Company Quick10K Filing
Canadian Pacific Railway
Price220.40 EPS17
Shares140 P/E13
MCap30,812 P/FCF16
Net Debt10,275 EBIT3,037
TEV41,087 TEV/EBIT14
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-04-22
10-K 2019-12-31 Filed 2020-02-20
10-Q 2019-09-30 Filed 2019-10-24
10-Q 2019-06-30 Filed 2019-07-16
10-Q 2019-03-31 Filed 2019-04-24
10-K 2018-12-31 Filed 2019-02-15
10-Q 2018-09-30 Filed 2018-10-19
10-Q 2018-06-30 Filed 2018-07-19
10-Q 2018-03-31 Filed 2018-04-19
10-K 2017-12-31 Filed 2018-02-16
10-Q 2017-09-30 Filed 2017-10-18
10-Q 2017-06-30 Filed 2017-07-20
10-Q 2017-03-31 Filed 2017-04-20
10-K 2016-12-31 Filed 2017-02-16
10-Q 2016-09-30 Filed 2016-10-19
10-Q 2016-06-30 Filed 2016-07-20
10-Q 2016-03-31 Filed 2016-04-20
10-K 2015-12-31 Filed 2016-02-29
8-K 2020-05-04 Other Events, Exhibits
8-K 2020-04-21 Earnings, Exhibits
8-K 2020-04-21 Shareholder Vote, Other Events, Exhibits
8-K 2020-04-20 Other Events, Exhibits
8-K 2020-04-20 Other Events, Exhibits
8-K 2020-03-20 Other Events, Exhibits
8-K 2020-03-19 Other Events, Exhibits
8-K 2020-03-19 Other Events, Exhibits
8-K 2020-03-05 Other Events, Exhibits
8-K 2020-03-03 Other Events, Exhibits
8-K 2020-03-03 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2020-02-20 Other Events, Exhibits
8-K 2020-02-05 Other Events, Exhibits
8-K 2020-01-31 Other Events, Exhibits
8-K 2020-01-29 Earnings, Exhibits
8-K 2020-01-28 Other Events, Exhibits
8-K 2020-01-06 Other Events, Exhibits
8-K 2019-12-30 Other Events, Exhibits
8-K 2019-12-17 Other Events, Exhibits
8-K 2019-12-16 Other Events, Exhibits
8-K 2019-12-04 Other Events, Exhibits
8-K 2019-12-02 Other Events, Exhibits
8-K 2019-11-22 Other Events, Exhibits
8-K 2019-11-20 Other Events, Exhibits
8-K 2019-11-14 Other Events, Exhibits
8-K 2019-11-14 Other Events, Exhibits
8-K 2019-10-23
8-K 2019-09-27 Enter Agreement, Exhibits
8-K 2019-08-07 Officers, Exhibits
8-K 2019-08-01 Other Events, Exhibits
8-K 2019-07-16 Earnings, Exhibits
8-K 2019-07-15 Other Events, Exhibits
8-K 2019-07-15 Exhibits
8-K 2019-06-19 Other Events, Exhibits
8-K 2019-06-06 Other Events, Exhibits
8-K 2019-06-04 Other Events, Exhibits
8-K 2019-05-31 Other Events, Exhibits
8-K 2019-05-07 Shareholder Vote, Other Events, Exhibits
8-K 2019-05-06 Other Events, Exhibits
8-K 2019-05-03 Other Events, Exhibits
