QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
(State or Other Jurisdiction of Incorporation or Organization) | (IRS Employer Identification No.) | ||
(Address of Principal Executive Offices) | (Zip Code) |
Title of Each Class | Trading Symbol(s) | Name of Each Exchange on which Registered | ||||||
Canadian Pacific Railway Limited | ||||||||
Toronto Stock Exchange | ||||||||
BC87 | London Stock Exchange |
þ | Accelerated Filer | ☐ | Non-accelerated Filer | ☐ | Smaller Reporting Company | Emerging Growth Company |
PART I - FINANCIAL INFORMATION | ||
Page | ||
Item 1. | Financial Statements: | |
Interim Consolidated Statements of Income | ||
For the Three Months Ended March 31, 2020 and 2019 | ||
Interim Consolidated Statements of Comprehensive Income | ||
For the Three Months Ended March 31, 2020 and 2019 | ||
Interim Consolidated Balance Sheets | ||
As at March 31, 2020 and December 31, 2019 | ||
Interim Consolidated Statements of Cash Flows | ||
For the Three Months Ended March 31, 2020 and 2019 | ||
Interim Consolidated Statements of Changes in Shareholders' Equity | ||
For the Three Months Ended March 31, 2020 and 2019 | ||
Notes to Interim Consolidated Financial Statements | ||
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | |
Executive Summary | ||
Performance Indicators | ||
Financial Highlights | ||
Results of Operations | ||
Liquidity and Capital Resources | ||
Share Capital | ||
Non-GAAP Measures | ||
Off-Balance Sheet Arrangements | ||
Contractual Commitments | ||
Critical Accounting Estimates | ||
Forward-Looking Statements | ||
Item 3. | Quantitative and Qualitative Disclosures about Market Risk | |
Item 4. | Controls and Procedures | |
PART II - OTHER INFORMATION | ||
Item 1. | Legal Proceedings | |
Item 1A. | Risk Factors | |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |
Item 3. | Defaults Upon Senior Securities | |
Item 4. | Mine Safety Disclosures | |
Item 5. | Other Information | |
Item 6. | Exhibits | |
Signature |
For the three months ended March 31 | ||||||
(in millions of Canadian dollars, except share and per share data) | 2020 | 2019 | ||||
Revenues (Note 3) | ||||||
Freight | $ | $ | ||||
Non-freight | ||||||
Total revenues | ||||||
Operating expenses | ||||||
Compensation and benefits | ||||||
Fuel | ||||||
Materials | ||||||
Equipment rents | ||||||
Depreciation and amortization | ||||||
Purchased services and other | ||||||
Total operating expenses | ||||||
Operating income | ||||||
Less: | ||||||
Other expense (income) (Note 4) | ( | ) | ||||
Other components of net periodic benefit recovery (Note 12) | ( | ) | ( | ) | ||
Net interest expense | ||||||
Income before income tax expense | ||||||
Income tax expense (Note 5) | ||||||
Net income | $ | $ | ||||
Earnings per share (Note 6) | ||||||
Basic earnings per share | $ | $ | ||||
Diluted earnings per share | $ | $ | ||||
Weighted-average number of shares (millions) (Note 6) | ||||||
Basic | ||||||
Diluted | ||||||
Dividends declared per share | $ | $ |
For the three months ended March 31 | ||||||
(in millions of Canadian dollars) | 2020 | 2019 | ||||
Net income | $ | $ | ||||
Net (loss) gain in foreign currency translation adjustments, net of hedging activities | ( | ) | ||||
Change in derivatives designated as cash flow hedges | ||||||
Change in pension and post-retirement defined benefit plans | ||||||
Other comprehensive (loss) income before income taxes | ( | ) | ||||
Income tax recovery (expense) on above items | ( | ) | ||||
Other comprehensive income (Note 7) | ||||||
Comprehensive income | $ | $ |
March 31 | December 31 | |||||
(in millions of Canadian dollars) | 2020 | 2019 | ||||
Assets | ||||||
Current assets | ||||||
Cash and cash equivalents | $ | $ | ||||
Accounts receivable, net (Note 8) | ||||||
Materials and supplies | ||||||
Other current assets | ||||||
Investments | ||||||
Properties | ||||||
Goodwill and intangible assets | ||||||
Pension asset | ||||||
Other assets | ||||||
Total assets | $ | $ | ||||
Liabilities and shareholders’ equity | ||||||
Current liabilities | ||||||
Accounts payable and accrued liabilities | $ | $ | ||||
Long-term debt maturing within one year (Note 9, 10) | ||||||
Pension and other benefit liabilities | ||||||
Other long-term liabilities | ||||||
Long-term debt (Note 9, 10) | ||||||
Deferred income taxes | ||||||
Total liabilities | ||||||
Shareholders’ equity | ||||||
Share capital | ||||||
Additional paid-in capital | ||||||
Accumulated other comprehensive loss (Note 7) | ( | ) | ( | ) | ||
Retained earnings | ||||||
Total liabilities and shareholders’ equity | $ | $ |
For the three months ended March 31 | ||||||
(in millions of Canadian dollars) | 2020 | 2019 | ||||
Operating activities | ||||||
Net income | $ | $ | ||||
Reconciliation of net income to cash provided by operating activities: | ||||||
Depreciation and amortization | ||||||
Deferred income tax expense (Note 5) | ||||||
Pension recovery and funding (Note 12) | ( | ) | ( | ) | ||
Foreign exchange loss (gain) on debt and lease liabilities (Note 4) | ( | ) | ||||
Other operating activities, net | ( | ) | ||||
Change in non-cash working capital balances related to operations | ( | ) | ( | ) | ||
Cash provided by operating activities | ||||||
Investing activities | ||||||
Additions to properties | ( | ) | ( | ) | ||
Proceeds from sale of properties and other assets | ||||||
Other | ( | ) | ( | ) | ||
Cash used in investing activities | ( | ) | ( | ) | ||
Financing activities | ||||||
Dividends paid | ( | ) | ( | ) | ||
Issuance of CP Common Shares | ||||||
Purchase of CP Common Shares (Note 11) | ( | ) | ( | ) | ||
Issuance of long-term debt, excluding commercial paper (Note 9) | ||||||
Repayment of long-term debt, excluding commercial paper | ( | ) | ( | ) | ||
Net repayment of commercial paper (Note 9) | ( | ) | ||||
Increase in short-term borrowings (Note 9) | ||||||
Other | ||||||
Cash (used in) provided by financing activities | ( | ) | ||||
Effect of foreign currency fluctuations on U.S. dollar-denominated cash and cash equivalents | ( | ) | ||||
Cash position | ||||||
Increase in cash and cash equivalents | ||||||
Cash and cash equivalents at beginning of period | ||||||
Cash and cash equivalents at end of period | $ | $ | ||||
Supplemental disclosures of cash flow information: | ||||||
Income taxes paid | $ | $ | ||||
Interest paid | $ | $ |
For the three months ended March 31 | |||||||||||||||||||
(in millions of Canadian dollars except per share data) | Common shares (in millions) | Share capital | Additional paid-in capital | Accumulated other comprehensive loss | Retained earnings | Total shareholders’ equity | |||||||||||||
Balance at December 31, 2019, as previously reported | $ | $ | $ | ( | ) | $ | $ | ||||||||||||
Impact of accounting change (Note 2) | — | ( | ) | ( | ) | ||||||||||||||
Balance at January 1, 2020, as restated | $ | $ | $ | ( | ) | $ | $ | ||||||||||||
Net income | — | ||||||||||||||||||
Other comprehensive income (Note 7) | — | ||||||||||||||||||
Dividends declared ($0.8300 per share) | — | ( | ) | ( | ) | ||||||||||||||
Effect of stock-based compensation expense | — | ||||||||||||||||||
CP Common Shares repurchased (Note 11) | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||
Shares issued under stock option plan | ( | ) | |||||||||||||||||
Balance at March 31, 2020 | $ | $ | $ | ( | ) | $ | $ | ||||||||||||
Balance at January 1, 2019 | $ | $ | $ | ( | ) | $ | $ | ||||||||||||
Net income | — | ||||||||||||||||||
Other comprehensive income (Note 7) | — | ||||||||||||||||||
Dividends declared ($0.6500 per share) | — | ( | ) | ( | ) | ||||||||||||||
Effect of stock-based compensation expense | — | ||||||||||||||||||
CP Common Shares repurchased (Note 11) | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||
Shares issued under stock option plan | ( | ) | |||||||||||||||||
Balance at March 31, 2019 | $ | $ | $ | ( | ) | $ | $ |
For the three months ended March 31 | ||||||
(in millions of Canadian dollars) | 2020 | 2019 | ||||
Freight | ||||||
Grain | $ | $ | ||||
Coal | ||||||
Potash | ||||||
Fertilizers and sulphur | ||||||
Forest products | ||||||
Energy, chemicals and plastics | ||||||
Metals, minerals and consumer products | ||||||
Automotive | ||||||
Intermodal | ||||||
Total freight revenues | ||||||
Non-freight excluding leasing revenues | ||||||
Revenues from contracts with customers | ||||||
Leasing revenues | ||||||
Total revenues | $ | $ |
For the three months ended March 31 | ||||||
(in millions of Canadian dollars) | 2020 | 2019 | ||||
Opening balance | $ | $ | ||||
Revenue recognized that was included in the contract liability balance at the beginning of the period | ( | ) | ( | ) | ||
Increase due to consideration received, net of revenue recognized during the period | ||||||
Closing balance | $ | $ |
For the three months ended March 31 | ||||||
(in millions of Canadian dollars) | 2020 | 2019 | ||||
Foreign exchange loss (gain) on debt and lease liabilities | $ | $ | ( | ) | ||
Other foreign exchange gains | ( | ) | ( | ) | ||
Other | ||||||
Other expense (income) | $ | $ | ( | ) |
For the three months ended March 31 | ||||||
(in millions of Canadian dollars) | 2020 | 2019 | ||||
Current income tax expense | $ | $ | ||||
Deferred income tax expense | ||||||
Income tax expense | $ | $ |
For the three months ended March 31 | ||||
(in millions) | 2020 | 2019 | ||
Weighted-average basic shares outstanding | ||||
Dilutive effect of stock options | ||||
Weighted-average diluted shares outstanding |
For the three months ended March 31 | ||||||||||||
(in millions of Canadian dollars) | Foreign currency net of hedging activities(1) | Derivatives and other(1) | Pension and post- retirement defined benefit plans(1) | Total(1) | ||||||||
Opening balance, January 1, 2020 | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||
Other comprehensive income before reclassifications | ||||||||||||
Amounts reclassified from accumulated other comprehensive loss | ||||||||||||
Net other comprehensive income | ||||||||||||
Closing balance, March 31, 2020 | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||
Opening balance, January 1, 2019 | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||
Other comprehensive loss before reclassifications | ( | ) | ( | ) | ( | ) | ||||||
Amounts reclassified from accumulated other comprehensive loss | ||||||||||||
Net other comprehensive income | ||||||||||||
Closing balance, March 31, 2019 | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) |
(1) | Amounts are presented net of tax. |
For the three months ended March 31 | ||||||
(in millions of Canadian dollars) | 2020 | 2019 | ||||
Recognition of net actuarial loss(1) | $ | $ | ||||
Income tax recovery | ( | ) | ( | ) | ||
Total net of income tax | $ | $ |
(1) | Impacts "Other components of net periodic benefit recovery" on the Interim Consolidated Statements of Income. |
(in millions of Canadian dollars) | Freight | Non-freight | Total | ||||||
Accounts receivable, as at March 31, 2020 | $ | $ | $ | ||||||
Allowance for credit losses | |||||||||
Restated, as at January 1, 2020 (Note 2) | ( | ) | ( | ) | ( | ) | |||
Current period credit loss provision, net | |||||||||
Allowance for credit losses, as at March 31, 2020 | ( | ) | ( | ) | ( | ) | |||
Total accounts receivable, net as at March 31, 2020 | $ | $ | $ | ||||||
Total accounts receivable, net restated, as at January 1, 2020 | $ | $ | $ |
(in millions of Canadian dollars) | March 31, 2020 | December 31, 2019 | ||||
Long-term debt (including current maturities): | ||||||
Fair value | $ | $ | ||||
Carrying value |
For the three months ended March 31 | ||||||
2020 | 2019 | |||||
Number of Common Shares repurchased(1) | ||||||
Weighted-average price per share(2) | $ | $ | ||||
Amount of repurchase (in millions)(2) | $ | $ |
(1) | Includes shares repurchased but not yet cancelled at end of period. |
(2) | Includes brokerage fees. |
For the three months ended March 31 | ||||||||||||
Pensions | Other benefits | |||||||||||
(in millions of Canadian dollars) | 2020 | 2019 | 2020 | 2019 | ||||||||
Current service cost (benefits earned by employees) | $ | $ | $ | $ | ||||||||
Other components of net periodic benefit (recovery) cost: | ||||||||||||
Interest cost on benefit obligation | ||||||||||||
Expected return on fund assets | ( | ) | ( | ) | ||||||||
Recognized net actuarial loss | ||||||||||||
Total other components of net periodic benefit (recovery) cost | ( | ) | ( | ) | ||||||||
Net periodic benefit (recovery) cost | $ | ( | ) | $ | ( | ) | $ | $ |
For the three months ended March 31, 2020 | |
Expected option life (years)(1) | |
Risk-free interest rate(2) | |
Expected stock price volatility(3) | |
Expected annual dividends per share(4) | $ |
Expected forfeiture rate(5) | |
Weighted-average grant date fair value per option granted during the period | $ |
(1) | Represents the period of time that awards are expected to be outstanding. Historical data on exercise behaviour or, when available, specific expectations regarding future exercise behaviour were used to estimate the expected life of the option. |
