disclosures required under Canadian Generally accepted
accounting principles ("GAAP") for annual financial statements and
should be read in conjunction with the annual consolidated financial
statements.
CP's operations can be affected by seasonal fluctuations such as
changes in customer demand and weather-related issues. This
seasonality could impact quarter-over-quarter comparisons.
2 New accounting changes
Goodwill and intangible assets
In February 2008, the Canadian Institute of Chartered Accountants
("CICA") issued accounting standard Section 3064 "Goodwill, and
intangible assets", replacing accounting standard Section 3062
"Goodwill and other intangible assets" and accounting standard
Section 3450 "Research and development costs". Section 3064
establishes standards for the recognition, measurement, presentation
and disclosure of intangible assets and goodwill subsequent to its
initial recognition. The new Section was applicable to financial
statements relating to fiscal years beginning on or after October 1,
2008. Accordingly, the Company adopted the new standards for its
fiscal year beginning January 1, 2009. The provisions of Section 3064
were adopted retrospectively, with restatement of prior periods.
As a result of this adoption, the Company has retroactively expensed
certain expenditures related to pre-operating periods of a facility,
rather than recording them as assets in "Other assets" and
"Net properties". The adoption of Section 3064 resulted in a
reduction to opening retained income of $7.4 million at January 1,
2008 and $10.4 million at January 1, 2009. For the three months ended
June 30, 2008, the adoption of this section resulted in an increase
to "Purchased services and other" expense of $0.2 million. For the
six months ended June 30, 2008, the adoption of this section resulted
in an increase to "Purchased services and other" expense of
$0.4 million and a decrease to "Income tax expense" of $0.1 million.
This change also resulted in a $0.01 decrease to previously reported
diluted earnings per share for the six months ended June 30, 2008.
Credit risk and the fair value of financial assets and financial
liabilities
On January 20, 2009 the Emerging Issues Committee ("EIC") issued a
new abstract EIC 173 "Credit risk and the fair value of financial
assets and financial liabilities". This abstract concludes that an
entity's own credit risk and the credit risk of the counterparty
should be taken into account when determining the fair value of
financial assets and financial liabilities, including derivative
instruments.
This abstract applies to all financial assets and liabilities
measured at fair value in interim and annual financial statements for
periods ending on or after January 20, 2009. The adoption of this
abstract did not impact the Company's financial statements.
3 Future accounting changes
International Financial Reporting Standards ("IFRS")/U.S. GAAP
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, registrants were to adopt U.S. GAAP on or before this
date. CP has determined that, commencing on January 1, 2010, it will
adopt U.S. GAAP for its financial reporting. 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 replaces the former Section 1581 "Business combinations"
and provides the Canadian equivalent to International Financial
Reporting Standard 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 recognize and measure goodwill acquired in the
business combination or a gain in the case of a bargain purchase.
Acquisition-related costs are 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 however, adoption
of these standards by the Company is not expected given the decision
to adopt U.S. GAAP. Early adoption of all three standards is
permitted.
4 Gain on sale of partnership interest
During the second quarter of 2009, the Company completed a sale of a
portion of its investment in the Detroit River Tunnel Partnership
("DRTP") to its existing partner, reducing the Company's ownership
from 50% to 16.5%. The sale was agreed to on March 31, 2009 but was
subject to regulatory approval, which was received during the second
quarter. 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). Effective April 1 2009, the
Company discontinued proportionate consolidation and is accounting
for its remaining investment in the DRTP under the equity method of
accounting.
5 Cash and cash equivalents
June 30 December 31 June 30
(in millions) 2009 2008 2008
-----------------------------------
Cash $ 16.8 $ 11.3 $ 10.8
Short term investments;
Government guaranteed
investments 269.4 - -
Deposits with financial
institutions 48.1 106.3 70.1
-----------------------------------
Total cash and cash equivalents $ 334.3 $ 117.6 $ 80.9
-----------------------------------
-----------------------------------
All cash is invested in accordance with policies approved by the
Company's Board of Directors which require minimum ratings.
Government and financial institutions meet these standards if they
carry AA or A1 ratings, or the equivalent, from at least two credit
rating agencies.
6 Other income and charges
For the three months For the six months
ended June 30 ended June 30
(in millions) 2009 2008 2009 2008
---------------------- ----------------------
Amortization of
discount on
restructuring
accruals $ 0.9 $ 0.2 $ 2.0 $ 0.4
Amortization of
discount on worker's
compensation accrual 1.3 1.4 2.6 2.7
Net loss on repurchase
of debt (Note 13) 16.6 - 16.6 -
Other exchange (gains)
losses (2.4) 0.6 0.8 1.9
Charges on sale of
accounts receivable - 1.1 - 2.7
Gains on non-hedging
derivative
instruments - (0.9) - (0.9)
Finance operating
costs and capital
structure
administration 2.7 2.5 4.6 4.8
---------------------- ----------------------
Total other income
and charges $ 19.1 $ 4.9 $ 26.6 $ 11.6
---------------------- ----------------------
---------------------- ----------------------
7 Net interest expense
For the three months For the six months
ended June 30 ended June 30
(in millions) 2009 2008 2009 2008
---------------------- ----------------------
Interest expense $ 75.7 $ 64.8 $ 149.0 $ 129.5
Interest income (2.4) (1.9) (3.3) (6.7)
---------------------- ----------------------
Total net interest
expense $ 73.3 $ 62.9 $ 145.7 $ 122.8
---------------------- ----------------------
---------------------- ----------------------
8 Income taxes
During the six months ended June 30, 2009, legislation was
substantively enacted to reduce British Columbian provincial income
tax rates. As a result of these changes, the Company recorded an
$11.2 million benefit in future tax liability and income tax expense
for the six months ended June 30, 2009, related to the revaluation
of its future income tax balances as at December 31, 2008.
During the six months ended June 30, 2008, legislation was
substantively enacted to reduce provincial income tax rates. As a
result of these changes, the Company recorded a $15.7 million benefit
in future tax liability and income tax expense for the six months
ended June 30, 2008, related to the revaluation of its future income
tax balances as at December 31, 2007. For the three months ended
June 30, 2008 the Company recorded a $5.1 million benefit in future
income tax liability and income tax expense.
Cash taxes paid for the three months ended June 30, 2009, were $0.3
million (three months ended June 30, 2008 - $13.2 million). Cash
taxes paid in the six months ended June 30, 2009 were $3.6 million
(six months ended June 30, 2008 - $57.9 million).
9 Earnings per share
At June 30, 2009, the number of shares outstanding was 168.1 million
(June 30, 2008 - 153.8 million).
Basic earnings per share have been calculated using net income for
the period divided by the weighted average number of CPRL shares
outstanding during the period.
Diluted earnings per share have been calculated using the treasury
stock method, which assumes that any proceeds received from the
exercise of in-the-money options would be used to purchase Common
Shares at the average market price for the period.
The number of shares used in earnings per share calculations is
reconciled as follows:
For the three months For the six months
ended June 30 ended June 30
(in millions) 2009 2008 2009 2008
---------------------- ----------------------
Weighted average shares
outstanding 168.0 153.7 164.5 153.6
Dilutive effect of
stock options 0.4 1.4 0.2 1.4
---------------------- ----------------------
Weighted average
diluted shares
outstanding 168.4 155.1 164.7 155.0
---------------------- ----------------------
(in dollars)
Basic earnings per
share $ 0.94 $ 1.01 $ 1.34 $ 1.60
Diluted earnings per
share $ 0.93 $ 1.00 $ 1.33 $ 1.58
---------------------- ----------------------
---------------------- ----------------------
For the three and six months ended June 30, 2009, 2,809,967 and
3,101,592 options were excluded from the computation of diluted
earnings per share because their effects were not dilutive (three and
six months ended June 30, 2008 - 613,933 and 617,825).
10 Restructuring and environmental remediation
At June 30, 2009, the provision for restructuring and environmental
remediation was $234.7 million (December 31, 2008 - $251.2 million).
This provision primarily includes labour liabilities for
restructuring plans. Payments are expected to continue in diminishing
amounts until 2025. The environmental remediation liability includes
the cost of a multi-year soil remediation program.
