CANADIAN PACIFIC RAILWAY LIMITED CANADIAN PACIFIC RAILWAY COMPANY (Registrants) |
||||
Date: October 29, 2007 | By: | Signed: Donald F. Barnhardt | ||
Name: | Donald F. Barnhardt | |||
Title: | Corporate Secretary | |||
Release: | Immediate, October 29, 2007 |
| Income before foreign exchange gains and losses on long-term debt and other specified items increased 12 per cent to $190 million from $170 million. | ||
| Diluted earnings per share increased 15 per cent to $1.23 from $1.07 (excluding foreign exchange gains and losses on long-term debt and other specified items). | ||
| Operating ratio improved to 72.9 per cent from 74.0 per cent. | ||
| Total revenues increased three per cent to $1.2 billion. |
| Income increased nine per cent to $488 million from $447 million. | ||
| Diluted earnings per share grew 12 per cent to $3.13 from $2.79. | ||
| Operating ratio improved 60 basis points to 75.6 per cent from 76.2 per cent. |
Contacts:
|
||
Media Leslie Pidcock Tel.: (403) 319-6878 e-mail: leslie_pidcock@cpr.ca |
Investment Community Janet Weiss, Assistant Vice-President Investor Relations Tel.: (403) 319-3591 e-mail: investor@cpr.ca |
For the three months | ||||||||
ended September 30 | ||||||||
2007 | 2006 | |||||||
Restated | ||||||||
(see Note 2) | ||||||||
(unaudited) | ||||||||
Revenues |
||||||||
Freight |
$ | 1,147.6 | $ | 1,122.2 | ||||
Other |
40.3 | 29.1 | ||||||
1,187.9 | 1,151.3 | |||||||
Operating expenses |
||||||||
Compensation and benefits |
313.5 | 332.4 | ||||||
Fuel |
185.6 | 161.3 | ||||||
Materials |
49.6 | 47.1 | ||||||
Equipment rents |
49.6 | 44.4 | ||||||
Depreciation and amortization |
118.0 | 115.6 | ||||||
Purchased services and other |
149.9 | 151.4 | ||||||
866.2 | 852.2 | |||||||
Operating income |
321.7 | 299.1 | ||||||
Other charges (Note 4) |
8.1 | 6.9 | ||||||
Change in fair value of Canadian third party
asset-backed commercial paper (Note 9) |
21.5 | | ||||||
Foreign exchange (gains) losses on long-term debt |
(64.3 | ) | 1.5 | |||||
Interest expense (Note 5) |
44.9 | 48.8 | ||||||
Income tax expense (Note 6) |
92.9 | 78.1 | ||||||
Net income |
$ | 218.6 | $ | 163.8 | ||||
Basic earnings per share (Note 7) |
$ | 1.43 | $ | 1.05 | ||||
Diluted earnings per share (Note 7) |
$ | 1.41 | $ | 1.04 | ||||
5
For the nine months | ||||||||
ended September 30 | ||||||||
2007 | 2006 | |||||||
Restated | ||||||||
(see Note 2) | ||||||||
(unaudited) | ||||||||
Revenues |
||||||||
Freight |
$ | 3,412.6 | $ | 3,275.8 | ||||
Other |
106.7 | 117.0 | ||||||
3,519.3 | 3,392.8 | |||||||
Operating expenses |
||||||||
Compensation and benefits |
975.8 | 1,005.4 | ||||||
Fuel |
550.5 | 479.3 | ||||||
Materials |
167.6 | 159.2 | ||||||
Equipment rents |
162.4 | 133.4 | ||||||
Depreciation and amortization |
355.7 | 348.2 | ||||||
Purchased services and other |
448.6 | 458.8 | ||||||
2,660.6 | 2,584.3 | |||||||
Operating income |
858.7 | 808.5 | ||||||
Other charges (Note 4) |
21.1 | 21.4 | ||||||
Change in fair value of Canadian third
party asset-backed commercial paper
(Note 9) |
21.5 | | ||||||
Foreign exchange gains on long-term debt |
(161.5 | ) | (44.8 | ) | ||||
Interest expense (Note 5) |
140.9 | 144.7 | ||||||
Income tax expense (Note 6) |
232.8 | 36.5 | ||||||
Net income |
$ | 603.9 | $ | 650.7 | ||||
Basic earnings per share (Note 7) |
$ | 3.91 | $ | 4.13 | ||||
Diluted earnings per share (Note 7) |
$ | 3.87 | $ | 4.09 | ||||
6
For the three months | ||||||||
ended September 30 | ||||||||
2007 | 2006 | |||||||
Restated | ||||||||
(see Note 2) | ||||||||
(unaudited) | ||||||||
Comprehensive income |
||||||||
Net income |
$ | 218.6 | $ | 163.8 | ||||
Other comprehensive income |
||||||||
Net change in foreign currency translation
adjustments, net of hedging activities |
(0.7 | ) | (0.7 | ) | ||||
Net change in gains on derivatives
designated as cash flow hedges |
(5.9 | ) | | |||||
Other comprehensive loss before income taxes |
(6.6 | ) | (0.7 | ) | ||||
Income tax (expense) recovery |
(2.5 | ) | 0.1 | |||||
Other comprehensive loss (Note 12) |
(9.1 | ) | (0.6 | ) | ||||
Comprehensive income |
$ | 209.5 | $ | 163.2 | ||||
For the nine months | ||||||||
ended September 30 | ||||||||
2007 | 2006 | |||||||
Restated | ||||||||
(see Note 2) | ||||||||
(unaudited) | ||||||||
Comprehensive income |
||||||||
Net income |
$ | 603.9 | $ | 650.7 | ||||
Other comprehensive income |
||||||||
Net change in foreign currency translation
adjustments, net of hedging activities |
(3.9 | ) | (0.6 | ) | ||||
Net change in gains on derivatives
designated as cash flow hedges |
(18.9 | ) | | |||||
Other comprehensive loss before income taxes |
(22.8 | ) | (0.6 | ) | ||||
Income tax expense |
(3.8 | ) | (3.1 | ) | ||||
Other comprehensive loss (Note 12) |
(26.6 | ) | (3.7 | ) | ||||
Comprehensive income |
$ | 577.3 | $ | 647.0 | ||||
7
September 30 | December 31 | |||||||
2007 | 2006 | |||||||
Restated | ||||||||
(see Note 2) | ||||||||
(unaudited) | ||||||||
Assets |
||||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | 339.2 | $ | 124.3 | ||||
Accounts receivable and other current assets |
608.7 | 615.7 | ||||||
Materials and supplies |
187.6 | 158.6 | ||||||
Future income taxes |
116.6 | 106.3 | ||||||
1,252.1 | 1,004.9 | |||||||
Investments (Note 9) |
179.7 | 64.9 | ||||||
Net properties |
9,107.5 | 9,122.9 | ||||||
Other assets and deferred charges |
1,262.2 | 1,223.2 | ||||||
Total assets |
$ | 11,801.5 | $ | 11,415.9 | ||||
Liabilities and shareholders equity |
||||||||
Current liabilities |
||||||||
Accounts payable and accrued liabilities |
$ | 1,018.6 | $ | 1,002.6 | ||||
Income and other taxes payable |
44.3 | 16.0 | ||||||
Dividends payable |
34.5 | 29.1 | ||||||
Long-term debt maturing within one year |
30.9 | 191.3 | ||||||
1,128.3 | 1,239.0 | |||||||
Deferred liabilities |
714.1 | 725.7 | ||||||
Long-term debt (Note 10) |
2,896.4 | 2,813.5 | ||||||
Future income taxes |
1,901.6 | 1,781.2 | ||||||
Shareholders equity |
||||||||
Share capital (Note 11) |
1,187.2 | 1,175.7 | ||||||
Contributed surplus |
40.6 | 32.3 | ||||||
Accumulated other comprehensive income (Note 12) |
53.8 | 66.4 | ||||||
Retained income |
3,879.5 | 3,582.1 | ||||||
5,161.1 | 4,856.5 | |||||||
Total liabilities and shareholders equity |
$ | 11,801.5 | $ | 11,415.9 | ||||
8
For the three months | ||||||||
ended September 30 | ||||||||
2007 | 2006 | |||||||
Restated | ||||||||
(see Note 2) | ||||||||
(unaudited) | ||||||||
Operating activities |
||||||||
Net income |
$ | 218.6 | $ | 163.8 | ||||
Add (deduct) items not affecting cash: |
||||||||
Depreciation and amortization |
118.0 | 115.6 | ||||||
Future income taxes |
72.1 | 72.7 | ||||||
Change in fair value of Canadian third party asset-backed
commercial paper (Note 9) |
21.5 | | ||||||
Foreign exchange (gains) losses on long-term debt |
(64.3 | ) | 1.5 | |||||
Amortization of deferred charges |
3.0 | 4.5 | ||||||