8-K 2019-04-23 Earnings, Exhibits
8-K 2019-03-20 Other Events, Exhibits
8-K 2019-03-12 Other Events, Exhibits
8-K 2019-03-08 Other Events, Exhibits
8-K 2019-02-15 Other Events, Exhibits
8-K 2019-02-15 Other Events, Exhibits
8-K 2019-02-14 Other Events, Exhibits
8-K 2019-02-08 Other Events, Exhibits
8-K 2019-01-24 Other Events, Exhibits
8-K 2019-01-23 Earnings, Exhibits
8-K 2019-01-14 Other Events, Exhibits
8-K 2018-12-27 Other Events, Exhibits
8-K 2018-12-18
8-K 2018-12-18 Other Events, Exhibits
8-K 2018-12-17 Exhibits
8-K 2018-12-04 Other Events, Exhibits
8-K 2018-12-04 Other Events, Exhibits
8-K 2018-11-07 Other Events, Exhibits
8-K 2018-10-19 Other Events, Exhibits
8-K 2018-10-18 Other Events, Exhibits
8-K 2018-10-18 Earnings, Exhibits
8-K 2018-10-04 Earnings, Exhibits
8-K 2018-10-01 Other Events, Exhibits
8-K 2018-09-25 Officers, Exhibits
8-K 2018-09-17 Other Events, Exhibits
8-K 2018-09-12 Other Events, Exhibits
8-K 2018-09-10 Other Events, Exhibits
8-K 2018-08-20 Other Events, Exhibits
8-K 2018-07-20 Other Events, Exhibits
8-K 2018-07-18 Earnings, Exhibits
8-K 2018-06-29 Other Events, Exhibits
8-K 2018-06-08 Enter Agreement, Exhibits
8-K 2018-06-07 Other Events, Exhibits
8-K 2018-05-30 Other Events, Exhibits
8-K 2018-05-30 Other Events, Exhibits
8-K 2018-05-29 Other Events, Exhibits
8-K 2018-05-25 Other Events, Exhibits
8-K 2018-05-16 Other Events, Exhibits
8-K 2018-05-14 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-05-14 Other Events, Exhibits
8-K 2018-05-10 Other Events, Exhibits
8-K 2018-05-10 Shareholder Vote, Other Events, Exhibits
8-K 2018-05-03 Other Events, Exhibits
8-K 2018-04-28 Other Events, Exhibits
8-K 2018-04-23 Other Events, Exhibits
8-K 2018-04-19 Other Events, Exhibits
8-K 2018-04-18 Earnings, Exhibits
8-K 2018-04-16 Other Events, Exhibits
8-K 2018-03-16 Other Events, Exhibits
8-K 2018-03-15 Other Events, Exhibits
8-K 2018-03-08 Other Events, Exhibits
8-K 2018-03-07 Other Events, Exhibits
8-K 2018-02-28 Other Events, Exhibits
8-K 2018-02-16 Other Events, Exhibits
8-K 2018-02-16 Other Events, Exhibits
8-K 2018-02-15 Other Events, Exhibits
8-K 2018-02-14 Other Events, Exhibits
8-K 2018-02-09 Other Events, Exhibits
8-K 2018-02-01 Other Events, Exhibits
8-K 2018-01-23 Other Events, Exhibits
8-K 2018-01-18 Earnings, Exhibits

