CP reports record fourth quarter and full-year earnings

CALGARY, Jan. 21, 2016 /CNW/ - Canadian Pacific Railway Limited (TSX: CP) (NYSE: CP) today announced fourth-quarter reported diluted earnings per share of C$2.08 and adjusted diluted earnings per share of $2.72, the highest ever for the period. For the full year, reported diluted earnings per share were $8.40 while adjusted diluted earnings per share climbed to a record $10.10, a 19-percent improvement over 2014's adjusted EPS of $8.50.

CP's commitment to operational efficiency produced a fourth-quarter adjusted and reported operating ratio of 59.8 percent, matching the record-setting performance of a year ago. For 2015, CP posted a best-ever full-year adjusted and reported operating ratio of 61 and 60 percent, beating the previous record, set in 2014, by 370 and 470 basis points, respectively.

"Thanks to our committed, hard-working employees across the network we have produced a record low operating ratio along with record earnings per share," said E. Hunter Harrison, CP's Chief Executive Officer. "Despite challenging economic conditions and lower commodity prices, we continue to focus on what we can control – lowering costs, creating efficiencies and improving service."

FULL-YEAR 2015 HIGHLIGHTS

  • Record revenues of $6.71 billion
  • Adjusted operating ratio improved to a record 61 percent; reported operating ratio of 60 percent
  • Adjusted diluted EPS rose 19 percent to a record $10.10 from $8.50 in 2014; reported diluted earnings per share were $8.40
  • Record free cash of $1.16 billion, an increase of 59 percent

"While the North American economy braces itself for more headwinds, we remain optimistic about the future and CP's continued growth," said Harrison. "Despite the challenges, we expect 2016 to bring an operating ratio below 59 while generating double-digit EPS growth – a testament to the strength of our operating model and plan for the future."

2016 FULL-YEAR GUIDANCE

  • Operating ratio below 59 percent
  • Double-digit EPS growth from full-year 2015 adjusted diluted EPS of $10.10
  • Capital expenditures of approximately $1.1 billion

Non-GAAP Measures

For further information regarding non-GAAP measures, including reconciliations to the nearest GAAP measures, see the attached supplementary schedule Non-GAAP Measures.

Conference Call Access/Webcast

CP will discuss its results with the financial community in a conference call beginning at 11 a.m. eastern time (9 a.m. mountain time) on January 21, 2016.

Conference Call Access

Toronto participants dial in number: 1-647-427-7450 
Operator assisted toll free dial in number: 1-888-231-8191 
Callers should dial in 10 minutes prior to the call.  

Webcast

We encourage you to access the webcast and presentation material in the Investors section of CP's website at http://www.cpr.ca/en/investors/earnings-releases 

A replay of the fourth-quarter conference call will be available by phone through to 
February 18, 2016 at 416-849-0833 or toll free 1-855-859-2056, password 35670003.

Access to the webcast and audio file of the presentation will be made available at: http://www.cpr.ca/en/investors/earnings-releases

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, growth, 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 using non-GAAP financial measures, 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" and "Risk Factors" in CP's annual and interim reports, which are available on EDGAR at www.sec.gov and on SEDAR at www.sedar.com. 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 Railway Limited (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 growing with its customers, offering a suite of freight transportation services, logistics solutions and supply chain expertise. Visit www.cpr.ca to see the rail advantages of CP.

INTERIM CONSOLIDATED STATEMENTS OF INCOME

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

(unaudited)








For the three months
ended December 31


For the year ended
December 31




2015



2014



2015



2014

Revenues














Freight


$

1,645


$

1,719


$

6,552


$

6,464


Non-freight



42



41



160



156

Total revenues



1,687



1,760



6,712



6,620














Operating expenses














Compensation and benefits



333



314



1,371



1,348


Fuel



166



255



708



1,048


Materials



40



47



184



193


Equipment rents



44



38



174



155


Depreciation and amortization



155



139



595



552


Purchased services and other



272



259



1,060



985


Gain on sale of Delaware & Hudson South







(68)



Total operating expenses



1,010



1,052



4,024



4,281














Operating income



677



708



2,688



2,339

Less:














Other income and charges (Note 3)



99



15



335



19


Net interest expense



122



73



394



282














Income before income tax expense



456



620



1,959



2,038


Income tax expense



137



169



607



562

Net income


$

319


$

451


$

1,352


$

1,476














Earnings per share














Basic earnings per share


$

2.09


$

2.66


$

8.47


$

8.54


Diluted earnings per share


$

2.08


$

2.63


$

8.40


$

8.46














Weighted-average number of shares (millions)














Basic



153.0



169.3



159.7



172.8


Diluted



154.0



170.9



161.0



174.4














Dividends declared per share


$

0.3500


$

0.3500


$

1.4000


$

1.4000














See notes to interim consolidated financial information.

INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in millions of Canadian dollars)

(unaudited)






For the three months
ended December 31


For the year ended
December 31



2015



2014



2015



2014

Net income

$

319


$

451


$

1,352


$

1,476

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


(23)



(13)



(86)



(32)

Change in derivatives designated as cash flow hedges


9



(47)



(69)



(49)

Change in pension and post-retirement defined benefit plans (Note 5)


856



(1,034)



1,059



(941)

Other comprehensive income (loss) before income taxes


842



(1,094)



904



(1,022)

Income tax (expense) recovery on above items


(206)



307



(162)



306

Other comprehensive income (loss)


636



(787)



742



(716)

Comprehensive income (loss)

$

955


$

(336)


$

2,094


$

760













See notes to interim consolidated financial information.


INTERIM CONSOLIDATED BALANCE SHEETS AS AT

(in millions of Canadian dollars)

(unaudited)




December 31
2015


December 31
2014

Assets







Current assets








Cash and cash equivalents


$

650


$

226


Accounts receivable, net



645



702


Materials and supplies



188



177


Other current assets



54



116




1,537



1,221








Investments



152



112

Properties



16,273



14,438

Assets held for sale





182

Goodwill and intangible assets



211



176

Pension asset (Note 5)



1,401



304

Other assets



63



117

Total assets


$

19,637


$

16,550








Liabilities and shareholders' equity







Current liabilities








Accounts payable and accrued liabilities


$

1,417


$

1,277


Long-term debt maturing within one year



30



134




1,447



1,411








Pension and other benefit liabilities



758



755

Other long-term liabilities



318



432

Long-term debt



8,927



5,625

Deferred income taxes (Note 2)



3,391



2,717

Total liabilities



14,841



10,940








Shareholders' equity








Share capital (Note 4)



2,058



2,185


Additional paid-in capital



43



36


Accumulated other comprehensive loss (Note 5)



(1,477)



(2,219)


Retained earnings



4,172



5,608




4,796



5,610

Total liabilities and shareholders' equity


$

19,637


$

16,550








Certain of the comparative figures have been reclassified to be consistent with the 2015 presentation (Note 2)

See notes to interim consolidated financial information.

 

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions of Canadian dollars)

(unaudited)






For the three months
ended December 31


For the year ended
December 31



2015



2014



2015



2014

Operating activities












Net income

$

319


$

451


$

1,352


$

1,476

Reconciliation of net income to cash provided by operating activities:













Depreciation and amortization


155



139



595



552


Deferred income taxes


128



160



234



354


Pension funding in excess of expense


(9)



(29)



(49)



(132)


Labour restructuring, net




(17)





(17)

Other operating activities, net


(8)



(25)



52



14

Change in non-cash working capital balances related to operations


38



(22)



275



(124)

Cash provided by operating activities


623



657



2,459



2,123

Investing activities













Additions to properties


(455)



(513)



(1,522)



(1,449)


Proceeds from the sale of west end of Dakota, Minnesota and Eastern Railroad








236


Proceeds from the sale of Delaware & Hudson South






281




Proceeds from sale of properties and other assets


41



26



114



52


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




84





411


Other


(1)





4



Cash used in investing activities


(415)



(403)



(1,123)



(750)

Financing activities













Dividends paid


(54)



(60)



(226)



(244)


Issuance of CP common shares


11



12



43



62


Purchase of CP common shares


(192)



(1,063)



(2,787)



(2,050)


Issuance of long-term debt, excluding commercial paper






3,411




Repayment of long-term debt, excluding commercial paper


(6)



(8)



(505)



(183)


Net issuance (repayment) of commercial paper




771



(893)



771


Settlement of foreign exchange forward on long-term debt








17


Other








(3)

Cash used in financing activities


(241)



(348)



(957)



(1,630)













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


22



5



45



7

Cash position













(Decrease) increase in cash and cash equivalents


(11)



(89)



424



(250)


Cash and cash equivalents at beginning of period


661



315



226



476

Cash and cash equivalents at end of year

$

650


$

226


$

650


$

226













Supplemental disclosures of cash flow information:













Income taxes paid

$

69


$

84


$

176


$

226


Interest paid

$

94


$

89


$

336


$

309













See notes to interim consolidated financial information.

