6-K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 6-K

 

 

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16

under the Securities Exchange Act of 1934

For the month of January 2014

 

 

CANADIAN PACIFIC RAILWAY LIMITED

(Commission File No. 1-01342)

 

 

CANADIAN PACIFIC RAILWAY COMPANY

(Commission File No. 1-15272)

(translation of each Registrant’s name into English)

 

 

7550 Ogden Dale Road S.E., Calgary, Alberta T2C 4X9

(address of principal executive offices)

 

 

Indicate by check mark whether the registrants file or will file annual reports under cover Form 20-F or Form 40-F. Form 20-F  ¨    Form 40-F  x

Indicate by check mark if the registrants are submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):  ¨

Indicate by check mark if the registrants are submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):  ¨

This Report furnished on Form 6-K shall be incorporated by reference into the Registration Statements of Canadian Pacific Railway Limited on Form S-8 (File Nos. 333-127943, 333-13962, 333-140955, 333-183891, 333-183892, 333-183893, 333-188826 and 333-188827).

 

 

 


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

   

CANADIAN PACIFIC RAILWAY LIMITED

(Registrant)

Date: January 29, 2014      

Signed: /s/ Celeste Evancio

    By:   Name: Celeste Evancio
      Title: Assistant Corporate Secretary

 

   

CANADIAN PACIFIC RAILWAY COMPANY

(Registrant)

Date: January 29, 2014      

Signed: /s/ Celeste Evancio

    By:   Name: Celeste Evancio
      Title: Assistant Corporate Secretary


LOGO

For Release Immediate January 29, 2014

Canadian Pacific announces record fourth-quarter and 2013 full-year financial results

Calgary, AB—Canadian Pacific Railway Limited (TSX: CP) (NYSE: CP) today announced record Q4 and 2013 full-year results that clearly demonstrate the significant progress made to date in its corporate and operational turnaround.

FOURTH-QUARTER 2013 HIGHLIGHTS

 

    Total revenues were $1.6 billion, an increase of 7 per cent and a quarterly record

 

    Reported operating expenses were $1.5 billion, an increase of 4 per cent

 

    Adjusted operating expenses were $1.1 billion, a decrease of 6 per cent

 

    Reported operating income was $114 million, an increase of 90 per cent

 

    Adjusted operating income was $547 million, an increase of 45 per cent

 

    Adjusted operating ratio was 65.9 per cent, a 890 basis-point improvement and an all-time record

 

    Free cash totaled $212 million, an increase of 194 per cent

Reported net income in the fourth-quarter was $82 million, or $0.47 per diluted share, versus $15 million, or $0.08 per share, in the fourth-quarter 2012.

Adjusted net income in the fourth-quarter was $338 million, or $1.91 per diluted share, representing a 49 per cent improvement versus fourth-quarter 2012.

Adjusted operating expenses, Adjusted operating income, Adjusted operating ratio, Adjusted net income and Free cash are Non-GAAP measures which exclude significant items (*see Non-GAAP Measures below).

“Once again, Canadian Pacific and its outstanding team of railroaders delivered solid results this quarter, closing a historic year with record-setting operational and financial performance,” said E. Hunter Harrison, Chief Executive Officer.

FULL-YEAR 2013 HIGHLIGHTS

 

    Total revenues were $6.1 billion, an increase of 8 per cent and a Company record

 

    Reported operating expenses were $4.7 billion, a decrease of 1 per cent

 

    Adjusted operating expenses were $4.3 billion, a decrease of 2 per cent

 

    Reported operating income was $1.4 billion, an increase of 50 per cent

 

    Adjusted operating income was $1.8 billion, an increase of 41 per cent

 

    Adjusted operating ratio was 69.9 per cent, a 710 basis-point improvement and an all-time record

 

    Free cash totaled $530 million for the year, an increase of 470 per cent

Reported net income for 2013 was $875 million, or $4.96 per diluted share, versus $484 million, or $2.79 per share, in 2012.

Adjusted net income for the year was $1.1 billion, or $6.42 per diluted share, representing a 48 per cent improvement versus year-end 2012.

 

1


“The transformational pace of change at CP has definitely exceeded expectations,” said Harrison. “We entered 2013 with an aggressive agenda of change and financial targets that would put us squarely in the path of achieving our goal of once again becoming an industry leader. I am proud to report that we exceeded those targets and have reestablished a sense of pride and accomplishment to this historic organization,” added Harrison.

“This journey is far from complete. Riding this positive momentum, I fully anticipate that 2014 will be another year of solid returns for our shareholders,” said Harrison.