(2) | Based on the implied yield available on zero-coupon government issues with an equivalent term commensurate with the expected term of the option. |
(3) | Based on the historical volatility of the Company’s stock price over a period commensurate with the expected term of the option. |
(4) | Determined by the current annual dividend at the time of grant. The Company does not employ different dividend yields throughout the contractual term of the option. |
(5) | The Company estimates forfeitures based on past experience. This rate is monitored on a periodic basis. |
(1) | Québec's Minister of Sustainable Development, Environment, Wildlife and Parks ordered various parties, including CP, to remediate the derailment site (the "Cleanup Order") and served CP with a Notice of Claim for $ |
(2) | The AGQ sued CP in the Québec Superior Court claiming $ |
(3) | A class action in the Québec Superior Court on behalf of persons and entities residing in, owning or leasing property in, operating a business in, or physically present in Lac-Mégantic at the time of the derailment was certified against CP on May 8, 2015 (the "Class Action"). Other defendants including MMAC and Mr. Thomas Harding ("Harding") were added to the Class Action on January 25, 2017. The Class Action seeks unquantified damages, including for wrongful death, personal injury, property damage, and economic loss. |
(4) |
(5) |
(6) | The MMAR U.S. bankruptcy estate representative commenced an action against CP in November 2014 in the Maine Bankruptcy Court claiming that CP failed to abide by certain regulations and seeking damages for MMAR’s loss in business value (as yet unquantified). This action asserts that CP knew or ought to have known that the shipper misclassified the petroleum crude oil and therefore should have refused to transport it. |
(7) | The class and mass tort action commenced against CP in June 2015 in Texas (on behalf of Lac-Mégantic residents and wrongful death representatives) and the wrongful death and personal injury actions commenced against CP in June 2015 in Illinois and Maine, were all transferred and consolidated in Federal District Court in Maine (the “Maine Actions”). The Maine Actions allege that CP negligently misclassified and improperly packaged the petroleum crude oil. On CP’s motion, the Maine Actions were dismissed. The plaintiffs are appealing the dismissal decision, which may be heard in July 2020. |
(8) | The trustee for the wrongful death trust commenced Carmack Amendment claims against CP in North Dakota Federal Court, seeking to recover approximately U.S. $ |
(in millions of Canadian dollars) | CPRL (Parent Guarantor) | CPRC (Subsidiary Issuer) | Non-Guarantor Subsidiaries | Consolidating Adjustments and Eliminations | CPRL Consolidated | ||||||||||
Revenues | |||||||||||||||
Freight | $ | $ | $ | $ | $ | ||||||||||
Non-freight | ( | ) | |||||||||||||
Total revenues | ( | ) | |||||||||||||
Operating expenses | |||||||||||||||
Compensation and benefits | |||||||||||||||
Fuel | |||||||||||||||
Materials | |||||||||||||||
Equipment rents | ( | ) | ( | ) | |||||||||||
Depreciation and amortization | |||||||||||||||
Purchased services and other | ( | ) | |||||||||||||
Total operating expenses | ( | ) | |||||||||||||
Operating income | |||||||||||||||
Less: | |||||||||||||||
Other expense (income) | ( | ) | |||||||||||||
Other components of net periodic benefit (recovery) expense | ( | ) | ( | ) | |||||||||||
Net interest expense (income) | ( | ) | |||||||||||||
(Loss) income before income tax expense and equity in net earnings of subsidiaries | ( | ) | |||||||||||||
Less: Income tax expense | |||||||||||||||
Add: Equity in net earnings of subsidiaries | ( | ) | |||||||||||||
Net income | $ | $ | $ | $ | ( | ) | $ |
(in millions of Canadian dollars) | CPRL (Parent Guarantor) | CPRC (Subsidiary Issuer) | Non-Guarantor Subsidiaries | Consolidating Adjustments and Eliminations | CPRL Consolidated | ||||||||||
Revenues | |||||||||||||||
Freight | $ | $ | $ | $ | $ | ||||||||||
Non-freight | ( | ) | |||||||||||||
Total revenues | ( | ) | |||||||||||||
Operating expenses | |||||||||||||||
Compensation and benefits | |||||||||||||||
Fuel | |||||||||||||||
Materials | |||||||||||||||
Equipment rents | |||||||||||||||
Depreciation and amortization | |||||||||||||||
Purchased services and other | ( | ) | |||||||||||||
Total operating expenses | ( | ) | |||||||||||||
Operating income | |||||||||||||||
Less: | |||||||||||||||
Other (income) expense | ( | ) | ( | ) | ( | ) | |||||||||
Other components of net periodic benefit (recovery) expense | ( | ) | ( | ) | |||||||||||
Net interest (income) expense | ( | ) | ( | ) | |||||||||||
Income before income tax expense and equity in net earnings of subsidiaries | |||||||||||||||
Less: Income tax expense | |||||||||||||||
Add: Equity in net earnings of subsidiaries | ( | ) | |||||||||||||
Net income | $ | $ | $ | $ | ( | ) | $ |
(in millions of Canadian dollars) | CPRL (Parent Guarantor) | CPRC (Subsidiary Issuer) | Non-Guarantor Subsidiaries | Consolidating Adjustments and Eliminations | CPRL Consolidated | ||||||||||
Net income | $ | $ | $ | $ | ( | ) | $ | ||||||||
Net (loss) gain in foreign currency translation adjustments, net of hedging activities | ( | ) | ( | ) | |||||||||||
Change in derivatives designated as cash flow hedges | |||||||||||||||
Change in pension and post-retirement defined benefit plans | |||||||||||||||
Other comprehensive (loss) income before income taxes | ( | ) | ( | ) | |||||||||||
Income tax recovery on above items | |||||||||||||||
Equity accounted investments | ( | ) | |||||||||||||
Other comprehensive income | ( | ) | |||||||||||||
Comprehensive income | $ | $ | $ | $ | ( | ) | $ |
(in millions of Canadian dollars) | CPRL (Parent Guarantor) | CPRC (Subsidiary Issuer) | Non-Guarantor Subsidiaries | Consolidating Adjustments and Eliminations | CPRL Consolidated | ||||||||||
Net income | $ | $ | $ | $ | ( | ) | $ | ||||||||
Net gain (loss) in foreign currency translation adjustments, net of hedging activities | ( | ) | |||||||||||||
Change in derivatives designated as cash flow hedges | |||||||||||||||
Change in pension and post-retirement defined benefit plans | |||||||||||||||
Other comprehensive income (loss) before income taxes | ( | ) | |||||||||||||
Income tax expense on above items | ( | ) | ( | ) | |||||||||||
Equity accounted investments | ( | ) | |||||||||||||
Other comprehensive income (loss) | ( | ) | |||||||||||||
Comprehensive income | $ | $ | $ | $ | ( | ) | $ |
(in millions of Canadian dollars) | CPRL (Parent Guarantor) | CPRC (Subsidiary Issuer) | Non-Guarantor Subsidiaries | Consolidating Adjustments and Eliminations | CPRL Consolidated | ||||||||||
Assets | |||||||||||||||
Current assets | |||||||||||||||
Cash and cash equivalents | $ | $ | $ | $ | $ | ||||||||||
Accounts receivable, net | |||||||||||||||
Accounts receivable, intercompany | ( | ) | |||||||||||||
Short-term advances to affiliates | ( | ) | |||||||||||||
Materials and supplies | |||||||||||||||
Other current assets | |||||||||||||||
( | ) | ||||||||||||||
Long-term advances to affiliates | ( | ) | |||||||||||||
Investments | |||||||||||||||
Investments in subsidiaries | ( | ) | |||||||||||||
Properties | |||||||||||||||
Goodwill and intangible assets | |||||||||||||||
Pension asset | |||||||||||||||
Other assets | |||||||||||||||
Deferred income taxes | ( | ) | |||||||||||||
Total assets | $ | $ | $ | $ | ( | ) | $ | ||||||||
Liabilities and shareholders’ equity | |||||||||||||||
Current liabilities | |||||||||||||||
Accounts payable and accrued liabilities | $ | $ | $ | $ | $ | ||||||||||
Accounts payable, intercompany | ( | ) | |||||||||||||
Short-term advances from affiliates | ( | ) | |||||||||||||
Long-term debt maturing within one year | |||||||||||||||
( | ) | ||||||||||||||
Pension and other benefit liabilities | |||||||||||||||
Long-term advances from affiliates | ( | ) | |||||||||||||
Other long-term liabilities | |||||||||||||||
Long-term debt | |||||||||||||||
Deferred income taxes | ( | ) | |||||||||||||
Total liabilities | ( | ) | |||||||||||||
Shareholders’ equity | |||||||||||||||
Share capital | ( | ) | |||||||||||||
Additional paid-in capital | ( | ) | |||||||||||||
Accumulated other comprehensive (loss) income | ( | ) | ( | ) | ( | ) | |||||||||
Retained earnings | ( | ) | |||||||||||||
( | ) | ||||||||||||||
Total liabilities and shareholders’ equity | $ | $ | $ | $ | ( | ) | $ |
(in millions of Canadian dollars) | CPRL (Parent Guarantor) | CPRC (Subsidiary Issuer) | Non-Guarantor Subsidiaries | Consolidating Adjustments and Eliminations | CPRL Consolidated | ||||||||||
Assets | |||||||||||||||
Current assets | |||||||||||||||
Cash and cash equivalents | $ | $ | $ | $ | $ | ||||||||||
Accounts receivable, net | |||||||||||||||
Accounts receivable, intercompany | ( | ) | |||||||||||||
Short-term advances to affiliates | ( | ) | |||||||||||||
Materials and supplies | |||||||||||||||
Other current assets | |||||||||||||||
( | ) | ||||||||||||||
Long-term advances to affiliates | ( | ) | |||||||||||||
Investments | |||||||||||||||
Investments in subsidiaries | ( | ) | |||||||||||||
Properties | |||||||||||||||
Goodwill and intangible assets | |||||||||||||||
Pension asset | |||||||||||||||
Other assets | |||||||||||||||
Deferred income taxes | ( | ) | |||||||||||||
Total assets | $ | $ | $ | $ | ( | ) | $ | ||||||||
Liabilities and shareholders’ equity | |||||||||||||||
Current liabilities | |||||||||||||||
Accounts payable and accrued liabilities | $ | $ | $ | $ | $ | ||||||||||
Accounts payable, intercompany | ( | ) | |||||||||||||
Short-term advances from affiliates | ( | ) | |||||||||||||
Long-term debt maturing within one year | |||||||||||||||
( | ) | ||||||||||||||
Pension and other benefit liabilities | |||||||||||||||
Long-term advances from affiliates | ( | ) | |||||||||||||
Other long-term liabilities | |||||||||||||||
Long-term debt | |||||||||||||||
Deferred income taxes | ( | ) | |||||||||||||
Total liabilities | ( | ) | |||||||||||||
Shareholders’ equity | |||||||||||||||
Share capital | ( | ) | |||||||||||||
Additional paid-in capital | ( | ) | |||||||||||||
Accumulated other comprehensive (loss) income | ( | ) | ( | ) | ( | ) | |||||||||
Retained earnings | ( | ) | |||||||||||||
( | ) | ||||||||||||||
Total liabilities and shareholders’ equity | $ | $ | $ | $ | ( | ) | $ |
(in millions of Canadian dollars) | CPRL (Parent Guarantor) | CPRC (Subsidiary Issuer) | Non-Guarantor Subsidiaries | Consolidating Adjustments and Eliminations | CPRL Consolidated | ||||||||||
Cash provided by operating activities | $ | $ | $ | $ | ( | ) | $ | ||||||||
Investing activities | |||||||||||||||
Additions to properties | ( | ) | ( | ) | ( | ) | |||||||||
Proceeds from sale of properties and other assets | |||||||||||||||
Advances to affiliates | ( | ) | ( | ) | |||||||||||
Other | ( | ) | ( | ) | ( | ) | |||||||||
Cash used in investing activities | ( | ) | ( | ) | ( | ) | |||||||||
Financing activities | |||||||||||||||
Dividends paid | ( | ) | ( | ) | ( | ) | |||||||||
Issuance of CP Common Shares | |||||||||||||||
Purchase of CP Common Shares | ( | ) | ( | ) | |||||||||||
Issuance of long-term debt, excluding commercial paper | |||||||||||||||
Repayment of long-term debt, excluding commercial paper | ( | ) | ( | ) | ( | ) | |||||||||
Net repayment of commercial paper | ( | ) | ( | ) | |||||||||||
Increase in short-term borrowings | |||||||||||||||
Advances from affiliates | ( | ) | |||||||||||||
Other | |||||||||||||||
Cash (used in) provided by financing activities | ( | ) | ( | ) | ( | ) | |||||||||
Effect of foreign currency fluctuations on U.S. dollar-denominated cash and cash equivalents | |||||||||||||||
Cash position | |||||||||||||||
Increase in cash and cash equivalents | |||||||||||||||
Cash and cash equivalents at beginning of period | |||||||||||||||
Cash and cash equivalents at end of period | $ | $ | $ | $ | $ |
(in millions of Canadian dollars) | CPRL (Parent Guarantor) | CPRC (Subsidiary Issuer) | Non-Guarantor Subsidiaries | Consolidating Adjustments and Eliminations | CPRL Consolidated | ||||||||||
Cash provided by operating activities | $ | $ | $ | $ | ( | ) | $ | ||||||||
Investing activities | |||||||||||||||
Additions to properties | ( | ) | ( | ) | ( | ) | |||||||||
Proceeds from sale of properties and other assets | |||||||||||||||
Advances to affiliates | ( | ) | ( | ) | |||||||||||
Repayment of advances to affiliates | ( | ) | |||||||||||||
Other | ( | ) | ( | ) | |||||||||||
Cash provided by (used in) investing activities | ( | ) | ( | ) | ( | ) | |||||||||
Financing activities | |||||||||||||||
Dividends paid | ( | ) | ( | ) | ( | ) | |||||||||
Issuance of CP Common Shares | |||||||||||||||
Purchase of CP Common Shares | ( | ) | ( | ) | |||||||||||