CP 10Q Quarterly Report

Part I
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II
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
EX-4.3 exhibit43-secondsupple.htm
EX-31.1 exhibit31110-q2020q1.htm
EX-31.2 exhibit31210-q2020q1.htm
EX-32.1 exhibit32110-q2020q1.htm
EX-32.2 exhibit32210-q2020q1.htm

Canadian Pacific Railway Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
25201510502015201620182020
Assets, Equity
2.11.71.30.80.40.02015201620182020
Rev, G Profit, Net Income
0.90.60.30.0-0.3-0.62015201620182020
Ops, Inv, Fin

Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to
Commission File Number 001-01342
Canadian Pacific Railway Limited
(Exact name of registrant as specified in its charter)
Canada
 
98-0355078
(State or Other Jurisdiction
of Incorporation or Organization)
 
(IRS Employer
Identification No.)
 
 
 
7550 Ogden Dale Road S.E.
 
 
Calgary
AB
 
T2C 4X9
(Address of Principal Executive Offices)
 
(Zip Code)
Registrant’s Telephone Number, Including Area Code: (403) 319-7000
Securities registered pursuant to Section 12(b) of the Act:
 
Title of Each Class
 
 
Trading Symbol(s)
 
 
Name of Each Exchange on which Registered
 
Common Shares, without par value, of
Canadian Pacific Railway Limited
 
CP
 
New York Stock Exchange
 
 
Toronto Stock Exchange
Perpetual 4% Consolidated Debenture Stock of Canadian Pacific Railway Company
 
CP/40
 
New York Stock Exchange
 
BC87
 
London Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes  þ    No o

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  þ    No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
 þ
Accelerated Filer
Non-accelerated Filer
Smaller Reporting Company
Emerging Growth Company



If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No þ
As of the close of business on April 20, 2020, there were 135,631,754 of the registrant’s Common Shares issued and outstanding.
 



CANADIAN PACIFIC RAILWAY LIMITED
FORM 10-Q
TABLE OF CONTENTS


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




PART I

ITEM 1. FINANCIAL STATEMENTS

INTERIM CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
 
For the three months ended March 31
(in millions of Canadian dollars, except share and per share data)
2020
2019
Revenues (Note 3)
 
 
Freight
$
2,000

$
1,726

Non-freight
43

41

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) (Note 4)
211

(47
)
Other components of net periodic benefit recovery (Note 12)
(85
)
(97
)
Net interest expense
114

114

Income before income tax expense
594

573

Income tax expense (Note 5)
185

139

Net income
$
409

$
434

 
 
 
Earnings per share (Note 6)
 
 
Basic earnings per share
$
2.99

$
3.10

Diluted earnings per share
$
2.98

$
3.09

 
 
 
Weighted-average number of shares (millions) (Note 6)
 
 
Basic
136.7

140.1

Diluted
137.2

140.5

 
 
 
Dividends declared per share
$
0.8300

$
0.6500

See Notes to Interim Consolidated Financial Statements.

2


INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
 
For the three months ended March 31
(in millions of Canadian dollars)
2020
2019
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 (Note 7)
42

16

Comprehensive income
$
451

$
450

See Notes to Interim Consolidated Financial Statements.

3


INTERIM CONSOLIDATED BALANCE SHEETS AS AT
(unaudited)
 
March 31
December 31
(in millions of Canadian dollars)
2020
2019
Assets
 
 
Current assets
 
 
Cash and cash equivalents
$
247

$
133

Accounts receivable, net (Note 8)
885

805

Materials and supplies
177

182

Other current assets
98

90

 
1,407

1,210

Investments
369

341

Properties
19,900

19,156

Goodwill and intangible assets
223

206

Pension asset
1,111

1,003

Other assets
478

451

Total assets
$
23,488

$
22,367

Liabilities and shareholders’ equity
 
 
Current liabilities
 
 
Accounts payable and accrued liabilities
$
1,528

$
1,693

Long-term debt maturing within one year (Note 9, 10)
266

599

 
1,794

2,292

Pension and other benefit liabilities
790

785

Other long-term liabilities
541

562

Long-term debt (Note 9, 10)
9,804

8,158

Deferred income taxes
3,604

3,501

Total liabilities
16,533

15,298

Shareholders’ equity
 
 
Share capital
1,985

1,993

Additional paid-in capital
51

48

Accumulated other comprehensive loss (Note 7)
(2,480
)
(2,522
)
Retained earnings
7,399

7,550

 
6,955

7,069

Total liabilities and shareholders’ equity
$
23,488

$
22,367

Contingencies (Note 14)
See Notes to Interim Consolidated Financial Statements.