Set out below is a reconciliation of CP's liabilities associated with
restructuring and environmental remediation programs:
Three months ended June 30, 2009
Opening Amortiz- Closing
Balance ation Foreign Balance
Apr. 1 of Exchange June 30
(in millions) 2009 Accrued Payments Discount Impact 2009
-----------------------------------------------------
Labour liability
for terminations
and severances $ 96.2 2.7 (5.1) 1.5 (2.1) $ 93.2
Other non-labour
liabilities for
exit plans 0.5 - - - - 0.5
-----------------------------------------------------
Total
restructuring
liability 96.7 2.7 (5.1) 1.5 (2.1) 93.7
-----------------------------------------------------
Environmental
remediation
program 154.3 0.6 (5.4) - (8.5) 141.0
-----------------------------------------------------
Total
restructuring
and
environmental
remediation
liability $ 251.0 3.3 (10.5) 1.5 (10.6) $ 234.7
-----------------------------------------------------
-----------------------------------------------------
Three months ended June 30, 2008
Opening Amortiz- Closing
Balance ation Foreign Balance
April 1 of Exchange June 30
(in millions) 2008 Accrued Payments Discount Impact 2008
-----------------------------------------------------
Labour liability
for terminations
and severances $ 118.9 1.5 (8.3) 1.1 (0.3) $ 112.9
Other non-labour
liabilities for
exit plans 0.6 - - - - 0.6
-----------------------------------------------------
Total
restructuring
liability 119.5 1.5 (8.3) 1.1 (0.3) 113.5
-----------------------------------------------------
Environmental
remediation
program 105.5 1.0 (2.5) - (0.3) 103.7
-----------------------------------------------------
Total
restructuring
and
environmental
remediation
liability $ 225.0 2.5 (10.8) 1.1 (0.6) $ 217.2
-----------------------------------------------------
-----------------------------------------------------
Six months ended June 30, 2009
Opening Amortiz- Closing
Balance ation Foreign Balance
Jan. 1 of Exchange June 30
(in millions) 2009 Accrued Payments Discount Impact 2009
-----------------------------------------------------
Labour liability
for terminations
and severances $ 99.6 3.6 (12.0) 3.2 (1.2) $ 93.2
Other non-labour
liabilities for
exit plans 0.5 - - - - 0.5
-----------------------------------------------------
Total
restructuring
liability 100.1 3.6 (12.0) 3.2 (1.2) 93.7
-----------------------------------------------------
Environmental
remediation
program 151.1 1.6 (7.0) - (4.7) 141.0
-----------------------------------------------------
Total
restructuring
and
environmental
remediation
liability $ 251.2 5.2 (19.0) 3.2 (5.9) $ 234.7
-----------------------------------------------------
-----------------------------------------------------
Six months ended June 30, 2008
Opening Amortiz- Closing
Balance ation Foreign Balance
Jan. 1 of Exchange June 30
(in millions) 2008 Accrued Payments Discount Impact 2008
-----------------------------------------------------
Labour liability
for terminations
and severances $ 129.2 1.5 (20.6) 2.2 0.6 $ 112.9
Other non-labour
liabilities for
exit plans 0.8 - (0.2) - - 0.6
-----------------------------------------------------
Total
restructuring
liability 130.0 1.5 (20.8) 2.2 0.6 113.5
-----------------------------------------------------
Environmental
remediation
program 104.0 1.9 (3.7) - 1.5 103.7
-----------------------------------------------------
Total
restructuring
and
environmental
remediation
liability $ 234.0 3.4 (24.5) 2.2 2.1 $ 217.2
-----------------------------------------------------
-----------------------------------------------------
Amortization of Discount is charged to income as "Other income and
charges", "Compensation and Benefits" and "Purchased Services and
Other" as applicable. New accruals and adjustments to previous
accruals are reflected in "Compensation and Benefits" and
"Purchased Services and Other" as applicable.
11 Accounts receivable
In the second quarter of 2008, the Company's accounts receivable
securitization program was terminated. As a result of this
termination, in the Company's Consolidated Balance Sheet, Accounts
receivable and other current assets increased by $120.0 million and
in the consolidated statement of cash flows the Change in non-cash
working capital balances related to operations reflected an outflow
of $120.0 million. As well, the related servicing asset and liability
which had previously been recognized are no longer required to be
maintained and were settled as part of the termination.
12 Investments
June 30 December 31
(in millions) 2009 2008
-----------------------
Rail investments accounted for on an equity
basis $ 56.7 $ 48.4
Long-term floating rate notes 65.2 -
Asset backed commercial paper - 72.7
Other investments 29.6 30.0
-----------------------
Total investments $ 151.5 $ 151.1
-----------------------
-----------------------
Dakota, Minnesota & Eastern Railroad Corporation ("DM&E")
Dakota, Minnesota & Eastern Railroad Corporation was acquired on
October 4, 2007 and is wholly-owned by the Company. The purchase was
subject to review and approval by the U.S. Surface Transportation
Board ("STB"), during which time the shares of DM&E were placed in a
voting trust. The STB approved the purchase effective on October 30,
2008, at which time the Company assumed control of the DM&E.
Subsequent to October 30, 2008 the results of DM&E are consolidated
with the Company on a line-by-line basis.
The Company accounted for its investment in DM&E using the equity
method until the acquisition was approved by the STB and the Company
assumed control. Equity income from the Company's investment in
DM&E, which is recorded net of tax, was $13.4 million during the
three months ended June 30, 2008, and $24.4 million during the six
months ended June 30, 2008 and is recorded in "Equity income in
Dakota, Minnesota & Eastern Railroad Corporation" on the Consolidated
Statement of Income.
Gain/loss in fair value of long-term floating rate notes/asset-backed
commercial paper ("ABCP")
At June 30, 2009 the Company held replacement long-term floating rate
notes, with a total settlement value of $130.5 million, issued as a
result of the restructuring discussed below. At December 31, 2008,
the Company held the original ABCP issued by a number of trusts with
an original cost of $143.6 million. At the dates the Company acquired
these investments they were rated R1 (High) by DBRS Limited ("DBRS"),
the highest credit rating issued for commercial paper, and backed by
R1 (High) rated assets and liquidity agreements. These investments
matured during the third quarter of 2007 but, as a result of
liquidity issues in the ABCP market, did not settle on maturity nor
have they traded in an active market since. As a result, the Company
classified its ABCP as held for trading long-term investments after
initially classifying them as Cash and cash equivalents. The long-
term floating rate notes received in replacement of ABCP have also
been classified as held for trading long-term investments.
On January 12, 2009, a Canadian Court granted an order for the
implementation of a restructuring plan for the ABCP and the
restructuring was completed on January 21, 2009. As a result, CP
received new replacement long-term floating rate notes with a total
settlement value of $142.8 million.
During the second quarter of 2009 the Company received $12.3 million
in partial redemption of its Master Asset Vehicle ("MAV") 3 Class 9
Traditional Asset ("TA") Tracking notes and MAV 2 Class 8 Ineligible
Assets ("IA") Tracking notes representing 100% of the original
investment value of the redeemed notes. As a result of the
restructuring and the subsequent redemptions of notes, at June 30,
2009 the Company held replacement long-term floating rate notes with
settlement values as follows:
- $0.2 million MAV 3 Class 9 TA Tracking notes with expected
repayments over approximately seven years.
- $118.2 million MAV 2 notes with eligible assets represented by a
combination of leveraged collateralized debt, synthetic assets and
traditional securitized assets with expected repayments over
approximately five to eight years:
- Class A-1: $59.3 million
- Class A-2: $45.9 million
- Class B: $8.3 million
- Class C: $3.5 million
- Class 14: $1.2 million
- $12.1 million MAV 2 IA Tracking notes representing assets that
have an exposure to US mortgages and sub-prime mortgages with
expected repayments over approximately four to 20 years:
- Class 3: $0.5 million
- Class 6: $5.5 million
- Class 7: $3.4 million
- Class 8: $0.1 million
- Class 13: $2.6 million
The MAV 2 Class A-1 notes have received an A rating by DBRS. In
addition, the MAV 2 Class A-2 notes have also received an A rating by
DBRS but are currently under a negative watch.