Issuance of long-term debt, excluding commercial paper | |||||||||||||||
Repayment of long-term debt, excluding commercial paper | ( | ) | ( | ) | |||||||||||
Advances from affiliates | ( | ) | |||||||||||||
Repayment of advances from affiliates | ( | ) | |||||||||||||
Cash (used in) provided by financing activities | ( | ) | ( | ) | |||||||||||
Effect of foreign currency fluctuations on U.S. dollar-denominated cash and cash equivalents | ( | ) | ( | ) | |||||||||||
Cash position | |||||||||||||||
Increase in cash and cash equivalents | |||||||||||||||
Cash and cash equivalents at beginning of period | |||||||||||||||
Cash and cash equivalents at end of period | $ | $ | $ | $ | $ |
• | Financial performance - In the first quarter of 2020, CP reported Diluted earnings per share ("EPS") of $2.98, a decrease of 4% as compared to the same period of 2019 and Net income of $409 million in the first quarter of 2020, a decrease of 6% as compared to the same period of 2019. These decreases were primarily due to foreign exchange ("FX") translation losses on debt and lease liabilities in 2020 compared to FX translation gains in 2019 and higher taxes due to higher taxable income, partially offset by higher Operating income. |
• | Total revenues - Total revenues increased by 16% in the first quarter of 2020 to $2,043 million from $1,767 million in the same period of 2019. This increase was primarily driven by higher volumes, liquidated damages, including customer volume commitments, and higher freight rates. |
• | Operating performance - CP's average train speed increased by 2% in the first quarter of 2020, to 21.6 miles per hour, due to improved winter operating conditions which resulted in improved network fluidity. Average train weight increased by 4% to 9,188 tons and average train length increased by 3% to 7,409 feet due to improvements in operating plan efficiency, in each case compared to the same period in 2019. These metrics are discussed further in Performance Indicators of this Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. |
• | For the first quarter of 2020, the global emergence of the novel strain of Coronavirus (“COVID-19”) had no material impact to CP’s business, financial condition, or results of operations. The future impacts of the COVID-19 pandemic on CP’s business are highly uncertain, however we have put forward our current estimate of the impact on our business in our revised 2020 outlook. |
• | During the first quarter of 2019, the Company experienced severe winter operating conditions and an increase in the frequency and severity of casualty incidents and derailments. As a result, the Company incurred significant costs to manage severe weather conditions, as well as direct casualty costs, and higher operating costs. During this period and the subsequent network recovery the Company also experienced losses and deferrals of potential revenues. |
For the three months ended March 31 | ||||||
2020 | 2019 | % Change | ||||
Operations Performance | ||||||
Gross ton-miles (“GTMs”) (millions) | 71,309 | 64,854 | 10 | |||
Train miles (thousands) | 8,367 | 7,823 | 7 | |||
Average train weight - excluding local traffic (tons) | 9,188 | 8,868 | 4 | |||
Average train length - excluding local traffic (feet) | 7,409 | 7,165 | 3 | |||
Average terminal dwell (hours) | 6.2 | 7.9 | (22 | ) | ||
Average train speed (miles per hour, or "mph") | 21.6 | 21.1 | 2 | |||
Fuel efficiency (U.S. gallons of locomotive fuel consumed / 1,000 GTMs) | 0.971 | 1.014 | (4 | ) | ||
Total Employees and Workforce | ||||||
Total employees (average) | 12,486 | 12,844 | (3 | ) | ||
Total employees (end of period) | 12,330 | 12,995 | (5 | ) | ||
Workforce (end of period) | 12,366 | 13,037 | (5 | ) | ||
Safety Indicators(1) | ||||||
FRA personal injuries per 200,000 employee-hours | 1.20 | 1.93 | (38 | ) | ||
FRA train accidents per million train-miles | 0.99 | 1.62 | (39 | ) |
(1) | FRA personal injuries per 200,000 employee-hours for the three months ended March 31, 2019 was previously reported as 1.97, restated to 1.93 for the current report. This adjustment reflects new information available within specified periods stipulated by the FRA but that exceed the Company's financial reporting timeline. |
• | A GTM is defined as the movement of one ton of train weight over one mile. GTMs are calculated by multiplying total train weight by the distance the train moved. Total train weight comprises the weight of the freight cars, their contents, and any inactive locomotives. An increase in GTMs indicates additional workload. GTMs increased by 10% in the first quarter of 2020 compared to the same period of 2019. This increase was primarily driven by higher volumes of crude, Canadian grain and Intermodal. This increase was partially offset by lower volumes of Canadian coal and Potash. |
• | Train miles are defined as the sum of the distance moved by all trains operated on the network. Train miles increased by 7% in the first quarter of 2020 compared to the same period of 2019. This increase indicates the impact of a 10% increase in workload (GTMs) partially offset by a 4% increase in train weights. |
• | Average train weight is defined as the average gross weight of CP trains, both loaded and empty. This excludes trains in short-haul service, work trains used to move CP’s track equipment and materials, and the haulage of other railroads’ trains on CP’s network. An increase in average train weight indicates improved asset utilization and may also be the result of moving heavier commodities. Average train weight increased by 4% in the first quarter of 2020 compared to the same period of 2019. This increase was a result of improvements in operating plan efficiency and improved winter operating conditions, partially offset by lower volumes of heavier commodities such as Canadian coal and Potash. |
• | Average train length is defined as the average total length of CP trains, both loaded and empty. This includes all cars and locomotives on the train and is calculated as the sum of each car or locomotive's length multiplied by the distance travelled, divided by train miles. This excludes trains in short-haul service, work trains used to move CP’s track equipment and materials, and the haulage of other railroads’ trains on CP’s network. An increase in average train length indicates improved asset utilization. |
• | Average terminal dwell is defined as the average time a freight car resides within terminal boundaries expressed in hours. The timing starts with a train arriving at the terminal, a customer releasing the car to the Company, or a car arriving at interchange from another railroad. The timing ends when the train leaves, a customer receives the car from CP, or the freight car is transferred to another railroad. Freight cars are excluded if they are being stored at the terminal or used in track repairs. A decrease in average terminal dwell indicates improved terminal performance resulting in faster cycle times and improved railcar utilization. Average terminal dwell improved by 22% in the first quarter of 2020 compared to the same period of 2019. This favourable decrease was due to increased network fluidity. |
• | Average train speed is defined as a measure of the line-haul movement from origin to destination including terminal dwell hours. It is calculated by dividing the total train miles travelled by the total train hours operated. This calculation does not include delay time related to customers or foreign railroads and excludes the time and distance travelled by: i) trains used in or around CP’s yards; ii) passenger trains; and iii) trains used for repairing track. An increase in average train speed indicates improved on-time performance resulting in improved asset utilization. Average train speed increased by 2% in the first quarter of 2020 compared to the same period of 2019. This increase in speed was due to improved winter operating conditions. |
• | Fuel efficiency is defined as U.S. gallons of locomotive fuel consumed per 1,000 GTMs. Fuel consumed includes gallons from freight, yard and commuter service but excludes fuel used in capital projects and other non-freight activities. An improvement in fuel efficiency indicates operational cost savings and CP's commitment to corporate sustainability through a reduction of greenhouse gas emissions intensity. Fuel efficiency improved by 4% in the first quarter of 2020 compared to the same period of 2019. This increase in efficiency was due to improved winter operating conditions and increased train productivity. |
For the three months ended March 31 | ||||||
(in millions, except per share data, percentages and ratios) | 2020 | 2019 | ||||
Financial Performance and Liquidity | ||||||
Total revenues | $ | 2,043 | $ | 1,767 | ||
Operating income | 834 | 543 | ||||
Net income | 409 | 434 | ||||
Adjusted income(1) | 607 | 392 | ||||
Basic EPS | 2.99 | 3.10 | ||||
Diluted EPS | 2.98 | 3.09 | ||||
Adjusted diluted EPS(1) | 4.42 | 2.79 | ||||
Dividends declared per share | 0.8300 | 0.6500 | ||||
Cash provided by operating activities | 489 | 413 | ||||
Cash used in investing activities | (362 | ) | (219 | ) | ||
Cash (used in) provided by financing activities | (44 | ) | 98 | |||
Free cash(1) | 158 | 193 | ||||
Financial Position | As at March 31, 2020 | As at December 31, 2019 | ||||
Total assets | $ | 23,488 | $ | 22,367 | ||
Total long-term debt, including current portion | 10,070 | 8,757 | ||||
Total shareholders’ equity | 6,955 | 7,069 | ||||
For the three months ended March 31 | ||||||
Financial Ratios(2) | 2020 | 2019 | ||||
Operating ratio(3) | 59.2 | % | 69.3 | % | ||
For the twelve months ended March 31 | ||||||
2020 | 2019 | |||||
Return on average shareholders' equity(4) | 35.1 | % | 30.8 | % | ||
Adjusted return on invested capital ("Adjusted ROIC")(1) | 17.4 | % | 15.9 | % | ||
Long-term debt to Net income ratio(5) | 4.2 | 4.4 | ||||
Adjusted net debt to adjusted EBITDA ratio(1) | 2.5 | 2.6 |
(1) | These measures have no standardized meanings prescribed by accounting principles generally accepted in the United States of America ("GAAP") and, therefore, may not be comparable to similar measures presented by other companies. These measures are defined and reconciled in Non-GAAP Measures of this Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
(2) | The Non-GAAP measure Return on invested capital ("ROIC") has been discontinued starting with this Quarterly Report on Form 10-Q, in order to reduce Non-GAAP disclosures. |
(3) | Operating ratio is defined as operating expenses divided by revenues, further discussed in Results of Operations of this Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. |
(4) | Return on average shareholders' equity is defined as Net income divided by average shareholders' equity, averaged between the beginning and ending balance over a rolling 12-month period, further discussed in Results of Operations of this Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. |
(5) | Long-term debt to Net income ratio is defined as long-term debt, including long-term debt maturing within one year, divided by Net income, further discussed in Liquidity and Capital Resources of this Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. |
• | higher volumes as measured by RTMs; |
• | liquidated damages, including customer volume commitments, and higher freight rates; |
• | the impact of harsher winter operating conditions in 2019; |
• | decreased operating expense associated with lower casualty costs in 2020 of $31 million; and |
• | the efficiencies generated from improved operating performance and asset utilization. |
• | liquidated damages, including customer volume commitments, and higher freight rates; |
• | higher volumes; |
• | the impact of harsher winter operating conditions in 2019; |
• | lower casualty costs in 2020; and |
• | the efficiencies generated from improved operating performance and asset utilization. |
Average exchange rates (Canadian/U.S. dollar) | 2020 | 2019 | ||||
For the three months ended - March 31 | $ | 1.35 | $ | 1.33 |
Ending exchange rates (Canadian/U.S. dollar) | 2020 | 2019 | ||||
Beginning of year - January 1 | $ | 1.30 | $ | 1.36 | ||
End of quarter - March 31 | $ | 1.41 | $ | 1.34 |
For the three months ended March 31 | ||||||
High/Low exchange rates (Canadian/U.S. dollar) | 2020 | 2019 | ||||
High | $ | 1.45 | $ | 1.36 | ||
Low | $ | 1.30 | $ | 1.31 |
Average Fuel Price (U.S. dollars per U.S. gallon) | 2020 | 2019 | ||||
For the three months ended - March 31 | $ | 2.33 | $ | 2.40 |
TSX (in Canadian dollars) | 2020 | 2019 | ||||
Opening Common Share price, as at January 1 | $ | 331.03 | $ | 242.24 | ||
Ending Common Share price, as at March 31 | $ | 310.55 | $ | 275.34 | ||
Change in Common Share price for the three months ended March 31 | $ | (20.48 | ) | $ | 33.10 |
NYSE (in U.S. dollars) | 2020 | 2019 | ||||
Opening Common Share price, as at January 1 | $ | 254.95 | $ | 177.62 | ||
Ending Common Share price, as at March 31 | $ | 219.59 | $ | 206.03 | ||