2014 FULL-YEAR GUIDANCE

 

    Revenue growth of 6 to 7 per cent

 

    Operating ratio of 65 per cent or lower

 

    Diluted earnings per share (“EPS”) 30 per cent or greater versus 2013 diluted EPS, excluding significant items (*see Non-GAAP Measures below) of $6.42

KEY ASSUMPTIONS

 

    Average fuel cost per gallon of US$3.50 per U.S. Gallon

 

    Tax rate of 28 per cent

 

    Canadian to U.S. exchange rate of 1.05

 

    Defined benefit pension income of approximately $50 million in 2014 and 2015

 

    Capital expenditures of $1.2 to $1.3 billion

 

2


FOURTH-QUARTER SIGNIFICANT ITEMS

Items that impacted reported fourth-quarter 2013 and 2012 earnings include:

2013:

 

    $435 million ($257 million after-tax) asset impairment charge and accruals for future costs associated with the sale of the DM&E West which unfavourably impacted diluted EPS by $1.45

 

    $7 million experience gains from our 2012 labour restructuring initiative ($5 million after tax), which favourably impacted diluted EPS by 3 cents

 

    $5 million management transition costs ($4 million after tax), which unfavourably impacted diluted EPS by 2 cents

2012:

    $53 million labour restructuring charge ($39 million after tax), which unfavourably impacted diluted EPS by 22 cents

 

    $185 million impairment of Powder River Basin and other investment ($111 million after tax), which unfavourably impacted diluted EPS by 64 cents

 

    $80 million asset impairment of certain locomotives ($59 million after tax), which unfavourably impacted diluted EPS by 34 cents

FULL-YEAR SIGNIFICANT ITEMS

Items that impacted full year 2013 and 2012 earnings include:

2013:

 

    In the first quarter, US $9 million (US $6 million after tax) recovery in the complete satisfaction of certain management transition amounts which had been subject to legal proceedings which favourably impacted diluted EPS by 3 cents

 

    In the third quarter, income tax expense of $7 million as a result of the change in the province of British Columbia’s corporate income tax rate which unfavourably impacted diluted EPS by 4 cents

 

    $435 million ($257 million after-tax) asset impairment charge and accruals for future costs associated with the sale of the DM&E West which unfavourably impacted diluted EPS by $1.46 for the full year

 

    $7 million experience gains from our 2012 labour restructuring initiative ($5 million after tax), which favourably impacted diluted EPS by 3 cents

 

    $5 million management transition costs ($4 million after tax), which unfavourably impacted diluted EPS by 2 cents

2012:

In addition to the fourth quarter significant items of 2012 discussed earlier:

 

    in the second quarter a charge of $42 million ($29 million after tax) was recorded with respect to compensation and other management transition costs which unfavourably impacted diluted EPS by 17 cents

 

    during the first and second quarters of 2012, the Company incurred advisory fees of $27 million ($20 million after tax) related to shareholder matters which unfavourably impacted diluted EPS by 12 cents

 

    in the second quarter of 2012, an income tax expense of $11 million as a result of the change in the province of Ontario’s corporate income tax rate which unfavourably impacted diluted EPS by 6 cents

 

3


Non-GAAP Measures

We present non-GAAP measures and cash flow information to provide a basis for evaluating underlying earnings and liquidity trends in our business that can be compared with the results of our operations in prior periods. These non-GAAP measures exclude significant items that are not among our normal ongoing revenues and operating expenses. They have no standardized meaning and are not defined by GAAP and, therefore, are unlikely to be comparable to similar measures presented by other companies.

Adjusted net income provides management with a measure of income that allows a multi-period assessment of long-term profitability and also allows management and other external users of our consolidated financial statements to compare profitability on a long-term basis with that of our peers. Diluted earnings per share, excluding significant items, also referred to as Adjusted EPS, provides the same information on a per share basis. Operating ratio excluding significant items, also referred to as Adjusted operating ratio calculated as Operating expenses excluding significant items divided by total revenues, provides the percentage of total revenues used to operate the railway on an ongoing basis. Operating expenses excluding significant items is also referred to as Adjusted operating expenses.

Free cash is used by management to provide information with respect to the relationship between cash provided by operating activities and investment decisions and provides a comparable measure for period to period changes.

For further information regarding non-GAAP measures, including reconciliations to the nearest GAAP measures, see our 2012 annual Management’s Discussion and Analysis or the attached supplementary schedule, Non-GAAP Measures.

Note on Forward-Looking Information

This news release contains certain forward-looking information within the meaning of applicable securities laws relating, but not limited, to our operations, priorities and plans, anticipated financial performance, business prospects, planned capital expenditures, programs and strategies. This forward-looking information also includes, but is not limited to, statements concerning expectations, beliefs, plans, goals, objectives, assumptions and statements about possible future events, conditions, and results of operations or performance. Forward-looking information may contain statements with words or headings such as “financial expectations”, “key assumptions”, “anticipate”, “believe”, “expect”, “plan”, “will”, “outlook”, “should” or similar words suggesting future outcomes. To the extent that CP has provided guidance that is a non-GAAP financial measure, the Company may not be able to provide a reconciliation to a GAAP measure, due to unknown variables and uncertainty related to future results.

Undue reliance should not be placed on forward-looking information as actual results may differ materially from the forward-looking information. Forward-looking information is not a guarantee of future performance. By its nature, CP’s forward-looking information involves numerous assumptions, inherent risks and uncertainties that could cause actual results to differ materially from the forward-looking information, 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 commodity prices; uncertainty surrounding timing and volumes of commodities being shipped via CP; inflation; changes in laws and regulations, including regulation of rates; changes in taxes and tax rates; potential increases in maintenance and operating costs; uncertainties of investigations, proceedings or other types of claims and 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

 

4


changes in market conditions and discount rates on the financial position of pension plans and investments; and various events that could disrupt operations, including severe weather, droughts, floods, avalanches and earthquakes as well as security threats and governmental response to them, and technological changes. The foregoing list of factors is not exhaustive.