 

INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

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

(unaudited)














Common
shares
(in
millions)


Share
capital


Additional
paid-in
capital


Accumulated
other
comprehensive
loss


Retained
earnings


Total
shareholders'
equity

Balance at January 1, 2015

166.1


$

2,185


$

36


$

(2,219)


$

5,608


$

5,610


Net income









1,352



1,352


Other comprehensive income







742





742


Dividends declared ($1.4000 per share)









(221)



(221)


Effect of stock-based compensation expense





17







17


CP common shares repurchased

(13.7)



(181)







(2,567)



(2,748)


Shares issued under stock option plan

0.6



54



(10)







44

Balance at December 31, 2015

153.0


$

2,058


$

43


$

(1,477)


$

4,172


$

4,796




































Common
shares
(in
millions)


Share
capital


Additional
paid-in
capital


Accumulated
other
comprehensive
loss


Retained
earnings


Total
shareholders'
equity

Balance at January 1, 2014

175.4


$

2,240


$

34


$

(1,503)


$

6,326


$

7,097


Net income









1,476



1,476


Other comprehensive loss







(716)





(716)


Dividends declared ($1.4000 per share)









(241)



(241)


Effect of stock-based compensation expense





19







19


CP common shares repurchased

(10.3)



(136)







(1,953)



(2,089)


Shares issued under stock option plan

1.0



81



(17)







64

Balance at December 31, 2014

166.1


$

2,185


$

36


$

(2,219)


$

5,608


$

5,610


















See notes to interim consolidated financial information.

NOTES TO INTERIM CONSOLIDATED FINANCIAL INFORMATION
December 31, 2015
(unaudited)

1  Basis of presentation

This unaudited interim consolidated financial information of Canadian Pacific Railway Limited ("CP" or "the Company"), expressed in Canadian dollars, reflects management's estimates and assumptions that are necessary for their 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 financial statements and should be read in conjunction with the 2014 annual consolidated financial statements and 2015 consolidated interim financial statements. The accounting policies used are consistent with the accounting policies used in preparing the 2014 annual consolidated financial statements, except for the accounting changes 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 information includes all adjustments (consisting of normal and recurring adjustments) necessary to present fairly such information.

2  Accounting changes

Implemented in 2015               

Balance Sheet Classification of Deferred Taxes               

In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes, an amendment to FASB ASC Topic 740. The amendments remove the requirement to separate deferred income tax liabilities and assets into current and non-current amounts in the balance sheet. The recognition and measurement guidance for deferred tax assets and liabilities are not affected by the amendments. This ASU is effective prospectively or retrospectively for all periods presented for fiscal years, and interim periods within those years, beginning after December 15, 2016. Early adoption was permitted. The Company retrospectively adopted the provisions of this ASU during the fourth quarter of 2015.

As a result of the adoption of ASU 2015-17, the comparative period has been adjusted for the retrospective change in accounting principle with a reclassification of $56 million of current "Deferred income tax assets" against long-term "Deferred income tax liabilities" as at December 31, 2014. The Company is able to net these amounts as deferred tax liabilities exceed deferred tax assets in all tax jurisdictions. There was no impact on the income statement as a result of the adoption of the provisions of this ASU during the year ended December 31, 2015 and comparative periods.