Restructuring and environmental remediation payments |
(13.8 | ) | (18.6 | ) | ||||
Other operating activities, net |
(14.2 | ) | (32.4 | ) | ||||
Change in non-cash working capital balances related to operations |
0.5 | (28.8 | ) | |||||
Cash provided by operating activities |
341.4 | 278.3 | ||||||
Investing activities |
||||||||
Additions to properties |
(206.0 | ) | (220.2 | ) | ||||
(Additions) reductions to investments and other assets (Note 14) |
(4.9 | ) | 63.9 | |||||
Net proceeds from disposal of transportation properties |
0.8 | (2.8 | ) | |||||
Reclassification of Canadian third party asset-backed
commercial paper (Note 9) |
(143.6 | ) | | |||||
Cash used in investing activities |
(353.7 | ) | (159.1 | ) | ||||
Financing activities |
||||||||
Dividends paid |
(34.8 | ) | (29.5 | ) | ||||
Issuance of CP Common Shares |
4.1 | 3.1 | ||||||
Purchase of CP Common Shares |
(3.0 | ) | (83.3 | ) | ||||
Repayment of long-term debt |
(6.9 | ) | (7.4 | ) | ||||
Cash used in financing activities |
(40.6 | ) | (117.1 | ) | ||||
Cash position |
||||||||
(Decrease) increase in cash and cash equivalents |
(52.9 | ) | 2.1 | |||||
Cash and cash equivalents at beginning of period |
392.1 | 44.3 | ||||||
Cash and cash equivalents at end of period |
$ | 339.2 | $ | 46.4 | ||||
9
For the nine months | ||||||||
ended September 30 | ||||||||
2007 | 2006 | |||||||
Restated | ||||||||
(see Note 2) | ||||||||
(unaudited) | ||||||||
Operating activities |
||||||||
Net income |
$ | 603.9 | $ | 650.7 | ||||
Add (deduct) items not affecting cash: |
||||||||
Depreciation and amortization |
355.7 | 348.2 | ||||||
Future income taxes |
168.3 | 2.3 | ||||||
Change in fair value of Canadian third party
asset-backed commercial paper (Note 9) |
21.5 | | ||||||
Foreign exchange gains on long-term debt |
(161.5 | ) | (44.8 | ) | ||||
Amortization of deferred charges |
9.2 | 13.1 | ||||||
Restructuring and environmental remediation payments |
(39.0 | ) | (69.2 | ) | ||||
Other operating activities, net |
(16.0 | ) | (30.0 | ) | ||||
Change in non-cash working capital balances related to
operations |
(8.5 | ) | (135.3 | ) | ||||
Cash provided by operating activities |
933.6 | 735.0 | ||||||
Investing activities |
||||||||
Additions to properties |
(568.6 | ) | (589.2 | ) | ||||
Additions to investments and other assets (Note 14) |
(16.6 | ) | (21.1 | ) | ||||
Net proceeds from disposal of transportation properties |
9.3 | 79.1 | ||||||
Reclassification of Canadian third party asset-backed
commercial paper (Note 9) |
(143.6 | ) | | |||||
Cash used in investing activities |
(719.5 | ) | (531.2 | ) | ||||
Financing activities |
||||||||
Dividends paid |
(98.6 | ) | (83.0 | ) | ||||
Issuance of CP Common Shares |
29.2 | 52.3 | ||||||
Purchase of CP Common Shares |
(231.1 | ) | (226.9 | ) | ||||
Issuance of long-term debt (Note 10) |
485.1 | | ||||||
Repayment of long-term debt |
(183.8 | ) | (21.6 | ) | ||||
Cash provided by (used in) financing activities |
0.8 | (279.2 | ) | |||||
Cash position |
||||||||
Increase (decrease) in cash and cash equivalents |
214.9 | (75.4 | ) | |||||
Cash and cash equivalents at beginning of period |
124.3 | 121.8 | ||||||
Cash and cash equivalents at end of period |
$ | 339.2 | $ | 46.4 | ||||
10
For the three months | ||||||||
ended September 30 | ||||||||
2007 | 2006 | |||||||
Restated | ||||||||
(see Note 2) | ||||||||
(unaudited) | ||||||||
Share capital |
||||||||
Balance, beginning of period |
$ | 1,182.0 | $ | 1,174.0 | ||||
Shares issued under stock option plans |
5.2 | 3.2 | ||||||
Shares purchased |
| (10.6 | ) | |||||
Balance, end of period |
1,187.2 | 1,166.6 | ||||||
Contributed surplus |
||||||||
Balance, beginning of period |
38.7 | 115.5 | ||||||
Stock-based compensation expense related to stock option
plans |
1.9 | 2.3 | ||||||
Shares purchased |
| (65.8 | ) | |||||
Balance, end of period |
40.6 | 52.0 | ||||||
Accumulated other comprehensive income |
||||||||
Balance, beginning of period |
62.9 | 64.4 | ||||||
Other comprehensive loss (Note 12) |
(9.1 | ) | (0.6 | ) | ||||
Balance, end of period |
53.8 | 63.8 | ||||||
Retained earnings |
||||||||
Balance, beginning of period |
3,694.9 | 3,357.4 | ||||||
Net income for the period |
218.6 | 163.8 | ||||||
Shares purchased |
| | ||||||
Dividends |
(34.0 | ) | (29.3 | ) | ||||
Balance, end of period |
3,879.5 | 3,491.9 | ||||||
Total accumulated other comprehensive income and
retained earnings |
3,933.3 | 3,555.7 | ||||||
Shareholders equity, end of period |
$ | 5,161.1 | $ | 4,774.3 | ||||
11
For the nine months | ||||||||
ended September 30 | ||||||||
2007 | 2006 | |||||||
Restated | ||||||||
(see Note 2) | ||||||||
(unaudited) | ||||||||
Share capital |
||||||||
Balance, beginning of period |
$ | 1,175.7 | $ | 1,141.5 | ||||
Shares issued under stock option plans |
36.0 | 55.9 | ||||||
Shares purchased |
(24.5 | ) | (30.8 | ) | ||||
Balance, end of period |
1,187.2 | 1,166.6 | ||||||
Contributed surplus |
||||||||
Balance, beginning of period |
32.3 | 245.1 | ||||||
Stock-based compensation expense related to stock option
plans |
8.3 | 8.1 | ||||||
Shares purchased |
| (201.2 | ) | |||||
Balance, end of period |
40.6 | 52.0 | ||||||
Accumulated other comprehensive income |
||||||||
Balance, beginning of period |
66.4 | 67.5 | ||||||
Adjustment for change in accounting policy |
14.0 | | ||||||
Adjusted balance, beginning of period |
80.4 | 67.5 | ||||||
Other comprehensive loss (Note 12) |
(26.6 | ) | (3.7 | ) | ||||
Balance, end of period |
53.8 | 63.8 | ||||||
Retained earnings |
||||||||
Balance, beginning of period |
3,582.1 | 2,930.0 | ||||||
Adjustment for change in accounting policy (Note 2) |
4.0 | | ||||||
Adjusted balance, beginning of period |
3,586.1 | 2,930.0 | ||||||
Net income for the period |
603.9 | 650.7 | ||||||
Shares purchased |
(206.6 | ) | | |||||
Dividends |
(103.9 | ) | (88.8 | ) | ||||
Balance, end of period |
3,879.5 | 3,491.9 | ||||||
Total accumulated other comprehensive income and
retained earnings |
3,933.3 | 3,555.7 | ||||||
Shareholders equity, end of period |
$ | 5,161.1 | $ | 4,774.3 | ||||
12
13
14
For the three months | For the nine months | |||||||||||||||
ended September 30 | ended September 30 | |||||||||||||||
(in millions) | 2007 | 2006 | 2007 | 2006 | ||||||||||||
Amortization of discount on accruals
recorded at present value |
$ | 2.0 | $ | 2.9 | $ | 6.2 | $ | 8.1 | ||||||||
Other exchange losses |
2.3 | 1.0 | 4.3 | 4.5 | ||||||||||||
Loss on sale of accounts
receivable |
1.5 | 1.4 | 4.2 | 3.7 | ||||||||||||
Losses (gains) on non-hedging
derivative instruments |
0.5 | (0.3 | ) | 0.1 | (0.4 | ) | ||||||||||
Other |
1.8 | 1.9 | 6.3 | 5.5 | ||||||||||||
Total other charges |
$ | 8.1 | $ | 6.9 | $ | 21.1 | $ | 21.4 | ||||||||
15
For the three months | For the nine months | |||||||||||||||
ended September 30 | ended September 30 | |||||||||||||||