These and other factors are detailed from time to time in reports filed by CP with securities regulators in Canada and the United States. Reference should be made to “Management’s Discussion and Analysis” in CP’s annual and interim reports, Annual Information Form and Form 40-F. Readers are cautioned not to place undue reliance on forward-looking information. Forward-looking information is based on current expectations, estimates and projections and it is possible that predictions, forecasts, projections, and other forms of forward-looking information will not be achieved by CP. Except as required by law, CP undertakes no obligation to update publicly or otherwise revise any forward-looking information, whether as a result of new information, future events or otherwise.

About Canadian Pacific

Canadian Pacific (TSX:CP)(NYSE:CP) is a transcontinental railway in Canada and the United States with direct links to eight major ports, including Vancouver and Montreal, providing North American customers a competitive rail service with access to key markets in every corner of the globe. CP is a low-cost provider that is growing with its customers, offering a suite of freight transportation services, logistics solutions and supply chain expertise. Visit cpr.ca to see the rail advantages of Canadian Pacific.

Contacts:

Media

Ed Greenberg

Tel: 612-849-4717

24/7 Media Pager: 855-242-3674

Ed_greenberg@cpr.ca

Investment Community

Nadeem Velani

Tel: 403-319-3591

investor@cpr.ca

 

5


CANADIAN PACIFIC RAILWAY LIMITED

CONSOLIDATED STATEMENTS OF INCOME

(in millions of Canadian dollars, except per share data)

(unaudited)

 

    

For the three months

ended December 31

   

For the year

ended December 31

 
     2013     2012     2013     2012  

Revenues

        

Freight

   $ 1,570      $ 1,464      $ 5,982      $ 5,550   

Other

     37        38        151        145   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     1,607        1,502        6,133        5,695   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

        

Compensation and benefits

     343        378        1,418        1,506   

Fuel

     262        256        1,004        999   

Materials

     65        60        249        238   

Equipment rents

     39        48        173        206   

Depreciation and amortization

     144        140        565        539   

Purchased services and other

     212        242        876        940   

Asset impairments (Note 2)

     435        265        435        265   

Labour restructuring

     (7     53        (7     53   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     1,493        1,442        4,713        4,746   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     114        60        1,420        949   

Less:

        

Other income and charges

     6        3        17        37   

Net interest expense

     70        69        278        276   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income tax expense

     38        (12     1,125        636   

Income tax (recovery) expense

     (44     (27     250        152   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 82      $ 15      $ 875      $ 484   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share

        

Basic earnings per share

   $ 0.47      $ 0.08      $ 5.00      $ 2.82   

Diluted earnings per share

   $ 0.47      $ 0.08      $ 4.96      $ 2.79   

Weighted-average number of shares (millions)

        

Basic

     175.4        173.3        174.9        171.8   

Diluted

     177.0        174.7        176.5        173.2   

Dividends declared per share

   $ 0.3500      $ 0.3500      $ 1.4000      $ 1.3500   

See notes to interim consolidated financial information.

 

6


CANADIAN PACIFIC RAILWAY LIMITED

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in millions of Canadian dollars)

(unaudited)

 

    

For the three months

ended December 31

   

For the year

ended December 31

 
     2013     2012     2013     2012  

Net income

   $ 82      $ 15      $ 875      $ 484   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net gain (loss) in foreign currency translation adjustments, net of hedging activities

     4        (1     3        11   

Change in derivatives designated as cash flow hedges

     (1     (2     (1     9   

Change in defined benefit pension and post-retirement plans (Note 3)

     1,382        (211     1,681        (50
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss) before income taxes

     1,385        (214     1,683        (30

Income tax (expense) recovery

     (355     58        (418     —     

Equity accounted investments

     —          (2     —          (2
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

     1,030        (158     1,265        (32
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

   $ 1,112      $ (143   $ 2,140      $ 452   
  

 

 

   

 

 

   

 

 

   

 

 

 

See notes to interim consolidated financial information.

 

7


CANADIAN PACIFIC RAILWAY LIMITED

CONSOLIDATED BALANCE SHEETS

(in millions of Canadian dollars)

(unaudited)

 

     December 31     December 31  
     2013     2012  

Assets

    

Current assets

    

Cash and cash equivalents

   $ 476      $ 333   

Restricted cash and cash equivalents

     411        —     

Accounts receivable, net

     580        546   

Materials and supplies

     165        136   

Deferred income taxes

     344        254   

Other current assets

     53        60   
  

 

 

   

 

 

 
     2,029        1,329   

Investments

     92        83   

Properties (Note 2)

     13,327        13,013   

Assets held for sale (Note 2)

     222        —     

Goodwill and intangible assets (Note 2)

     162        161   

Pension asset (Note 3)

     1,028        —     

Other assets

     200        141   
  

 

 

   

 

 

 

Total assets

   $ 17,060      $ 14,727   
  

 

 

   

 

 

 

Liabilities and shareholders’ equity

    

Current liabilities

    

Accounts payable and accrued liabilities

   $ 1,189      $ 1,176   

Long-term debt maturing within one year

     189        54   
  

 

 

   

 

 

 
     1,378        1,230   

Pension and other benefit liabilities (Note 3)

     657        1,366   

Other long-term liabilities

     338        306   

Long-term debt

     4,687        4,636   

Deferred income taxes

     2,903        2,092   
  

 

 

   

 

 

 

Total liabilities

     9,963        9,630   

Shareholders’ equity

    

Share capital

     2,240        2,127   

Additional paid-in capital

     34        41   

Accumulated other comprehensive loss

     (1,503     (2,768

Retained earnings

     6,326        5,697   
  

 

 

   

 

 

 
     7,097        5,097   
  

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 17,060      $ 14,727   
  

 

 

   

 

 

 

See notes to interim consolidated financial information.