3  Other income and charges





For the three months
ended December 31



For the year ended
December 31

(in millions of Canadian dollars)




2015



2014




2015



2014

Foreign exchange loss on long-term debt



$

115


$

11



$

297


$

11

Other foreign exchange (gains) losses




(20)



1




(24)



Early redemption premium on notes









47



Other




4



3




15



8

Total other income and charges



$

99


$

15



$

335


$

19

4  Shareholders' equity

On March 11, 2014, the Company announced a new share repurchase program to implement a normal course issuer bid ("NCIB") to purchase, for cancellation, up to 5.3 million common shares before March 16, 2015. On September 29, 2014, the Company announced the amendment of the bid to increase the maximum number of its common shares that may be purchased from 5.3 million to 12.7 million of its outstanding common shares. The Company completed the purchase of 10.5 million common shares in 2014 and an additional 2.2 million common shares in the first quarter of 2015 prior to the March 16, 2015 expiry date of the program.

On March 16, 2015, the Company announced the renewal of its NCIB, commencing March 18, 2015, to purchase up to 9.14 million of its outstanding common shares for cancellation before March 17, 2016. On August 31, 2015, the Company amended the NCIB to increase the maximum number of its common shares that may be purchased from 9.14 million to 11.9 million of its outstanding common shares.  As at December 31, 2015, the Company had purchased 11.3 million common shares for $2,258 million under this current NCIB program.

All purchases are made in accordance with the bid at prevalent market prices plus brokerage fees, or such other prices that may be 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 the activities under the share repurchase program:





For the three months ended
December 31, 2015


For the year ended
December 31, 2015

Number of common shares repurchased(1)





577,800



13,549,977

Weighted-average price per share(2)




$

196.30


$

202.79

Amount of repurchase (in millions)




$

113


$

2,748

(1) 

Includes shares repurchased and not yet canceled in the current year, excludes shares repurchased and not yet canceled in the prior year.

(2) 

Includes brokerage fees.

5  Pension and other benefits

The remeasurement of the Company's pensions and post-retirement benefits plans at December 31, 2015 resulted in net actuarial gains of $791 million. These gains were largely due to higher discount rates at the remeasurement date and favourable 2015 investment returns, which resulted in a decrease in "Pensions and other benefits" liabilities of $5 million and a $786 million increase in "Pension asset". In addition, the net actuarial gains increased other comprehensive income by $583 million and increased "Deferred income taxes" by $208 million in the fourth quarter of 2015. The Company used an average discount rate of 4.22% at December 31, 2015 (2014 - 4.09%) for its pensions and post-retirement benefits plans.

Summary of Rail Data






Fourth Quarter




Year


2015



2014



Change


%


Financial (millions, except per share data)



2015



2014



Change


%



































Revenues












$

1,645


$

1,719


$

(74)


(4)



Freight revenue


$

6,552


$

6,464


$

88


1


42



41



1


2



Non-freight revenue



160



156



4


3


1,687



1,760



(73)


(4)


Total revenues



6,712



6,620



92


1



































Operating expenses













333



314



19


6



Compensation and benefits



1,371



1,348



23


2


166



255



(89)


(35)



Fuel



708



1,048



(340)


(32)


40



47



(7)


(15)



Materials



184



193



(9)


(5)


44



38



6


16



Equipment rents



174



155



19


12


155



139



16


12



Depreciation and amortization



595



552



43


8


272



259



13


5



Purchased services and other



1,060



985



75


8









Gain on sale of Delaware & Hudson South



(68)





(68)


100


1,010



1,052



(42)


(4)


Total operating expenses



4,024



4,281



(257)


(6)

























677



708



(31)


(4)


Operating income



2,688



2,339



349


15



































Less:




































99



15



84


560



Other income and charges



335



19



316


1,663


122



73



49


67



Net interest expense



394



282



112


40

























456



620



(164)


(26)


Income before income tax expense



1,959



2,038



(79)


(4)

























137



169



(32)


(19)



Income tax expense



607



562



45


8
























$

319


$

451


$

(132)


(29)


Net income


$

1,352


$

1,476


$

(124)


(8)

























59.8%



59.8%



—%


0 bps


Operating ratio (%)



60.0%



64.7%



(4.7)%


(470) bps
























$

2.09


$

2.66


$

(0.57)


(21)



Basic earnings per share


$

8.47


$

8.54


$

(0.07)


(1)
























$

2.08


$

2.63


$

(0.55)


(21)



Diluted earnings per share


$

8.40


$

8.46


$

(0.06)


(1)



































Shares Outstanding




































153.0



169.3



(16.3)


(10)



Weighted average number of shares
outstanding (millions)



159.7



172.8



(13.1)


(8)


























