Canadian Pacific Kansas City Ltd 10-Q for FY2022 Q1

Canadian Pacific Kansas City Ltd (CP)

10-Q 2022-04-28 For: 2022-03-31

Added on April 11, 2026

About this 10-Q

Canadian Pacific Kansas City Ltd filed this 10-Q on April 28, 2022, covering the quarter ended March 31, 2022 (FY2022 Q1).

Headline figures

Quarter ended March 31, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: 1.84B CAD; down 6.2% from 1.96B CAD a year earlier
Net income: 590M CAD; down 2.0% from net income of 602M CAD a year earlier
Diluted EPS: 0.63 CAD; down 30.0% from 0.90 CAD a year earlier

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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)


	PART I - FINANCIAL INFORMATION
		Page
Item 1.	Financial Statements:

	Interim Consolidated Statements of Income	2
	For the Three Months Ended March 31, 2022 and 2021

	Interim Consolidated Statements of Comprehensive Income	3
	For the Three Months Ended March 31, 2022 and 2021

	Interim Consolidated Balance Sheets	4
	As at March 31, 2022 and December 31, 2021

	Interim Consolidated Statements of Cash Flows	5
	For the Three Months Ended March 31, 2022 and 2021

	Interim Consolidated Statements of Changes in Shareholders' Equity	6
	For the Three Months Ended March 31, 2022 and 2021

	Notes to Interim Consolidated Financial Statements	7

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	17
	Executive Summary	17
	Performance Indicators	18
	Financial Highlights	21
	Results of Operations	22
	Liquidity and Capital Resources	31
	Share Capital	35
	Non-GAAP Measures	36
	Critical Accounting Estimates	44
	Forward-Looking Statements	44
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	46
Item 4.	Controls and Procedures	47

	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	48
Item 1A.	Risk Factors	48
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	48
Item 3.	Defaults Upon Senior Securities	48
Item 4.	Mine Safety Disclosures	48
Item 5.	Other Information	48
Item 6.	Exhibits	49
	Signature	50


	For the three months ended March 31
(in millions of Canadian dollars, except share and per share data)	2022		2021
Revenues (Note 3)
Freight	$	1,796	$	1,918
Non-freight	42		41
Total revenues	1,838		1,959
Operating expenses
Compensation and benefits	413		405
Fuel	273		206
Materials	62		59
Equipment rents	35		33
Depreciation and amortization	210		202
Purchased services and other (Note 10)	310		274
Total operating expenses	1,303		1,179

Operating income	535		780
Less:
Equity earnings of Kansas City Southern (Note 10)	(198)		—
Other income (Note 4, 10)	(1)		(28)

Other components of net periodic benefit recovery (Note 15)	(101)		(95)
Net interest expense	160		110
Income before income tax expense	675		793
Income tax expense (Note 5)	85		191
Net income	$	590	$	602

Earnings per share (Note 1, 6)
Basic earnings per share	$	0.63	$	0.90
Diluted earnings per share	$	0.63	$	0.90

Weighted-average number of shares (millions) (Note 1, 6)
Basic	929.7		666.5
Diluted	932.7		669.6

Dividends declared per share (Note 1)	$	0.190	$	0.190


	For the three months ended March 31
(in millions of Canadian dollars)	2022		2021
Net income	$	590	$	602
Net (loss) gain in foreign currency translation adjustments, net of hedging activities	(336)		10
Change in derivatives designated as cash flow hedges	1		25
Change in pension and post-retirement defined benefit plans	39		53
Equity accounted investments	62		—
Other comprehensive (loss) income before income taxes	(234)		88
Income tax expense on above items	(36)		(30)
Other comprehensive (loss) income (Note 7)	(270)		58
Comprehensive income	$	320	$	660