Change in Common Share price for the three months ended March 31 | $ | (35.36 | ) | $ | 28.41 |
For the three months ended March 31 | 2020 | 2019 | Total Change | % Change | FX Adjusted % Change(2) | ||||||
Freight revenues (in millions)(1) | $ | 2,000 | $ | 1,726 | $ | 274 | 16 | 15 | |||
Non-freight revenues (in millions) | 43 | 41 | 2 | 5 | 5 | ||||||
Total revenues (in millions) | $ | 2,043 | $ | 1,767 | $ | 276 | 16 | 15 | |||
Carloads (in thousands) | 690.6 | 635.6 | 55.0 | 9 | N/A | ||||||
Revenue ton-miles (in millions) | 39,218 | 36,002 | 3,216 | 9 | N/A | ||||||
Freight revenue per carload (in dollars) | $ | 2,896 | $ | 2,716 | $ | 180 | 7 | 6 | |||
Freight revenue per revenue ton-mile (in cents) | 5.10 | 4.79 | 0.31 | 6 | 6 |
(1) | Freight revenues include fuel surcharge revenues of $119 million in 2020 and $107 million in 2019. Fuel surcharge revenues include recoveries of carbon taxes, levies, and obligations under cap-and-trade programs. |
(2) | FX Adjusted % Change does not have any standardized meaning prescribed by GAAP and, therefore, is unlikely to be comparable to similar measures presented by other companies. FX Adjusted % Change is defined and reconciled in Non-GAAP Measures of this Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. |
For the three months ended March 31 | 2020 | 2019 | Total Change | % Change | FX Adjusted % Change(1) | ||||||
Freight revenues (in millions) | $ | 418 | $ | 380 | $ | 38 | 10 | 10 | |||
Carloads (in thousands) | 100.6 | 92.8 | 7.8 | 8 | N/A | ||||||
Revenue ton-miles (in millions) | 9,016 | 8,352 | 664 | 8 | N/A | ||||||
Freight revenue per carload (in dollars) | $ | 4,155 | $ | 4,089 | $ | 66 | 2 | 1 | |||
Freight revenue per revenue ton-mile (in cents) | 4.64 | 4.55 | 0.09 | 2 | 2 |
(1) | FX Adjusted % Change does not have any standardized meaning prescribed by GAAP and, therefore, is unlikely to be comparable to similar measures presented by other companies. FX Adjusted % Change is defined and reconciled in Non-GAAP Measures of this Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. |
For the three months ended March 31 | 2020 | 2019 | Total Change | % Change | FX Adjusted % Change(1) | ||||||||
Freight revenues (in millions) | $ | 150 | $ | 158 | $ | (8 | ) | (5 | ) | (5 | ) | ||
Carloads (in thousands) | 63.8 | 70.4 | (6.6 | ) | (9 | ) | N/A | ||||||
Revenue ton-miles (in millions) | 4,435 | 5,232 | (797 | ) | (15 | ) | N/A | ||||||
Freight revenue per carload (in dollars) | $ | 2,351 | $ | 2,237 | $ | 114 | 5 | 5 | |||||
Freight revenue per revenue ton-mile (in cents) | 3.38 | 3.01 | 0.37 | 12 | 12 |
(1) | FX Adjusted % Change does not have any standardized meaning prescribed by GAAP and, therefore, is unlikely to be comparable to similar measures presented by other companies. FX Adjusted % Change is defined and reconciled in Non-GAAP Measures of this Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. |
For the three months ended March 31 | 2020 | 2019 | Total Change | % Change | FX Adjusted % Change(1) | ||||||||
Freight revenues (in millions) | $ | 112 | $ | 114 | $ | (2 | ) | (2 | ) | (2 | ) | ||
Carloads (in thousands) | 36.4 | 37.9 | (1.5 | ) | (4 | ) | N/A | ||||||
Revenue ton-miles (in millions) | 4,138 | 4,573 | (435 | ) | (10 | ) | N/A | ||||||
Freight revenue per carload (in dollars) | $ | 3,077 | $ | 2,996 | $ | 81 | 3 | 3 | |||||
Freight revenue per revenue ton-mile (in cents) | 2.71 | 2.48 | 0.23 | 9 | 9 |
(1) | FX Adjusted % Change does not have any standardized meaning prescribed by GAAP and, therefore, is unlikely to be comparable to similar measures presented by other companies. FX Adjusted % Change is defined and reconciled in Non-GAAP Measures of this Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. |
For the three months ended March 31 | 2020 | 2019 | Total Change | % Change | FX Adjusted % Change(1) | |||||||
Freight revenues (in millions) | $ | 70 | $ | 57 | $ | 13 | 23 | 21 | ||||
Carloads (in thousands) | 15.1 | 13.7 | 1.4 | 10 | N/A | |||||||
Revenue ton-miles (in millions) | 1,095 | 902 | 193 | 21 | N/A | |||||||
Freight revenue per carload (in dollars) | $ | 4,636 | $ | 4,197 | $ | 439 | 10 | 9 | ||||
Freight revenue per revenue ton-mile (in cents) | 6.39 | 6.38 | 0.01 | — | (1 | ) |
(1) | FX Adjusted % Change does not have any standardized meaning prescribed by GAAP and, therefore, is unlikely to be comparable to similar measures presented by other companies. FX Adjusted % Change is defined and reconciled in Non-GAAP Measures of this Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. |
For the three months ended March 31 | 2020 | 2019 | Total Change | % Change | FX Adjusted % Change(1) | ||||||||
Freight revenues (in millions) | $ | 78 | $ | 73 | $ | 5 | 7 | 7 | |||||
Carloads (in thousands) | 18.1 | 17.1 | 1.0 | 6 | N/A | ||||||||
Revenue ton-miles (in millions) | 1,277 | 1,179 | 98 | 8 | N/A | ||||||||
Freight revenue per carload (in dollars) | $ | 4,309 | $ | 4,288 | $ | 21 | — | — | |||||
Freight revenue per revenue ton-mile (in cents) | 6.11 | 6.23 | (0.12 | ) | (2 | ) | (2 | ) |
(1) | FX Adjusted % Change does not have any standardized meaning prescribed by GAAP and, therefore, is unlikely to be comparable to similar measures presented by other companies. FX Adjusted % Change is defined and reconciled in Non-GAAP Measures of this Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. |
For the three months ended March 31 | 2020 | 2019 | Total Change | % Change | FX Adjusted % Change(1) | ||||||
Freight revenues (in millions) | $ | 491 | $ | 315 | $ | 176 | 56 | 55 | |||
Carloads (in thousands) | 101.8 | 78.8 | 23.0 | 29 | N/A | ||||||
Revenue ton-miles (in millions) | 8,849 | 6,359 | 2,490 | 39 | N/A | ||||||
Freight revenue per carload (in dollars) | $ | 4,823 | $ | 3,998 | $ | 825 | 21 | 20 | |||
Freight revenue per revenue ton-mile (in cents) | 5.55 | 4.96 | 0.59 | 12 | 12 |
(1) | FX Adjusted % Change does not have any standardized meaning prescribed by GAAP and, therefore, is unlikely to be comparable to similar measures presented by other companies. FX Adjusted % Change is defined and reconciled in Non-GAAP Measures of this Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. |
For the three months ended March 31 | 2020 | 2019 | Total Change | % Change | FX Adjusted % Change(1) | ||||||||
Freight revenues (in millions) | $ | 189 | $ | 173 | $ | 16 | 9 | 9 | |||||
Carloads (in thousands) | 58.2 | 53.5 | 4.7 | 9 | N/A | ||||||||
Revenue ton-miles (in millions) | 2,771 | 2,448 | 323 | 13 | N/A | ||||||||
Freight revenue per carload (in dollars) | $ | 3,247 | $ | 3,239 | $ | 8 | — | — | |||||
Freight revenue per revenue ton-mile (in cents) | 6.82 | 7.07 | (0.25 | ) | (4 | ) | (4 | ) |
(1) | FX Adjusted % Change does not have any standardized meaning prescribed by GAAP and, therefore, is unlikely to be comparable to similar measures presented by other companies. FX Adjusted % Change is defined and reconciled in Non-GAAP Measures of this Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. |
For the three months ended March 31 | 2020 | 2019 | Total Change | % Change | FX Adjusted % Change(1) | |||||||
Freight revenues (in millions) | $ | 87 | $ | 76 | $ | 11 | 14 | 13 | ||||
Carloads (in thousands) | 28.2 | 25.1 | 3.1 | 12 | N/A | |||||||
Revenue ton-miles (in millions) | 326 | 335 | (9 | ) | (3 | ) | N/A | |||||
Freight revenue per carload (in dollars) | $ | 3,085 | $ | 3,048 | $ | 37 | 1 | 1 | ||||
Freight revenue per revenue ton-mile (in cents) | 26.69 | 22.84 | 3.85 | 17 | 16 |
(1) | FX Adjusted % Change does not have any standardized meaning prescribed by GAAP and, therefore, is unlikely to be comparable to similar measures presented by other companies. FX Adjusted % Change is defined and reconciled in Non-GAAP Measures of this Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. |
For the three months ended March 31 | 2020 | 2019 | Total Change | % Change | FX Adjusted % Change(1) | ||||||||
Freight revenues (in millions) | $ | 405 | $ | 380 | $ | 25 | 7 | 6 | |||||
Carloads (in thousands) | 268.4 | 246.3 | 22.1 | 9 | N/A | ||||||||
Revenue ton-miles (in millions) | 7,311 | 6,622 | 689 | 10 | N/A | ||||||||
Freight revenue per carload (in dollars) | $ | 1,509 | $ | 1,542 | $ | (33 | ) | (2 | ) | (2 | ) | ||
Freight revenue per revenue ton-mile (in cents) | 5.54 | 5.74 | (0.20 | ) | (3 | ) | (4 | ) |
(1) | FX Adjusted % Change does not have any standardized meaning prescribed by GAAP and, therefore, is unlikely to be comparable to similar measures presented by other companies. FX Adjusted % Change is defined and reconciled in Non-GAAP Measures of this Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. |
For the three months ended March 31 (in millions) | 2020 | 2019 | Total Change | % Change | FX Adjusted % Change(1) | ||||||||
Compensation and benefits | $ | 398 | $ | 406 | $ | (8 | ) | (2 | ) | (2 | ) | ||
Fuel | 212 | 209 | 3 | 1 | — | ||||||||
Materials | 59 | 57 | 2 | 4 | 4 | ||||||||
Equipment rents | 36 | 35 | 1 | 3 | 3 | ||||||||
Depreciation and amortization | 192 | 160 | 32 | 20 | 19 | ||||||||
Purchased services and other | 312 | 357 | (45 | ) | (13 | ) | (13 | ) | |||||
Total operating expenses | $ | 1,209 | $ | 1,224 | $ | (15 | ) | (1 | ) | (2 | ) |
(1) | FX Adjusted % Change does not have any standardized meaning prescribed by GAAP and, therefore, is unlikely to be comparable to similar measures presented by other companies. FX Adjusted % Change is defined and reconciled in Non-GAAP Measures of this Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. |
• | the impact of harsher winter operating conditions in 2019; |
• | decreased operating expense associated with lower casualty costs in 2020 of $31 million; |
• | the efficiencies generated from improved operating performance and asset utilization; and |
• | lower stock based compensation of $23 million. |
• | higher volume variable expenses; |
• | higher depreciation and amortization of $31 million (excluding FX); and |
• | cost inflation. |
• | lower stock-based compensation of $23 million driven primarily by a decrease in the stock price; |
• | labour efficiencies; and |
• | the impact of harsher winter operating conditions driven by operational inefficiencies and increased track maintenance in the first quarter of 2019. |
• | higher volume variable expenses as a result of an increase in workload as measured by GTMs; |
• | the impact of wage and benefit inflation; |
• | higher pension current service cost of $8 million; and |
• | higher incentive compensation. |
For the three months ended March 31 (in millions) | 2020 | 2019 | Total Change | % Change | |||||||
Support and facilities | $ | 75 | $ | 71 | $ | 4 | 6 | ||||
Track and operations | 75 | 75 | — | — | |||||||
Intermodal | 56 | 56 | — | — | |||||||
Equipment | 30 | 32 | (2 | ) | (6 | ) | |||||
Casualty | 39 | 69 | (30 | ) | (43 | ) | |||||
Property taxes | 36 | 36 | — | — | |||||||
Other | 5 | 18 | (13 | ) | (72 | ) | |||||
Land sales | (4 | ) | — | (4 | ) | — | |||||
Total Purchased services and other | $ | 312 | $ | 357 | $ | (45 | ) | (13 | ) |
• | lower expenses due to the reduced number and severity of casualty incidents, reported in Casualty; |
• | a decrease in charges associated with contingencies of $10 million, reported in Other; |
• | lower snow removal and other weather related costs, reported in Track and operations and Intermodal; and |
• | a gain on land sales of $4 million. |
Long-term debt | Outlook | ||
Standard & Poor's | |||
Long-term corporate credit | BBB+ | stable | |
Senior secured debt | A | stable | |
Senior unsecured debt | BBB+ | stable | |
Moody's | |||
Senior unsecured debt | Baa1 | stable | |
Commercial paper program | |||
Standard & Poor's | A-2 | N/A | |
Moody's | P-2 | N/A |
(1) | Credit ratings are not recommendations to purchase, hold or sell securities and do not address the market price or suitability of a specific security for a particular investor. Credit ratings are based on the rating agencies' methodologies and may be subject to revision or withdrawal at any time by the rating agencies. |
• | a non-cash loss of $215 million ($198 million after deferred tax) due to FX translation of debt and lease liabilities that unfavourably impacted Diluted EPS by $1.44. |
• | in the fourth quarter, a deferred tax expense of $24 million as a result of a provision for an uncertain tax item of a prior period that unfavourably impacted Diluted EPS by 17 cents; |
• | in the second quarter, a deferred tax recovery of $88 million due to the change in the Alberta provincial corporate income tax rate that favourably impacted Diluted EPS by 63 cents; and |
• | during the course of the year, a net non-cash gain of $94 million ($86 million after deferred tax) due to FX translation of debt and lease liabilities as follows: |
– | in the fourth quarter, a $37 million gain ($32 million after deferred tax) that favourably impacted Diluted EPS by 22 cents; |