The valuation technique used by the Company to estimate the fair
value of its investment in long-term floating rate notes at June 30,
2009 and ABCP at December 31, 2008, 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
assumptions used in determining the estimated fair value reflect the
details included in the Information Statement issued by the
pan-Canadian restructuring committee and subsequent court-appointed
Monitor's Reports, the terms of the notes issued in the restructuring
and the risks associated with the long-term floating rate notes. The
interest rates and maturities of the various long-term floating rate
notes and ABCP, discount rates and credit losses modelled at
June 30, 2009 and December 31, 2008, respectively are:
June 30, 2009
Probability weighted average coupon interest Nil%
rate
Weighted average discount rate 8.3%
Expected repayments of long-term floating four to 20 years
rate notes
Credit losses MAV 3 Class 9
notes: nil
MAV 2 eligible
asset notes: nil
to 100%
MAV 2 IA notes:
25%
December 31, 2008
Probability weighted average coupon interest 2.2%
rate
Weighted average discount rate 9.1%
Expected repayments of ABCP notes five to eight
years, other than
certain tracking
notes to be paid
down on
restructuring
Credit losses Notes expected to
be rated (1): nil
to 25%
Notes not
expected to be
rated (2): 25 to
100%
(1) TA Tracking, Class A-1 and Class A-2 senior notes and
IA Tracking notes.
(2) Class B and Class C subordinated notes and IA Tracking notes.
Coupon interest rates and credit losses vary by each of the different
replacement long-term floating rate notes as each has different
risks. Coupon interest rates and credit losses also vary by the
different probable cash flow scenarios that have been modelled.
Discount rates vary dependent upon the credit rating of the
replacement long-term floating rate notes. Discount rates have been
estimated using Government of Canada benchmark rates plus expected
spreads for similarly rated instruments with similar maturities and
structure.
The expected repayments vary by different replacement long-term
floating rate notes as a result of the expected maturity of the
underlying assets.
One of the cash flow scenarios modelled is a liquidation scenario
whereby recovery of the Company's investment is through the
liquidation of the underlying assets of the notes. While the
likelihood is remote, there remains a possibility that a liquidation
scenario may occur even following the successful restructuring of the
ABCP.
The probability weighted discounted cash flows resulted in an
estimated fair value of the Company's long-term floating rate notes
of $65.2 million at June 30, 2009 (December 31, 2008 - ABCP
$72.7 million). The reduction in the estimated fair value reflects
the redemption at par of the MAV 3 Class 9 TA Tracking notes and
MAV 2 Class 8 IA Tracking notes, offset by accretion and changes in
market assumptions. The change in the estimated fair value in the
second quarter of 2009 and in the six months to June 30, 2009
resulted in a gain of $4.7 million excluding accretion (second
quarter 2008 - $nil, six months to June 30, 2008 - $21.3 million
charge against income). The change in the original cost and estimated
fair value of the Company's long-term floating rate notes is as
follows:
Original Estimated
cost fair value
-----------------------
As at January 1, 2009 $ 143.6 $ 72.7
Change due to restructuring, January 21, 2009 (0.8) -
-----------------------
As at March 31, 2009 142.8 72.7
Redemption of notes (12.3) (7.9)
Accretion - 0.1
Change in market assumptions - 0.3
-----------------------
As at June 30, 2009 $ 130.5 $ 65.2
-----------------------
-----------------------
Sensitivity analysis is presented below for key assumptions:
Change
in fair
value of
long-term
floating
(in millions) rate notes
------------
Coupon Interest rate
50 basis point increase $ 2.1
50 basis point decrease Nil(1)
Discount rate
50 basis point increase $ (2.1)
50 basis point decrease $ 2.2
------------
------------
(1) Notes are currently expected to earn no interest.
Continuing uncertainties regarding the value of the assets which
underlie the long-term floating rate notes and the amount and timing
of cash flows and the outcome of the restructuring could give rise to
a further material change in the value of the Company's investment in
long-term floating rate notes which could impact the Company's
near-term earnings.
13 Long-term debt
During the second quarter of 2009, the Company issued US$350 million
7.25% 10-year Notes for net proceeds of CDN$408.5 million. The Notes
are unsecured, but carry a negative pledge. The proceeds from this
offering contributed to the repurchase of debt with a carrying
amount of $555.3 million pursuant to a tender offer for a total cost
of $571.9 million. Upon repurchase of the debt a net loss of
$16.6 million was recognized during the quarter to "Other income and
charges". The loss consisted largely of premiums paid to bond holders
to tender their debt, and the write-off of unamortized fees, partly
offset by a fair value adjustment (gain) recognized on the unwind of
interest rate swaps associated with the 6.250% Notes that were
repurchased (see Note 16). The following table summarizes the
principal amount, carrying amount and cost to redeem debt repurchased
during the quarter:
Principal Carrying Cost
Amount Amount to Redeem
(in millions) in USD in CDN in CDN
------------------------------------
6.250% Notes due October 15, 2011 $ 154.3 $ 184.1 $ 184.6
5.75% Notes due May 15, 2013 298.6 342.7 359.1
6.50% Notes due May 15, 2018 24.8* 28.5 28.2
------------------------------------
Total debt tendered $ 477.7 $ 555.3 $ 571.9
------------------------------------
------------------------------------
* Includes US$2.7 million principal amount of debt repurchased
prior to commencement of the debt tender.
14 Assets held for sale
June 30 December 31
(in millions) 2009 2008
-----------------------
Track and roadway $ - $ 12.9
Land and building 21.5 21.6
Rolling stock 5.0 5.1
-----------------------
Total assets held for sale $ 26.5 $ 39.6
-----------------------
-----------------------
15 Shareholders' equity
An analysis of Common Share balances is as follows:
For the three months For the six months
ended June 30 ended June 30
(in millions) 2009 2008 2009 2008
----------------------------------------------
Share capital, beginning
of period 168.0 153.6 153.8 153.3
Shares issued under
stock option plans 0.1 0.2 0.4 0.5
Shares issued - - 13.9 -
----------------------------------------------
Share capital, end of
period 168.1 153.8 168.1 153.8
----------------------------------------------
----------------------------------------------
On February 3, 2009, CP filed a final prospectus offering for sale to
the public, primarily in Canada and the U.S., up to 13,900,000 CP
common shares at a price of $36.75 per share. The offering closed on
February 11, 2009, at which time CP issued 13,900,000 common shares,
including 1,300,000 common shares issued under the provisions of an
over-allotment option available to the underwriters of the common
share offering, for gross proceeds of approximately $511 million
(proceeds net of fees and issue costs were $488.9 million).
16 Financial instruments
Foreign exchange forward contracts
In June 2007, the Company entered into a currency forward to set the
exchange rate on US$400 million 6.250% Notes due 2011. This
derivative guarantees the amount of Canadian dollars that the Company
will repay when its US$400 million 6.250% Note matures in
October 2011. During the second quarter of 2009, the Company recorded
a loss of $30.9 million and $16.8 million for the six months ended
June 30, 2009 (second quarter 2008 an unrealized loss of $9.7 million
and for the six months ended June 30, 2008 an unrealized gain of $4.2
million) to "Foreign exchange gain (loss) on long-term debt" related
to the currency forward. These represent both realized and unrealized
losses.
During the first quarter of 2009, CP unwound and settled
US$25 million of the US$400 million currency forward for total
proceeds of $4.5 million received in the second quarter. In the
second quarter of 2009, a further US$275 million of the currency
forward was unwound and settled for total proceeds of $26.6 million.
At June 30, 2009, the unrealized gain on the remaining currency
forward of $9.4 million (December 31, 2008 - $57.3 million) was
included in "Other assets".
Interest rate management
During the second quarter of 2009, CP unwound its outstanding
interest rate swap agreements for total proceeds of $16.8 million.