(in millions) | 2007 | 2006 | 2007 | 2006 | ||||||||||||
Interest expense |
$ | 51.5 | $ | 50.0 | $ | 152.6 | $ | 149.1 | ||||||||
Interest income |
(6.6 | ) | (1.2 | ) | (11.7 | ) | (4.4 | ) | ||||||||
Total interest expense |
$ | 44.9 | $ | 48.8 | $ | 140.9 | $ | 144.7 | ||||||||
For the three months | For the nine months | |||||||||||||||
ended September 30 | ended September 30 | |||||||||||||||
(in millions) | 2007 | 2006 | 2007 | 2006 | ||||||||||||
Weighted average shares
outstanding |
153.2 | 156.7 | 154.3 | 157.8 | ||||||||||||
Dilutive effect of stock options |
1.8 | 1.6 | 1.6 | 1.8 | ||||||||||||
Weighted average diluted
shares outstanding |
155.0 | 158.3 | 155.9 | 159.6 | ||||||||||||
(in dollars) |
||||||||||||||||
Basic earnings per share |
$ | 1.43 | $ | 1.05 | (1) | $ | 3.91 | $ | 4.13 | (1) | ||||||
Diluted earnings per share |
$ | 1.41 | $ | 1.04 | (1) | $ | 3.87 | $ | 4.09 | (1) | ||||||
(1) | Restated |
16
Opening | Closing | |||||||||||||||||||||||
Balance | Foreign | Balance | ||||||||||||||||||||||
July 1 | Accrued | Amortization | Exchange | September 30 | ||||||||||||||||||||
(in millions) | 2007 | (reduced) | Payments | of Discount | Impact | 2007 | ||||||||||||||||||
Labour liability for
terminations and
severances |
$ | 163.6 | 0.5 | (10.7 | ) | 1.5 | (2.1 | ) | $ | 152.8 | ||||||||||||||
Other non-labour
liabilities for exit plans |
1.1 | (0.2 | ) | (0.1 | ) | | | 0.8 | ||||||||||||||||
Total restructuring
liability |
164.7 | 0.3 | (10.8 | ) | 1.5 | (2.1 | ) | 153.6 | ||||||||||||||||
Environmental
remediation program |
112.7 | 0.9 | (3.0 | ) | | (3.9 | ) | 106.7 | ||||||||||||||||
Total restructuring and
environmental
remediation liability |
$ | 277.4 | 1.2 | (13.8 | ) | 1.5 | (6.0 | ) | $ | 260.3 | ||||||||||||||
Opening | Closing | |||||||||||||||||||||||
Balance | Foreign | Balance | ||||||||||||||||||||||
July 1 | Accrued | Amortization | Exchange | September 30 | ||||||||||||||||||||
(in millions) | 2006 | (reduced) | Payments | of Discount | Impact | 2006 | ||||||||||||||||||
Labour liability for
terminations and
severances |
$ | 215.8 | 0.2 | (14.2 | ) | 2.8 | | $ | 204.6 | |||||||||||||||
Other non-labour
liabilities for exit plans |
1.8 | 0.2 | (0.1 | ) | 0.1 | | 2.0 | |||||||||||||||||
Total restructuring
liability |
217.6 | 0.4 | (14.3 | ) | 2.9 | | 206.6 | |||||||||||||||||
Environmental
remediation program |
128.2 | 1.0 | (4.3 | ) | | 0.1 | 125.0 | |||||||||||||||||
Total restructuring and
environmental
remediation liability |
$ | 345.8 | 1.4 | (18.6 | ) | 2.9 | 0.1 | $ | 331.6 | |||||||||||||||
17
8 | Restructuring and environmental remediation (continued) | |
Nine months ended September 30, 2007 |
Opening | Closing | |||||||||||||||||||||||
Balance | Foreign | Balance | ||||||||||||||||||||||
Jan. 1 | Accrued | Amortization | Exchange | September 30 | ||||||||||||||||||||
(in millions) | 2007 | (reduced) | Payments | of Discount | Impact | 2007 | ||||||||||||||||||
Labour liability
for terminations
and severances |
$ | 187.4 | (1.6 | ) | (32.8 | ) | 4.7 | (4.9 | ) | $ | 152.8 | |||||||||||||
Other non-labour
liabilities for
exit plans |
1.4 | (0.2 | ) | (0.2 | ) | | (0.2 | ) | 0.8 | |||||||||||||||
Total restructuring
liability |
188.8 | (1.8 | ) | (33.0 | ) | 4.7 | (5.1 | ) | 153.6 | |||||||||||||||
Environmental
remediation program |
120.2 | 2.2 | (6.0 | ) | | (9.7 | ) | 106.7 | ||||||||||||||||
Total restructuring
and environmental
remediation
liability |
$ | 309.0 | 0.4 | (39.0 | ) | 4.7 | (14.8 | ) | $ | 260.3 | ||||||||||||||
Opening | Closing | |||||||||||||||||||||||
Balance | Foreign | Balance | ||||||||||||||||||||||
Jan. 1 | Accrued | Amortization | Exchange | September 30 | ||||||||||||||||||||
(in millions) | 2006 | (reduced) | Payments | of Discount | Impact | 2006 | ||||||||||||||||||
Labour liability
for terminations
and severances |
$ | 263.6 | (9.5 | ) | (55.9 | ) | 8.0 | (1.6 | ) | $ | 204.6 | |||||||||||||
Other non-labour
liabilities for
exit plans |
5.8 | 0.7 | (4.4 | ) | 0.1 | (0.2 | ) | 2.0 | ||||||||||||||||
Total restructuring
liability |
269.4 | (8.8 | ) | (60.3 | ) | 8.1 | (1.8 | ) | 206.6 | |||||||||||||||
Environmental
remediation program |
129.4 | 7.4 | (8.9 | ) | | (2.9 | ) | 125.0 | ||||||||||||||||
Total restructuring
and environmental
remediation
liability |
$ | 398.8 | (1.4 | ) | (69.2 | ) | 8.1 | (4.7 | ) | $ | 331.6 | |||||||||||||
18
9 | Investments | |
At September 30, 2007, the Company held Canadian third party asset-backed commercial paper (ABCP) with an original cost of $143.6 million. At the dates the Company acquired these investments they were rated R1 (High) by Dominion Bond Rating Service (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. As a result, the Company has classified its ABCP as long-term investments after initially classifying them as Cash and cash equivalents. | ||
On August 16, 2007 an announcement was made by a group representing banks, asset providers and major investors that they had agreed in principle to a long-term proposal and interim agreement to convert the ABCPs into long-term floating rate notes maturing no earlier than the scheduled maturity of the underlying assets. On September 6, 2007, a pan-Canadian restructuring committee consisting of major investors was formed. The committee was created to propose a solution to the liquidity problem affecting the ABCP and has retained legal and financial advisors to oversee the proposed restructuring process. On October 16, 2007, it was announced that the committee expected that the restructuring would be completed on or before December 14, 2007. Through to December 14, 2007, by means of Extraordinary Resolutions of the various trusts that had issued ABCP, trading has ceased and investors have committed not to take any action that would precipitate an event of default. | ||
The ABCP in which the Company has invested has not traded in an active market since mid-August 2007 and there are currently no market quotations available. The ABCP in which the Company has invested continues to be rated R1 (High, Under Review with Developing Implications) by DBRS. | ||
The valuation technique used by the Company to estimate the fair value of its investments in ABCP 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. During the three and nine months ended September 30, 2007, this valuation resulted in a reduction of $21.5 million to the estimated fair value of the ABCP. The assumptions used in determining the estimated fair value reflect the public statements made by the pan-Canadian restructuring committee that it expects the ABCP will be converted into long-term floating rate notes with maturities matching the maturities of the underlying assets and bearing market interest rates commensurate with the nature of the underlying assets and their associated cash flows and the credit rating and risk associated with the long-term floating rate notes. Assumptions have been made as to the long-term interest rates to be received from the long-term floating rate notes compared to the short term interest rate currently being accrued by the Company on the ABCP. Assumptions have also been made as to the amount of restructuring costs that the Company will bear. | ||