154.0



170.9



(16.9)


(10)



Weighted average number of diluted
shares outstanding (millions)



161.0



174.4



(13.4)


(8)



































Foreign Exchange













0.75



0.88



(0.13)


(15)



Average foreign exchange rate

(US$/Canadian$)



0.78



0.91



(0.13)


(14)


























1.34



1.13



0.21


19



Average foreign exchange rate

(Canadian$/US$)



1.28



1.10



0.18


16



Summary of Rail Data






Fourth Quarter




Year


2015



2014



Change


%





2015



2014



Change


%



































Commodity Data














































Freight Revenues (millions)












$

296


$

267


$

29


11



- Canadian Grain


$

1,068


$

988


$

80


8


131



155



(24)


(15)



- U.S. Grain



522



503



19


4


149



158



(9)


(6)



- Coal



639



621



18


3


78



96



(18)


(19)



- Potash



359



347



12


3


72



61



11


18



- Fertilizers and sulphur



272



234



38


16


65



54



11


20



- Forest products



249



206



43


21


187



175



12


7



- Chemicals and plastics



709



637



72


11


105



130



(25)


(19)



- Crude



393



484



(91)


(19)


151



191



(40)


(21)



- Metals, minerals, and consumer products



643



712



(69)


(10)


89



82



7


9



- Automotive



349



357



(8)


(2)


182



208



(26)


(13)



- Domestic intermodal



757



787



(30)


(4)


140



142



(2)


(1)



- International intermodal



592



588



4


1
























$

1,645


$

1,719


$

(74)


(4)


Total Freight Revenues


$

6,552


$

6,464


$

88


1



































Millions of Revenue Ton-Miles (RTM)













7,776



6,981



795


11



- Canadian Grain



27,442



26,691



751


3


2,770



3,495



(725)


(21)



- U.S. Grain



10,625



11,724



(1,099)


(9)


5,250



5,639



(389)


(7)



- Coal



22,164



22,443



(279)


(1)


3,359



3,880



(521)


(13)



- Potash



15,117



14,099



1,018


7


1,021



1,061



(40)


(4)



- Fertilizers and sulphur



4,044



4,180



(136)


(3)


1,038



997



41


4



- Forest products



4,201



3,956



245


6


3,391



3,694



(303)


(8)



- Chemicals and plastics



13,611



13,635



(24)



3,749



4,513



(764)


(17)



- Crude



13,280



16,312



(3,032)


(19)


2,114



2,862



(748)


(26)



- Metals, minerals, and consumer products



9,020



11,266



(2,246)


(20)


411



422



(11)


(3)



- Automotive



1,750



1,953



(203)


(10)


2,958



3,154



(196)


(6)



- Domestic intermodal



12,072



11,867



205


2


2,938



2,798



140


5



- International intermodal



11,931



11,723



208


2

























36,775



39,496



(2,721)


(7)


Total RTMs



145,257



149,849



(4,592)


(3)



































Freight Revenue per RTM (cents)













3.80



3.83



(0.03)


(1)



- Canadian Grain



3.89



3.70



0.19


5


4.71



4.43



0.28


6



- U.S. Grain



4.91



4.29



0.62


14


2.85



2.80



0.05


2



- Coal



2.88



2.77



0.11


4


2.32



2.46



(0.14)


(6)



- Potash



2.37



2.46



(0.09)


(4)


7.00



5.70



1.30


23



- Fertilizers and sulphur



6.71



5.59



1.12


20


6.24



5.42



0.82


15



- Forest products



5.92



5.20



0.72


14


5.49



4.74



0.75


16



- Chemicals and plastics



5.21



4.67



0.54


12


2.80



2.90



(0.10)


(3)



- Crude



2.96



2.97



(0.01)



7.15



6.69



0.46


7



- Metals, minerals, and consumer products



7.13



6.32



0.81


13


21.71



19.26



2.45


13



- Automotive



19.97



18.26



1.71


9


6.17



6.57



(0.40)


(6)



- Domestic intermodal



6.27



6.63



(0.36)


(5)


4.78



5.11



(0.33)


(6)



- International intermodal



4.96



5.02



(0.06)


(1)

