– | in the third quarter, a $25 million loss ($22 million after deferred tax) that unfavourably impacted Diluted EPS by 15 cents; |
– | in the second quarter, a $37 million gain ($34 million after deferred tax) that favourably impacted Diluted EPS by 24 cents; and |
– | in the first quarter, a $45 million gain ($42 million after deferred tax) that favourably impacted Diluted EPS by 30 cents. |
• | in the second quarter, a deferred tax recovery of $21 million due to reductions in the Missouri and Iowa state tax rates that favourably impacted Diluted EPS by 15 cents; and |
• | a net non-cash loss of $119 million ($108 million after deferred tax) due to FX translation of debt as follows: |
– | in the fourth quarter, a $113 million loss ($103 million after deferred tax) that unfavourably impacted Diluted EPS by 72 cents; |
– | in the third quarter, a $38 million gain ($33 million after deferred tax) that favourably impacted Diluted EPS by 23 cents; and |
– | in the second quarter, a $44 million loss ($38 million after deferred tax) that unfavourably impacted Diluted EPS by 27 cents. |
For the three months ended March 31 | For the twelve months ended December 31 | ||||||||
(in millions) | 2020 | 2019 | 2019 | ||||||
Net income as reported | $ | 409 | $ | 434 | $ | 2,440 | |||
Less significant items (pre-tax): | |||||||||
Impact of FX translation (loss) gain on debt and lease liabilities | (215 | ) | 45 | 94 | |||||
Add: | |||||||||
Tax effect of adjustments(1) | (17 | ) | 3 | 8 | |||||
Income tax rate changes | — | — | (88 | ) | |||||
Provision for uncertain tax item | — | — | 24 | ||||||
Adjusted income | $ | 607 | $ | 392 | $ | 2,290 |
(1) | The tax effect of adjustments was calculated as the pre-tax effect of the adjustments multiplied by the applicable tax rate for the above items of 8.17% for the three months ended March 31, 2020, 6.45% for the three months ended March 31, 2019, and 8.55% for the twelve months ended December 31, 2019, respectively. The applicable tax rates reflect the taxable jurisdictions and nature, being on account of capital or income, of the significant items. |
For the three months ended March 31 | For the twelve months ended December 31 | ||||||||
2020 | 2019 | 2019 | |||||||
Diluted earnings per share as reported | $ | 2.98 | $ | 3.09 | $ | 17.52 | |||
Less significant items (pre-tax): | |||||||||
Impact of FX translation (loss) gain on debt and lease liabilities | (1.57 | ) | 0.32 | 0.67 | |||||
Add: | |||||||||
Tax effect of adjustments(1) | (0.13 | ) | 0.02 | 0.05 | |||||
Income tax rate changes | — | — | (0.63 | ) | |||||
Provision for uncertain tax item | — | — | 0.17 | ||||||
Adjusted diluted earnings per share | $ | 4.42 | $ | 2.79 | $ | 16.44 |
(1) | The tax effect of adjustments was calculated as the pre-tax effect of the adjustments multiplied by the applicable tax rate for the above items of 8.17% for the three months ended March 31, 2020, 6.45% for the three months ended March 31, 2019, and 8.55% for the twelve months ended December 31, 2019, respectively. The applicable tax rates reflect the taxable jurisdictions and nature, being on account of capital or income, of the significant items. |
For the twelve months ended March 31 | ||||||
(in millions, except for percentages) | 2020 | 2019 | ||||
Net income as reported | $ | 2,415 | $ | 2,037 | ||
Average shareholders' equity | $ | 6,884 | $ | 6,624 | ||
Return on average shareholders' equity | 35.1 | % | 30.8 | % |
For the twelve months ended March 31 | ||||||
(in millions) | 2020 | 2019 | ||||
Net income as reported | $ | 2,415 | $ | 2,037 | ||
Add: | ||||||
Net interest expense | 448 | 452 | ||||
Tax on interest(1) | (112 | ) | (113 | ) | ||
Significant items: | ||||||
Impact of FX translation loss on debt and lease liabilities (pre-tax) | 166 | 74 | ||||
Tax on significant items(2) | (12 | ) | (8 | ) | ||
Income tax recovery from income tax rate changes | (88 | ) | (21 | ) | ||
Provision for uncertain tax item | 24 | — | ||||
Adjusted return | $ | 2,841 | $ | 2,421 |
(1) | Tax was calculated at the adjusted annualized effective tax rate of 24.85% and 24.76% for the twelve months ended March 31, 2020 and 2019, respectively. |
(2) | Tax was calculated as the pre-tax effect of the adjustments multiplied by the applicable tax rate for the above items of 7.61% and 11.34% for the twelve months ended March 31, 2020 and 2019, respectively. |
For the twelve months ended March 31 | ||||||
(in millions) | 2020 | 2019 | ||||
Average shareholders' equity | $ | 6,884 | $ | 6,624 | ||
Average Long-term debt, including long-term debt maturing within one year | 9,497 | 8,640 | ||||
$ | 16,381 | $ | 15,264 | |||
Less: | ||||||
Income tax recovery from income tax rate changes | 44 | 11 | ||||
Provision for uncertain tax item | (12 | ) | — | |||
Adjusted average invested capital | $ | 16,349 | $ | 15,253 |
For the twelve months ended March 31 | ||||||
(in millions, except for percentages) | 2020 | 2019 | ||||
Adjusted return | $ | 2,841 | $ | 2,421 | ||
Adjusted average invested capital | $ | 16,349 | $ | 15,253 | ||
Adjusted ROIC | 17.4 | % | 15.9 | % |
For the three months ended March 31 | ||||||
(in millions) | 2020 | 2019 | ||||
Cash provided by operating activities | $ | 489 | $ | 413 | ||
Cash used in investing activities | (362 | ) | (219 | ) | ||
Effect of foreign currency fluctuations on U.S. dollar-denominated cash and cash equivalents | 31 | (1 | ) | |||
Free cash | $ | 158 | $ | 193 |
For the three months ended March 31 | ||||||||||||||
(in millions) | Reported 2020 | Reported 2019 | Variance due to FX | FX Adjusted 2019 | FX Adjusted % Change | |||||||||
Freight revenues by line of business | ||||||||||||||
Grain | $ | 418 | $ | 380 | $ | 1 | $ | 381 | 10 | |||||
Coal | 150 | 158 | — | 158 | (5 | ) | ||||||||
Potash | 112 | 114 | — | 114 | (2 | ) | ||||||||
Fertilizers and sulphur | 70 | 57 | 1 | 58 | 21 | |||||||||
Forest products | 78 | 73 | — | 73 | 7 | |||||||||
Energy, chemicals and plastics | 491 | 315 | 1 | 316 | 55 | |||||||||
Metals, minerals and consumer products | 189 | 173 | 1 | 174 | 9 | |||||||||
Automotive | 87 | 76 | 1 | 77 | 13 | |||||||||
Intermodal | 405 | 380 | 1 | 381 | 6 | |||||||||
Freight revenues | 2,000 | 1,726 | 6 | 1,732 | 15 | |||||||||
Non-freight revenues | 43 | 41 | — | 41 | 5 | |||||||||
Total revenues | $ | 2,043 | $ | 1,767 | $ | 6 | $ | 1,773 | 15 |
For the three months ended March 31 | ||||||||||||||
(in millions) | Reported 2020 | Reported 2019 | Variance due to FX | FX Adjusted 2019 | FX Adjusted % Change | |||||||||
Compensation and benefits | $ | 398 | $ | 406 | $ | 1 | $ | 407 | (2 | ) | ||||
Fuel | 212 | 209 | 2 | 211 | — | |||||||||
Materials | 59 | 57 | — | 57 | 4 | |||||||||
Equipment rents | 36 | 35 | — | 35 | 3 | |||||||||
Depreciation and amortization | 192 | 160 | 1 | 161 | 19 | |||||||||
Purchased services and other | 312 | 357 | 2 | 359 | (13 | ) | ||||||||
Total operating expenses | $ | 1,209 | $ | 1,224 | $ | 6 | $ | 1,230 | (2 | ) |
(in millions, except for ratios) | 2020 | 2019 | ||||
Long-term debt including long-term debt maturing within one year as at March 31 | $ | 10,070 | $ | 8,923 | ||
Net income for the twelve months ended March 31 | 2,415 | 2,037 | ||||
Long-term debt to Net income ratio | 4.2 | 4.4 |
(in millions) | 2020 | 2019 | ||||
Long-term debt including long-term debt maturing within one year as at March 31 | $ | 10,070 | $ | 8,923 | ||
Add: | ||||||
Pension plans deficit(1) | 300 | 265 | ||||
Operating lease liabilities | 365 | 386 | ||||
Less: | ||||||
Cash and cash equivalents | 247 | 352 | ||||
Adjusted net debt as at March 31 | $ | 10,488 | $ | 9,222 |
(1) | Pension plans deficit is the total funded status of the Pension plans in deficit only. |
For the twelve months ended March 31 | ||||||
(in millions) | 2020 | 2019 | ||||
Net income as reported | $ | 2,415 | $ | 2,037 | ||
Add: | ||||||
Net interest expense | 448 | 452 | ||||
Income tax expense | 752 | 654 | ||||
EBIT | 3,615 | 3,143 | ||||
Less significant items (pre-tax): | ||||||
Impact of FX translation loss on debt and lease liabilities | (166 | ) | (74 | ) | ||
Adjusted EBIT | 3,781 | 3,217 | ||||
Add: | ||||||
Operating lease expense | 83 | 97 | ||||
Depreciation and amortization | 738 | 686 | ||||
Less: | ||||||
Other components of net periodic benefit recovery | 369 | 385 | ||||
Adjusted EBITDA | $ | 4,233 | $ | 3,615 |
(in millions, except for ratios) | 2020 | 2019 | ||||
Adjusted net debt as at March 31 | $ | 10,488 | $ | 9,222 | ||
Adjusted EBITDA for the twelve months ended March 31 | 4,233 | 3,615 | ||||
Adjusted net debt to Adjusted EBITDA ratio | 2.5 | 2.6 |
Payments due by period (in millions) | Total | 2020 | 2021 & 2022 | 2023 & 2024 | Thereafter | ||||||||||
Contractual commitments | |||||||||||||||
Interest on long-term debt and finance leases | $ | 12,336 | $ | 313 | $ | 917 | $ | 794 | $ | 10,312 | |||||
Long-term debt | 10,003 | 238 | 905 | 617 | 8,243 | ||||||||||
Finance leases | 164 | 6 | 124 | 15 | 19 | ||||||||||
Operating leases(1) | 414 | 65 | 125 | 99 | 125 | ||||||||||
Supplier purchases | 2,173 | 373 | 874 | 523 | 403 | ||||||||||
Other long-term liabilities(2) | 489 | 41 | 103 | 101 | 244 | ||||||||||
Total contractual commitments | $ | 25,579 | $ | 1,036 | $ | 3,048 | $ | 2,149 | $ | 19,346 |
(1) | Residual value guarantees on certain leased equipment with a maximum exposure of $2 million are not included in the minimum payments shown above. |
(2) | Includes expected cash payments for environmental remediation, post-retirement benefits, workers’ compensation benefits, long-term disability benefits, pension benefit payments for the Company’s non-registered supplemental pension plan, and certain other long-term liabilities. Projected payments for post-retirement benefits, workers’ compensation benefits, and long-term disability benefits include the anticipated payments for years 2020 to 2029. Pension contributions for the Company’s registered pension plans are not included due to the volatility in calculating them. Pension payments are discussed further in Critical Accounting Estimates of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Company's 2019 Annual Report on Form 10-K. |
Payments due by period (in millions) | Total | 2020 | 2021 & 2022 | 2023 & 2024 | Thereafter | ||||||||||
Certain other financial commitments | |||||||||||||||
Letters of credit | $ | 85 | $ | 85 | $ | — | $ | — | $ | — | |||||
Capital commitments | 737 | 377 | 211 | 73 | 76 | ||||||||||
Total certain other financial commitments | $ | 822 | $ | 462 | $ | 211 | $ | 73 | $ | 76 |
2020 | Total number of shares purchased | Average price paid per share(1) | Total number of shares purchased as part of publicly announced plans or programs | Maximum number of shares (or units) that may yet be purchased under the plans or programs | |||||
January 1 to January 31 | 318,054 | $ | 338.59 | 318,054 | 4,184,399 | ||||
February 1 to February 29 | 472,800 | 349.70 | 472,800 | 3,711,599 | |||||
March 1 to March 31 | 665,000 | 293.73 | 665,000 | 3,046,599 | |||||
Ending Balance | 1,455,854 | $ | 321.71 | 1,455,854 | N/A |
(1) | Includes brokerage fees. |
Exhibit | Description |
101.INS* | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
101.SCH* | Inline XBRL Taxonomy Extension Schema Document |
101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document |
101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
The following financial information from Canadian Pacific Railway Limited's Quarterly Report on Form 10-Q for the first quarter ended March 31, 2020, formatted in Extensible Business Reporting Language (XBRL) includes: (i) the Interim Consolidated Statements of Income for the first three months ended March 31, 2020 and 2019; (ii) the Interim Consolidated Statements of Comprehensive Income for the first three months ended March 31, 2020 and 2019; (iii) the Interim Consolidated Balance Sheets at March 31, 2020, and December 31, 2019; (iv) the Interim Consolidated Statements of Cash Flows for the first three months ended March 31, 2020 and 2019; (v) the Interim Consolidated Statements of Changes in Shareholders’ Equity for the first three months ended March 31, 2020 and 2019; and (vi) the Notes to Interim Consolidated Financial Statements. | |
104* | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
CANADIAN PACIFIC RAILWAY LIMITED | |
(Registrant) | |
By: | /s/ NADEEM VELANI |
Nadeem Velani | |
Executive Vice-President and Chief Financial Officer (Principal Financial Officer) |
Page | |||||
ARTICLE 1 INTERPRETATIONS | 1 | ||||
1.1 | Second Supplemental Indenture | 1 | |||
1.2 | Definitions in Second Supplemental Indenture | 1 | |||
1.3 | Interpretation not Affected by Headings | 1 | |||
ARTICLE 2 AMENDMENT TO SECTION 5.3 OF THE INDENTURE | 2 | ||||
2.1 | Amendment to Section 5.3 of the Indenture | 2 | |||
2.2 | Guarantor's Acknowledgement | 2 | |||
ARTICLE 3 GENERAL | 2 | ||||
3.1 | Effectiveness | 2 | |||
3.2 | Effect of Recitals | 3 | |||
3.3 | Ratification of Indenture | 3 | |||