These agreements were classified as fair value hedges related to
debt of US$200 million. The swap agreements converted a portion of
the Company's fixed-interest-rate liability into a variable-rate
liability for the 6.250% Notes. The gain was deferred as a fair value
adjustment to the underlying debt that was hedged and will be
amortized to "Net interest expense" until such time that the 6.250%
Notes are repaid.
Prior to the unwind, the Company recorded a gain of $1.7 million
during the three months ended June 30, 2009 (2008 - $0.9 million) and
$3.1 million for the six months ended June 30, 2009 (six months ended
June 30, 2008 - $1.1 million) to "Net interest expense".
Subsequent to the unwinding of this swap a portion of the underlying
6.250% Notes were repurchased in the second quarter and, as a result,
a pro rata share of the fair value adjustment amounting to a
$6.5 million gain was recognized immediately as part of the net loss
on repurchase of debt (see Note 13).
Stock-based compensation expense management
To minimize the volatility to compensation expense created by changes
in share price, the Company entered into a Total Return Swap ("TRS")
to reduce the volatility and total cost to the Company over time of
three types of stock-based compensation programs: share appreciation
rights ("SARs"), deferred share units ("DSUs"), and restricted share
units ("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
substantially 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 offset by any compensation expense
reductions, which would reduce the effectiveness of the swap.
"Compensation and benefits" expense on our Consolidated Statement of
Income included an unrealized gain on these swaps of $13.6 million in
the second quarter of 2009 and a net gain of $2.9 million for the six
months ended June 30, 2009 which was inclusive of both realized
losses and unrealized gains (unrealized gain of $3.3 million for the
second quarter 2008 and $6.0 million for the six months ended June
30, 2008). 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 that was settled in the second quarter of
2009. At June 30, 2009, the unrealized loss on the remaining TRS of
$33.9 million was included in "Deferred liabilities" on our
Consolidated Balance Sheet (December 31, 2008 - $67.9 million).
Fuel price management
At June 30, 2009, the Company had crude futures contracts, which are
accounted for as cash flow hedges, to purchase approximately
90,000 barrels during the remainder of 2009 at average quarterly
prices of US$38.19 per barrel. This represents approximately 3% of
estimated fuel purchases for the remainder of 2009. At June 30, 2009,
the unrealized gain on these futures contracts was $3.5 million
(December 31, 2008 - $3.2 million) and was reflected in "Other"
current assets with the offset, net of tax, reflected in Accumulated
other comprehensive income ("AOCI") on our Consolidated Balance
Sheet.
At June 30, 2009, the Company had foreign exchange ("FX") forward
contracts (in conjunction with the crude purchases above), which are
accounted for as cash flow hedges, totalling US$2.9 million for the
remainder of 2009 at exchange rates ranging from 1.2293 to 1.2306. At
June 30, 2009, the unrealized loss on these forward contracts was
$0.3 million (December 31, 2008 - loss of $0.1 million) and was
recognized in "Accounts payable and accrued liabilities" with the
offset, net of tax, reflected in "AOCI" on our Consolidated Balance
Sheet.
At June 30, 2009, the Company had diesel futures contracts, which are
accounted for as cash flow hedges, to purchase approximately
177,000 barrels during the period July 2009 to June 2010 at average
quarterly prices of US$73.41 per barrel. This represents
approximately 3% of estimated fuel purchases for this period. At
June 30, 2009, the unrealized gain on these futures contracts was
$1.6 million (December 31, 2008 - unrealized loss $4.5 million) and
was reflected in "Other" current assets with the offset, net of tax,
reflected in "AOCI" on our Consolidated Balance Sheet.
In addition at June 30, 2009, the Company had heating oil crack
spread futures contracts which were not designated nor accounted for
as cash flow hedges, to purchase approximately 375,000 barrels during
the third quarter of 2009 at an average price of US$5.91 per barrel.
This represents approximately 25% of estimated fuel purchases in the
quarter. At June 30, 2009, the unrealized gain on these futures
contracts was $0.1 million and has been recognized in income in
"Fuel" expense.
For the second quarter of 2009, "Fuel" expense was decreased by
$0.9 million as a result of realized gains arising from settled
swaps. During the quarter, there were minimal gains realized on FX
forward contracts. For the second quarter of 2008, "Fuel" expense was
reduced by $5.2 million as a result of realized gains of $5.8 million
arising from settled swaps, partially offset by realized losses of
$0.6 million arising from settled FX forward contracts.
For the six months ended June 30, 2009, "Fuel" expense was increased
by $4.8 million as a result of realized losses arising from settled
swaps. During the first six months, there were minimal gains realized
on FX forward contracts. For the six months ended June 30, 2008,
"Fuel" expense was reduced by $8.8 million as a result of realized
gains of $10.1 million arising from settled swaps, partially offset
by realized losses of $1.3 million arising from settled FX forward
contracts.
Credit risk
Credit risk refers to the possibility that a customer or counterparty
will fail to fulfil its obligations under a contract and as a result,
create a financial loss for the Company. The Company's credit risk
regarding its investment in long-term floating rate notes are
discussed in more detail in Note 12.
Credit risk management
The railway industry services predominantly financially established
customers and the Company has experienced limited financial loss with
respect to credit risk. The credit worthiness of customers is
assessed using credit scores supplied by a third party, and through
direct monitoring of their financial well-being on a continual basis.
The Company establishes guidelines for customer credit limits and
should thresholds in these areas be reached, appropriate precautions
are taken to improve collectibility. Pursuant to their respective
terms, accounts receivable are aged as follows:
June 30 December 31
(in millions) 2009 2008
-----------------------
Up to date $ 373.0 $ 394.8
Under 30 days past due 72.1 163.0
30-60 days past due 13.3 33.7
61-90 days past due 5.4 17.5
Over 90 days past due 16.0 29.7
-----------------------
479.8 638.7
Non-trade receivables 8.7 8.7
-----------------------
Total Accounts receivable $ 488.5 $ 647.4
-----------------------
-----------------------
Counterparties to financial instruments expose the Company to credit
losses in the event of non-performance. Counterparties for derivative
and cash transactions are limited to high credit quality financial
institutions, which are monitored on an ongoing basis. Counterparty
credit assessments are based on the financial health of the
institutions and their credit ratings from external agencies. With
the exception of long-term floating rate notes (Note 12), the Company
does not anticipate non-performance that would materially impact the
Company's financial statements.
With the exception of long-term floating rate notes (Note 12) and a
significant customer (Note 19), the Company believes there are no
significant concentrations of credit risk.
17 Stock-based compensation
In the first six months of 2009, under CP's stock option plans, the
Company issued 747,800 options to purchase Common Shares at the
weighted average price of $36.29 per share, based on the closing
price on the grant date. In tandem with these options, 747,450 stock
appreciation rights were issued at the weighted average exercise
price of $36.29.
Pursuant to the employee plan, options may be exercised upon vesting,
which is between 24 months and 36 months after the grant date, and
will expire after 10 years. Some options only vest if certain
performance targets are achieved and expire approximately five years
after the grant date.
The following is a summary of the Company's fixed stock option plans
as of June 30, 2009 (including options granted under the Directors'
Stock Option Plan, which was suspended in 2003):
2009 2008
----------------------- -----------------------
Weighted Weighted
average average
Number of exercise Number of exercise
options price options price
----------------------- -----------------------
Outstanding,
January 1 7,671,143 $ 49.52 6,981,108 $ 43.97
New options granted 747,800 36.29 1,360,400 71.59
Exercised (333,550) 30.60 (493,460) 34.40
Forfeited (188,625) 59.17 (85,050) 47.09
----------- -----------
Outstanding, June 30 7,896,768 48.84 7,762,998 $ 49.39
----------------------- -----------------------
----------------------- -----------------------
Options exercisable
at June 30 5,036,718 $ 42.68 4,637,348 $ 38.33
----------------------- -----------------------
----------------------- -----------------------
Compensation expense is recognized over the vesting period for stock
options issued since January 1, 2003, based on their estimated fair
values on the date of grants, as determined by the Black-Scholes
option pricing model.
