2014

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

CALGARY, Jan. 29, 2014 /PRNewswire/ - Canadian Pacific Railway Limited (TSX: CP) (NYSE: CP) today announced record Q4 and 2013 full-year results that clearly demonstrate the significant progress made to date in its corporate and operational turnaround.

FOURTH-QUARTER 2013 HIGHLIGHTS

  • Total revenues were $1.6 billion, an increase of 7 per cent and a quarterly record
  • Reported operating expenses were $1.5 billion, an increase of 4 per cent
  • Adjusted operating expenses were $1.1 billion, a decrease of 6 per cent
  • Reported operating income was $114 million, an increase of 90 per cent
  • Adjusted operating income was $547 million, an increase of 45 per cent
  • Adjusted operating ratio was 65.9 per cent, a 890 basis-point improvement and an all-time record
  • Free cash totaled $212 million, an increase of 194 per cent

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

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

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

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

FULL-YEAR 2013 HIGHLIGHTS

  • Total revenues were $6.1 billion, an increase of 8 per cent and a Company record
  • Reported operating expenses were $4.7 billion, a decrease of 1 per cent
  • Adjusted operating expenses were $4.3 billion, a decrease of 2 per cent
  • Reported operating income was $1.4 billion, an increase of 50 per cent
  • Adjusted operating income was $1.8 billion, an increase of 41 per cent
  • Adjusted operating ratio was 69.9 per cent, a 710 basis-point improvement and an all-time record
  • Free cash totaled $530 million for the year, an increase of 470 per cent

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

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

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

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

2014 FULL-YEAR GUIDANCE

  • Revenue growth of 6 to 7 per cent
  • Operating ratio of 65 per cent or lower
  • Diluted earnings per share ("EPS") 30 per cent or greater versus 2013 diluted EPS, excluding significant items (*see Non-GAAP Measures below) of $6.42

KEY ASSUMPTIONS

  • Average fuel cost per gallon of US$3.50 per U.S. Gallon
  • Tax rate of 28 per cent
  • Canadian to U.S. exchange rate of 1.05
  • Defined benefit pension income of approximately $50 million in 2014 and 2015
  • Capital expenditures of $1.2 to 1.3 billion

FOURTH-QUARTER SIGNIFICANT ITEMS

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

2013:

  • $435 million ($257 million after-tax) asset impairment charge and accruals for future costs associated with the sale of the DM&E West which unfavourably impacted diluted EPS by $1.45
  • $7 million experience gains from our 2012 labour restructuring initiative ($5 million after tax), which favourably impacted diluted EPS by 3 cents
  • $5 million management transition costs ($4 million after tax), which unfavourably impacted diluted EPS by 2 cents

2012:

  • $53 million labour restructuring charge ($39 million after tax), which unfavourably impacted diluted EPS by 22 cents
  • $185 million impairment of Powder River Basin and other investment ($111 million after tax), which unfavourably impacted diluted EPS by 64 cents
  • $80 million asset impairment of certain locomotives ($59 million after tax), which unfavourably impacted diluted EPS by 34 cents

FULL-YEAR SIGNIFICANT ITEMS

Items that impacted full year 2013 and 2012 earnings include:

2013:

  • In the first quarter, US $9 million (US $6 million after tax) recovery in the complete satisfaction of certain management transition amounts which had been subject to legal proceedings which favourably impacted diluted EPS by 3 cents
  • In the third quarter, income tax expense of $7 million as a result of the change in the province of British Columbia's corporate income tax rate which unfavourably impacted diluted EPS by 4 cents
  • $435 million ($257 million after-tax) asset impairment charge and accruals for future costs associated with the sale of the DM&E West which unfavourably impacted diluted EPS by $1.46 for the full year
  • $7 million experience gains from our 2012 labour restructuring initiative ($5 million after tax), which favourably impacted diluted EPS by 3 cents
  • $5 million management transition costs ($4 million after tax), which unfavourably impacted diluted EPS by 2 cents

2012:

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

  • in the second quarter a charge of $42 million ($29 million after tax) was recorded with respect to compensation and other management transition costs which unfavourably impacted diluted EPS by 17 cents
  • during the first and second quarters of 2012, the Company incurred advisory fees of $27 million ($20 million after tax) related to shareholder matters which unfavourably impacted diluted EPS by 12 cents
  • in the second quarter of 2012, an income tax expense of $11 million as a result of the change in the province of Ontario's corporate income tax rate which unfavourably impacted diluted EPS by 6 cents

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

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

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

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

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

Undue reliance should not be placed on forward-looking information as actual results may differ materially from the forward-looking information.  Forward-looking information is not a guarantee of future performance.  By its nature, CP's forward-looking information involves numerous assumptions, inherent risks and uncertainties that could cause actual results to differ materially from the forward-looking information, including but not limited to the following factors: changes in business strategies; general North American and global economic, credit and business conditions; risks in agricultural production such as weather conditions and insect populations; the availability and price of energy commodities; the effects of competition and pricing pressures; industry capacity; shifts in market demand; changes in commodity prices; uncertainty surrounding timing and volumes of commodities being shipped via CP; inflation; changes in laws and regulations, including regulation of rates; changes in taxes and tax rates; potential increases in maintenance and operating costs; uncertainties of investigations, proceedings or other types of claims and litigation; labour disputes; risks and liabilities arising from derailments; transportation of dangerous goods; timing of completion of capital and maintenance projects; currency and interest rate fluctuations; effects of changes in market conditions and discount rates on the financial position of pension plans and investments; and various events that could disrupt operations, including severe weather, droughts, floods, avalanches and earthquakes as well as security threats and governmental response to them, and technological changes.  The foregoing list of factors is not exhaustive.

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

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

CONSOLIDATED STATEMENTS OF INCOME     
(in millions of Canadian dollars, except per share data)
(unaudited)

    For the three months     For the year
    ended December 31     ended December 31
    2013     2012     2013     2012
Revenues                      
  Freight $ 1,570    $ 1,464    $ 5,982    $ 5,550 
  Other   37      38      151      145 
Total revenues   1,607      1,502      6,133      5,695 
Operating expenses                      
  Compensation and benefits   343      378      1,418      1,506 
  Fuel   262      256      1,004      999 
  Materials   65      60      249      238 
  Equipment rents   39      48      173      206 
  Depreciation and amortization   144      140      565      539 
  Purchased services and other   212      242      876      940 
  Asset impairments (Note 2)   435      265      435      265 
  Labour restructuring   (7)     53      (7)     53 
Total operating expenses   1,493      1,442      4,713      4,746 
                         
Operating income   114      60      1,420      949 
Less:                      
  Other income and charges           17      37 
  Net interest expense    70      69      278      276 
                           
Income (loss) before income tax expense   38      (12)     1,125      636 
                           
Income tax (recovery) expense   (44)     (27)     250      152 
Net income $          82    $          15    $         875    $         484 
                         
                         
Earnings per share                      
  Basic earnings per share $ 0.47    $ 0.08    $ 5.00    $ 2.82 
  Diluted earnings per share $ 0.47    $ 0.08    $ 4.96    $ 2.79 
                           
Weighted-average number of shares (millions)                      
  Basic   175.4      173.3      174.9      171.8 
  Diluted   177.0      174.7      176.5      173.2 
                           
Dividends declared per share $ 0.3500    $ 0.3500    $ 1.4000    $ 1.3500 
                           
See notes to interim consolidated financial information.                      
                       
                     

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in millions of Canadian dollars)
(unaudited)

        For the three months     For the year
        ended December 31     ended December 31
        2013     2012     2013     2012
Net income     $ 82    $ 15    $ 875    $ 484 
  Net gain (loss) in foreign currency translation                           
    adjustments, net of hedging activities           (1)         11 
  Change in derivatives designated as cash flow hedges       (1)     (2)     (1)    
  Change in defined benefit pension and post-retirement                           
    plans (Note 3)       1,382      (211)     1,681      (50)
  Other comprehensive income (loss) before income taxes          1,385     (214)     1,683      (30)
  Income tax (expense) recovery        (355)     58      (418)    
  Equity accounted investments            (2)         (2)
Other comprehensive income (loss)       1,030      (158)     1,265      (32)
Comprehensive income (loss)     $ 1,112    $ (143)   $ 2,140    $ 452 
                           