3.4 | Governing Law | 3 | |||
3.5 | Severability | 3 | |||
3.6 | Acceptance of Trust | 3 | |||
3.7 | Counterparts and Formal Date | 3 |
i |
1.1 | Second Supplemental Indenture |
1.2 | Definitions in Second Supplemental Indenture |
1.3 | Interpretation not Affected by Headings |
2.1 | Amendment to Section 5.3 of the Indenture |
(a) | in the case of a notice mailed to a holder of Debentures, the distinguishing letters and numbers of the Debentures which are to be redeemed (or of such thereof as are registered in the name of such holder); |
(b) | in the case of a published notice, the distinguishing letters and numbers of the Debentures which are to be redeemed or, if such Debentures are selected by terminal digit or other similar system, such particulars as may be sufficient to identify the Debentures so selected; and |
(c) | in all cases, the principal amounts of such Debentures or, if any such Debenture is to be redeemed in part only, the principal amount of such part." |
2.2 | Guarantor's Acknowledgement |
3.1 | Effectiveness |
3.2 | Effect of Recitals |
3.3 | Ratification of Indenture |
3.4 | Governing Law |
3.5 | Severability |
3.6 | Acceptance of Trust |
3.7 | Counterparts and Formal Date |
CANADIAN PACIFIC RAILWAY | CANADIAN PACIFIC RAILWAY | |||
LIMITED | COMPANY | |||
Per: | (signed) "Nadeem Velani" | Per: | (signed) "Nadeem Velani" | |
Name: | Nadeem Velani | Name: | Nadeem Velani | |
Title: | Executive Vice President and | Title: | Executive Vice President and | |
Chief Financial Officer | Chief Financial Officer | |||
Per: | (signed) "Chris De Bruyn" | Per: | (signed) "Chris De Bruyn" | |
Name: | Chris De Bruyn | Name: | Chris De Bruyn | |
Title: | Director, Investor Relations and Treasury | Title: | Director, Investor Relations and Treasury | |
COMPUTERSHARE TRUST COMPANY | |
OF CANADA | |
Per: | (signed) "Angela Fletcher" |
Name: | Angela Fletcher |
Title: | Corporate Trust Officer |
Per: | (signed) "Wande Oshile" |
Name: | Wande Oshile |
Title: | Corporate Trust Officer |
1. | I have reviewed this Quarterly Report on Form 10-Q of Canadian Pacific Railway Limited; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: April 21, 2020 | /s/ KEITH CREEL | |
Keith Creel | ||
President and Chief Executive Officer |
1. | I have reviewed this Quarterly Report on Form 10-Q of Canadian Pacific Railway Limited; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: April 21, 2020 | /s/ NADEEM VELANI | |
Nadeem Velani | ||
Executive Vice-President and Chief Financial Officer |
1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: April 21, 2020 | /s/ KEITH CREEL | |||
Keith Creel | ||||
President and Chief Executive Officer |
1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: April 21, 2020 | /s/ NADEEM VELANI | |||
Nadeem Velani | ||||
Executive Vice-President and Chief Financial Officer |
Other (Income) Expense |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Other Income and Expenses [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Income and Expenses | Other expense (income)
|
Accounts Receivable, Net |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Accounts Receivable, after Allowance for Credit Loss [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounts receivable, net | Accounts receivable, net Accounts receivable from customers are recognized initially at fair value and subsequently measured at amortized cost less allowance for expected credit losses. Losses on accounts receivable are estimated based on historical credit loss experience of receivables with similar risk characteristics. Historical loss experience is adjusted to reflect any management expectations that current or future conditions will differ from conditions that existed for the period over which historical information is evaluated. To determine expected credit losses, customer receivables are disaggregated by credit characteristics, type of customer service, customer line of business, and receivable aging.
Receivables are considered to be in default and are written off against the allowance for credit losses when it is probable that all remaining contractual payments due will not be collected in accordance with the terms of the customer contracts. Subsequent recoveries of amounts previously written off are credited to earnings in the period recovered.
|
Pension and Other Benefits |
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Retirement Benefits [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pensions and Other Benefits | Pension and other benefits In the three months ended March 31, 2020, the Company made contributions of $9 million (three months ended March 31, 2019 - $11 million) to its defined benefit pension plans. Net periodic benefit costs for defined benefit pension plans and other benefits included the following components:
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Pension and Other Benefits (Tables) |
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Retirement Benefits [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Periodic Benefit Cost for Defined Benefit Pension Plans and Other Benefits | Net periodic benefit costs for defined benefit pension plans and other benefits included the following components:
|
Pension and Other Benefits - Narrative (Details) - CAD ($) $ in Millions |
3 Months Ended | |
---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
|
Defined Benefit Pension Plan | ||
Defined Benefit Plan Disclosure [Line Items] | ||
Contributions made by the Company | $ 9 | $ 11 |
Accounting Changes |
3 Months Ended |
---|---|
Mar. 31, 2020 | |
New Accounting Pronouncements and Changes in Accounting Principles [Abstract] | |
Accounting Changes | Accounting changes Implemented in 2020 Financial Instruments - Credit Losses On January 1, 2020, the Company adopted the new Accounting Standards Update ("ASU") 2016-13, issued by the Financial Accounting Standards Board ("FASB"), and all related amendments under FASB Accounting Standards Codification ("ASC") Topic 326, Financial Instruments - Credit Losses. Using a modified retrospective approach, the Company recognized a cumulative-effect adjustment to its opening retained earnings balance in the period of adoption. Accordingly, comparative financial information has not been restated and continues to be reported under the accounting standards in effect for those periods. The impact of the adoption of ASC 326 as at January 1, 2020 was an increase in the allowance for credit losses of $1 million, with the offsets to "Deferred income taxes" and "Retained earnings" on the Company's Interim Consolidated Balance Sheet. See Note 8 for further discussion of the current period credit loss. Future Changes Simplification of Financial Disclosures about Guarantors In March 2020, the Securities and Exchange Commission issued amendments to the financial disclosure requirements for guarantors and issuers of guaranteed securities, to improve the quality of disclosure and reduce compliance burdens. Among other changes, the amendments replace the current requirement for condensed consolidating financial information (“CCFI”), as specified in Rule 3-10 of Regulation S-X, with summarized financial information and expanded qualitative non-financial disclosures about the guarantees, issuers, and guarantors. The amendments will be effective on January 4, 2021, with the option to comply in advance. The Company is currently assessing the impact of these amendments for its future CCFI disclosures.
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Earnings Per Share - Narrative (Details) - shares shares in Millions |
3 Months Ended | |
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Mar. 31, 2020 |
Mar. 31, 2019 |
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Stock Options | ||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
Number of options excluded from the computation of diluted earnings per share | 0.1 | 0.2 |
Basis of Presentation (Policies) |
3 Months Ended |
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Mar. 31, 2020 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Basis of presentation | These unaudited interim consolidated financial statements of Canadian Pacific Railway Limited (“CP”, or “the Company”), expressed in Canadian dollars, reflect management’s estimates and assumptions that are necessary for their fair presentation in conformity with generally accepted accounting principles in the United States of America (“GAAP”). They do not include all disclosures required under GAAP for annual financial statements and should be read in conjunction with the 2019 annual consolidated financial statements and notes included in CP's 2019 Annual Report on Form 10-K. The accounting policies used are consistent with the accounting policies used in preparing the 2019 annual consolidated financial statements, except for the newly adopted accounting policy discussed in Note 2. 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 statements include all adjustments (consisting of normal and recurring adjustments) necessary to present fairly such information. Interim results are not necessarily indicative of the results expected for the fiscal year.
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Other (Income) Expense (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Income and Expenses [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Income and Expenses |
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Accounts Receivable, Net - Allowance for Credit Loss (Details) - CAD ($) $ in Millions |
3 Months Ended | |
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Mar. 31, 2020 |
Jan. 01, 2020 |
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Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
Accounts receivable | $ 926 | |
Allowance for Credit Loss [Roll Forward] | ||
Current period credit loss provision, net | 2 | |
Allowance for credit losses, Closing | (41) | |
Accounts receivable, net | 885 | $ 804 |
Freight | ||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
Accounts receivable | 724 | |
Allowance for Credit Loss [Roll Forward] | ||
Current period credit loss provision, net | 0 | |
Allowance for credit losses, Closing | (27) | |
Accounts receivable, net | 697 | 610 |
Non-freight | ||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
Accounts receivable | 202 | |
Allowance for Credit Loss [Roll Forward] | ||
Current period credit loss provision, net | 2 | |
Allowance for credit losses, Closing | (14) | |
Accounts receivable, net | $ 188 | $ 194 |
Earnings Per Share - Number of Shares Used in the Earnings Per Share Calculations (Details) - shares shares in Millions |
3 Months Ended | |
---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
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Earnings Per Share [Abstract] | ||
Weighted-average basic shares outstanding | 136.7 | 140.1 |
Dilutive effect of stock options | 0.5 | 0.4 |
Weighted-average diluted shares outstanding | 137.2 | 140.5 |
Accounting Changes (Policies) |
3 Months Ended |
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Mar. 31, 2020 | |
New Accounting Pronouncements and Changes in Accounting Principles [Abstract] | |
Accounting Changes | Implemented in 2020 Financial Instruments - Credit Losses On January 1, 2020, the Company adopted the new Accounting Standards Update ("ASU") 2016-13, issued by the Financial Accounting Standards Board ("FASB"), and all related amendments under FASB Accounting Standards Codification ("ASC") Topic 326, Financial Instruments - Credit Losses. Using a modified retrospective approach, the Company recognized a cumulative-effect adjustment to its opening retained earnings balance in the period of adoption. Accordingly, comparative financial information has not been restated and continues to be reported under the accounting standards in effect for those periods. The impact of the adoption of ASC 326 as at January 1, 2020 was an increase in the allowance for credit losses of $1 million, with the offsets to "Deferred income taxes" and "Retained earnings" on the Company's Interim Consolidated Balance Sheet. See Note 8 for further discussion of the current period credit loss. Future Changes Simplification of Financial Disclosures about Guarantors In March 2020, the Securities and Exchange Commission issued amendments to the financial disclosure requirements for guarantors and issuers of guaranteed securities, to improve the quality of disclosure and reduce compliance burdens. Among other changes, the amendments replace the current requirement for condensed consolidating financial information (“CCFI”), as specified in Rule 3-10 of Regulation S-X, with summarized financial information and expanded qualitative non-financial disclosures about the guarantees, issuers, and guarantors. The amendments will be effective on January 4, 2021, with the option to comply in advance. The Company is currently assessing the impact of these amendments for its future CCFI disclosures.