 

8


CANADIAN PACIFIC RAILWAY LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions of Canadian dollars)

(unaudited)

 

    

For the three months

ended December 31

   

For the year

ended December 31

 
     2013     2012     2013     2012  

Operating activities

        

Net income

   $ 82      $ 15      $ 875      $ 484   

Reconciliation of net income to cash provided by (used in) operating activities:

        

Depreciation and amortization

     144        140        565        539   

Deferred income taxes

     (48     (22     212        140   

Pension funding in excess of expense

     (15     (17     (55     (61

Asset impairments (Note 2)

     435        265        435        265   

Labour restructuring, net

     (12     50        (29     50   

Other operating activities, net

     (28     (3     (51     (84

Change in non-cash working capital balances related to operations

     101        41        (2     (5
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash provided by operating activities

     659        469        1,950        1,328   
  

 

 

   

 

 

   

 

 

   

 

 

 

Investing activities

        

Additions to properties

     (434     (336     (1,236     (1,148

Proceeds from the sale of properties and other assets

     35        7        73        145   

Change in restricted cash and cash equivalents used to collateralize letters of credit

     (65     —          (411     —     

Other

     4        (7     (23     (8
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash used in investing activities

     (460     (336     (1,597     (1,011
  

 

 

   

 

 

   

 

 

   

 

 

 

Financing activities

        

Dividends paid

     (61     (61     (244     (223

Issuance of common shares

     14        62        83        198   

Issuance of long-term debt

     —          —          —          71   

Repayment of long-term debt

     (11     (9     (56     (50

Net (decrease) in short-term borrowing

     —          —          —          (27

Other

     (3     1        (3     1   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash used in financing activities

     (61     (7     (220     (30
  

 

 

   

 

 

   

 

 

   

 

 

 

Effect of foreign currency fluctuations on U.S. dollar-denominated cash and cash equivalents

     9        —          10        (1
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash position

        

Increase in cash and cash equivalents

     147        126        143        286   

Cash and cash equivalents at beginning of period

     329        207        333        47   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 476      $ 333      $ 476      $ 333   
  

 

 

   

 

 

   

 

 

   

 

 

 

Supplemental disclosures of cash flow information:

        

Income taxes paid (refunded)

   $ 4      $ 5      $ 31      $ (3

Interest paid

   $ 86      $ 84      $ 295      $ 278   

See notes to interim consolidated financial information.

 

9


CANADIAN PACIFIC RAILWAY LIMITED

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(in millions of Canadian dollars, except common share amounts)

(unaudited)

 

                                                                                                                 
     Common
shares
(in millions)
     Share
capital
     Additional
paid-in
capital
    Accumulated
other
comprehensive
loss
    Retained
earnings
    Total
shareholders’
equity
 

Balance at January 1, 2013

     173.9       $ 2,127       $ 41      $ (2,768   $ 5,697      $ 5,097   

Net income

     —           —           —          —          875        875   

Other comprehensive income

     —           —           —          1,265        —          1,265   

Dividends declared

     —           —           —          —          (246     (246

Effect of stock-based compensation expense

     —           —           17        —          —          17   

Shares issued under stock option plans

     1.5         113         (24     —          —          89   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2013

     175.4       $ 2,240       $ 34      $ (1,503   $ 6,326      $ 7,097   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 
     Common
shares
(in millions)
     Share
capital
     Additional
paid-in
capital
    Accumulated
other

comprehensive
loss
    Retained
earnings
    Total
shareholders’
equity
 

Balance at January 1, 2012

     170.0       $ 1,854       $ 86      $ (2,736   $ 5,445      $ 4,649   

Net income

     —           —           —          —          484        484   

Other comprehensive loss

     —           —           —          (32     —          (32

Dividends declared

     —           —           —          —          (232     (232

Effect of stock-based compensation expense

     —           —           25        —          —          25   

Shares issued under stock option plans

     3.9         273         (70     —          —          203   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2012

     173.9       $ 2,127       $ 41      $ (2,768   $ 5,697      $ 5,097   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

See notes to interim consolidated financial information.

 

10


CANADIAN PACIFIC RAILWAY LIMITED

NOTES TO INTERIM CONSOLIDATED FINANCIAL INFORMATION

December 31, 2013

(unaudited)

 

1 Basis of presentation

This unaudited interim consolidated financial information of Canadian Pacific Railway Limited (“CP”, or “the Company”) reflect management’s estimates and assumptions that are necessary for its fair presentation in conformity with accounting principles generally accepted in the United States of America (“GAAP”). They do not include all disclosures required under GAAP for annual and interim financial statements and should be read in conjunction with the 2012 consolidated financial statements and 2013 consolidated interim financial statements. The accounting policies used are consistent with the accounting policies used in preparing the 2012 consolidated financial statements.