See notes to interim consolidated financial information.                          
                           
                           

CONSOLIDATED BALANCE SHEETS
(in millions of Canadian dollars)
(unaudited)

      December 31   December 31
      2013   2012
Assets          
Current assets          
  Cash and cash equivalents  $ 476    $ 333 
  Restricted cash and cash equivalents   411     
  Accounts receivable, net   580      546 
  Materials and supplies   165      136 
  Deferred income taxes   344      254 
  Other current assets   53      60 
        2,029      1,329 
               
Investments    92      83 
Properties (Note 2)   13,327      13,013 
Assets held for sale (Note 2)   222     
Goodwill and intangible assets (Note 2)   162      161 
Pension asset (Note 3)   1,028     
Other assets    200      141 
Total assets $ 17,060    $ 14,727 
               
Liabilities and shareholders' equity          
Current liabilities          
  Accounts payable and accrued liabilities $           1,189    $         1,176 
  Long-term debt maturing within one year   189      54 
      1,378      1,230 
               
Pension and other benefit liabilities (Note 3)   657      1,366 
Other long-term liabilities   338      306 
Long-term debt   4,687      4,636 
Deferred income taxes   2,903      2,092 
Total liabilities   9,963      9,630 
               
Shareholders' equity          
  Share capital   2,240      2,127 
  Additional paid-in capital    34      41 
  Accumulated other comprehensive loss   (1,503)     (2,768)
  Retained earnings   6,326      5,697 
        7,097      5,097 
Total liabilities and shareholders' equity $ 17,060    $ 14,727 
               
See notes to interim consolidated financial information.          
             
           

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions of Canadian dollars)
(unaudited)

              For the three months     For the year
              ended December 31     ended December 31
              2013     2012     2013     2012
Operating activities                        
  Net income   $ 82    $ 15    $ 875    $ 484 
    Reconciliation of net income to cash provided by (used in)                        
    operating activities:                        
      Depreciation and amortization     144      140      565      539 
      Deferred income taxes     (48)     (22)     212      140 
      Pension funding in excess of expense     (15)     (17)     (55)     (61)
      Asset impairments (Note 2)     435      265      435      265 
      Labour restructuring, net     (12)      50      (29)     50 
      Other operating activities, net       (28)     (3)     (51)     (84)
      Change in non-cash working capital balances related to                         
      operations      101      41      (2)     (5)
Cash provided by operating activities     659      469      1,950      1,328 
                                 
Investing activities                        
  Additions to properties     (434)     (336)     (1,236)     (1,148)
  Proceeds from the sale of properties and other assets     35          73      145 
  Change in restricted cash and cash equivalents                        
    used to collateralize letters of credit     (65)         (411)    
  Other         (7)     (23)     (8)
Cash used in investing activities     (460)     (336)     (1,597)     (1,011)
                                 
Financing activities                        
  Dividends paid     (61)     (61)     (244)     (223)
  Issuance of common shares     14      62      83      198 
  Issuance of long-term debt                 71 
  Repayment of long-term debt     (11)     (9)     (56)     (50)
  Net (decrease) in short-term borrowing                 (27)
  Other     (3)         (3)    
Cash used in financing activities     (61)     (7)     (220)     (30)
                                 
Effect of foreign currency fluctuations on U.S. dollar-                        
denominated cash and cash equivalents             10      (1)
Cash position                        
  Increase in cash and cash equivalents     147      126      143      286 
  Cash and cash equivalents at beginning of period      329      207      333      47 
Cash and cash equivalents at end of period   $ 476    $ 333    $ 476    $ 333 
                                 
Supplemental disclosures of cash flow information:                        
  Income taxes paid (refunded)    $   $   $ 31    $ (3)
  Interest paid   $ 86    $ 84    $ 295    $ 278 
                                 
See notes to interim consolidated financial information.                        
                                 
                               