4


INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 
For the three months ended March 31
(in millions of Canadian dollars)
2020
2019
Operating activities
 
 
Net income
$
409

$
434

Reconciliation of net income to cash provided by operating activities:
 
 
Depreciation and amortization
192

160

Deferred income tax expense (Note 5)
39

38

Pension recovery and funding (Note 12)
(65
)
(88
)
Foreign exchange loss (gain) on debt and lease liabilities (Note 4)
215

(45
)
Other operating activities, net
(72
)
45

Change in non-cash working capital balances related to operations
(229
)
(131
)
Cash provided by operating activities
489

413

Investing activities
 
 
Additions to properties
(355
)
(224
)
Proceeds from sale of properties and other assets
2

6

Other
(9
)
(1
)
Cash used in investing activities
(362
)
(219
)
Financing activities
 
 
Dividends paid
(114
)
(91
)
Issuance of CP Common Shares
24

4

Purchase of CP Common Shares (Note 11)
(501
)
(207
)
Issuance of long-term debt, excluding commercial paper (Note 9)
959

397

Repayment of long-term debt, excluding commercial paper
(15
)
(5
)
Net repayment of commercial paper (Note 9)
(553
)

Increase in short-term borrowings (Note 9)
145


Other
11


Cash (used in) provided by financing activities
(44
)
98

Effect of foreign currency fluctuations on U.S. dollar-denominated cash and cash equivalents
31

(1
)
Cash position
 
 
Increase in cash and cash equivalents
114

291

Cash and cash equivalents at beginning of period
133

61

Cash and cash equivalents at end of period
$
247

$
352

 
 
 
Supplemental disclosures of cash flow information:
 
 
Income taxes paid
$
139

$
149

Interest paid
$
157

$
149

See Notes to Interim Consolidated Financial Statements.

5


INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(unaudited)
 
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
 
137.0

 
$
1,993

$
48

$
(2,522
)
$
7,550

$
7,069

Impact of accounting change (Note 2)
 

 



(1
)
(1
)
Balance at January 1, 2020, as restated
 
137.0

 
$
1,993

$
48

$
(2,522
)
$
7,549

$
7,068

Net income
 

 



409

409

Other comprehensive income (Note 7)
 

 


42


42

Dividends declared ($0.8300 per share)
 

 



(112
)
(112
)
Effect of stock-based compensation expense
 

 

5



5

CP Common Shares repurchased (Note 11)
 
(1.6
)
 
(21
)


(447
)
(468
)
Shares issued under stock option plan
 
0.2

 
13

(2
)


11

Balance at March 31, 2020
 
135.6

 
$
1,985

$
51

$
(2,480
)
$
7,399

$
6,955

Balance at January 1, 2019
 
140.5

 
$
2,002

$
42

$
(2,043
)
$
6,630

$
6,631

Net income
 

 



434

434

Other comprehensive income (Note 7)
 

 


16


16

Dividends declared ($0.6500 per share)
 

 



(91
)
(91
)
Effect of stock-based compensation expense
 

 

5



5

CP Common Shares repurchased (Note 11)
 
(0.7
)
 
(10
)


(175
)
(185
)
Shares issued under stock option plan
 

 
5

(1
)


4

Balance at March 31, 2019
 
139.8

 
$
1,997

$
46

$
(2,027
)
$
6,798

$
6,814

See Notes to Interim Consolidated Financial Statements.

6


NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020
(unaudited)

1    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.

2    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.


7


3    Revenues

The following table disaggregates the Company’s revenues from contracts with customers by major source:
 
For the three months ended March 31
(in millions of Canadian dollars)
2020
2019
Freight
 
 
Grain
$
418

$
380

Coal
150

158

Potash
112

114

Fertilizers and sulphur
70

57

Forest products
78

73

Energy, chemicals and plastics
491

315

Metals, minerals and consumer products
189

173

Automotive
87

76

Intermodal
405

380

Total freight revenues
2,000

1,726

Non-freight excluding leasing revenues
29

26

Revenues from contracts with customers
2,029

1,752

Leasing revenues
14

15

Total revenues
$
2,043

$
1,767



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:
 
For the three months ended March 31
(in millions of Canadian dollars)
2020
2019
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



4    Other expense (income)
 
For the three months ended March 31
(in millions of Canadian dollars)
2020
2019
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
)



8


5    Income taxes
 
For the three months ended March 31
(in millions of Canadian dollars)
2020
2019
Current income tax expense
$
146

$
101

Deferred income tax expense
39

38

Income tax expense
$
185

$
139



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%.