	March 31		December 31
(in millions of Canadian dollars)	2022		2021
Assets
Current assets
Cash and cash equivalents	$	85	$	69
Restricted cash and cash equivalents	13		13
Accounts receivable, net (Note 8)	818		819
Materials and supplies	251		235
Other current assets	240		216
	1,407		1,352
Investment in Kansas City Southern (Note 11)	41,626		42,309
Investments	201		209
Properties	21,120		21,200
Goodwill and intangible assets	366		371
Pension asset	2,428		2,317
Other assets	444		419
Total assets	$	67,592	$	68,177
Liabilities and shareholders’ equity
Current liabilities
Accounts payable and accrued liabilities	$	1,445	$	1,609
Long-term debt maturing within one year (Note 12, 13)	1,746		1,550
	3,191		3,159
Pension and other benefit liabilities	715		718
Other long-term liabilities	521		542
Long-term debt (Note 12, 13)	17,917		18,577
Deferred income taxes	11,263		11,352
Total liabilities	33,607		34,348
Shareholders’ equity
Share capital	25,486		25,475
Additional paid-in capital	68		66
Accumulated other comprehensive loss (Note 7)	(2,373)		(2,103)
Retained earnings	10,804		10,391
	33,985		33,829
Total liabilities and shareholders’ equity	$	67,592	$	68,177


	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 January 1, 2022		929.7	$	25,475	$	66	$	(2,103)	$	10,391	$	33,829
Net income		—	—		—		—		590		590
Other comprehensive loss (Note 7)		—	—		—		(270)		—		(270)
Dividends declared ($0.190 per share)		—	—		—		—		(177)		(177)
Effect of stock-based compensation expense		—	—		7		—		—		7

Shares issued for Kansas City Southern acquisition		—	—		(2)		—		—		(2)
Shares issued under stock option plan		0.2	11		(3)		—		—		8
Balance at March 31, 2022		929.9	$	25,486	$	68	$	(2,373)	$	10,804	$	33,985
Balance at January 1, 2021		666.3	$	1,983	$	55	$	(2,814)	$	8,095	$	7,319
Net income		—	—		—		—		602		602
Other comprehensive income (Note 7)		—	—		—		58		—		58
Dividends declared ($0.190 per share) (Note 1)		—	—		—		—		(126)		(126)
Effect of stock-based compensation expense		—	—		5		—		—		5


Shares issued under stock option plan		0.3	10		(2)		—		—		8
Balance at March 31, 2021		666.6	$	1,993	$	58	$	(2,756)	$	8,571	$	7,866


	For the three months ended March 31
(in millions)	2022	2021
Weighted-average basic shares outstanding	929.7	666.5
Dilutive effect of stock options	3.0	3.1
Weighted-average diluted shares outstanding	932.7	669.6


	For the three months ended March 31
(in millions of Canadian dollars)	Foreign currency net of hedging activities(1)		Derivatives(1)(2)		Pension and post- retirement defined benefit plans(1)		Equity accounted investments(1)(2)		Total(1)
Opening balance, January 1, 2022	$	(182)	$	(4)	$	(1,915)	$	(2)	$	(2,103)
Other comprehensive (loss) income before reclassifications	(349)		—		—		46		(303)
Amounts reclassified from accumulated other comprehensive loss	—		1		31		1		33
Net other comprehensive (loss) income	(349)		1		31		47		(270)
Closing balance, March 31, 2022	$	(531)	$	(3)	$	(1,884)	$	45	$	(2,373)
Opening balance, January 1, 2021	$	112	$	(40)	$	(2,878)	$	(8)	$	(2,814)
Other comprehensive income before reclassifications	—		17		—		—		17
Amounts reclassified from accumulated other comprehensive loss	—		2		39		—		41
Net other comprehensive income	—		19		39		—		58
Closing balance, March 31, 2021	$	112	$	(21)	$	(2,839)	$	(8)	$	(2,756)


	As at March 31, 2022						As at December 31, 2021
(in millions of Canadian dollars)	Freight		Non-freight		Total		Freight		Non-freight		Total
Total accounts receivable	$	599	$	255	$	854	$	614	$	239	$	853
Allowance for credit losses	(22)		(14)		(36)		(20)		(14)		(34)
Total accounts receivable, net	$	577	$	241	$	818	$	594	$	225	$	819