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(in millions of Canadian dollars, except common share amounts)
(unaudited)

                                   
    Common               Accumulated            
    shares         Additional   other         Total
    (in   Share   paid-in   comprehensive   Retained   shareholders'
    millions)   capital   capital   loss   earnings   equity
Balance at January 1, 2013 173.9    $ 2,127    $ 41    $ (2,768)   $ 5,697    $ 5,097 
Net income                  875      875 
Other comprehensive income              1,265          1,265 
Dividends declared                 (246)     (246)
Effect of stock-based compensation expense         17              17 
Shares issued under stock option plans 1.5      113      (24)             89 
Balance at December 31, 2013 175.4    $ 2,240    $ 34    $ (1,503)   $ 6,326    $ 7,097 
                                   
                                   
    Common               Accumulated            
    shares         Additional   other         Total
    (in   Share   paid-in   comprehensive   Retained   shareholders'
    millions)   capital   capital   loss   earnings   equity
Balance at January 1, 2012 170.0    $ 1,854    $ 86    $ (2,736)   $ 5,445    $ 4,649 
Net income                  484      484 
Other comprehensive loss             (32)         (32)
Dividends declared                 (232)     (232)
Effect of stock-based compensation expense         25              25 
Shares issued under stock option plans 3.9      273      (70)             203 
Balance at December 31, 2012 173.9    $ 2,127    $ 41    $ (2,768)   $ 5,697    $ 5,097 
                                   
See notes to interim consolidated financial information.                  
                             
                             

CANADIAN PACIFIC RAILWAY LIMITED 
NOTES TO INTERIM CONSOLIDATED FINANCIAL INFORMATION
December 31, 2013
(unaudited)

1  Basis of presentation

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

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

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

2  Asset impairments

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

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

                                 
(in millions of Canadian dollars)                     For the three months ended
December 31, 2013
Property, plant and equipment                     $                             426 
Intangible assets                      
Goodwill                      
Total asset impairment charge                       434 
Accruals for future costs                      
Total charge                     $ 435 

3  Pensions and other benefits

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

Summary of Rail Data  
                                 
Fourth Quarter             Year
  2013      2012  Fav/(Unfav)         %   Financial (millions, except per share data)       2013      2012  Fav/(Unfav)      %
                                 
                      Revenues                        
$ 1,570    $ 1,464    $ 106      Freight revenue     $ 5,982    $ 5,550    $ 432 
  37      38      (1) (3)     Other revenue       151      145     
  1,607      1,502      105    Total revenues       6,133      5,695      438 
                                                 
                                                 
                      Operating expenses                        
  343      378      35      Compensation and benefits       1,418      1,506      88 
  262      256      (6) (2)     Fuel       1,004      999      (5) (1)
  65      60      (5) (8)     Materials       249      238      (11) (5)
  39      48      19      Equipment rents       173      206      33  16 
  144      140      (4) (3)     Depreciation and amortization       565      539      (26) (5)
  212      242      30  12      Purchased services and other       876      940      64 
  435      265      (170) (64)     Asset impairments       435      265      (170) (64)
  (7)     53      60      Labour restructuring       (7)     53      60 
  1,493      1,442      (51) (4)   Total operating expenses       4,713      4,746      33 
                                                 
                                                 
  114      60      54  90    Operating income       1,420      949      471  50 
                                                 
                      Less:                        
                                                 
          (3) (100)     Other income and charges       17      37      20  54 
  70      69      (1) (1)     Net interest expense       278      276      (2) (1)
                                                 
                                                 
  38      (12)     50    Income (loss) before income tax expense       1,125      636      489  77 
                                                 
  (44)     (27)     17  63      Income tax (recovery) expense       250      152      (98) (64)
                                                 
                                                 
$ 82    $ 15    $ 67  447    Net income     $ 875    $ 484    $ 391  81 
                                                 
                                                 
  92.9      96.0      3.1  310  bps   Operating ratio (%)       76.8      83.3      6.5  650  bps
                                                 
                                                 
$ 0.47    $ 0.08    $ 0.39  488      Basic earnings per share     $ 5.00    $ 2.82    $ 2.18  77 
                                                 