Under the fair value method, the fair value of options at the grant
date was $5.4 million for options issued in the first six months of
2009 (first six months of 2008 - $14.1 million). The weighted average
fair value assumptions were approximately:
For the six months
ended June 30
2009 2008
-----------------------
Expected option life (years) 5.00 4.39
Risk-free interest rate 2.14% 3.54%
Expected stock price volatility 30% 22%
Expected annual dividends per share $ 0.99 $ 0.99
Weighted average fair value of options
granted during the year $ 7.24 $ 15.12
-----------------------
-----------------------
Performance share units
In the first six months of 2009, the Company issued
404,580 Performance Share Units ("PSUs"). PSUs vest and are settled
in cash approximately three years after the grant date contingent
upon CP's performance (performance factor). The expense related to
the PSUs is accrued based on the price of Common Shares at the end of
the period and the anticipated performance factor, over the vesting
period. In the first six months of 2009, the expense recognized by
PSUs was $6.8 million.
18 Pensions and other benefits
The total benefit cost for the Company's defined benefit pension
plans and post-retirement benefits for the three months ended
June 30, 2009, was $2.2 million (three months ended June 30, 2008 -
$19.9 million) and for the six months ended June 30, 2009, was
$13.3 million (six months ended June 30, 2008 - $39.0 million).
19 Significant customer
During the first six months of 2009, one customer comprised 8.2% of
total revenue (first six months of 2008 - 12.3%). At June 30, 2009,
that same customer represented 4.4% of total accounts receivable
(June 30, 2008 - 5.4%).
20 Commitments and contingencies
In the normal course of its operations, the Company becomes involved
in various legal actions, including claims relating to injuries and
damages to property. The Company maintains provisions it considers to
be adequate for such actions. While the final outcome with respect to
actions outstanding or pending at June 30, 2009, 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.
Capital commitments
At June 30, 2009, the Company had multi-year capital commitments of
$785.5 million, mainly for locomotive overhaul agreements, in the
form of signed contracts. Payments for these commitments are due in
2009 through 2028.
Operating lease commitments
At June 30, 2009, minimum payments under operating leases were
estimated at $1,045.3 million in aggregate, with annual payments in
each of the next five years of: balance of 2009 - $79.2 million;
2010 - $150.3 million; 2011 - $128.7 million; 2012 - $114.8 million;
2013 - $100.1 million.
Guarantees
At June 30, 2009, the Company had residual value guarantees on
operating lease commitments of $183.4 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 has accrued for all guarantees that it expects
to pay. At June 30, 2009, these accruals amounted to $7.5 million.
21 Capital disclosures
The Company monitors capital using a number of key financial metrics,
including:
- total debt to total capitalization; and
- interest-coverage ratio: earnings before interest and taxes
("EBIT") to net interest expense.
Both of these metrics have no standardized meanings prescribed by
GAAP and, therefore, are unlikely to be comparable to similar
measures of other companies.
The calculations for the aforementioned key financial metrics are as
follows:
Total debt to total capitalization
----------------------------------
Total debt, which is a non-GAAP measure, is the sum of long-term
debt, long-term debt maturing within one year and short-term
borrowing. This sum is divided by total debt plus total shareholders'
equity as presented on our Consolidated Balance Sheet.
Interest coverage ratio
-----------------------
EBIT, which is a non-GAAP measure that is calculated, on a twelve
month rolling basis, as revenues less operating expenses, less other
income and charges, plus equity income in DM&E, divided by net
interest expense. The ratio excludes changes in the estimated fair
value of the Company's investment in long-term floating rate
notes/ABCP and the gain on sale of partnership interest as these are
not in the normal course of business.
The following table illustrates the financial metrics and their
corresponding guidelines currently in place:
---------------------------------------------------------------------
Management June 30, June 30,
(in millions) targets 2009 2008
---------------------------------------------------------------------
Long-term debt $ 3,977.8 $ 4,016.8
Long-term debt maturing within
one year 386.6 238.4
Short-term borrowing 55.6 255.0
---------------------------------------------------------------------
Total debt(1) $ 4,420.0 $ 4,510.2
---------------------------------------------------------------------
---------------------------------------------------------------------
Shareholders' equity $ 6,606.5 $ 5,658.3
Total debt 4,420.0 4,510.2
---------------------------------------------------------------------
Total debt plus equity(1) $11,026.5 $10,168.5
---------------------------------------------------------------------
---------------------------------------------------------------------
Revenues less operating
expenses(2) $ 968.8 $ 1,075.8
Less:
Other income and charges (37.7) (28.2)
Plus:
Equity income in DM&E 26.9 36.7
---------------------------------------------------------------------
EBIT(1)(2) $ 958.0 $ 1,084.3
---------------------------------------------------------------------
---------------------------------------------------------------------
Total debt $ 4,420.0 $ 4,510.2
Total debt plus equity $11,026.5 $10,168.5
---------------------------------------------------------------------
Total debt to total No more than
capitalization(1) 50.0% 40.1% 44.4%
---------------------------------------------------------------------
---------------------------------------------------------------------
EBIT $ 958.0 $ 1,084.3
Net interest expense $ 284.0 $ 231.1
---------------------------------------------------------------------
Interest Coverage No less than
Ratio(1)(2) 4.0 3.4 4.7
---------------------------------------------------------------------
---------------------------------------------------------------------
(1) These earnings measures have no standardized meanings prescribed
by Canadian GAAP and, therefore, are unlikely to be comparable to
similar measures of other companies.
(2) The balance is calculated on a rolling twelve-month basis.
The Company remains in compliance with all external financial
covenants.
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. In
2009, the Company changed one of its measures used to monitor capital
from net-debt to net-debt-plus-equity ratio to total debt to total
capitalization to better align with a more common convention used by
investors. The interest coverage ratio has decreased during the
twelve-month period ending June 30, 2009 due to a reduction in
year-over-year earnings and an increase in net interest expense
associated with the debt assumed in the acquisition of the DM&E. The
interest coverage ratio for the period is below the management target
provided due to lower volumes as a result of the global recession
that occurred during the period.
In addition, CP issued 13,900,000 common shares generating net
proceeds of $488.9 million and monetized certain assets to reduce
indebtedness and further augment its cash position due to ongoing
uncertainty around the timing of the economic recovery.
The Company is also subject to a financial covenant of funded debt to
total capitalization in the revolver loan agreement. Performance to
this financial covenant is well within permitted limits.