(in millions of Canadian dollars)(1)	For the three months ended March 31, 2022
Total revenues	$	986
Total operating expenses	617
Operating Income	369
Less: Other(2)	39
Income before income taxes	330
Net Income	$	238


	For the three months ended March 31
	Pensions				Other benefits
(in millions of Canadian dollars)	2022		2021		2022		2021
Current service cost (benefits earned by employees)	$	37	$	43	$	2	$	3
Other components of net periodic benefit (recovery) cost:
Interest cost on benefit obligation	96		88		4		4
Expected return on fund assets	(240)		(240)		—		—
Recognized net actuarial loss	38		52		1		1

Total other components of net periodic benefit (recovery) cost	(106)		(100)		5		5
Net periodic benefit (recovery) cost	$	(69)	$	(57)	$	7	$	8


			For the three months ended March 31, 2022
Expected option life (years)(1)			4.75
Risk-free interest rate(2)			1.59%
Expected share price volatility(3)			26.84%
Expected annual dividends per share(4)			$0.760
Expected forfeiture rate(5)			2.98%
Weighted-average grant date fair value per option granted during the period			$18.69


	For the three months ended March 31
(in millions, except per share data, percentages and ratios)	2022			2021
Financial Performance and Liquidity
Total revenues	$	1,838		$	1,959
Operating income	535			780
Adjusted operating income(1)	555			813
Net income	590			602
Adjusted income(1)	588			600
Core adjusted income(1)	628			600
Basic EPS	0.63			0.90
Diluted EPS	0.63			0.90
Adjusted diluted EPS(1)	0.63			0.90
Core adjusted diluted EPS(1)	0.67			0.90
Dividends declared per share	0.190			0.190
Cash provided by operating activities	613			582
Cash used in investing activities	(206)			(286)
Cash used in financing activities	(391)			(80)
Free cash(1)	424			296
Financial Position	As at March 31, 2022			As at December 31, 2021
Total assets	$	67,592		$	68,177
Total long-term debt, including current portion	19,663			20,127
Total shareholders’ equity	33,985			33,829
	For the three months ended March 31
Financial Ratios	2022			2021
Operating ratio(2)	70.9		%	60.2		%
Adjusted operating ratio(1)	69.8		%	58.5		%
	For the twelve months ended March 31
	2022			2021
Return on average shareholders' equity(3)	13.6		%	35.6		%

Adjusted return on invested capital ("Adjusted ROIC")(1)	8.2		%	15.8		%


Long-term debt to Net income ratio(4)	6.9			3.7
Adjusted net debt to adjusted EBITDA ratio(1)	4.7			2.4
Pro-forma adjusted Net Debt to Pro-forma adjusted EBITDA Ratio(1)	4.1			N/A


Average exchange rates (Canadian/U.S. dollar)	2022		2021
For the three months ended - March 31	$	1.27	$	1.27


Ending exchange rates (Canadian/U.S. dollar)	2022		2021
Beginning of year - January 1	$	1.28	$	1.28
End of quarter - March 31	$	1.25	$	1.26


	For the three months ended March 31
(in millions of Canadian dollars)	2022		2021
Freight
Grain	$	360	$	448
Coal	139		163
Potash	104		101
Fertilizers and sulphur	78		77
Forest products	86		80
Energy, chemicals and plastics	310		388
Metals, minerals and consumer products	181		159
Automotive	91		108
Intermodal	447		394
Total freight revenues	1,796		1,918
Non-freight excluding leasing revenues	22		24
Revenues from contracts with customers	1,818		1,942
Leasing revenues	20		17
Total revenues	$	1,838	$	1,959