Continuing uncertainties regarding the value of the assets which underlie the ABCP, the amount and timing of cash flows and the outcome of the restructuring process could give rise to a further change in the value of the Companys investment in ABCP which would impact the Companys earnings. |
10 | Long-term debt | |
During the nine months ended September 30, 2007, the Company issued US$450 million of 5.95% 30 -year notes. The notes are unsecured, but carry a negative pledge. |
19
11 | Shareholders equity | |
An analysis of Common Share balances is as follows: |
For the three months | For the nine months | |||||||||||||||
ended September 30 | ended September 30 | |||||||||||||||
(in millions) | 2007 | 2006 | 2007 | 2006 | ||||||||||||
Share capital, beginning of period |
153.1 | 157.2 | 155.5 | 158.2 | ||||||||||||
Shares issued under stock option
plans |
0.1 | 0.1 | 0.9 | 1.8 | ||||||||||||
Shares purchased |
| (1.4 | ) | (3.2 | ) | (4.1 | ) | |||||||||
Share capital, end of period |
153.2 | 155.9 | 153.2 | 155.9 | ||||||||||||
In June 2006, the Company completed the acquisition of Common Shares under the previous normal course issuer bid and filed a new normal course issuer bid to purchase, for cancellation, up to 3.9 million of its outstanding Common Shares. Under this filing, share purchases could have been made during the 12-month period beginning June 6, 2006, and ending June 5, 2007. Of the 3.9 million shares authorized for purchase under this filing, 3.4 million were purchased in 2006 at an average price per share of $56.66 and 0.2 million shares were purchased during the three months ended March 31, 2007 at an average price per share of $64.11. | ||
In March 2007, the Company completed the filing for a new normal course issuer bid (2007 NCIB) to cover the period of March 28, 2007 to March 27, 2008 to purchase, for cancellation, up to 5.0 million of its outstanding Common Shares. Effective April 30, 2007, the 2007 NCIB was amended to purchase, for cancellation, up to 15.3 million of its outstanding Common Shares. Of the 15.3 million shares authorized under the 2007 NCIB, 2.7 million shares were purchased at an average price per share of $73.64. | ||
In addition, pursuant to a notice of intention to make an exempt issuer bid filed on March 23, 2007, the Company purchased, for cancellation, 0.3 million shares through a private agreement with an arms length third party on March 29, 2007 at an average price of $63.12. | ||
For the three months ended September 30, 2007, there were no shares purchased (2006 1.4 million shares were purchased at an average price per share of $53.85) and for the nine months ended September 30, 2007, 3.2 million shares were purchased at an average price per share of $71.99 (2006 4.1 million shares were purchased at an average price per share of $55.93). For the three months ended September 30, 2007, certain share purchases were settled for $3.0 million. | ||
The purchases are made at the market price on the day of purchase, with consideration allocated to share capital up to the average carrying amount of the shares, and any excess allocated to contributed surplus and retained earnings. When shares are purchased, it takes three days before the transaction is settled and the shares are cancelled. The cost of shares purchased in a given month and settled in the following month is accrued in the month of purchase. |
20
12 | Other comprehensive income and accumulated other comprehensive income | |
Components of other comprehensive income and the related tax effects are as follows: |
For the three months ended September 30 | ||||||||||||
2007 | ||||||||||||
Income tax | ||||||||||||
Before tax | (expense) | Net of tax | ||||||||||
(in millions) | amount | recovery | amount | |||||||||
Unrealized foreign exchange gain on translation of
U.S. dollar-denominated long-term debt designated as a
hedge of the net investment in U.S. subsidiaries |
$ | 29.8 | $ | (4.6 | ) | $ | 25.2 | |||||
Unrealized foreign exchange loss on translation of the
net investment in U.S. subsidiaries |
(30.5 | ) | | (30.5 | ) | |||||||
Realized gain on cash flow hedges settled in the period |
(3.1 | ) | 1.1 | (2.0 | ) | |||||||
Decrease in unrealized holding gains on cash flow
hedges |
(2.7 | ) | 1.0 | (1.7 | ) | |||||||
Realized loss on cash flow hedges settled in prior
periods |
(0.1 | ) | | (0.1 | ) | |||||||
Other comprehensive loss |
$ | (6.6 | ) | $ | (2.5 | ) | $ | (9.1 | ) | |||
For the three months ended September 30 | ||||||||||||
2006 | ||||||||||||
Income tax | ||||||||||||
Before tax | (expense) | Net of tax | ||||||||||
(in millions) | amount | recovery | amount | |||||||||
Unrealized foreign
exchange loss on
translation of U.S.
dollar-denominated
long-term debt
designated as a hedge
of the net investment
in U.S. subsidiaries |
$ | (0.8 | ) | $ | 0.1 | $ | (0.7 | ) | ||||
Unrealized foreign
exchange gain on
translation of the net
investment in U.S.
subsidiaries |
0.1 | | 0.1 | |||||||||
Other comprehensive loss |
$ | (0.7 | ) | $ | 0.1 | $ | (0.6 | ) | ||||
21
12 | Other comprehensive income and accumulated other comprehensive income (continued) |
For the nine months ended September 30 | ||||||||||||
2007 | ||||||||||||
Income tax | ||||||||||||
Before tax | (expense) | Net of tax | ||||||||||
(in millions) | amount | recovery | amount | |||||||||
Unrealized foreign exchange gain on translation of
U.S. dollar-denominated long-term debt designated as a
hedge of the net investment in U.S. subsidiaries |
$ | 67.5 | $ | (10.4 | ) | $ | 57.1 | |||||
Unrealized foreign exchange loss on translation of the
net investment in U.S. subsidiaries |
(71.4 | ) | | (71.4 | ) | |||||||
Realized gain on cash flow hedges settled in the period |
(11.2 | ) | 3.9 | (7.3 | ) | |||||||
Decrease in unrealized holding gains on cash flow
hedges |
(9.2 | ) | 3.2 | (6.0 | ) | |||||||
Realized loss on cash flow hedges settled in prior
periods |
1.5 | (0.5 | ) | 1.0 | ||||||||
Other comprehensive loss |
$ | (22.8 | ) | $ | (3.8 | ) | $ | (26.6 | ) | |||
For the nine months ended September 30 | ||||||||||||
2006 | ||||||||||||
Income tax | ||||||||||||
Before tax | (expense) | Net of tax | ||||||||||
(in millions) | amount | recovery | amount | |||||||||
Unrealized foreign
exchange gain on
translation of U.S.
dollar-denominated
long-term debt
designated as a hedge
of the net investment
in U.S. subsidiaries |
$ | 19.8 | $ | (3.1 | ) | $ | 16.7 | |||||
Unrealized foreign
exchange loss on
translation of the net
investment in U.S.