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Income Taxes (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Income Tax Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Income Tax Expense |
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Stock-Based Compensation |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2020 | |||||||||||||||||||||||||||||||||||||||
Share-based Payment Arrangement [Abstract] | |||||||||||||||||||||||||||||||||||||||
Stock-Based Compensation | Stock-based compensation At March 31, 2020, the Company had several stock-based compensation plans including stock option plans, various cash-settled liability plans, and an employee share purchase plan. These plans resulted in an expense for the three months ended March 31, 2020 of $11 million (three months ended March 31, 2019 - an expense of $34 million). Stock option plan In the three months ended March 31, 2020, under CP’s stock option plans, the Company issued 212,020 options at the weighted-average price of $351.37 per share, based on the closing price on the grant date. Pursuant to the employee plan, these options may be exercised upon vesting, which is between 12 months and 48 months after the grant date, and will expire after seven years. Under the fair value method, the fair value of the stock options at grant date was approximately $15 million. The weighted-average fair value assumptions were approximately:
Performance share unit plans During the three months ended March 31, 2020, the Company issued 97,205 Performance Share Units ("PSUs") with a grant date fair value of approximately $34 million and 10,029 Performance Deferred Share Units ("PDSUs") with a grant date fair value, including value of expected future matching units, of approximately $4 million. PSUs and PDSUs attract dividend equivalents in the form of additional units based on dividends paid on the Company’s Common Shares, and vest approximately three years after the grant date, contingent upon CP’s performance ("performance factor"). The fair value of these PSUs and PDSUs is measured periodically until settlement using a lattice-based valuation model.Vested PSUs are settled in cash. Vested PDSUs are settled in cash pursuant to the Deferred Share Unit ("DSU") Plan and are eligible for a 25% match if the holder has not exceeded their share ownership requirements, and are paid out only when the holder ceases their employment with CP. The performance period for PSUs and PDSUs issued in the three months ended March 31, 2020 is January 1, 2020 to December 31, 2022 and the performance factors are Return on Invested Capital ("ROIC"), Total Shareholder Return ("TSR") compared to the S&P/TSX 60 Index, and TSR compared to Class I railways. The performance period for PSUs issued in 2017 was January 1, 2017 to December 31, 2019, and the performance factors for these PSUs were ROIC, TSR compared to the S&P/TSX Capped Industrial Index, and TSR compared to S&P 1500 Road and Rail Index. The resulting payout was 193% of the outstanding units multiplied by the Company's average share price calculated using the last 30 trading days preceding December 31, 2019. In the first quarter of 2020, payouts occurred on the total outstanding awards, including dividends reinvested, totalling $76 million on 121,225 outstanding awards. Deferred share unit plan During the three months ended March 31, 2020, the Company granted 13,134 DSUs with a grant date fair value of approximately $4 million. DSUs vest over various periods of up to 48 months and are only redeemable for a specified period after employment is terminated. The expense for DSUs is recognized over the vesting period for both the initial subscription price and the change in value between reporting periods.
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Income Taxes |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Income Tax Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||
Income Taxes | Income taxes
The effective tax rate for the three months ended March 31, 2020 was 31.10%, compared to 24.24% for the same period of 2019. For the three months ended March 31, 2020, the effective tax rate excluding the discrete item of the foreign exchange ("FX") loss of $215 million on debt and lease liabilities was 25.00%. |
Debt |
3 Months Ended |
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Mar. 31, 2020 | |
Debt Disclosure [Abstract] | |
Debt | Debt Issuance of long-term debt During the three months ended March 31, 2020, the Company issued U.S. $500 million 2.050% 10-year unsecured notes due March 5, 2030 for net proceeds of approximately U.S. $495 million ($662 million) and $300 million 3.050% 30-year unsecured notes due March 9, 2050 for net proceeds of approximately $296 million. These notes pay interest semi-annually and carry a negative pledge. Credit facility The Company's revolving credit facility consists of a U.S. $1.0 billion tranche maturing September 27, 2024 and a U.S. $300 million tranche maturing September 27, 2021. As at March 31, 2020, the Company had U.S. $100 million ($142 million) drawn from the U.S. $300 million tranche of its revolving credit facility (December 31, 2019 - undrawn). The interest rate on these borrowings is 1.875%. These borrowings are included in "Long-term debt maturing within one year" on the Company's Interim Consolidated Balance Sheets. Commercial paper program The Company has a commercial paper program which enables it to issue commercial paper up to a maximum aggregate principal amount of U.S. $1.0 billion in the form of unsecured promissory notes. This commercial paper program is backed by the U.S. $1.3 billion revolving credit facility. As at March 31, 2020, the Company had total commercial paper borrowings of U.S. $20 million ($28 million), included in "Long-term debt maturing within one year" on the Company's Interim Consolidated Balance Sheets (December 31, 2019 - U.S. $397 million). The weighted-average interest rate on these borrowings was 2.55% (December 31, 2019 - 2.03%). The Company presents issuances and repayments of commercial paper, all of which have a maturity of less than 90 days, in the Company's Interim Consolidated Statements of Cash Flows on a net basis.
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Accounting Changes - Impact of ASC 326 Adoption (Details) $ in Millions |
Jan. 01, 2020
CAD ($)
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Accounting Standards Update 2016-13 | |
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | |
Impact from adoption of ASC 326 | $ 1 |
Shareholders' Equity (Tables) |
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Mar. 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stockholders' Equity Note [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Activities Under Share Repurchase Program | The following table provides activities under the share repurchase programs:
(2) Includes brokerage fees.
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Contingencies - Environmental Liabilities (Details) - CAD ($) $ in Millions |
3 Months Ended | ||
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Mar. 31, 2020 |
Mar. 31, 2019 |
Dec. 31, 2019 |
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Site Contingency [Line Items] | |||
Total amount provided for provisions for environmental remediation costs | $ 83 | $ 77 | |
Term for expected payments to be made | 10 years | ||
Purchased services and other | |||
Site Contingency [Line Items] | |||
Environmental remediation expense | $ 1 | $ 1 |
Revenues |
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Revenue from Contract with Customer [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue Recognition | Revenues The following table disaggregates the Company’s revenues from contracts with customers by major source:
Contract liabilities Contract liabilities represent payments received for performance obligations not yet satisfied and relate to deferred revenue and are presented as components of "Accounts payable and accrued liabilities" and "Other long-term liabilities" on the Company's Interim Consolidated Balance Sheets. The following table summarizes the changes in contract liabilities:
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Financial Instruments - Fair Value and Carrying Value of Long-term Debt (Details) - CAD ($) $ in Millions |
Mar. 31, 2020 |
Dec. 31, 2019 |
---|---|---|
Schedule of Investments [Line Items] | ||
Long-term Debt, Fair value | $ 11,607 | $ 10,149 |
Carrying Value Measurement | ||
Schedule of Investments [Line Items] | ||
Long-term Debt, Carrying value | $ 10,070 | $ 8,757 |
Income Taxes - Summary of Income Tax Expense (Details) - CAD ($) $ in Millions |
3 Months Ended | |
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Mar. 31, 2020 |
Mar. 31, 2019 |
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Income Tax Disclosure [Abstract] | ||
Current income tax expense | $ 146 | $ 101 |
Deferred income tax expense | 39 | 38 |
Income tax expense | $ 185 | $ 139 |
Condensed Consolidating Financial Information |
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Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Condensed Consolidating Financial Information | Condensed consolidating financial information Canadian Pacific Railway Company, a 100%-owned subsidiary of Canadian Pacific Railway Limited (“CPRL”), is the issuer of certain debt securities, which are fully and unconditionally guaranteed by CPRL. The following tables present condensed consolidating financial information (“CCFI”) in accordance with Rule 3-10(c) of Regulation S-X. Investments in subsidiaries are accounted for under the equity method when presenting the CCFI. The tables include all adjustments necessary to reconcile the CCFI on a consolidated basis to CPRL’s consolidated financial statements for the periods presented. Interim Condensed Consolidating Statements of Income For the three months ended March 31, 2020
Interim Condensed Consolidating Statements of Income For the three months ended March 31, 2019
Interim Condensed Consolidating Statements of Comprehensive Income For the three months ended March 31, 2020
Interim Condensed Consolidating Statements of Comprehensive Income For the three months ended March 31, 2019
Interim Condensed Consolidating Balance Sheets As at March 31, 2020
Condensed Consolidating Balance Sheets As at December 31, 2019
Interim Condensed Consolidating Statements of Cash Flows For the three months ended March 31, 2020
Interim Condensed Consolidating Statements of Cash Flows For the three months ended March 31, 2019
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Revenues (Tables) |
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Revenue from Contract with Customer [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disaggregation of Revenue | The following table disaggregates the Company’s revenues from contracts with customers by major source:
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Changes in Contract Liabilities | The following table summarizes the changes in contract liabilities:
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Changes in Accumulated Other Comprehensive Loss ("AOCL") by Component (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Changes in Accumulated Other Comprehensive Loss (AOCL) by Component |
(1) Amounts are presented net of tax.
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Amounts in Pension and Post-retirement Defined Benefit Plans Reclassified from AOCL | Amounts in Pension and post-retirement defined benefit plans reclassified from AOCL are as follows:
(1) Impacts "Other components of net periodic benefit recovery" on the Interim Consolidated Statements of Income.
|
Revenues - Contract Liabilities (Details) - CAD ($) $ in Millions |
3 Months Ended | |
---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
|
Contract with Customer, Liability [Abstract] | ||
Opening balance | $ 146 | $ 2 |
Revenue recognized that was included in the contract liability balance at the beginning of the period | (37) | (2) |
Increase due to consideration received, net of revenue recognized during the period | 3 | 73 |
Closing balance | $ 112 | $ 73 |
Stock-Based Compensation (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||
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Mar. 31, 2020 | |||||||||||||||||||||||||||||||||||
Share-based Payment Arrangement [Abstract] | |||||||||||||||||||||||||||||||||||
Weighted-Average Fair Value Assumptions | The weighted-average fair value assumptions were approximately:
(5) The Company estimates forfeitures based on past experience. This rate is monitored on a periodic basis.
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Accounts Receivable, Net (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounts Receivable, after Allowance for Credit Loss [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounts Receivable, Allowance for Credit Loss |
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Changes in Accumulated Other Comprehensive Loss ("AOCL") by Component |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Changes in Accumulated Other Comprehensive Loss (AOCL) by Component | Changes in Accumulated other comprehensive loss ("AOCL") by component
Amounts in Pension and post-retirement defined benefit plans reclassified from AOCL are as follows:
(1) Impacts "Other components of net periodic benefit recovery" on the Interim Consolidated Statements of Income.
|
Shareholders' Equity |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stockholders' Equity Note [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shareholders' Equity | Shareholders' equity On December 17, 2019, the Company announced a normal course issuer bid ("NCIB"), commencing December 20, 2019, to purchase up to 4.80 million Common Shares in the open market for cancellation on or before December 19, 2020. As at March 31, 2020, the Company had purchased 1.75 million Common Shares for $568 million under this NCIB. On October 19, 2018, the Company announced a NCIB, commencing October 24, 2018, to purchase up to 5.68 million Common Shares for cancellation on or before October 23, 2019. The Company completed this NCIB on October 23, 2019. All purchases were made in accordance with the respective NCIB at prevailing market prices plus brokerage fees, or such other prices that were permitted by the Toronto Stock Exchange, with consideration allocated to share capital up to the average carrying amount of the shares and any excess allocated to "Retained earnings". The following table provides activities under the share repurchase programs:
(2) Includes brokerage fees.
|
INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited) - CAD ($) $ in Millions |
3 Months Ended | |
---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
|
Statement of Comprehensive Income [Abstract] | ||
Net income | $ 409 | $ 434 |
Net (loss) gain in foreign currency translation adjustments, net of hedging activities | (65) | 16 |
Change in derivatives designated as cash flow hedges | 2 | 2 |
Change in pension and post-retirement defined benefit plans | 45 | 20 |
Other comprehensive (loss) income before income taxes | (18) | 38 |
Income tax recovery (expense) on above items | 60 | (22) |
Other comprehensive income (loss) | 42 | 16 |
Comprehensive income | $ 451 | $ 450 |
Basis of Presentation |
3 Months Ended |
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Mar. 31, 2020 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Basis of Presentation | Basis of presentation These unaudited interim consolidated financial statements of Canadian Pacific Railway Limited (“CP”, or “the Company”), expressed in Canadian dollars, reflect management’s estimates and assumptions that are necessary for their fair presentation in conformity with generally accepted accounting principles in the United States of America (“GAAP”). They do not include all disclosures required under GAAP for annual financial statements and should be read in conjunction with the 2019 annual consolidated financial statements and notes included in CP's 2019 Annual Report on Form 10-K. The accounting policies used are consistent with the accounting policies used in preparing the 2019 annual consolidated financial statements, except for the newly adopted accounting policy discussed in Note 2. 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 statements include all adjustments (consisting of normal and recurring adjustments) necessary to present fairly such information. Interim results are not necessarily indicative of the results expected for the fiscal year.