CP’s operations can be affected by seasonal fluctuations such as changes in customer demand and weather-related issues. This seasonality could impact quarter-over-quarter comparisons.

In management’s opinion, the unaudited interim consolidated financial information includes all adjustments necessary to present fairly such information.

 

2 Asset impairments

On January 2, 2014, the Company executed an agreement with Genesee & Wyoming Inc. (“G&W”) for the sale of a portion of CP’s Dakota, Minnesota & Eastern line between Tracy, Minnesota and Rapid City, South Dakota, Colony, Wyoming and Crawford, Nebraska and connecting branch lines (“DM&E West”). The sale, which is subject to regulatory approval by the U.S. Surface Transportation Board, is expected to generate approximately US$215 million in gross proceeds, subject to closing adjustments.

At December 31, 2013, CP has classified DM&E West as an asset held for sale carried at CDN$222 million, being its estimated fair value less estimated direct selling costs. As a result, in the fourth quarter of 2013, the Company recorded an asset impairment charge and accruals for future costs associated with the sale totaling CDN$435 million ($257 million after-tax). The components of the asset impairment charge and charge for the accruals, which are subject to closing adjustments, that were recorded against income as “Asset impairments” are as follows:

 

(in millions of Canadian dollars)    For the three months ended
December 31, 2013
 

Property, plant and equipment

   $ 426   

Intangible assets

     2   

Goodwill

     6   
  

 

 

 

Total asset impairment charge

     434   

Accruals for future costs

     1   
  

 

 

 

Total charge

   $ 435   
  

 

 

 

 

3 Pensions and other benefits

As a result of higher discount rates at December 31, 2013, compared with December 31, 2012, as well as favourable 2013 equity returns, “Pension and other benefit liabilities” decreased by $709 million, and a “Pension asset” was recognized of $1,028 million. In addition, “Other comprehensive income” from the change in defined benefit pension and post-retirement plans was $1,681 million and the Company’s deferred tax liability increased by $446 million. The Company used a discount rate of 4.90% at December 31, 2013, (2012 – 4.28%) to determine the pension and other benefits obligation.

 

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Summary of Rail Data

 

Fourth Quarter           Year  
2013     2012     Fav/(Unfav)         %    

Financial (millions, except per share data)

   2013     2012      Fav/(Unfav)          %  
          Revenues             
$     1,570      $ 1,464      $ 106          7          Freight revenue    $ 5,982      $ 5,550       $ 432           8   
  37        38        (1       (3       Other revenue      151        145         6           4   

 

 

   

 

 

   

 

 

          

 

 

   

 

 

    

 

 

      
  1,607        1,502        105          7      Total revenues      6,133        5,695         438           8   

 

 

   

 

 

   

 

 

          

 

 

   

 

 

    

 

 

      
          Operating expenses             
  343        378        35          9          Compensation and benefits      1,418        1,506         88           6   
  262        256        (6       (2       Fuel      1,004        999         (5        (1
  65        60        (5       (8       Materials      249        238         (11        (5
  39        48        9          19          Equipment rents      173        206         33           16   
  144        140        (4       (3       Depreciation and amortization      565        539         (26        (5
  212        242        30          12          Purchased services and other      876        940         64           7   
  435        265        (170       (64       Asset impairments      435        265         (170        (64
  (7     53        60          —            Labour restructuring      (7     53         60           —     

 

 

   

 

 

   

 

 

          

 

 

   

 

 

    

 

 

      
  1,493        1,442        (51       (4   Total operating expenses      4,713        4,746         33           1   

 

 

   

 

 

   

 

 

          

 

 

   

 

 

    

 

 

      
  114        60        54          90      Operating income      1,420        949         471           50   
          Less:             
  6        3        (3       (100       Other income and charges      17        37         20           54   
  70        69        (1       (1       Net interest expense      278        276         (2        (1

 

 

   

 

 

   

 

 

          

 

 

   

 

 

    

 

 

      
  38        (12     50          —        Income (loss) before income tax expense      1,125        636         489           77   
  (44     (27     17          63          Income tax (recovery) expense      250        152         (98        (64

 

 

   

 

 

   

 

 

          

 

 

   

 

 

    

 

 

      
$ 82      $ 15      $ 67          447      Net income    $ 875      $ 484       $ 391           81   

 

 

   

 

 

   

 

 

          

 

 

   

 

 

    

 

 

      
  92.9        96.0        3.1      310     bps      Operating ratio (%)      76.8        83.3         6.5      650      bps   
$ 0.47      $ 0.08      $ 0.39          488          Basic earnings per share    $ 5.00      $ 2.82       $ 2.18           77   

 

 

   

 

 

   

 

 

          

 

 

   

 

 

    

 

 

      
$ 0.47      $ 0.08      $ 0.39          488          Diluted earnings per share    $ 4.96      $ 2.79       $ 2.17           78   

 

 

   

 

 

   

 

 

          

 

 

   

 

 

    

 

 

      
          Shares Outstanding             
  175.4        173.3        2.1          1     

Weighted average number of shares outstanding (millions)

     174.9        171.8         3.1           2   
  177.0        174.7        2.3          1     

Weighted average number of diluted shares outstanding (millions)

     176.5        173.2         3.3           2   
          Foreign Exchange             
  0.96        1.01        0.05          5     

Average foreign exchange rate

(US$/Canadian$)