subsidiaries |
(20.4 | ) | | (20.4 | ) | |||||||
Other comprehensive loss |
$ | (0.6 | ) | $ | (3.1 | ) | $ | (3.7 | ) | |||
22
12 | Other comprehensive income and accumulated other comprehensive income (continued) | |
Changes in the balances of each classification within Accumulated other comprehensive income are as follows: | ||
Three months ended September 30, 2007 |
Opening | Closing | |||||||||||
Balance, | Balance, | |||||||||||
July 1, | Period | Sept. 30, | ||||||||||
(in millions) | 2007 | change | 2007 | |||||||||
Foreign exchange
on U.S. dollar
debt designated as
a hedge of the net
investment in U.S.
subsidiaries |
$ | 267.2 | $ | 25.2 | $ | 292.4 | ||||||
Foreign exchange
on net investment
in U.S.
subsidiaries |
(209.4 | ) | (30.5 | ) | (239.9 | ) | ||||||
Increase
(decrease) in
unrealized
effective gains of
cash flow hedges |
9.3 | (3.7 | ) | 5.6 | ||||||||
Unrealized loss on
settled hedge
instruments |
(4.2 | ) | (0.1 | ) | (4.3 | ) | ||||||
Accumulated other
comprehensive
income |
$ | 62.9 | $ | (9.1 | ) | $ | 53.8 | |||||
Three months ended September 30, 2006 |
Opening | Closing | |||||||||||
Balance, | Balance, | |||||||||||
July 1, | Period | Sept. 30, | ||||||||||
(in millions) | 2006 | change | 2006 | |||||||||
Foreign exchange
on U.S. dollar
debt designated as
a hedge of the net
investment in U.S.
subsidiaries |
$ | 255.5 | $ | (0.7 | ) | $ | 254.8 | |||||
Foreign exchange
on net investment
in U.S.
subsidiaries |
(191.1 | ) | 0.1 | (191.0 | ) | |||||||
Accumulated other
comprehensive
income |
$ | 64.4 | $ | (0.6 | ) | $ | 63.8 | |||||
23
12 | Other comprehensive income and accumulated other comprehensive income (continued) | |
Nine months ended September 30, 2007 |
Adjustment | ||||||||||||||||||||
Opening | for change | Adjusted | Closing | |||||||||||||||||
Balance, | in | Opening | Balance, | |||||||||||||||||
Jan. 1, | accounting | Balance, | Period | Sept. 30, | ||||||||||||||||
(in millions) | 2007 | policy | Jan. 1, 2007 | change | 2007 | |||||||||||||||
Foreign exchange
on U.S. dollar
debt designated as
a hedge of the net
investment in U.S.
subsidiaries |
$ | 234.9 | $ | 0.4 | $ | 235.3 | $ | 57.1 | $ | 292.4 | ||||||||||
Foreign exchange
on net investment
in U.S.
subsidiaries |
(168.5 | ) | | (168.5 | ) | (71.4 | ) | (239.9 | ) | |||||||||||
Increase
(decrease) in
unrealized
effective gains of
cash flow hedges |
| 18.9 | 18.9 | (13.3 | ) | 5.6 | ||||||||||||||
Unrealized loss on
settled hedge
instruments |
| (5.3 | ) | (5.3 | ) | 1.0 | (4.3 | ) | ||||||||||||
Accumulated other
comprehensive
income |
$ | 66.4 | $ | 14.0 | $ | 80.4 | $ | (26.6 | ) | $ | 53.8 | |||||||||
Nine months ended September 30, 2006 |
Opening | Closing | |||||||||||
Balance, | Balance, | |||||||||||
Jan. 1, | Period | Sept. 30, | ||||||||||
(in millions) | 2006 | change | 2006 | |||||||||
Foreign exchange
on U.S. dollar
debt designated as
a hedge of the net
investment in U.S.
subsidiaries |
$ | 238.1 | $ | 16.7 | $ | 254.8 | ||||||
Foreign exchange
on net investment
in U.S.
subsidiaries |
(170.6 | ) | (20.4 | ) | (191.0 | ) | ||||||
Accumulated other
comprehensive
income |
$ | 67.5 | $ | (3.7 | ) | $ | 63.8 | |||||
During the next twelve months, the Company expects $9.7 million of unrealized holding gains on derivative instruments to be realized and recognized in the Statement of Consolidated Income. Derivative instruments designated as cash flow hedges will mature during the period ending December 2009. |
24
13 | Fair value of financial instruments | |
The fair value of a financial instrument is the amount of consideration that would be agreed upon in an arms length transaction between willing parties. The Company uses the following methods and assumptions to estimate fair value of each class of financial instruments for which carrying amounts are included in the Consolidated Balance Sheet as follows: | ||
Loans and receivables |
||
Investments Long-term receivable balances are carried at amortized cost based on an initial fair value determined using discounted cash flow analysis using observable market based inputs. | ||
Financial liabilities |
||
Long-term debt The carrying amount of long-term debt is at amortized cost based on an initial fair value determined using the quoted market prices for the same or similar debt instruments. | ||
Available for sale |
||
Held for trading |
||
Cash and cash equivalents The carrying amounts included in the Consolidated Balance Sheet approximate fair value because of the short maturity of these instruments. | ||
Investments ABCP is carried at fair value, which has been determined using valuation techniques that incorporate probability weighted discounted future cash flows reflecting market conditions and other factors that a market participant would consider. | ||
Carrying value and fair value of financial instruments |
14 | Additions to investments and other assets | |
Additions to investment and other assets includes the acquisition of $2.6 million in freight car assets for the three month period ended September 30, 2007 and $14.5 million for the nine month period ended September 30, 2007. These assets were purchased in anticipation of a sale and lease back arrangement with a financial institution. For the three months ended September 30, 2006, $46.0 million in assets were acquired and $109.4 million were sold; and for the nine months ended September 30, 2006, $132.5 million in assets were acquired and $109.4 million sold. No gains or losses were incurred in these sale and leaseback arrangements. |
25
15 | Stock-based compensation | |
In 2007, under CPs stock option plans, the Company issued 1,304,200 options to purchase Common Shares at the weighted average price of $62.60 per share, based on the closing price on the day prior to the grant date. In tandem with these options, 434,250 stock appreciation rights were issued at the weighted average exercise price of $62.60. | ||
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 vest after 48 months, unless certain performance targets are achieved, in which case vesting is accelerated. These options expire five years after the grant date. Other 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 Companys fixed stock option plans as of September 30 (including options granted under the Directors Stock Option Plan, which was suspended in 2003): |
2007 | 2006 | |||||||||||||||
Weighted | Weighted | |||||||||||||||
Number of | average | Number of | average | |||||||||||||
options | exercise price | options | exercise price | |||||||||||||