	For the three months ended March 31
	2022	2021	% Change
Operations Performance
Gross ton-miles (“GTMs”) (millions)	62,182	71,326	(13)
Train miles (thousands)	6,893	7,803	(12)
Average train weight - excluding local traffic (tons)	9,757	9,795	—
Average train length - excluding local traffic (feet)	8,050	7,972	1
Average terminal dwell (hours)	8.7	7.4	18
Average train speed (miles per hour, or "mph")	21.2	20.9	1
Locomotive productivity (GTMs / operating horsepower)	178	201	(11)
Fuel efficiency (U.S. gallons of locomotive fuel consumed / 1,000 GTMs)	0.994	0.958	4
Total Employees and Workforce
Total employees (average)	11,767	12,061	(2)
Total employees (end of period)	11,942	12,398	(4)
Workforce (end of period)	11,977	12,426	(4)
Safety Indicators(1)
FRA personal injuries per 200,000 employee-hours	1.31	1.16	13
FRA train accidents per million train-miles	1.04	1.39	(25)


For the three months ended March 31	2022		2021		Total Change		% Change	FX Adjusted % Change(1)
Freight revenues (in millions)	$	139	$	163	$	(24)	(15)	(15)
Carloads (in thousands)	69.9		72.0		(2.1)		(3)	N/A
Revenue ton-miles (in millions)	3,997		5,280		(1,283)		(24)	N/A
Freight revenue per carload (in dollars)	$	1,989	$	2,264	$	(275)	(12)	(12)
Freight revenue per revenue ton-mile (in cents)	3.48		3.09		0.39		13	13


	For the three months ended March 31
High/Low exchange rates (Canadian/U.S. dollar)	2022		2021
High	$	1.29	$	1.28
Low	$	1.25	$	1.24


Average Fuel Price (U.S. dollars per U.S. gallon)	2022		2021
For the three months ended - March 31	$	3.49	$	2.39


TSX (in Canadian dollars)	2022		2021
Opening Common Share price, as at January 1	$	90.98	$	88.31
Ending Common Share price, as at March 31	$	103.18	$	96.00
Change in Common Share price for the three months ended March 31	$	12.20	$	7.69


NYSE (in U.S. dollars)	2022		2021
Opening Common Share price, as at January 1	$	71.94	$	69.34
Ending Common Share price, as at March 31	$	82.54	$	75.86
Change in Common Share price for the three months ended March 31	$	10.60	$	6.52


For the three months ended March 31 (in millions of Canadian dollars)	2022		2021		Total Change		% Change	FX Adjusted % Change(1)
Compensation and benefits	$	413	$	405	$	8	2	2
Fuel	273		206		67		33	33
Materials	62		59		3		5	5
Equipment rents	35		33		2		6	6
Depreciation and amortization	210		202		8		4	4
Purchased services and other	310		274		36		13	13
Total operating expenses	$	1,303	$	1,179	$	124	11	11


Long-term debt			Outlook
Standard & Poor's
	Long-term corporate credit	BBB+	stable
	Senior secured debt	A	stable
	Senior unsecured debt	BBB+	stable
Moody's
	Senior unsecured debt	Baa2	stable
Commercial paper program
Standard & Poor's		A-2	N/A
Moody's		P-2	N/A


	CPRC (Subsidiary Issuer) and CPRL (Parent Guarantor)
(in millions of Canadian dollars)	For the three months ended March 31, 2022		For the year ended December 31, 2021
Total revenues	$	1,297	$	5,924
Total operating expenses	964		3,712
Operating income(1)	333		2,212
Less: Other(2)	53		(522)
Income before income tax expense	280		2,734
Net income	$	193	$	2,548


	For the three months ended March 31
(in millions of Canadian dollars)	Reported 2022		Reported 2021		Variance due to FX		FX Adjusted 2021		FX Adjusted % Change
Freight revenues by line of business
Grain	$	360	$	448	$	—	$	448	(20)
Coal	139		163		—		163		(15)
Potash	104		101		—		101		3
Fertilizers and sulphur	78		77		1		78		—
Forest products	86		80		—		80		8
Energy, chemicals and plastics	310		388		—		388		(20)
Metals, minerals and consumer products	181		159		—		159		14
Automotive	91		108		—		108		(16)
Intermodal	447		394		—		394		13
Freight revenues	1,796		1,918		1		1,919		(6)
Non-freight revenues	42		41		—		41		2
Total revenues	$	1,838	$	1,959	$	1	$	1,960	(6)