For the three months ended March 31, 2019, the effective tax rate excluding the discrete item of the FX gain of $45 million on debt and lease liabilities was 25.75%.

6    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
(in millions)
2020
2019
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



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).

7    Changes in Accumulated other comprehensive loss ("AOCL") by component
 
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
$
112

$
(54
)
$
(2,580
)
$
(2,522
)
Other comprehensive income before reclassifications
7



7

Amounts reclassified from accumulated other comprehensive loss

2

33

35

Net other comprehensive income
7

2

33

42

Closing balance, March 31, 2020
$
119

$
(52
)
$
(2,547
)
$
(2,480
)
Opening balance, January 1, 2019
$
113

$
(62
)
$
(2,094
)
$
(2,043
)
Other comprehensive loss before reclassifications

(1
)
(1
)
(2
)
Amounts reclassified from accumulated other comprehensive loss

2

16

18

Net other comprehensive income

1

15

16

Closing balance, March 31, 2019
$
113

$
(61
)
$
(2,079
)
$
(2,027
)

(1) 
Amounts are presented net of tax.

9


Amounts in Pension and post-retirement defined benefit plans reclassified from AOCL are as follows:
 
For the three months ended March 31
(in millions of Canadian dollars)
2020
2019
Recognition of net actuarial loss(1)
$
45

$
21

Income tax recovery
(12
)
(5
)
Total net of income tax
$
33

$
16

(1) 
Impacts "Other components of net periodic benefit recovery" on the Interim Consolidated Statements of Income.
8    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.
(in millions of Canadian dollars)
Freight
Non-freight
Total
Accounts receivable, as at March 31, 2020
$
724

$
202

$
926

 
 
 
 
Allowance for credit losses
 
 
 
Restated, as at January 1, 2020 (Note 2)
(27
)
(16
)
(43
)
Current period credit loss provision, net

2

2

Allowance for credit losses, as at March 31, 2020
(27
)
(14
)
(41
)
Total accounts receivable, net as at March 31, 2020
$
697

$
188

$
885

 
 
 
 
Total accounts receivable, net restated, as at January 1, 2020
$
610

$
194

$
804



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.

9    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.


10


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.

10    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:
(in millions of Canadian dollars)
March 31, 2020
December 31, 2019
Long-term debt (including current maturities):
 
 
Fair value
$
11,607

$
10,149

Carrying value
10,070

8,757



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”.

11    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:
 
For the three months ended March 31
 
2020
2019
Number of Common Shares repurchased(1)
1,455,854

707,678

Weighted-average price per share(2)
$
321.71

$
261.73

Amount of repurchase (in millions)(2)
$
468

$
185

(1) 
Includes shares repurchased but not yet cancelled at end of period.
(2) 
Includes brokerage fees.


11


12    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:
 
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)
$
35

$
27

$
3

$
3

Other components of net periodic benefit (recovery) cost:
 
 
 
 
Interest cost on benefit obligation
102

112

5

5

Expected return on fund assets
(237
)
(237
)


Recognized net actuarial loss
44

21

1

2

Total other components of net periodic benefit (recovery) cost
(91
)
(104
)
6

7

Net periodic benefit (recovery) cost
$
(56
)
$
(77
)
$
9

$
10



13    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:
 
For the three months ended March 31, 2020
Expected option life (years)(1)
4.75
Risk-free interest rate(2)
1.31%
Expected stock price volatility(3)
23.05%
Expected annual dividends per share(4)
$3.3200
Expected forfeiture rate(5)
4.37%
Weighted-average grant date fair value per option granted during the period
$68.95
(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.

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.


12


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.