4.47



4.35



0.12


3


Total Freight Revenue per RTM



4.51



4.31



0.20


5















































Summary of Rail Data
























Fourth Quarter




Year


2015



2014



Change


%





2015



2014



Change


%



































Carloads (thousands)













80



75



5


7



- Canadian Grain



285



291



(6)


(2)


40



46



(6)


(13)



- U.S. Grain



157



173



(16)


(9)


78



80



(2)


(3)



- Coal



323



313



10


3


27



33



(6)


(18)



- Potash



124



118



6


5


16



15



1


7



- Fertilizers and sulphur



62



61



1


2


16



15



1


7



- Forest products



62



59



3


5


51



52



(1)


(2)



- Chemicals and plastics



203



198



5


3


25



30



(5)


(17)



- Crude



91



110



(19)


(17)


50



66



(16)


(24)



- Metals, minerals, and consumer products



217



253



(36)


(14)


33



34



(1)


(3)



- Automotive



131



134



(3)


(2)


100



110



(10)


(9)



- Domestic intermodal



414



428



(14)


(3)


133



134



(1)


(1)



- International intermodal



559



546



13


2

























649



690



(41)


(6)


Total Carloads



2,628



2,684



(56)


(2)



































Freight Revenue per Carload












$

3,707


$

3,551


$

156


4



- Canadian Grain


$

3,750


$

3,391


$

359


11


3,266



3,356



(90)


(3)



- U.S. Grain



3,326



2,909



417


14


1,920



1,979



(59)


(3)



- Coal



1,978



1,985



(7)



2,849



2,915



(66)


(2)



- Potash



2,887



2,941



(54)


(2)


4,604



3,834



770


20



- Fertilizers and sulphur



4,410



3,801



609


16


4,227



3,641



586


16



- Forest products



4,026



3,493



533


15


3,596



3,318



278


8



- Chemicals and plastics



3,483



3,214



269


8


4,184



4,350



(166)


(4)



- Crude



4,309



4,419



(110)


(2)


3,005



2,895



110


4



- Metals, minerals, and consumer products



2,963



2,814



149


5


2,698



2,455



243


10



- Automotive



2,659



2,670



(11)



1,822



1,879



(57)


(3)



- Domestic intermodal



1,831



1,837



(6)



1,058



1,071



(13)


(1)



- International intermodal



1,061



1,077



(16)


(1)
























$

2,534


$

2,489


$

45


2


Total Freight Revenue per Carload


$

2,493


$

2,408


$

85


4













Summary of Rail Data







Fourth Quarter





Year


2015



2014 (1)



Change


%





2015 (1)



2014 (1)



Change


%



































Operations Performance




































66,107



71,209



(5,102)


(7)


Freight gross ton-miles (millions)



263,333



272,862



(9,529)


(3)


36,775



39,496



(2,721)


(7)


Revenue ton-miles (millions)



145,257



149,849



(4,592)


(3)


8,376



9,208



(832)


(9)


Train miles (thousands)



34,047



36,252



(2,205)


(6)


8,506



8,278



228


3


Average train weight - excluding local traffic (tons)



8,314



8,076



238


3


7,037



6,819



218


3


Average train length - excluding local traffic (feet)



6,935



6,682



253


4


6.6



8.1



(1.5)


(19)


Average terminal dwell (hours)



7.2



8.7



(1.5)


(17)


22.8



19.3



3.5


18


Average train speed (mph)(2)



21.4



18.0



3.4


19


0.988



1.031



(0.040)


(4)


Fuel efficiency (3)



0.994



1.035



(0.040)


(4)


65.3



72.7



(7.4)


(10)


U.S. gallons of locomotive fuel consumed (millions)(4)



260.4



279.3



(18.9)


(7)


1.91



3.11



(1.20)


(39)


Average fuel price (U.S. dollars per U.S. gallon)



2.13



3.41



(1.28)


(38)

























13,244



14,569



(1,325)


(9)


Total employees (average)(5)



13,813



14,575



(762)


(5)


12,943



14,499



(1,556)


(11)


Total employees (end of period)(5)



12,943



14,499



(1,556)


(11)


12,899



14,698



(1,799)


(12)


Workforce (end of period)(6)



12,899



14,698



(1,799)


(12)



































Safety




































1.71



1.78



(0.07)


(4)


FRA personal injuries per 200,000 employee-hours



1.74



1.67



0.07


4


1.41



1.18



0.23


19


FRA train accidents per million train-miles



1.30



1.26



0.04


3

(1)    

Certain figures have been revised to conform with current presentation or have been updated to reflect new information.