Summary of Rail Data
--------------------
(Reconciliation of GAAP earnings to non-GAAP earnings on page 2)
----------------------------------------------------------------
Second Quarter
-------------------------------------------
2009 2008(1)(2) Fav/(Unfav) %
-------------------------------------------
Financial (millions, except
---------------------------
per share data)
---------------
Revenues
--------
Freight revenue $ 972.5 $ 1,193.1 $ (220.6) (18.5)
Other revenue 49.9 27.2 22.7 83.5
--------------------------------
1,022.4 1,220.3 (197.9) (16.2)
--------------------------------
Operating expenses
------------------
Compensation and benefits 301.6 315.5 13.9 4.4
Fuel 117.7 260.3 142.6 54.8
Materials 49.7 56.5 6.8 12.0
Equipment rents 43.2 46.1 2.9 6.3
Depreciation and
amortization 135.2 124.7 (10.5) (8.4)
Purchased services and other 149.2 166.3 17.1 10.3
--------------------------------
796.6 969.4 172.8 17.8
--------------------------------
Revenues less operating
expenses 225.8 250.9 (25.1) (10.0)
Gain on sale of partnership
interest 81.2 - 81.2 -
Gain (loss) in fair value of
long-term floating rate notes/
asset-backed commercial paper 4.7 - 4.7 -
Foreign exchange gain (loss)
on long-term debt 3.0 6.8 (3.8) (55.9)
Equity income in Dakota,
Minnesota & Eastern Railroad
Corporation (DM&E) - 13.4 (13.4) (100.0)
Less:
Other income and charges 19.1 4.9 (14.2) (289.8)
Net interest expense 73.3 62.9 (10.4) (16.5)
--------------------------------
Income before income tax
expense 222.3 203.3 19.0 9.3
Income tax expense 65.0 48.6 (16.4) (33.7)
--------------------------------
Net income $ 157.3 $ 154.7 $ 2.6 1.7
--------------------------------
--------------------------------
Basic earnings per share $ 0.94 $ 1.01 $ (0.07) (6.9)
--------------------------------
--------------------------------
Diluted earnings per share $ 0.93 $ 1.00 $ (0.07) (7.0)
--------------------------------
--------------------------------
Year-to-date
-------------------------------------------
2009 2008(1)(2) Fav/(Unfav) %
-------------------------------------------
Financial (millions, except
---------------------------
per share data)
---------------
Revenues
--------
Freight revenue $ 2,022.7 $ 2,317.5 $ (294.8) (12.7)
Other revenue 70.4 49.7 20.7 41.6
--------------------------------
2,093.1 2,367.2 (274.1) (11.6)
--------------------------------
Operating expenses
------------------
Compensation and benefits 642.5 643.8 1.3 0.2
Fuel 288.7 490.5 201.8 41.1
Materials 118.5 122.0 3.5 2.9
Equipment rents 96.9 92.0 (4.9) (5.3)
Depreciation and
amortization 267.6 244.6 (23.0) (9.4)
Purchased services and other 313.7 325.4 11.7 3.6
--------------------------------
1,727.9 1,918.3 190.4 9.9
--------------------------------
Revenues less operating
expenses 365.2 448.9 (83.7) (18.6)
Gain on sale of partnership
interest 81.2 - 81.2 -
Gain (loss) in fair value of
long-term floating rate notes/
asset-backed commercial paper 4.7 (21.3) 26.0 122.1
Foreign exchange gain (loss)
on long-term debt 2.8 (9.5) 12.3 129.5
Equity income in Dakota,
Minnesota & Eastern Railroad
Corporation (DM&E) - 24.4 (24.4) (100.0)
Less:
Other income and charges 26.6 11.6 (15.0) (129.3)
Net interest expense 145.7 122.8 (22.9) (18.6)
--------------------------------
Income before income tax
expense 281.6 308.1 (26.5) (8.6)
Income tax expense 61.8 62.7 0.9 1.4
--------------------------------
Net income $ 219.8 $ 245.4 $ (25.6) (10.4)
--------------------------------
--------------------------------
Basic earnings per share $ 1.34 $ 1.60 $ (0.26) (16.3)
--------------------------------
--------------------------------
Diluted earnings per share $ 1.33 $ 1.58 $ (0.25) (15.8)
--------------------------------
--------------------------------
(1) The 2008 figures include the results of the DM&E on an equity
accounting basis through October 29, 2008 and on a fully consolidated
basis after that date including the first two quarters of 2009.
(2) Certain 2008 figures have been restated for the adoption of CICA
accounting standard 3064, which requires the expensing of certain
expenditures related to pre-operating periods of a facility rather
than recording them as assets.
Summary of Rail Data (Page 2)
-----------------------------
Reconciliation of GAAP earnings to non-GAAP earnings
----------------------------------------------------
Second Quarter
-------------------------------------------
2009 2008(1)(2) Fav/(Unfav) %
-------------------------------------------
Financial (millions)
--------------------
Net income $ 157.3 $ 154.7 $ 2.6 1.7
Exclude:
Foreign exchange gain (loss)
----------------------------
on long-term debt (FX on LTD)
-----------------------------
FX on LTD 3.0 6.8 (3.8) -
Income tax recovery
(expense) on FX on LTD(3) (17.6) (2.3) (15.3) -
--------------------------------
FX on LTD (net of tax) (14.6) 4.5 (19.1) -
Other specified items
---------------------
Gain on sale of partnership
interest 81.2 - 81.2 -
Income tax on partnership
interest (12.5) - (12.5) -
--------------------------------
Gain on sale on partnership
interest (net of tax) 68.7 - 68.7 -
--------------------------------
Gain (loss) in fair value of
long-term floating rate
notes/asset-backed commercial
paper (ABCP) 4.7 - 4.7 -
Income tax recovery (expense)
on gain (loss) in fair value
of long-term floating rate
notes/ABCP (1.5) - (1.5) -
--------------------------------
Gain (loss) in fair value of
long-term floating rate
notes/(ABCP) (net of tax) 3.2 - 3.2 -
--------------------------------
Income before foreign exchange
gain (loss) on long-term debt
and other specified items(4) $ 100.0 $ 150.2 $ (50.2) (33.4)
--------------------------------
--------------------------------
Earnings per share (EPS)
------------------------
Diluted EPS, as determined
by GAAP $ 0.93 $ 1.00 $ (0.07) (7.0)
Exclude:
Diluted EPS, related to FX
on LTD, net of tax(4) (0.09) 0.03 (0.12) -
Diluted EPS, related to
other specified items,
net of tax(4) 0.43 - 0.43 -
--------------------------------
Diluted EPS, before FX on LTD
and other specified items(4) $ 0.59 $ 0.97 $ (0.38) (39.2)
--------------------------------
--------------------------------
Operating ratio(4)(5) (%) 77.9 79.4 1.5 -
Shares Outstanding
------------------
Weighted average (avg) number
of shares outstanding
(millions) 168.0 153.7 14.3 9.3
Weighted avg number of diluted
shares outstanding (millions) 168.4 155.1 13.3 8.6
Foreign Exchange
----------------
Average foreign exchange rate
(US$/Canadian$) 0.846 0.991 (0.145) (14.6)
Average foreign exchange rate
(Canadian$/US$) 1.182 1.009 0.173 17.1
Year-to-date
-------------------------------------------
2009 2008(1)(2) Fav/(Unfav) %
-------------------------------------------
Financial (millions)
--------------------
Net income $ 219.8 $ 245.4 $ (25.6) (10.4)
Exclude:
Foreign exchange gain (loss)
----------------------------
on long-term debt (FX on LTD)
-----------------------------
FX on LTD 2.8 (9.5) 12.3 -
Income tax recovery
(expense) on FX on LTD(3) (9.0) 3.4 (12.4) -
--------------------------------
FX on LTD (net of tax) (6.2) (6.1) (0.1) -
Other specified items
---------------------
Gain on sale of partnership
interest 81.2 - 81.2 -
Income tax on partnership
interest (12.5) - (12.5) -
--------------------------------
Gain on sale on partnership
interest (net of tax) 68.7 - 68.7 -
--------------------------------
Gain (loss) in fair value of
long-term floating rate
notes/asset-backed commercial
paper (ABCP) 4.7 (21.3) 26.0 -
Income tax recovery (expense)
on gain (loss) in fair value
of long-term floating rate
notes/ABCP (1.5) 6.3 (7.8) -
--------------------------------
Gain (loss) in fair value of
long-term floating rate
notes/(ABCP) (net of tax) 3.2 (15.0) 18.2 -
--------------------------------
Income before foreign exchange
gain (loss) on long-term debt
and other specified items(4) $ 154.1 $ 266.5 $ (112.4) (42.2)
--------------------------------
--------------------------------
Earnings per share (EPS)
------------------------
Diluted EPS, as determined
by GAAP $ 1.33 $ 1.58 $ (0.25) (15.8)
Exclude:
Diluted EPS, related to FX
on LTD, net of tax(4) (0.04) (0.04) - -
Diluted EPS, related to
other specified items,
net of tax(4) 0.43 (0.10) 0.53 -
--------------------------------
Diluted EPS, before FX on LTD
and other specified items(4) $ 0.94 $ 1.72 $ (0.78) (45.3)
--------------------------------
--------------------------------
Operating ratio(4)(5) (%) 82.6 81.0 (1.6) -
Shares Outstanding
------------------
Weighted average (avg) number
of shares outstanding
(millions) 164.5 153.6 10.9 7.1
Weighted avg number of diluted
shares outstanding (millions) 164.7 155.0 9.7 6.3
Foreign Exchange
----------------
Average foreign exchange rate
(US$/Canadian$) 0.826 0.999 (0.173) (17.3)
Average foreign exchange rate
(Canadian$/US$) 1.210 1.001 0.209 20.9
(1) The 2008 figures include the results of the DM&E on an equity
accounting basis through October 29, 2008 and on a fully consolidated
basis after that date including the first two quarters of 2009.