     0.97        1.00         0.03           3   
  1.04        0.99        0.05          5     

Average foreign exchange rate

(Canadian$/US$)

     1.03        1.00         0.03           3   

 

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Summary of Rail Data (Page 2)

 

Fourth Quarter          Year  
2013      2012      Fav/(Unfav)     %          2013      2012      Fav/(Unfav)     %  
          Commodity Data           
              Freight Revenues (millions)           
$ 385       $ 355       $ 30        8              - Grain    $ 1,300       $ 1,172       $ 128        11   
  157         156         1        1              - Coal      627         602         25        4   
  126         133         (7     (5           - Fertilizers and sulphur      570         520         50        10   
  413         335         78        23              - Industrial and consumer products      1,548         1,268         280        22   
  105         99         6        6              - Automotive      403         425         (22     (5
  49         46         3        7              - Forest products      206         193         13        7   
  335         340         (5     (1           - Intermodal      1,328         1,370         (42     (3

 

 

    

 

 

    

 

 

        

 

 

    

 

 

    

 

 

   
$ 1,570       $ 1,464       $ 106        7          Total Freight Revenues    $ 5,982       $ 5,550       $ 432        8   

 

 

    

 

 

    

 

 

        

 

 

    

 

 

    

 

 

   
              Millions of Revenue Ton-Miles (RTM)           
  10,006         9,628         378        4              - Grain      33,983         33,082         901        3   
  5,776         5,809         (33     (1           - Coal      23,172         22,375         797        4   
  3,850         3,838         12        —                - Fertilizers and sulphur      18,170         17,058         1,112        7   
  9,988         8,347         1,641        20              - Industrial and consumer products      37,875         30,469         7,406        24   
  563         561         2        —                - Automotive      2,329         2,482         (153     (6
  1,036         1,129         (93     (8           - Forest products      4,619         4,713         (94     (2
  6,192         6,217         (25     —                - Intermodal      24,101         24,853         (752     (3

 

 

    

 

 

    

 

 

        

 

 

    

 

 

    

 

 

   
  37,411         35,529         1,882        5          Total RTMs      144,249         135,032         9,217        7   

 

 

    

 

 

    

 

 

        

 

 

    

 

 

    

 

 

   
              Freight Revenue per RTM (cents)           
  3.84         3.69         0.15        4              - Grain      3.82         3.54         0.28        8   
  2.72         2.69         0.03        1              - Coal      2.71         2.69         0.02        1   
  3.26         3.47         (0.21     (6           - Fertilizers and sulphur      3.14         3.05         0.09        3   
  4.14         4.01         0.13        3              - Industrial and consumer products      4.09         4.16         (0.07     (2
  18.64         17.65         0.99        6              - Automotive      17.27         17.12         0.15        1   
  4.74         4.07         0.67        16              - Forest products      4.46         4.10         0.36        9   
  5.42         5.47         (0.05     (1           - Intermodal      5.51         5.51         —          —     
  4.20         4.12         0.08        2          Total Freight Revenue per RTM      4.15         4.11         0.04        1   
              Carloads (thousands)           
  121         122         (1     (1           - Grain      438         433         5        1   
  84         88         (4     (5           - Coal      330         337         (7     (2
  41         43         (2     (5           - Fertilizers and sulphur      185         177         8        5   
  133         119         14        12              - Industrial and consumer products      519         469         50        11   
  38         39         (1     (3           - Automotive      146         162         (16     (10
  15         16         (1     (6           - Forest products      66         67         (1     (1
  254         253         1        —                - Intermodal      1,004         1,024         (20     (2

 

 

    

 

 

    

 

 

        

 

 

    

 

 

    

 

 

   
  686         680         6        1          Total Carloads      2,688         2,669         19        1   

 

 

    

 

 

    

 

 

        

 

 

    

 

 

    

 

 

   
              Freight Revenue per Carload           
$ 3,161       $ 2,910       $ 251        9              - Grain    $ 2,964       $ 2,707       $ 257        9   
  1,888         1,773         115        6              - Coal      1,904         1,786         118        7   
  3,065         3,093         (28     (1           - Fertilizers and sulphur      3,083         2,938         145        5   
  3,105         2,815         290        10              - Industrial and consumer products      2,982         2,704         278        10   
  2,797         2,538         259        10              - Automotive      2,758         2,623         135        5   
  3,254         2,875         379        13              - Forest products      3,132         2,881         251        9   
  1,322         1,344         (22     (2           - Intermodal      1,324         1,338         (14     (1
$ 2,291       $ 2,153       $ 138        6          Total Freight Revenue per Carload    $ 2,226       $ 2,079       $ 147        7   

 

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Summary of Rail Data (Page 3)

 