14    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:

(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 $95 million for those costs. CP appealed the Cleanup Order and contested the Notice of Claim with the Administrative Tribunal of Québec. These proceedings are stayed pending determination of the Attorney General of Québec (“AGQ”) action (paragraph 2 below).

(2)
The AGQ sued CP in the Québec Superior Court claiming $409 million in damages, which was amended and reduced to $315 million (the “AGQ Action”). The AGQ Action alleges that: (i) CP was responsible for the petroleum crude oil from its point of origin until its delivery to Irving Oil Ltd.; and (ii) CP is vicariously liable for the acts and omissions of the MMA Group.

(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)
Eight subrogated insurers sued CP in the Québec Superior Court claiming approximately $16 million in damages, which was amended and reduced to approximately $15 million (the “Promutuel Action”), and two additional subrogated insurers sued CP claiming approximately $3 million in damages (the “Royal Action”). Both actions contain similar allegations as the AGQ Action. The actions do not identify the subrogated parties. As such, the extent of any overlap between the damages claimed in these actions and under the Plans is unclear. The Royal Action is stayed pending determination of the consolidated proceedings described below.

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.

(5)
Forty-eight plaintiffs (all individual claims joined in one action) sued CP, MMAC, and Harding in the Québec Superior Court claiming approximately $5 million in damages for economic loss and pain and suffering, and asserting similar allegations as in the Class Action and the AGQ Action. The majority of the plaintiffs opted-out of the Class Action and all but two are also plaintiffs

13


in litigation against CP, described in paragraph 7 below. This action is stayed pending determination of the consolidated claims described above.

(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. $6 million for damaged rail cars and lost crude and reimbursement for the settlement paid by the consignor and the consignee under the Plans (alleged to be U.S. $110 million and U.S. $60 million, respectively). This action is scheduled for trial in August 2020.

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.

15 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.

14


Interim Condensed Consolidating Statements of Income
For the three months ended March 31, 2020    
(in millions of Canadian dollars)
CPRL (Parent Guarantor)

CPRC (Subsidiary Issuer)

Non-Guarantor Subsidiaries

Consolidating Adjustments and Eliminations

CPRL Consolidated

Revenues
 
 
 
 
 
Freight
$

$
1,457

$
543

$

$
2,000

Non-freight

33

93

(83
)
43

Total revenues

1,490

636

(83
)
2,043

Operating expenses
 
 
 
 
 
Compensation and benefits

275

120

3

398

Fuel

167

45


212

Materials

41

16

2

59

Equipment rents

44

(5
)
(3
)
36

Depreciation and amortization

115

77


192

Purchased services and other

243

154

(85
)
312

Total operating expenses

885

407

(83
)
1,209

Operating income

605

229


834

Less:
 
 
 
 
 
Other expense (income)
21

208

(18
)

211

Other components of net periodic benefit (recovery) expense

(87
)
2


(85
)
Net interest expense (income)

122

(8
)

114

(Loss) income before income tax expense and equity in net earnings of subsidiaries
(21
)
362

253


594

Less: Income tax expense

134

51


185

Add: Equity in net earnings of subsidiaries
430

202


(632
)

Net income
$
409

$
430

$
202

$
(632
)
$
409




15


Interim Condensed Consolidating Statements of Income
For the three months ended March 31, 2019                 
(in millions of Canadian dollars)
CPRL (Parent Guarantor)

CPRC (Subsidiary Issuer)

Non-Guarantor Subsidiaries

Consolidating Adjustments and Eliminations

CPRL Consolidated

Revenues
 
 
 
 
 
Freight
$

$
1,244

$
482

$

$
1,726

Non-freight

29

114

(102
)
41

Total revenues

1,273

596

(102
)
1,767

Operating expenses
 
 
 
 
 
Compensation and benefits

274

130

2

406

Fuel

165

44


209

Materials

38

15

4

57

Equipment rents

33

2


35

Depreciation and amortization

96

64


160

Purchased services and other

278

187

(108
)
357

Total operating expenses