(2) Certain 2008 figures have been restated for the adoption of CICA
accounting standard 3064, which requires the expensing of certain
expenditures related to pre-operating periods of a facility rather
than recording them as assets.
(3) Income tax on FX on LTD is discussed in the MD&A in the "Other Income
Statement Items" section - "Income Taxes".
(4) These earnings measures have no standardized meanings prescribed by
GAAP and may not be comparable to similar measures of other
companies.
See note on non-GAAP earnings measures included in this
press release.
(5) Operating ratio is the percentage derived by dividing operating
expenses by total revenues.
Summary of Rail Data (Page 3)
-----------------------------
Pro forma Basis Including DM&E in 2008
--------------------------------------
Second Quarter
-------------------------------------------
2009 2008(1)(2)(3) Fav/(Unfav) %
Pro forma
-------------------------------------------
Financial (millions, except
---------------------------
per share data)
---------------
Revenues
--------
Freight revenue $ 972.5 $ 1,274.3 $ (301.8) (23.7)
Other revenue 49.9 27.8 22.1 79.5
--------------------------------
1,022.4 1,302.1 (279.7) (21.5)
--------------------------------
Operating expenses
------------------
Compensation and benefits 301.6 333.3 31.7 9.5
Fuel 117.7 276.0 158.3 57.4
Materials 49.7 60.6 10.9 18.0
Equipment rents 43.2 49.9 6.7 13.4
Depreciation and
amortization 135.2 135.2 - -
Purchased services and other 149.2 174.8 25.6 14.6
--------------------------------
796.6 1,029.8 233.2 22.6
--------------------------------
Operating income(3)(4) 225.8 272.3 (46.5) (17.1)
Other income and charges 19.1 4.6 (14.5) (315.2)
Net interest expense 73.3 62.1 (11.2) (18.0)
Income tax expense before
foreign exchange gain (loss)
on long-term debt and
other specified items(3) 33.4 55.4 22.0 39.7
--------------------------------
Income before foreign exchange
gain (loss) on long-term debt
and other specified items(3) $ 100.0 $ 150.2 $ (50.2) (33.4)
--------------------------------
--------------------------------
Operating ratio(3)(5) (%) 77.9 79.1 1.2 -
Diluted EPS, before FX on LTD
and other specified items(3) $ 0.59 $ 0.97 $ (0.38) (39.2)
Year-to-date
-------------------------------------------
2009 2008(1)(2)(3) Fav/(Unfav) %
Pro forma
-------------------------------------------
Financial (millions, except
---------------------------
per share data)
---------------
Revenues
--------
Freight revenue $ 2,022.7 $ 2,476.5 $ (453.8) (18.3)
Other revenue 70.4 50.8 19.6 38.6
--------------------------------
2,093.1 2,527.3 (434.2) (17.2)
--------------------------------
Operating expenses
------------------
Compensation and benefits 642.5 681.4 38.9 5.7
Fuel 288.7 520.4 231.7 44.5
Materials 118.5 130.2 11.7 9.0
Equipment rents 96.9 99.4 2.5 2.5
Depreciation and
amortization 267.6 265.4 (2.2) (0.8)
Purchased services and other 313.7 342.3 28.6 8.4
--------------------------------
1,727.9 2,039.1 311.2 15.3
--------------------------------
Operating income(3)(4) 365.2 488.2 (123.0) (25.2)
Other income and charges 26.6 11.3 (15.3) (135.4)
Net interest expense 145.7 121.4 (24.3) (20.0)
Income tax expense before
foreign exchange gain (loss)
on long-term debt and
other specified items(3) 38.8 89.0 50.2 56.4
--------------------------------
Income before foreign exchange
gain (loss) on long-term debt
and other specified items(3) $ 154.1 $ 266.5 $ (112.4) (42.2)
--------------------------------
--------------------------------
Operating ratio(3)(5) (%) 82.6 80.7 (1.9) -
Diluted EPS, before FX on LTD
and other specified items(3) $ 0.94 $ 1.72 $ (0.78) (45.3)
(1) Pro forma basis redistributes DM&E equity income to a line-by-line
consolidation of DM&E results for the first two quarters of 2008.
See note on non-GAAP earnings measures included in this press
release.
(2) Certain 2008 figures have been restated for the adoption of CICA
accounting standard 3064, which requires the expensing of certain
expenditures related to pre-operating periods of a facility rather
than recording them as assets.
(3) These earnings measures have no standardized meanings prescribed by
GAAP and may not be comparable to similar measures of other
companies.
See note on non-GAAP earnings measures included in this
press release.
(4) Operating income is a non-GAAP term, which represents
"revenue less operating expenses".
(5) Operating ratio is the percentage derived by dividing operating
expenses by total revenues.
Summary of Rail Data (Page 4)
-----------------------------
Pro forma Basis for Comparative Purposes only
---------------------------------------------
Second Quarter
-------------------------------------------
2009 2008(1)(2) Fav/(Unfav) %
Pro forma
-------------------------------------------
Commodity Data
--------------
Freight Revenues (millions)
- Grain $ 272.7 $ 228.0 $ 44.7 19.6
- Coal 95.1 176.7 (81.6) (46.2)
- Sulphur and fertilizers 65.0 140.7 (75.7) (53.8)
- Forest products 41.3 61.3 (20.0) (32.6)
- Industrial and consumer
products 174.2 230.3 (56.1) (24.4)
- Automotive 49.8 87.9 (38.1) (43.3)
- Intermodal 274.4 349.4 (75.0) (21.5)
--------------------------------
Total Freight Revenues $ 972.5 $ 1,274.3 $ (301.8) (23.7)
--------------------------------
Millions of Revenue Ton-Miles
(RTM)
- Grain 8,696 7,457 1,239 16.6
- Coal 3,888 6,213 (2,325) (37.4)
- Sulphur and fertilizers 1,719 5,620 (3,901) (69.4)
- Forest products 1,092 1,514 (422) (27.9)
- Industrial and consumer
products 3,971 5,597 (1,626) (29.1)
- Automotive 347 647 (300) (46.4)
- Intermodal 5,819 7,296 (1,477) (20.2)
--------------------------------
Total RTMs 25,532 34,344 (8,812) (25.7)
--------------------------------
Freight Revenue per RTM (cents)
- Grain 3.14 3.06 0.08 2.6
- Coal 2.45 2.84 (0.39) (13.7)
- Sulphur and fertilizers 3.78 2.50 1.28 51.2
- Forest products 3.78 4.05 (0.27) (6.7)
- Industrial and consumer
products 4.39 4.11 0.28 6.8
- Automotive 14.35 13.59 0.76 5.6
- Intermodal 4.72 4.79 (0.07) (1.5)
Freight Revenue per RTM 3.81 3.71 0.10 2.7
Carloads (thousands)
- Grain 119.3 110.2 9.1 8.3
- Coal 66.2 87.4 (21.2) (24.3)
- Sulphur and fertilizers 22.3 54.8 (32.5) (59.3)
- Forest products 15.5 24.9 (9.4) (37.8)
- Industrial and consumer
products 80.1 112.4 (32.3) (28.7)
- Automotive 22.6 40.2 (17.6) (43.8)
- Intermodal 238.2 315.1 (76.9) (24.4)
--------------------------------
Total Carloads 564.2 745.0 (180.8) (24.3)
--------------------------------
Freight Revenue per Carload
- Grain $ 2,286 $ 2,069 $ 217 10.5
- Coal 1,437 2,022 (585) (28.9)
- Sulphur and fertilizers 2,915 2,568 347 13.5
- Forest products 2,665 2,462 203 8.2
- Industrial and consumer
products 2,175 2,049 126 6.1
- Automotive 2,204 2,187 17 0.8
- Intermodal 1,152 1,109 43 3.9
Freight Revenue per Carload $ 1,724 $ 1,710 $ 14 0.8
Year-to-date
-------------------------------------------