(2)     

Incorporates a new reporting definition where average train speed measures the line-haul movement from origin to destination including terminal dwell hours, and excluding foreign railroad and customer delays.

(3)     

Fuel efficiency is defined as U.S. gallons of locomotive fuel consumed per 1,000 GTMs – freight and yard.

(4)     

Includes gallons of fuel consumed from freight, yard and commuter service but excludes fuel used in capital projects and other non-freight activities.

(5)     

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.

(6)     

Workforce is defined as total employees plus part time employees, contractors, and consultants.

Non-GAAP Measures - Unaudited

The Company presents non-GAAP measures and cash flow information to provide a basis for evaluating underlying earnings and liquidity trends in the Company's business that can be compared with the results of operations in prior periods.  In addition, these non-GAAP measures facilitate a multi-period assessment of long-term profitability allowing management and other external users of the Company's consolidated financial information to compare profitability on a long-term basis, including assessing future profitability, with that of the Company's peers.

These non-GAAP measures have no standardized meaning and are not defined by GAAP and, therefore, may not be comparable to similar measures presented by other companies.  The presentation of these non-GAAP measures is not intended to be considered in isolation from, or as a substitute for or as superior to, the financial information presented in accordance with GAAP.

Adjusted Performance Measures
The Company uses adjusted operating income, adjusted income, adjusted diluted earnings per share and adjusted operating ratio to evaluate the Company's operating performance and for planning and forecasting future business operations and future profitability.  Management believes that these non-GAAP measures provide meaningful supplemental information regarding operating results because they exclude certain significant items that are not considered indicative of future financial trends either by nature or amount.  As a result management excludes these items when assessing operational performance, allocating resources and preparing annual budgets.  These significant items may include, but are not limited to, restructuring and asset impairment charges, individually significant gains and losses from sales of assets and other items outside the control of management.  These items may not be non-recurring.  However, management believes that excluding these significant items from GAAP results provides a better understanding of the Company's consolidated financial performance when performing a multi-period assessment including assessing the likelihood of future results.  Accordingly, these non-GAAP financial measures may provide insight to investors and other external users of our consolidated financial information into the motivation and decision-making of management in operating the business.

Significant items that impacted reported fourth-quarter 2015 and 2014 earnings include:

2015:

  • $115 million non-cash loss ($100 million after-tax) due to foreign exchange ("FX") translation on U.S. dollar-denominated long-term debt which unfavourably impacted Diluted EPS by 64 cents;

2014:

  • $12 million non-cash loss ($9 million after-tax) due to FX translation on U.S. dollar-denominated long-term debt which unfavourably impacted Diluted EPS by 5 cents.

In addition to the fourth quarter significant items discussed above other items that impacted full year 2015 and 2014 earnings include:

2015:

  • In the third quarter, a $128 million non-cash loss ($111 million after tax) due to FX translation of the Company's U.S. dollar-denominated debt which unfavourably impacted Diluted EPS by 69 cents;
  • In the third quarter, a $68 million gain ($42 million after tax) related to the sale of Delaware and Hudson Railway south of Schenectady ("D&H South") which favourably impacted Diluted EPS by 26 cents;
  • In the third quarter, a $47 million charge ($35 million after tax) related to the early redemption premium on notes which unfavourably impacted Diluted EPS by 22 cents;
  • In the second quarter, a $10 million non-cash gain ($9 million after-tax) due to FX translation on U.S. dollar-denominated debt which favourably impacted Diluted EPS by 5 cents;
  • In the second quarter, an income tax expense of $23 million as a result of the change in the Alberta provincial corporate income tax rate which unfavourably impacted Diluted EPS by 14 cents;
  • In the first quarter, a $64 million non-cash loss ($55 million after-tax) due to FX translation on U.S. dollar-denominated debt which unfavourably impacted Diluted EPS by 34 cents;

2014:

  • In the first quarter, $4 million ($3 million after-tax) experience gains from the 2012 labour restructuring initiative, which favourably impacted diluted EPS by 1 cent.