                                                 
$ 0.47    $ 0.08    $ 0.39  488      Diluted earnings per share     $ 4.96    $ 2.79    $ 2.17  78 
                                                 
                                                 
                                                 
                      Shares Outstanding                        
                                                 
                        Weighted average number of shares                        
  175.4      173.3      2.1      outstanding (millions)       174.9      171.8      3.1 
                                                 
                        Weighted average number of diluted shares                        
  177.0      174.7      2.3      outstanding (millions)       176.5      173.2      3.3 
                                                 
                                                 
                      Foreign Exchange                        
                                                 
                        Average foreign exchange rate                        
  0.96      1.01      0.05      (US$/Canadian$)       0.97      1.00      0.03 
                                                 
                        Average foreign exchange rate                        
  1.04      0.99      0.05      (Canadian$/US$)       1.03      1.00      0.03 
                                                 
                                                 
                                               
Fourth Quarter           Year
2013    2012    Fav/(Unfav)      %           2013    2012    Fav/(Unfav)      %
                                                 
                      Commodity Data                      
                                                 
                        Freight Revenues (millions)                      
$ 385    $ 355    $ 30          - Grain   $ 1,300    $ 1,172    $ 128    11 
  157      156              - Coal     627      602      25   
  126      133      (7)   (5)       - Fertilizers and sulphur     570      520      50    10 
  413      335      78    23        - Industrial and consumer products     1,548      1,268      280    22 
  105      99              - Automotive     403      425      (22)   (5)
  49      46              - Forest products     206      193      13   
  335      340      (5)   (1)       - Intermodal     1,328      1,370      (42)   (3)
                                                 
$ 1,570    $ 1,464    $ 106        Total Freight Revenues   $ 5,982    $ 5,550    $ 432   
                                                 
                        Millions of Revenue Ton-Miles (RTM)                      
  10,006      9,628      378          - Grain     33,983      33,082      901   
  5,776      5,809      (33)   (1)       - Coal     23,172      22,375      797   
  3,850      3,838      12          - Fertilizers and sulphur     18,170      17,058      1,112   
  9,988      8,347      1,641    20        - Industrial and consumer products     37,875      30,469      7,406    24 
  563      561              - Automotive     2,329      2,482      (153)   (6)
  1,036      1,129      (93)   (8)       - Forest products     4,619      4,713      (94)   (2)
  6,192      6,217      (25)         - Intermodal     24,101      24,853      (752)   (3)
                                                 
  37,411      35,529      1,882        Total RTMs     144,249      135,032      9,217   
                                                 
                        Freight Revenue per RTM (cents)                      
  3.84      3.69      0.15          - Grain     3.82      3.54      0.28   
  2.72      2.69      0.03          - Coal     2.71      2.69      0.02   
  3.26      3.47      (0.21)   (6)       - Fertilizers and sulphur     3.14      3.05      0.09   
  4.14      4.01      0.13          - Industrial and consumer products     4.09      4.16      (0.07)   (2)
  18.64      17.65      0.99          - Automotive     17.27      17.12      0.15   
  4.74      4.07      0.67    16        - Forest products     4.46      4.10      0.36   
  5.42      5.47      (0.05)   (1)       - Intermodal     5.51      5.51       
                                                 
  4.20      4.12      0.08        Total Freight Revenue per RTM     4.15      4.11      0.04   
                                                 
                        Carloads (thousands)                        
  121      122      (1)   (1)       - Grain     438      433       
  84      88      (4)   (5)       - Coal     330      337      (7)   (2)
  41      43      (2)   (5)       - Fertilizers and sulphur     185      177       
  133      119      14    12        - Industrial and consumer products     519      469      50    11 
  38      39      (1)   (3)       - Automotive     146      162      (16)   (10)
  15      16      (1)   (6)       - Forest products     66      67      (1)   (1)
  254      253              - Intermodal     1,004      1,024      (20)   (2)
                                                 