|
Shareholders' Equity - Activities Under Share Repurchase Program (Detail) - CAD ($) $ / shares in Units, $ in Millions |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2020 |
Mar. 31, 2020 |
Mar. 31, 2019 |
|
Common Shares repurchased | 1,600,000 | 700,000 | |
Common Shares repurchased (value) | $ 468 | $ 185 | |
Current Normal Course Issuer Bid (NCIB) | |||
Common Shares repurchased | 1,750,000 | 1,455,854 | |
Weighted-average price per share | $ 321.71 | ||
Common Shares repurchased (value) | $ 568 | $ 468 | |
2018 Normal Course Issuer Bid (NCIB) | |||
Common Shares repurchased | 707,678 | ||
Weighted-average price per share | $ 261.73 | ||
Common Shares repurchased (value) | $ 185 |
Stock-Based Compensation - Weighted-Average Fair Value Assumptions (Details) - Stock Options |
3 Months Ended |
---|---|
Mar. 31, 2020
CAD ($)
$ / shares
| |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Expected option life (years) | 4 years 9 months |
Risk-free interest rate | 1.31% |
Expected stock price volatility | 23.05% |
Expected annual dividends per share | $ | $ 3.3200 |
Estimated forfeiture rate | 4.37% |
Weighted-average grant date fair value per option granted during the period | $ / shares | $ 68.95 |
Condensed Consolidating Financial Information (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interim Condensed Consolidating Statements of Income | Interim Condensed Consolidating Statements of Income For the three months ended March 31, 2020
Interim Condensed Consolidating Statements of Income For the three months ended March 31, 2019
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Interim Condensed Consolidating Statements of Comprehensive Income | Interim Condensed Consolidating Statements of Comprehensive Income For the three months ended March 31, 2020
Interim Condensed Consolidating Statements of Comprehensive Income For the three months ended March 31, 2019
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Interim Condensed Consolidating Balance Sheets | Interim Condensed Consolidating Balance Sheets As at March 31, 2020
Condensed Consolidating Balance Sheets As at December 31, 2019
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Interim Condensed Consolidating Statements of Cash Flows | Interim Condensed Consolidating Statements of Cash Flows For the three months ended March 31, 2020
Interim Condensed Consolidating Statements of Cash Flows For the three months ended March 31, 2019
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Financial Instruments (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||
Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||
Fair Value and Carrying Value of Long-term Debt | The carrying values of financial instruments equal or approximate their fair values with the exception of long-term debt as at:
|
Other (Income) Expense - Other Income and Expense (Details) - CAD ($) $ in Millions |
3 Months Ended | |
---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
|
Other Income and Expenses [Abstract] | ||
Foreign exchange loss (gain) on debt and lease liabilities | $ 215 | $ (45) |
Other foreign exchange gains | (5) | (3) |
Other | 1 | 1 |
Other expense (income) | $ 211 | $ (47) |
Earnings Per Share |
3 Months Ended | |||||||||||||||||||||||||||||||||||
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Mar. 31, 2020 | ||||||||||||||||||||||||||||||||||||
Earnings Per Share [Abstract] | ||||||||||||||||||||||||||||||||||||
Earnings Per Share | Earnings per share Basic earnings per share has been calculated using Net income for the period divided by the weighted-average number of shares outstanding during the period. The number of shares used in the earnings per share calculations are reconciled as follows:
For the three months ended March 31, 2020, there were 0.1 million options excluded from the computation of diluted earnings per share because their effects were not dilutive (three months ended March 31, 2019 - 0.2 million).
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Financial Instruments |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||
Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||
Financial Instruments | Financial instruments A. Fair values of financial instruments The Company categorizes its financial assets and liabilities measured at fair value into a three-level hierarchy established by GAAP that prioritizes those inputs to valuation techniques used to measure fair value based on the degree to which they are observable. The three levels of the fair value hierarchy are as follows: Level 1 inputs are quoted prices in active markets for identical assets and liabilities; Level 2 inputs, other than quoted prices included within Level 1, are observable for the asset or liability either directly or indirectly; and Level 3 inputs are not observable in the market. The carrying values of financial instruments equal or approximate their fair values with the exception of long-term debt as at:
All long-term debt is classified as level 2. The estimated fair value of current and long-term borrowings has been determined based on market information where available, or by discounting future payments of principal and interest at estimated interest rates expected to be available to the Company at period end. B. Financial risk management The effect of the Company's net investment hedge for the three months ended March 31, 2020 was an unrealized FX loss of $555 million (three months ended March 31, 2019 - unrealized FX gain of $120 million) recognized in “Other comprehensive income”.
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INTERIM CONSOLIDATED STATEMENTS OF INCOME (unaudited) - CAD ($) shares in Millions, $ in Millions |
3 Months Ended | |
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Mar. 31, 2020 |
Mar. 31, 2019 |
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Revenues | ||
Total revenues | $ 2,043 | $ 1,767 |
Operating expenses | ||
Compensation and benefits | 398 | 406 |
Fuel | 212 | 209 |
Materials | 59 | 57 |
Equipment rents | 36 | 35 |
Depreciation and amortization | 192 | 160 |
Purchased services and other | 312 | 357 |
Total operating expenses | 1,209 | 1,224 |
Operating income | 834 | 543 |
Less: | ||
Other expense (income) | 211 | (47) |
Other components of net periodic benefit recovery | (85) | (97) |
Net interest expense | 114 | 114 |
Income before income tax expense | 594 | 573 |
Income tax expense | 185 | 139 |
Net income | $ 409 | $ 434 |
Earnings per share | ||
Basic earnings per share | $ 2.99 | $ 3.10 |
Diluted earnings per share | $ 2.98 | $ 3.09 |
Weighted-average number of shares (millions) | ||
Basic | 136.7 | 140.1 |
Diluted | 137.2 | 140.5 |
Dividends declared per share | $ 0.8300 | $ 0.6500 |
Freight | ||
Revenues | ||
Total revenues | $ 2,000 | $ 1,726 |
Non-freight | ||
Revenues | ||
Total revenues | $ 43 | $ 41 |
Shareholders' Equity - Narrative (Details) - CAD ($) $ in Millions |
3 Months Ended | ||||
---|---|---|---|---|---|
Mar. 31, 2020 |
Mar. 31, 2020 |
Mar. 31, 2019 |
Dec. 17, 2019 |
Oct. 19, 2018 |
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Common Shares repurchased | 1,600,000 | 700,000 | |||
Common Shares repurchased (value) | $ 468 | $ 185 | |||
Current Normal Course Issuer Bid (NCIB) | |||||
Common Shares authorized to be repurchased | 4,800,000 | ||||
Common Shares repurchased | 1,750,000 | 1,455,854 | |||
Common Shares repurchased (value) | $ 568 | $ 468 | |||
2018 Normal Course Issuer Bid (NCIB) | |||||
Common Shares authorized to be repurchased | 5,680,000 | ||||
Common Shares repurchased | 707,678 | ||||
Common Shares repurchased (value) | $ 185 |
Changes in Accumulated Other Comprehensive Loss ("AOCL") by Component - Amounts in Pension and Post-retirement Defined Benefit Plans Reclassified from AOCL (Details) - CAD ($) $ in Millions |
3 Months Ended | |
---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
|
Accumulated Other Comprehensive Income (Loss) [Line Items] | ||
Income tax expense (recovery) | $ 185 | $ 139 |
Reclassification out of Accumulated Other Comprehensive Income [Member] | ||
Accumulated Other Comprehensive Income (Loss) [Line Items] | ||
Recognition of net actuarial loss | 45 | 21 |
Income tax expense (recovery) | (12) | (5) |
Total net of income tax | $ 33 | $ 16 |
Income Taxes - Narrative (Details) - CAD ($) $ in Millions |
3 Months Ended | |
---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
|
Income Tax Disclosure [Abstract] | ||
Effective tax rate | 31.10% | 24.24% |
Foreign exchange loss (gain) on debt and lease liabilities | $ 215 | $ (45) |
Effective tax rate, excluding discrete items | 25.00% | 25.75% |
Financial Instruments - Narrative (Details) - CAD ($) $ in Millions |
3 Months Ended | |
---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
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Net Investment Hedge | ||
Schedule of Investments [Line Items] | ||
Gain (loss) on net investment hedge | $ (555) | $ 120 |
Earnings Per Share (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||
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Mar. 31, 2020 | ||||||||||||||||||||||||||||||||||||
Earnings Per Share [Abstract] | ||||||||||||||||||||||||||||||||||||
Shares Used in the Earnings Per Share Calculation | The number of shares used in the earnings per share calculations are reconciled as follows:
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Contingencies |
3 Months Ended | ||||||||||||||||||||||||||||||||
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Mar. 31, 2020 | |||||||||||||||||||||||||||||||||
Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||
Contingencies | Contingencies In the normal course of its operations, the Company becomes involved in various legal actions, including claims relating to injuries and damage to property. The Company maintains provisions it considers to be adequate for such actions. While the final outcome with respect to actions outstanding or pending at March 31, 2020 cannot be predicted with certainty, it is the opinion of management that their resolution will not have a material adverse effect on the Company’s business, financial position or results of operations. Legal proceedings related to Lac-Mégantic rail accident On July 6, 2013, a train carrying petroleum crude oil operated by Montréal Maine and Atlantic Railway (“MMAR”) or a subsidiary, Montréal Maine & Atlantic Canada Co. (“MMAC” and collectively the “MMA Group”), derailed in Lac-Mégantic, Québec. The derailment occurred on a section of railway owned and operated by the MMA Group and while the MMA Group exclusively controlled the train. Following the derailment, MMAC sought court protection in Canada under the Companies’ Creditors Arrangement Act and MMAR filed for bankruptcy in the U.S. Plans of arrangement were approved in both Canada and the U.S. (the “Plans”), providing for the distribution of approximately $440 million amongst those claiming derailment damages. A number of legal proceedings, set out below, were commenced in Canada and the U.S. against CP and others:
On December 11, 2017, the AGQ Action, the Class Action and the Promutuel Action were consolidated. These consolidated claims are currently scheduled for a joint liability trial commencing September 28, 2020, followed by a damages trial, if necessary.
in litigation against CP, described in paragraph 7 below. This action is stayed pending determination of the consolidated claims described above.
At this stage of the proceedings, any potential responsibility and the quantum of potential losses cannot be determined. Nevertheless, CP denies liability and is vigorously defending these proceedings. Environmental liabilities Environmental remediation accruals, recorded on an undiscounted basis unless a reliable, determinable estimate as to an amount and timing of costs can be established, cover site-specific remediation programs. The accruals for environmental remediation represent CP’s best estimate of its probable future obligation and include both asserted and unasserted claims, without reduction for anticipated recoveries from third parties. Although the recorded accruals include CP’s best estimate of all probable costs, CP’s total environmental remediation costs cannot be predicted with certainty. Accruals for environmental remediation may change from time to time as new information about previously untested sites becomes known, and as environmental laws and regulations evolve and advances are made in environmental remediation technology. The accruals may also vary as the courts decide legal proceedings against outside parties responsible for contamination. These potential charges, which cannot be quantified at this time, may materially affect income in the particular period in which a charge is recognized. Costs related to existing, but as yet unknown, or future contamination will be accrued in the period in which they become probable and reasonably estimable. The expense included in “Purchased services and other” for the three months ended March 31, 2020 was $1 million (three months ended March 31, 2019 - $1 million). Provisions for environmental remediation costs are recorded in “Other long-term liabilities”, except for the current portion which is recorded in “Accounts payable and accrued liabilities”. The total amount provided at March 31, 2020 was $83 million (December 31, 2019 - $77 million). Payments are expected to be made over 10 years through 2029.
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Accounts Receivable, Net (Policies) |
3 Months Ended |
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Mar. 31, 2020 | |
Accounts Receivable, after Allowance for Credit Loss [Abstract] | |
Credit Losses | Accounts receivable from customers are recognized initially at fair value and subsequently measured at amortized cost less allowance for expected credit losses. Losses on accounts receivable are estimated based on historical credit loss experience of receivables with similar risk characteristics. Historical loss experience is adjusted to reflect any management expectations that current or future conditions will differ from conditions that existed for the period over which historical information is evaluated. To determine expected credit losses, customer receivables are disaggregated by credit characteristics, type of customer service, customer line of business, and receivable aging.
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Accounts Receivable | Receivables are considered to be in default and are written off against the allowance for credit losses when it is probable that all remaining contractual payments due will not be collected in accordance with the terms of the customer contracts. Subsequent recoveries of amounts previously written off are credited to earnings in the period recovered.
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