Reconciliation of Non-GAAP performance measures to GAAP performance measures
The following tables reconcile Adjusted operating income, Adjusted income, Adjusted EPS and Adjusted operating ratio to Operating income, Net income, Diluted earnings per share and Operating ratio, respectively.



For the three months


For the year

Operating income


ended December 31


ended December 31

(in millions Canadian dollars)


2015


2014


2015


2014

Adjusted operating income


$

677


$

708


$

2,620


$

2,335

Add significant items:














Labour restructuring









4


Gain on sale of D&H South







68



Operating income as reported


$

677


$

708


$

2,688


$

2,339
















For the three months


For the year

Net income


ended December 31


ended December 31

(in millions Canadian dollars)


2015


2014


2015


2014

Adjusted income


$

419


$

460


$

1,625


$

1,482

Add significant items, net of tax:














Labour restructuring









3


Impact of FX translation on U.S. dollar-denominated debt



(100)



(9)



(257)



(9)


Early redemption premium on notes







(35)




Gain on sale of D&H South







42




Income tax rate change







(23)



Net income as reported


$

319


$

451


$

1,352


$

1,476
















For the three months


For the year

Diluted earnings per share


ended December 31


ended December 31



2015


2014


2015


2014

Adjusted diluted earnings per share


$

2.72


$

2.68


$

10.10


$

8.50

Add significant items:














Labour restructuring









0.01


Impact of FX translation on U.S. dollar-denominated debt



(0.64)



(0.05)



(1.60)



(0.05)


Early redemption premium on notes







(0.22)




Gain on sale of D&H South







0.26




Income tax rate change







(0.14)



Diluted earnings per share as reported


$

2.08


$

2.63


$

8.40


$

8.46





















For the three months


For the year

Operating ratio


ended December 31


ended December 31



2015


2014


2015


2014

Adjusted operating ratio


59.8%


59.8%


61.0%


64.7%

Add significant items:










Gain on sale of D&H South



—%


1.0%


—%

Operating ratio as reported


59.8%


59.8%


60.0%


64.7%

Free Cash
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 FX fluctuations. Free cash is a measure that management considers to be an indicator of liquidity.  We believe that free cash is useful to investors and other external users of our consolidated financial information as it assists with the evaluation of the Company's ability to generate cash from its operations without incurring additional external financing.  Positive free cash indicates the amount of cash available for reinvestment in the business, or cash that can be returned to investors through increased dividends, stock repurchase programs, debt retirements or a combination of these.  Conversely, negative free cash indicates the amount of cash that must be raised from investors through new debt or equity issues, reduction in available cash balances or a combination of these. Free cash should be considered in addition to, rather than as a substitute for, cash provided by operating activities.

Reconciliation of cash provided by operating activities to free cash





For the three months


For the year


ended December 31


ended December 31

(in millions Canadian dollars)

2015


2014


2015


2014

Cash provided by operating activities

$

623


$

657


$

2,459


$

2,123

Cash used in investing activities


(415)



(403)



(1,123)



(750)

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




(84)





(411)

Dividends paid


(54)



(60)



(226)



(244)

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


22



5



45



7

Free cash


176



115



1,155



725

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 three months ended December 31

For the year ended December 31

(in millions

Canadian dollars)

Reported
2015

Reported
2014

Variance
due to FX

Adjusted
2014

FX Adj.
%

Reported
2015

Reported
2014

Variance
due to FX

Adjusted
2014

FX Adj.
%

Freight revenues

$

1,645

$

1,719

$

166

$

1,885

(13)%

$

6,552

$

6,464

$

549

$

7,013

(7)%

Non-freight revenues


42


41


1


42


160


156


4


160

—%

Total revenues


1,687


1,760


167


1,927

(12)%


6,712


6,620


553


7,173

(6)%

Total operating expenses


1,010


1,052


87


1,139

(11)%


4,024


4,281


306


4,587

(12)%

Operating income

$

677

$

708

$

80

$

788

(14)%

$

2,688

$

2,339

$

247

$

2,586

4%

 

SOURCE Canadian Pacific

For further information: Contacts: Media: Martin Cej, 24/7 Media Pager: 855-242-3674, Martin_Cej@cpr.ca; Investment Community: Nadeem Velani, 403-319-3591, investor@cpr.ca

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