  686      680            Total Carloads     2,688      2,669      19   
                                                 
                        Freight Revenue per Carload                      
$ 3,161    $ 2,910    $ 251          - Grain   $ 2,964    $ 2,707    $ 257   
  1,888      1,773      115          - Coal     1,904      1,786      118   
  3,065      3,093      (28)   (1)       - Fertilizers and sulphur     3,083      2,938      145   
  3,105      2,815      290    10        - Industrial and consumer products     2,982      2,704      278    10 
  2,797      2,538      259    10        - Automotive     2,758      2,623      135   
  3,254      2,875      379    13        - Forest products     3,132      2,881      251   
  1,322      1,344      (22)   (2)       - Intermodal     1,324      1,338      (14)   (1)
                                                 
$ 2,291    $ 2,153    $ 138        Total Freight Revenue per Carload   $ 2,226    $ 2,079    $ 147   
                                                 
                                                 
                                                 
Fourth Quarter       Year
  2013      2012 (1)     Fav/(Unfav)   %         2013      2012 (1)     Fav/(Unfav)   %
                                             
                      Operations Performance                        
                                             
  68,531      66,204      2,327      Freight gross ton-miles ("GTM") (millions)     267,629      254,354      13,275   
  9,341      10,046      (705)   (7)   Train miles (thousands)     37,817      40,270      (2,453)   (6)
  7,844      7,014      830    12    Average train weight - excluding local
traffic (tons)
    7,573      6,709      864    13 
  6,668      6,198      470      Average train length - excluding local
traffic (feet)(2)
    6,530      5,981      549   
  7.9      7.4      (0.5)   (7)   Average terminal dwell (hours) (3)     7.1      7.5      0.4   
  17.6      17.6          Average train speed (mph)(4)     18.2      18.0      0.2   
                                             
  223.2      197.1      26.1    13    Locomotive productivity (daily average
GTMs/active horsepower ("HP"))
    216.0      179.8      36.2    20 
                                             
  1.06      1.14      0.08      Fuel efficiency (U.S. gallon of fuel
consumed/1,000 GTMs)
    1.06      1.15      0.09   
  71.4      74.4      3.0      U.S. gallons of locomotive fuel
consumed (millions)(5)
    281.7      289.2      7.5   
  3.51      3.47      (0.04)   (1)   Average fuel price (U.S. dollars per
U.S. gallon)
    3.47      3.45      (0.02)   (1)
                                             
  14,677      16,369      1,692    10    Total employees (average)(6)(7)     15,011      16,999      1,988    12 
  14,506      15,713      1,207      Total employees (end of period)(6)     14,506      15,713      1,207   
  14,977      16,907      1,930    11    Workforce (end of period)(8)     14,977      16,907      1,930    11 
                                             
                      Safety                      
                                             
  1.77      2.05      0.28    14    FRA personal injuries per 200,000
employee-hours
    1.69      1.55      (0.14)   (9)
  1.35      1.68      0.33    20    FRA train accidents per million train-
miles
    1.78      1.67      (0.11)   (7)
                                             

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

Non-GAAP Measures - Unaudited

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

Adjusted Performance Measures

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

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

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

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

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

Significant items are material transactions that may include, but are not limited to, restructuring and asset impairment charges, gains and losses on non-routine sales of assets and other items that are not normal course business activities.

Reconciliation of Non-GAAP measures to GAAP measures

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

      For the year       For the three months
        ended December 31       ended December 31
(in millions of Canadian dollars)     2013      2012        2013      2012 
Adjusted operating expenses   $ 4,289    $ 4,386      $ 1,060    $ 1,124 
Add (less) significant items:                          
  Labour restructuring     (7)     53        (7)     53 
  Asset impairments     435      265        435      265 
  Management transition costs     (4)     42           
Operating expenses   $ 4,713    $ 4,746      $ 1,493    $ 1,442 
                           
                             
Adjusted operating income   $ 1,844    $ 1,309      $ 547    $ 378 
Less (add) significant items:                          
  Labour restructuring     (7)     53        (7)     53 
  Asset impairments     435      265        435      265 
  Management transition costs     (4)     42           
Operating income   $ 1,420    $ 949      $ 114    $ 60 
                           