Outstanding, January 1 |
6,815,494 | $ | 38.50 | 7,971,917 | $ | 32.07 | ||||||||||
New options granted |
1,304,200 | 62.60 | 1,446,300 | 57.72 | ||||||||||||
Exercised |
(934,381 | ) | 31.99 | (1,842,317 | ) | 28.37 | ||||||||||
Forfeited/cancelled |
(165,855 | ) | 36.16 | (280,795 | ) | 39.82 | ||||||||||
Outstanding, September 30 |
7,019,458 | $ | 43.90 | 7,295,105 | $ | 37.79 | ||||||||||
Options exercisable at
September 30 |
4,068,654 | $ | 34.08 | 3,419,305 | $ | 29.59 | ||||||||||
26
15 | Stock-based compensation (continued) | |
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. Had CP used the fair value method for options granted between January 1, 2002, and December 31, 2002, CPs pro forma basis net income and earnings per share would have been as follows: |
For the three months | For the nine months | |||||||||||||||||
ended September 30 | ended September 30 | |||||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||||
Restated | Restated | |||||||||||||||||
Net income (in millions) |
As reported | $ | 218.6 | $ | 163.8 | $ | 603.9 | $ | 650.7 | |||||||||
Pro forma | $ | 218.6 | $ | 163.8 | $ | 603.9 | $ | 650.5 | ||||||||||
Pro forma basic and diluted earnings per share are unchanged from the amounts disclosed in the Statement of Consolidated Income. | ||
Under the fair value method, the fair value of options at the grant date was $11.3 million for options issued in the first nine months of 2007 (first nine months of 2006 $12.3 million). The weighted average fair value assumptions were approximately: |
For the nine months | ||||||||
ended September 30 | ||||||||
2007 | 2006 | |||||||
Expected option life (years) |
4.00 | 4.50 | ||||||
Risk-free interest rate |
3.90 | % | 4.07 | % | ||||
Expected stock price volatility |
22 | % | 21 | % | ||||
Expected annual dividends per share |
$ | 0.90 | $ | 0.75 | ||||
Weighted average fair value of options
granted during the year |
$ | 12.97 | $ | 12.98 | ||||
16 | Pensions and other benefits | |
The total benefit cost for the Companys defined benefit pension plans and post-retirement benefits for the three months ended September 30, 2007, was $15.9 million (three months ended September 30, 2006 $29.2 million) and for the nine months ended September 30, 2007, was $68.6 million (nine months ended September 30, 2006 $88.7 million). |
27
17 | Significant customers | |
During the first nine months of 2007, one customer comprised 11.6% of total revenue (first nine months of 2006 11.7%). At September 30, 2007, that same customer represented 6.0% of total accounts receivable (September 30, 2006 5.3%). | ||
18 | Commitments and contingencies | |
In the normal course of its operations, the Company becomes involved in various legal actions, including claims relating to injuries and damages to property. The Company maintains provisions it considers to be adequate for such actions. While the final outcome with respect to actions outstanding or pending at September 30, 2007, cannot be predicted with certainty, it is the opinion of management that their resolution will not have a material adverse effect on the Companys financial position or results of operations. | ||
Capital commitments | ||
At September 30, 2007, the Company had multi-year capital commitments of $455.4 million, mainly for locomotive overhaul agreements, in the form of signed contracts. Payments for these commitments are due in 2007 through 2016. | ||
Operating lease commitments | ||
At September 30, 2007, minimum payments under operating leases were estimated at $588.9 million in aggregate, with annual payments in each of the next five years of: remainder of 2007 $32.8 million; 2008 $109.5 million; 2009 $78.7 million; 2010 $62.8 million; 2011 $55.5 million. | ||
Guarantees | ||
The Company had residual value guarantees on operating lease commitments of $385.4 million at September 30, 2007. The maximum amount that could be payable under these and all of the Companys 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 September 30, 2007, these accruals amounted to $7.0 million. |
28
19 | Subsequent Event | |
Effective October 4, 2007, the Company acquired all of the issued and outstanding shares of Dakota, Minnesota & Eastern Railroad Corporation and its subsidiaries (DM&E), a Class II railroad with approximately 2,500 miles of track in the U.S. Midwest, for a purchase price of approximately US$1.5 billion, including acquisition costs. | ||
Future contingent payments of up to US$1.05 billion, may become payable up to December 31, 2025 upon the achievement of certain milestones towards the completion of a track expansion into the Powder River Basin and the achievement of certain traffic volume targets. Any contingent payments that may be made would be recorded as additional goodwill. The acquisition has been financed with cash on hand and debt. On October 4, 2007, the Company drew down US$1.27 billion from an eighteen-month US$1.80 billion credit agreement entered into in October 2007 specifically to fund the acquisition of DM&E. The credit facility bears interest at a variable rate based on London Interbank Offered Rate (LIBOR). | ||
The purchase is subject to review and approval by the U.S. Surface Transportation Board (STB), during which time the shares of DM&E have been placed in a voting trust and are administered by an independent trustee. The Company anticipates that the STB will complete its review and provide a final ruling during 2008. During the review period, the investment in the DM&E will be accounted for on an equity basis. | ||
If the proposed transaction is approved by the STB, the acquisition will be accounted for using the purchase method of accounting. Under this method, the Company will prepare its consolidated financial statements reflecting a line-by-line consolidation of DM&E and the allocation of the purchase price to acquire DM&E to the fair values of their assets and liabilities. | ||
The Company is in the process of obtaining third-party valuations of certain assets. Accordingly, the allocation of the purchase price has not been determined. |
29
Third Quarter | Year-to-date | |||||||||||||||||||||||||||||
2007 | 2006(1) | Variance | % | 2007 | 2006(1) | Variance | % | |||||||||||||||||||||||
Financial (millions, except per share data) | ||||||||||||||||||||||||||||||
Revenues |
||||||||||||||||||||||||||||||
$1,147.6 |
$ | 1,122.2 | $ | 25.4 | 2.3 | Freight revenue |
$ | 3,412.6 | $ | 3,275.8 | $ | 136.8 | 4.2 | |||||||||||||||||
40.3 |
29.1 | 11.2 | 38.5 | Other revenue |