Fourth Quarter          Year  

2013

     2012(1)      Fav/(Unfav)     %          2013      2012(1)      Fav/(Unfav)     %  
          Operations Performance           
  68,531         66,204         2,327        4      Freight gross ton-miles (“GTM”) (millions)      267,629         254,354         13,275        5   
  9,341         10,046         (705     (7   Train miles (thousands)      37,817         40,270         (2,453     (6
  7,844         7,014         830        12      Average train weight—excluding local traffic (tons)      7,573         6,709         864        13   
  6,668         6,198         470        8      Average train length—excluding local traffic (feet)(2)      6,530         5,981         549        9   
  7.9         7.4         (0.5     (7   Average terminal dwell (hours) (3)      7.1         7.5         0.4        5   
  17.6         17.6         —          —        Average train speed (mph)(4)      18.2         18.0         0.2        1   
  223.2         197.1         26.1        13      Locomotive productivity (daily average GTMs/active horsepower (“HP”))      216.0         179.8         36.2        20   
  1.06         1.14         0.08        7      Fuel efficiency (U.S. gallon of fuel consumed/1,000 GTMs)      1.06         1.15         0.09        8   
  71.4         74.4         3.0        4      U.S. gallons of locomotive fuel consumed (millions)(5)      281.7         289.2         7.5        3   
  3.51         3.47         (0.04     (1   Average fuel price (U.S. dollars per U.S. gallon)      3.47         3.45         (0.02     (1
  14,677         16,369         1,692        10      Total employees (average)(6)(7)      15,011         16,999         1,988        12   
  14,506         15,713         1,207        8      Total employees (end of period)(6)      14,506         15,713         1,207        8   
  14,977         16,907         1,930        11      Workforce (end of period)(8)      14,977         16,907         1,930        11   
          Safety           
  1.77         2.05         0.28        14      FRA personal injuries per 200,000 employee-hours      1.69         1.55         (0.14     (9
  1.35         1.68         0.33        20      FRA train accidents per million train-miles      1.78         1.67         (0.11     (7

 

(1)  Certain prior period figures have been revised to conform with current presentation or have been updated to reflect new information.
(2) Incorporates a new reporting methodology where average train length is the sum of each car and locomotive’s equipment length multiplied by the distance travelled, divided by train miles. Local trains are excluded from this measure.
(3)  Incorporates a new reporting definition where average terminal dwell measures the average time a freight car resides within terminal boundaries.
(4)  Incorporates a new reporting definition where average train speed measures the line-haul movement from origin to destination including terminal dwell hours.
(5)  Includes gallons of fuel consumed from freight, yard and commuter service but excludes fuel used in capital projects and other non-freight activities.
(6)  An employee is defined as an individual, including trainees, who has worked more than 40 hours in a standard biweekly pay period. This excludes part time employees, contractors, and consultants.
(7)  2012 Year-to-date average number of employees has been adjusted for the strike.
(8)  Workforce is defined as total employees plus part time employees, contractors, and consultants.

 

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Non-GAAP Measures—Unaudited

We present non-GAAP measures and cash flow information to provide a basis for evaluating underlying earnings and liquidity trends in our business that can be compared with the results of our operations in prior periods. These non-GAAP measures exclude significant items that are not among our normal ongoing revenues and operating expenses. They have no standardized meanings and are not defined by GAAP and, therefore, are unlikely to be comparable to similar measures presented by other companies.

Adjusted Performance Measures

Income, excluding significant items, also referred to as Adjusted net income, provides management with a measure of income that allows a multi-period assessment of long-term profitability and also allows management and other external users of our consolidated financial statements to compare profitability on a long-term basis with that of our peers.

Operating income, excluding significant items, also referred to as Adjusted operating income, provides a measure of the profitability of the railway on an ongoing basis.

Operating expenses, excluding significant items, also referred to as Adjusted operating expenses, provides relevant and useful information for evaluating the effectiveness of our operations and underlying business trends.

Diluted earnings per share (“EPS”), excluding significant items, also referred to as Adjusted EPS, provides the same information on a per share basis.

Operating ratio, excluding significant items, also referred to as Adjusted operating ratio, and calculated as Operating expenses, excluding significant items divided by total revenues, provides the percentage of total revenues used to operate the railway on an ongoing basis.

Significant 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 and other items that are not normal course business activities.

Reconciliation of Non-GAAP measures to GAAP measures

The following tables reconcile Adjusted operating expenses, Adjusted operating income and Adjusted net income, to Operating expenses, Operating income and Net income, respectively.

 

15


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     For the year
ended December 31
     For the three months
ended December 31
 

(in millions of Canadian dollars)

   2013     2012      2013     2012  

Adjusted operating expenses

   $ 4,289      $ 4,386       $ 1,060      $ 1,124   
  

 

 

   

 

 

    

 

 

   

 

 

 

Add (less) significant items:

         

Labour restructuring

     (7     53         (7     53   

Asset impairments

     435        265         435        265   

Management transition costs

     (4     42         5        —     
  

 

 

   

 

 

    

 

 

   

 

 

 

Operating expenses

   $ 4,713      $ 4,746       $ 1,493      $ 1,442   
  

 

 

   

 

 

    

 

 

   

 

 

 

Adjusted operating income

   $ 1,844      $ 1,309       $ 547      $ 378   
  

 

 

   

 

 

    

 

 

   

 

 

 

Less (add) significant items:

         

Labour restructuring

     (7     53         (7     53   

Asset impairments

     435        265         435        265   

Management transition costs

     (4     42         5        —     
  

 

 

   

 

 

    

 

 

   

 

 

 

Operating income

   $ 1,420      $ 949       $ 114      $ 60   
  

 

 

   

 

 

    

 

 

   

 

 

 

Adjusted net income

   $ 1,132      $ 753       $ 338      $ 224   
  

 

 

   

 

 

    

 

 

   

 

 

 

Less (add) significant items, net of tax:

         

Labour restructuring

     (5     39         (5     39   

Asset impairments

     257        170         257        170   

Management transition costs

     (2     29         4        —     

Advisory fees related to shareholder matters

     —          20         —          —     

Income tax rate change

     7        11         —          —     
  

 

 

   

 

 

    

 

 

   

 

 

 

Net income

   $ 875      $ 484       $ 82      $ 15   
  

 

 

   

 

 

    

 

 

   

 

 

 

 

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The following tables reconcile Diluted earnings per share, excluding significant items and Adjusted operating ratio, excluding significant items to Diluted earnings per share and Operating ratio, respectively.