2009 2008(1)(2) Fav/(Unfav) %
Pro forma
-------------------------------------------
Commodity Data
--------------
Freight Revenues (millions)
- Grain $ 558.4 $ 488.3 $ 70.1 14.4
- Coal 211.5 320.6 (109.1) (34.0)
- Sulphur and fertilizers 139.5 273.8 (134.3) (49.1)
- Forest products 85.9 122.1 (36.2) (29.6)
- Industrial and consumer
products 373.7 437.5 (63.8) (14.6)
- Automotive 101.5 161.1 (59.6) (37.0)
- Intermodal 552.2 673.1 (120.9) (18.0)
--------------------------------
Total Freight Revenues $ 2,022.7 $ 2,476.5 $ (453.8) (18.3)
--------------------------------
Millions of Revenue Ton-Miles
(RTM)
- Grain 17,224 15,795 1,429 9.0
- Coal 7,720 11,395 (3,675) (32.3)
- Sulphur and fertilizers 3,899 11,094 (7,195) (64.9)
- Forest products 2,156 3,115 (959) (30.8)
- Industrial and consumer
products 8,321 10,897 (2,576) (23.6)
- Automotive 710 1,198 (488) (40.7)
- Intermodal 11,427 14,264 (2,837) (19.9)
--------------------------------
Total RTMs 51,457 67,758 (16,301) (24.1)
--------------------------------
Freight Revenue per RTM (cents)
- Grain 3.24 3.09 0.15 4.9
- Coal 2.74 2.81 (0.07) (2.5)
- Sulphur and fertilizers 3.58 2.47 1.11 44.9
- Forest products 3.98 3.92 0.06 1.5
- Industrial and consumer
products 4.49 4.01 0.48 12.0
- Automotive 14.30 13.45 0.85 6.3
- Intermodal 4.83 4.72 0.11 2.3
Freight Revenue per RTM 3.93 3.65 0.28 7.7
Carloads (thousands)
- Grain 230.8 225.0 5.8 2.6
- Coal 137.0 162.9 (25.9) (15.9)
- Sulphur and fertilizers 47.2 108.0 (60.8) (56.3)
- Forest products 33.0 51.1 (18.1) (35.4)
- Industrial and consumer
products 166.7 217.1 (50.4) (23.2)
- Automotive 43.6 76.8 (33.2) (43.2)
- Intermodal 482.2 611.8 (129.6) (21.2)
--------------------------------
Total Carloads 1,140.5 1,452.7 (312.2) (21.5)
--------------------------------
Freight Revenue per Carload
- Grain $ 2,419 $ 2,170 $ 249 11.5
- Coal 1,544 1,968 (424) (21.5)
- Sulphur and fertilizers 2,956 2,535 421 16.6
- Forest products 2,603 2,389 214 9.0
- Industrial and consumer
products 2,242 2,015 227 11.3
- Automotive 2,328 2,098 230 11.0
- Intermodal 1,145 1,100 45 4.1
Freight Revenue per Carload $ 1,774 $ 1,705 $ 69 4.0
(1) Pro forma basis redistributes DM&E equity income to a line-by-line
consolidation of DM&E results for the first two quarters of 2008.
See note on non-GAAP earnings measures included in this press
release.
(2) These earnings measures have no standardized meanings prescribed by
GAAP and may not be comparable to similar measures of other
companies.
See note on non-GAAP earnings measures included in this
press release.
Summary of Rail Data (Page 5)
-----------------------------
Second Quarter
-------------------------------------------
2009 2008(1)(2)(3) Fav/(Unfav) %
-------------------------------------------
Operations Performance
----------------------
Pro forma Consolidated Data
---------------------------
including DM&E(1)
-----------------
Total operating expenses per
GTM (cents)(4) 1.60 1.57 (0.03) (1.9)
Freight gross ton-miles (GTM)
(millions) 49,635 65,600 (15,965) (24.3)
Train miles (000) 8,391 11,309 (2,918) (25.8)
Average number of active
employees - Total 15,156 17,275 2,119 12.3
Average number of active
employees - Expense 13,270 15,143 1,873 12.4
Number of employees at end
of period - Total 15,178 17,462 2,284 13.1
Number of employees at end
of period - Expense 13,120 15,172 2,052 13.5
U.S. gallons of locomotive
fuel per 1,000 GTMs -
freight & yard 1.14 1.20 0.06 5.0
U.S. gallons of locomotive
fuel consumed - total
(millions)(5) 56.1 78.0 21.9 28.1
Average fuel price (U.S.
dollars per U.S. gallon) 1.78 3.51 1.73 49.3
Fluidity Data (excluding DM&E)
------------------------------
Average terminal dwell - AAR
definition (hours) 20.4 21.6 1.2 5.6
Average train speed - AAR
definition (mph) 26.4 24.1 2.3 9.5
Car miles per car day 144.6 147.3 (2.7) (1.8)
Average daily active cars
on-line (000) 42.5 55.7 13.2 23.7
Average daily active road
locomotives on-line 723 1,026 303 29.5
Safety
------
FRA personal injuries per
200,000 employee-hours
(CP only) 1.59 1.28 (0.31) (24.2)
FRA train accidents per
million train-miles (CP only) 1.48 1.61 0.13 8.1
FRA personal injuries per
200,000 employee-hours
(DM&E only) 1.25 3.17 1.92 60.6
FRA train accidents per
million train-miles
(DM&E only) 5.22 14.75 9.53 64.6
Year-to-date
-------------------------------------------
2009 2008(1)(2)(3) Fav/(Unfav) %
-------------------------------------------
Operations Performance
----------------------
Pro forma Consolidated Data
---------------------------
including DM&E(1)
-----------------
Total operating expenses per
GTM (cents)(4) 1.72 1.58 (0.14) (8.9)
Freight gross ton-miles (GTM)
(millions) 100,568 128,706 (28,138) (21.9)
Train miles (000) 17,298 22,365 (5,067) (22.7)
Average number of active
employees - Total 15,103 16,663 1,560 9.4
Average number of active
employees - Expense 13,827 15,200 1,373 9.0
Number of employees at end
of period - Total 15,178 17,462 2,284 13.1
Number of employees at end
of period - Expense 13,120 15,172 2,052 13.5
U.S. gallons of locomotive
fuel per 1,000 GTMs -
freight & yard 1.24 1.25 0.01 0.8
U.S. gallons of locomotive
fuel consumed - total
(millions)(5) 123.8 159.4 35.6 22.3
Average fuel price (U.S.
dollars per U.S. gallon) 1.93 3.26 1.33 40.8
Fluidity Data (excluding DM&E)
------------------------------
Average terminal dwell - AAR
definition (hours) 21.8 22.8 1.0 4.4
Average train speed - AAR
definition (mph) 25.7 23.7 2.0 8.4
Car miles per car day 142.2 142.7 (0.5) (0.4)
Average daily active cars
on-line (000) 45.6 56.4 10.8 19.1
Average daily active road
locomotives on-line 777 1,024 247 24.1
Safety
------
FRA personal injuries per
200,000 employee-hours
(CP only) 1.63 1.31 (0.32) (24.4)
FRA train accidents per
million train-miles (CP only) 1.55 1.99 0.44 22.1
FRA personal injuries per
200,000 employee-hours
(DM&E only) 1.69 3.45 1.76 51.0
FRA train accidents per
million train-miles
(DM&E only) 6.09 11.01 4.92 44.7
(1) Pro forma basis redistributes DM&E equity income to a line-by-line
consolidation of DM&E results for the first two quarters of 2008.
See note on non-GAAP earnings measures included in this press
release.
(2) Certain 2008 figures have been restated for the adoption of CICA
accounting standard 3064, which requires the expensing of certain
expenditures related to pre-operating periods of a facility rather
than recording them as assets.
(3) Certain prior period figures have been revised to conform with
current presentation or have been updated to reflect new information.
(4) The pro forma total operating expenses per GTM for 2008 is a non-GAAP
measure.
See note on non-GAAP earnings measures included in this press
release.
(5) Includes gallons of fuel consumed from freight, yard and commuter
service but excludes fuel used in capital projects and other
non-freight activities.
SOURCE Canadian Pacific
Source: newswire