106.7 | 117.0 | (10.3 | ) | (8.8 | ) | ||||||||||||||||||||
1,187.9 |
1,151.3 | 36.6 | 3.2 | 3,519.3 | 3,392.8 | 126.5 | 3.7 | |||||||||||||||||||||||
Operating Expenses |
||||||||||||||||||||||||||||||
313.5 |
332.4 | (18.9 | ) | (5.7 | ) | Compensation and benefits |
975.8 | 1,005.4 | (29.6 | ) | (2.9 | ) | ||||||||||||||||||
185.6 |
161.3 | 24.3 | 15.1 | Fuel |
550.5 | 479.3 | 71.2 | 14.9 | ||||||||||||||||||||||
49.6 |
47.1 | 2.5 | 5.3 | Materials |
167.6 | 159.2 | 8.4 | 5.3 | ||||||||||||||||||||||
49.6 |
44.4 | 5.2 | 11.7 | Equipment rents |
162.4 | 133.4 | 29.0 | 21.7 | ||||||||||||||||||||||
118.0 |
115.6 | 2.4 | 2.1 | Depreciation and amortization |
355.7 | 348.2 | 7.5 | 2.2 | ||||||||||||||||||||||
149.9 |
151.4 | (1.5 | ) | (1.0 | ) | Purchased services and other |
448.6 | 458.8 | (10.2 | ) | (2.2 | ) | ||||||||||||||||||
866.2 |
852.2 | 14.0 | 1.6 | 2,660.6 | 2,584.3 | 76.3 | 3.0 | |||||||||||||||||||||||
321.7 |
299.1 | 22.6 | 7.6 | Operating income |
858.7 | 808.5 | 50.2 | 6.2 | ||||||||||||||||||||||
8.1 |
6.9 | 1.2 | 17.4 | Other charges |
21.1 | 21.4 | (0.3 | ) | (1.4 | ) | ||||||||||||||||||||
44.9 |
48.8 | (3.9 | ) | (8.0 | ) | Interest expense |
140.9 | 144.7 | (3.8 | ) | (2.6 | ) | ||||||||||||||||||
78.4 |
73.7 | 4.7 | 6.4 | Income tax expense before foreign exchange (gains) losses on long-term debt and other specified items (2) |
209.0 | 195.9 | 13.1 | 6.7 | ||||||||||||||||||||||
190.3 |
169.7 | 20.6 | 12.1 | Income before foreign exchange
(gains) losses on long-term debt and other specified items (2) |
487.7 | 446.5 | 41.2 | 9.2 | ||||||||||||||||||||||
Foreign exchange (gains) losses on long-term debt (FX on LTD) |
||||||||||||||||||||||||||||||
(64.3) |
1.5 | (65.8 | ) | | FX on LTD |
(161.5 | ) | (44.8 | ) | (116.7 | ) | | ||||||||||||||||||
21.0 |
4.4 | 16.6 | | Income tax on FX on LTD (3) |
47.4 | 16.6 | 30.8 | | ||||||||||||||||||||||
(43.3) |
5.9 | (49.2 | ) | | FX on LTD (net of tax) |
(114.1 | ) | (28.2 | ) | (85.9 | ) | | ||||||||||||||||||
Other specified items |
||||||||||||||||||||||||||||||
21.5 |
| 21.5 | | Change in estimated fair value of Canadian third party asset-backed commercial paper (ABCP) |
21.5 | | 21.5 | | ||||||||||||||||||||||
(6.5) |
| (6.5 | ) | | Income tax on change in estimated fair value of ABCP |
(6.5 | ) | | (6.5 | ) | | |||||||||||||||||||
15.0 |
| 15.0 | | Change in estimated fair value of ABCP (net of tax) |
15.0 | | 15.0 | | ||||||||||||||||||||||
|
| | | Income tax benefits due to Federal / Provincial income tax rate reductions |
(17.1 | ) | (176.0 | ) | 158.9 | | ||||||||||||||||||||
$218.6 |
$ | 163.8 | $ | 54.8 | 33.5 | Net income |
$ | 603.9 | $ | 650.7 | $ | (46.8 | ) | (7.2 | ) | |||||||||||||||
Earnings per share (EPS) |
||||||||||||||||||||||||||||||
$1.43 |
$ | 1.05 | $ | 0.38 | 36.2 | Basic earnings per share |
$ | 3.91 | $ | 4.13 | $ | (0.22 | ) | (5.3 | ) | |||||||||||||||
$1.41 |
$ | 1.04 | $ | 0.37 | 35.6 | Diluted earnings per share |
$ | 3.87 | $ | 4.09 | $ | (0.22 | ) | (5.4 | ) | |||||||||||||||
EPS before FX on LTD and other specified items (2) |
||||||||||||||||||||||||||||||
$1.24 |
$ | 1.08 | $ | 0.16 | 14.8 | Basic earnings per share |
$ | 3.16 | $ | 2.83 | $ | 0.33 | 11.7 | |||||||||||||||||
$1.23 |
$ | 1.07 | $ | 0.16 | 15.0 | Diluted earnings per share |
$ | 3.13 | $ | 2.79 | $ | 0.34 | 12.2 | |||||||||||||||||
153.2 |
156.7 | (3.5 | ) | (2.2 | ) | Weighted average number of shares outstanding (millions) |
154.3 | 157.8 | (3.5 | ) | (2.2 | ) | ||||||||||||||||||
155.0 |
158.3 | (3.3 | ) | (2.1 | ) | Weighted average number of diluted shares outstanding (millions) |
155.9 | 159.6 | (3.7 | ) | (2.3 | ) | ||||||||||||||||||
72.9 |
74.0 | (1.1 | ) | | Operating ratio (2)(4)(%) |
75.6 | 76.2 | (0.6 | ) | | ||||||||||||||||||||
10.4 |
10.2 | 0.2 | | ROCE before FX on LTD and other specified items (after tax) (2)(4) (%) |
10.4 | 10.2 | 0.2 | | ||||||||||||||||||||||
33.4 |
37.5 | (4.1 | ) | | Net debt to net debt plus equity (%) |
33.4 | 37.5 | (4.1 | ) | | ||||||||||||||||||||
$313.6 |
$ | 292.2 | $ | 21.4 | 7.3 | EBIT before FX on LTD and other specified items (2)(4) (millions) |
$ | 837.6 | $ | 787.1 | $ | 50.5 | 6.4 | |||||||||||||||||
$431.6 |
$ | 407.8 | $ | 23.8 | 5.8 | EBITDA before FX on LTD and other specified items (2)(4) (millions) |
$ | 1,193.3 | $ | 1,135.3 | $ | 58.0 | 5.1 |
(1) | Certain comparative period figures have been restated for retroactive application of a new accounting standard adopted in 2006 related to stock-based compensation for employees eligible to retire before the vesting date. | |
(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 attached to commentary. | ||
(3) | Income tax on FX on LTD is discussed in the current MD&A in the Other Income Statement Items section Income Taxes. |
(4) | EBIT: | Earnings before interest and taxes. | |
EBITDA: | Earnings before interest, taxes, and depreciation and amortization. | ||
ROCE after tax): | Return on capital employed (after tax) = earnings before after-tax interest expense (last 12 months) divided by average net debt plus equity. | ||
Operating ratio: | Operating expenses divided by revenues. |
30
Third Quarter | Year-to-date | |||||||||||||||||||||||||||||
2007 | 2006 | Variance | % | 2007 | 2006 | Variance | % | |||||||||||||||||||||||
Commodity Data | ||||||||||||||||||||||||||||||
Freight Revenues (millions) | ||||||||||||||||||||||||||||||
$237.8 |
$ | 225.3 | $ | 12.5 | 5.5 | - Grain | $ | 681.4 | $ | 643.0 | $ | 38.4 | 6.0 | |||||||||||||||||
148.7 |
139.0 | 9.7 | 7.0 | - Coal | 442.4 | 442.7 | (0.3 | ) | (0.1 | ) | ||||||||||||||||||||
113.9 |
118.7 | (4.8 | ) | (4.0 | ) | - Sulphur and fertilizers | 380.8 | 317.3 | 63.5 | 20.0 | ||||||||||||||||||||
68.0 |
86.0 | (18.0 | ) | (20.9 | ) | - Forest products | 214.3 | 245.2 | (30.9 | ) | (12.6 | ) | ||||||||||||||||||
159.3 |
156.7 | 2.6 | 1.7 | - Industrial and consumer products | 470.0 | 455.3 | 14.7 | 3.2 | ||||||||||||||||||||||
71.4 |
69.3 | 2.1 | 3.0 | - Automotive | 242.0 | 239.5 | 2.5 | 1.0 | ||||||||||||||||||||||
348.5 |
327.2 | 21.3 | 6.5 | - Intermodal | 981.7 | 932.8 | 48.9 | 5.2 | ||||||||||||||||||||||
$1,147.6 |
$ | 1,122.2 | $ | 25.4 | 2.3 | Total Freight Revenues | $ | 3,412.6 | $ | 3,275.8 | $ | 136.8 | 4.2 | |||||||||||||||||
Millions of Revenue Ton-Miles (RTM) | ||||||||||||||||||||||||||||||
7,614 |
7,142 | 472 | 6.6 | - Grain | 22,407 | 21,664 | 743 | 3.4 | ||||||||||||||||||||||
5,400 |
4,875 | 525 | 10.8 | - Coal | 15,817 | 14,664 | 1,153 | 7.9 | ||||||||||||||||||||||
4,967 |