 

     For the year     For the three  
     ended     months ended  
Diluted earnings per share    December 31     December 31  

(in millions of Canadian dollars)

   2013     2012     2013     2012  

Excluding significant items

   $ 6.42      $ 4.34      $ 1.91      $ 1.28   

Less (add) significant items:

        

Labour restructuring

     (0.03     0.22        (0.03     0.22   

Asset impairments

     1.46        0.98        1.45        0.98   

Management transition costs

     (0.01     0.17        0.02        —     

Advisory fees related to shareholder matters

     —          0.12        —          —     

Income tax rate change

     0.04        0.06        —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted earnings per share as reported

   $ 4.96      $ 2.79      $ 0.47      $ 0.08   
  

 

 

   

 

 

   

 

 

   

 

 

 
     For the year     For the three  
     ended     months ended  
Operating ratio    December 31     December 31  

(in millions of Canadian dollars)

   2013     2012     2013     2012  

Excluding significant items

     69.9     77.0     65.9     74.8

Add (less) significant items:

        

Labour restructuring

     (0.1 )%      0.9     (0.4 )%      3.5

Asset impairments

     7.1     4.7     27.1     17.7

Management transition costs

     (0.1 )%      0.7     0.3     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating ratio as reported

     76.8     83.3     92.9     96.0
  

 

 

   

 

 

   

 

 

   

 

 

 

Free Cash

Free cash and cash flow before dividends are non-GAAP measures that management considers to be indicators of liquidity. The measures are used by management to provide information with respect to the relationship between cash provided by operating activities and investment decisions and provide comparable measures for period to period changes. Free cash is calculated as cash provided by operating activities, less cash used in investing activities, excluding changes in restricted cash and cash equivalents and investment balances used to collateralize letters of credit, and dividends paid, adjusted for changes in cash and cash equivalents balances resulting from foreign exchange (“FX”) fluctuations.

 

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     For the year     For the three months  
Reconciliation of free cash to GAAP cash position    ended December 31     ended December 31  

(in million of Canadian dollars)

   2013     2012     2013     2012  

Cash provided by operating activities

   $ 1,950      $ 1,328      $ 659      $ 469   

Cash used in investing activities

     (1,597     (1,011     (460     (336

Change in restricted cash and cash equivalents used to collateralize letters of credit

     411        —          65        —     

Dividends paid

     (244     (223     (61     (61

Effect of foreign currency fluctuations on U.S. dollar-denominated cash and cash equivalents

     10        (1     9        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Free cash(1)

     530        93        212        72   

Cash provided by financing activities, excluding dividend payment (1)

     24        193        —          54   

Change in restricted cash and cash equivalents used to collateralize letters of credit

     (411     —          (65     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Increase in cash and cash equivalents, as shown on the Consolidated Statements of Cash Flows

     143        286        147        126   

Cash and cash equivalents at beginning of period

     333        47        329        207   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 476      $ 333      $ 476      $ 333   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Free cash and Cash provided by financing activities, excluding dividend payment have no standardized meanings prescribed by GAAP and, therefore, are unlikely to be comparable to similar measures presented by other companies.

Foreign Exchange Adjusted Variance

Foreign exchange adjusted variance (“FX adj. variance”) allows certain financial results to be viewed without the impact of fluctuations in foreign currency exchange rates, thereby facilitating period-to-period comparisons in the analysis of trends in business performance. Financial results at constant currency are obtained by translating the comparable period of the prior year results denominated in U.S. dollars at the foreign exchange rates of the current period. Measures at constant currency are considered non-GAAP measures and do not have any standardized meanings prescribed by GAAP and, therefore, are unlikely to be comparable to similar measures presented by other companies.

 

     For the year ended December 31     For the three months ended December 31  
(in millions of                  Variance      Adjusted      FX Adj.                   Variance      Adjusted      FX Adj.  

Canadian dollars)

   2013      2012      due to FX      2012(1)      %(1)     2013      2012      due to FX      2012(1)      %(1)  

Freight revenues

   $ 5,982       $ 5,550       $ 83       $ 5,633         6   $ 1,570       $ 1,464       $ 42       $ 1,506         4

Other revenues

     151         145         1         146         3     37         38         1         39         (5 %) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total revenues

     6,133         5,695         84         5,779         6     1,607         1,502         43         1,545         4

Total operating expenses

     4,713         4,746         70         4,816         (2 %)      1,493         1,442         41         1,483         1
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Operating income

   $ 1,420       $ 949       $ 14       $ 963         47   $ 114       $ 60       $ 2       $ 62         84
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)  These earnings measures have no standardized meanings prescribed by GAAP and, therefore, are unlikely to be comparable to similar measures presented by other companies.

 

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