                             
Adjusted net income   $ 1,132    $ 753      $ 338    $ 224 
Less (add) significant items, net of tax:                          
  Labour restructuring     (5)     39        (5)     39 
  Asset impairments     257      170        257      170 
  Management transition costs     (2)     29           
  Advisory fees related to shareholder matters         20           
  Income tax rate change         11           
Net income   $ 875    $ 484      $ 82    $ 15 

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

        For the year   For the three  
        ended   months ended  
Diluted earnings per share       December 31   December 31  
(in millions of Canadian dollars)       2013      2012      2013      2012   
Excluding significant items     $ 6.42    $ 4.34    $ 1.91    $ 1.28   
Less (add) significant items:                              
  Labour restructuring       (0.03)     0.22      (0.03)     0.22   
  Asset impairments       1.46      0.98      1.45      0.98   
  Management transition costs       (0.01)     0.17      0.02       
  Advisory fees related to shareholder matters           0.12           
  Income tax rate change       0.04      0.06           
Diluted earnings per share as reported     $ 4.96    $ 2.79    $ 0.47    $ 0.08   
                               
        For the year     For the three  
        ended     months ended  
Operating ratio       December 31     December 31  
(in millions of Canadian dollars)       2013      2012      2013      2012     
Excluding significant items       69.9  %   77.0  %   65.9  %   74.8  %
Add (less) significant items:                              
  Labour restructuring       (0.1) %   0.9  %   (0.4) %   3.5  %
  Asset impairments       7.1  %   4.7  %   27.1  %   17.7  %
  Management transition costs       (0.1) %   0.7  %   0.3  %      
Operating ratio as reported       76.8  %   83.3  %   92.9  %   96.0  %

Free Cash

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

    For the year     For the three months
Reconciliation of free cash to GAAP cash position   ended December 31     ended December 31
(in million of Canadian dollars)   2013    2012      2013    2012 
Cash provided by operating activities $ 1,950  $ 1,328    $ 659  $ 469 
Cash used in investing activities   (1,597)   (1,011)     (460)   (336)
Change in restricted cash and cash equivalents                  
    used to collateralize letters of credit   411        65   
Dividends paid   (244)   (223)     (61)   (61)
Effect of foreign currency fluctuations on U.S. dollar-                  
    denominated cash and cash equivalents   10    (1)      
Free cash(1)   530    93      212    72 
Cash  provided by financing activities, excluding                  
    dividend payment (1)   24    193        54 
Change in restricted cash and cash equivalents                  
    used to collateralize letters of credit   (411)       (65)  
Increase in cash and cash equivalents, as                  
    shown on the Consolidated Statements of Cash Flows   143    286      147    126 
Cash and cash equivalents at beginning of period   333    47      329    207 
Cash and cash equivalents at end of period $ 476  $ 333    $ 476  $ 333 
(1) Free cash and Cash provided by financing activities, excluding dividend payment have no standardized meanings
prescribed by GAAP and, therefore, are unlikely to be comparable to similar measures presented by other companies.

Foreign Exchange Adjusted Variance

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

        For the year ended December 31   For the three months ended December 31
(in millions of                   Variance    Adjusted   FX Adj.               Variance   Adjusted   FX Adj.
Canadian dollars)         2013      2012    due to FX    2012(1)   %(1)     2013      2012    due to FX   2012(1)   %(1)
Freight revenues       $ 5,982    $ 5,550    $ 83    $ 5,633    6%    $ 1,570    $ 1,464    $ 42    $ 1,506    4% 
Other revenues         151      145          146    3%      37      38          39    (5%)
Total revenues         6,133      5,695      84      5,779    6%      1,607      1,502      43      1,545    4% 
Total operating                                                            
expenses         4,713      4,746      70      4,816    (2%)     1,493      1,442      41      1,483    1% 
Operating income       $ 1,420    $ 949    $ 14    $ 963    47%    $ 114    $ 60    $   $ 62   84% 
(1) These earnings measures have no standardized meanings prescribed by GAAP and, therefore, are unlikely to be comparable
to similar measures presented by other companies.

  

 

 

SOURCE Canadian Pacific




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