5,023 | (56 | ) | (1.1 | ) | - Sulphur and fertilizers | 16,057 | 12,336 | 3,721 | 30.2 | ||||||||||||||||||||
1,867 |
2,213 | (346 | ) | (15.6 | ) | - Forest products | 5,886 | 6,911 | (1,025 | ) | (14.8 | ) | ||||||||||||||||||
4,228 |
4,311 | (83 | ) | (1.9 | ) | - Industrial and consumer products | 12,538 | 12,814 | (276 | ) | (2.2 | ) | ||||||||||||||||||
566 |
529 | 37 | 7.0 | - Automotive | 1,850 | 1,878 | (28 | ) | (1.5 | ) | ||||||||||||||||||||
7,907 |
6,770 | 1,137 | 16.8 | - Intermodal | 22,257 | 20,552 | 1,705 | 8.3 | ||||||||||||||||||||||
32,549 |
30,863 | 1,686 | 5.5 | Total RTMs | 96,812 | 90,819 | 5,993 | 6.6 | ||||||||||||||||||||||
Freight Revenue per RTM (cents) | ||||||||||||||||||||||||||||||
3.12 |
3.15 | (0.03 | ) | (1.0 | ) | - Grain | 3.04 | 2.97 | 0.07 | 2.4 | ||||||||||||||||||||
2.75 |
2.85 | (0.10 | ) | (3.5 | ) | - Coal | 2.80 | 3.02 | (0.22 | ) | (7.3 | ) | ||||||||||||||||||
2.29 |
2.36 | (0.07 | ) | (3.0 | ) | - Sulphur and fertilizers | 2.37 | 2.57 | (0.20 | ) | (7.8 | ) | ||||||||||||||||||
3.64 |
3.89 | (0.25 | ) | (6.4 | ) | - Forest products | 3.64 | 3.55 | 0.09 | 2.5 | ||||||||||||||||||||
3.77 |
3.63 | 0.14 | 3.9 | - Industrial and consumer products | 3.75 | 3.55 | 0.20 | 5.6 | ||||||||||||||||||||||
12.61 |
13.10 | (0.49 | ) | (3.7 | ) | - Automotive | 13.08 | 12.75 | 0.33 | 2.6 | ||||||||||||||||||||
4.41 |
4.83 | (0.42 | ) | (8.7 | ) | - Intermodal | 4.41 | 4.54 | (0.13 | ) | (2.9 | ) | ||||||||||||||||||
3.53 |
3.64 | (0.11 | ) | (3.0 | ) | Freight Revenue per RTM | 3.53 | 3.61 | (0.08 | ) | (2.2 | ) | ||||||||||||||||||
Carloads (thousands) | ||||||||||||||||||||||||||||||
100.9 |
96.2 | 4.7 | 4.9 | - Grain | 281.4 | 277.8 | 3.6 | 1.3 | ||||||||||||||||||||||
70.7 |
65.9 | 4.8 | 7.3 | - Coal | 204.2 | 213.1 | (8.9 | ) | (4.2 | ) | ||||||||||||||||||||
47.6 |
49.0 | (1.4 | ) | (2.9 | ) | - Sulphur and fertilizers | 159.1 | 129.6 | 29.5 | 22.8 | ||||||||||||||||||||
28.1 |
32.9 | (4.8 | ) | (14.6 | ) | - Forest products | 88.1 | 104.3 | (16.2 | ) | (15.5 | ) | ||||||||||||||||||
78.0 |
78.3 | (0.3 | ) | (0.4 | ) | - Industrial and consumer products | 232.9 | 238.9 | (6.0 | ) | (2.5 | ) | ||||||||||||||||||
38.6 |
36.4 | 2.2 | 6.0 | - Automotive | 126.7 | 125.5 | 1.2 | 1.0 | ||||||||||||||||||||||
323.5 |
288.8 | 34.7 | 12.0 | - Intermodal | 923.0 | 866.1 | 56.9 | 6.6 | ||||||||||||||||||||||
687.4 |
647.5 | 39.9 | 6.2 | Total Carloads | 2,015.4 | 1,955.3 | 60.1 | 3.1 | ||||||||||||||||||||||
Freight Revenue per Carload | ||||||||||||||||||||||||||||||
$2,357 |
$ | 2,342 | $ | 15 | 0.6 | - Grain | $ | 2,421 | $ | 2,315 | $ | 106 | 4.6 | |||||||||||||||||
2,103 |
2,109 | (6 | ) | (0.3 | ) | - Coal | 2,167 | 2,077 | 90 | 4.3 | ||||||||||||||||||||
2,393 |
2,422 | (29 | ) | (1.2 | ) | - Sulphur and fertilizers | 2,393 | 2,448 | (55 | ) | (2.2 | ) | ||||||||||||||||||
2,420 |
2,614 | (194 | ) | (7.4 | ) | - Forest products | 2,432 | 2,351 | 81 | 3.4 | ||||||||||||||||||||
2,042 |
2,001 | 41 | 2.0 | - Industrial and consumer products | 2,018 | 1,906 | 112 | 5.9 | ||||||||||||||||||||||
1,850 |
1,904 | (54 | ) | (2.8 | ) | - Automotive | 1,910 | 1,908 | 2 | 0.1 | ||||||||||||||||||||
1,077 |
1,133 | (56 | ) | (4.9 | ) | - Intermodal | 1,064 | 1,077 | (13 | ) | (1.2 | ) | ||||||||||||||||||
$1,669 |
$ | 1,733 | $ | (64 | ) | (3.7 | ) | Freight Revenue per Carload | $ | 1,693 | $ | 1,675 | $ | 18 | 1.1 |
31
Third Quarter | Year-to-date | |||||||||||||||||||||||||||||
2007 | 2006(1) | Variance | % | 2007 | 2006(1) | Variance | % | |||||||||||||||||||||||
Operations and Productivity | ||||||||||||||||||||||||||||||
62,177 |
59,102 | 3,075 | 5.2 | Freight gross ton-miles (GTM) (millions) |
184,218 | 174,215 | 10,003 | 5.7 | ||||||||||||||||||||||
32,549 |
30,863 | 1,686 | 5.5 | Revenue ton-miles (RTM) (millions) |
96,812 | 90,819 | 5,993 | 6.6 | ||||||||||||||||||||||
16,136 |
16,420 | (284 | ) | (1.7 | ) | Average number of active employees |
15,633 | 15,988 | (355 | ) | (2.2 | ) | ||||||||||||||||||
16,037 |
16,315 | (278 | ) | (1.7 | ) | Number of employees at end of period |
16,037 | 16,315 | (278 | ) | (1.7 | ) | ||||||||||||||||||
2.0 |
1.9 | 0.1 | 5.3 | FRA personal injuries per 200,000 employee-hours |
1.9 | 1.9 | | | ||||||||||||||||||||||
2.0 |
1.0 | 1.0 | 100.0 | FRA train accidents per million train-miles |
2.0 | 1.4 | 0.6 | 42.9 | ||||||||||||||||||||||
2.66 |
2.76 | (0.10 | ) | (3.6 | ) | Total operating expenses per RTM (cents) |
2.75 | 2.85 | (0.10 | ) | (3.5 | ) | ||||||||||||||||||
1.39 |
1.44 | (0.05 | ) | (3.5 | ) | Total operating expenses per GTM (cents) |
1.44 | 1.48 | (0.04 | ) | (2.7 | ) | ||||||||||||||||||
0.50 |
0.56 | (0.06 | ) | (10.7 | ) | Compensation and benefits expense per GTM (cents) |
0.53 | 0.58 | (0.05 | ) | (8.6 | ) | ||||||||||||||||||
3,853 |
3,599 | 254 | 7.1 | GTMs per average active employee (000) |
11,784 | 10,897 | 887 | 8.1 | ||||||||||||||||||||||
13,260 |
13,529 | (269 | ) | (2.0 | ) | Miles of road operated at end of period (2) |
13,260 | 13,529 | (269 | ) | (2.0 | ) | ||||||||||||||||||
23.8 |
25.1 | (1.3 | ) | (5.2 | ) | Average train speed AAR definition (mph) |
23.5 | 25.1 | (1.6 | ) | (6.4 | ) | ||||||||||||||||||
20.1 |
19.9 | 0.2 | 1.0 | Terminal dwell time AAR definition (hours) |
21.9 | 20.4 | 1.5 | 7.4 | ||||||||||||||||||||||
147.4 |
141.7 | 5.7 | 4.0 | Car miles per car day |
143.1 | 135.8 | 7.3 | 5.4 | ||||||||||||||||||||||
81.3 |
79.8 | 1.5 | 1.9 | Average daily total cars on-line AAR definition (000) |
81.4 | 81.0 | 0.4 | 0.5 | ||||||||||||||||||||||
1.17 |
1.17 | | | U.S. gallons of locomotive fuel per 1,000 GTMs freight & yard |
1.20 | 1.20 | | | ||||||||||||||||||||||
71.9 |
68.9 | 3.0 | 4.4 | U.S. gallons of locomotive fuel consumed total (millions) (3) |
221.0 | 209.1 | 11.9 | 5.7 | ||||||||||||||||||||||
0.941 |
0.895 | 0.046 | 5.1 | Average foreign exchange rate (US$/Canadian$) |
0.897 | 0.884 | 0.013 | 1.5 | ||||||||||||||||||||||
1.063 |
1.118 | (0.055 | ) | (4.9 | ) | Average foreign exchange rate (Canadian$/US$) |
1.115 | 1.131 | (0.016 | ) | (1.4 | ) |
(1) | Certain comparative period figures have been restated for retroactive application of a new accounting standard adopted in 2006 related to stock-based compensation for employees eligible to retire before the vesting date or have been updated to reflect new information. | |
(2) | Excludes track on which CP has haulage rights. | |
(3) | Includes gallons of fuel consumed from freight, yard and commuter service but excludes fuel used in capital projects and other non-freight activities. |
32