Exhibit			Description
3.1			Restated Certificate and Articles of Incorporation of Canadian Pacific Railway Limited (incorporated by reference to Exhibit 99.2 to Canadian Pacific Railway Limited’s Form 6-K filed with the Securities and Exchange Commission on October 22, 2015, File No. 001-01342).
3.2			Articles of Amendment to Restated Certificate and Articles of Incorporation of Canadian Pacific Railway Limited (incorporated by reference to Exhibit 3.1 to Canadian Pacific Railway Limited’s Form 8-K filed with the Securities and Exchange Commission on May 5, 2021, File No. 001-01342).
3.3			By-law No. 1, as amended, of Canadian Pacific Railway Limited (incorporated by reference to Exhibit 1 to Canadian Pacific Railway Limited’s Form 6-K filed with the Securities and Exchange Commission on May 22, 2009, File No. 001-01342).
3.4			By-law No. 2 of Canadian Pacific Railway Limited (incorporated by reference to Exhibit 99.1 to Canadian Pacific Railway Limited’s Form 6-K filed with the Securities and Exchange Commission on March 13, 2015, File No. 001-01342).
3.5			General By-law, as amended, of Canadian Pacific Railway Company, a wholly owned subsidiary of Canadian Pacific Railway Limited (incorporated by reference to Exhibit 2 to Canadian Pacific Railway Limited’s Form 6-K filed with the Securities and Exchange Commission on May 22, 2009, File No. 001-01342).
10.1* **			Form of Regular Stock Option Agreement for CEO (2022).
10.2* **			Form of Regular Stock Option Agreement for United States Executive Officers (2022).
10.3* **			Form of Regular Stock Option Agreement for Canadian Executive Officers (2022).
10.4* **			Form of Canadian Pacific Railway Limited Performance Share Units Notice of Grant and Grant Agreement for CEO (2022).
10.5* **			Form of Canadian Pacific Railway Limited Performance Share Units Notice of Grant and Grant Agreement for United States Executive Officers (2022).
10.6* **			Form of Canadian Pacific Railway Limited Performance Share Units Notice of Grant and Grant Agreement for Canadian Executive Officers (2022).
10.7*			First Amending Agreement, dated as of March 14, 2022, among Canadian Pacific Railway Company, as Borrower, Canadian Pacific Railway Limited, as Covenantor, Bank of Montreal, as Administrative Agent, and the various Lenders party thereto.
22.1*			List of Issuers and Guarantor Subsidiaries
31.1*			CEO Rule 13a-14(a) Certifications
31.2*			CFO Rule 13a-14(a) Certifications
32.1*			CEO Section 1350 Certifications
32.2*			CFO Section 1350 Certifications
101.INS*			Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*			Inline XBRL Taxonomy Extension Schema Document
101.CAL*			Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB*			Inline XBRL Taxonomy Extension Label Linkbase Document
101.DEF*			Inline XBRL Taxonomy Extension Definition Linkbase Document
101.PRE*			Inline XBRL Taxonomy Extension Presentation Linkbase Document
			The following financial information from Canadian Pacific Railway Limited's Quarterly Report on Form 10-Q for the first quarter ended March 31, 2022, formatted in Extensible Business Reporting Language (XBRL) includes: (i) the Interim Consolidated Statements of Income for the first three months ended March 31, 2022 and 2021; (ii) the Interim Consolidated Statements of Comprehensive Income for the first three months ended March 31, 2022 and 2021; (iii) the Interim Consolidated Balance Sheets at March 31, 2022, and December 31, 2021; (iv) the Interim Consolidated Statements of Cash Flows for the first three months ended March 31, 2022 and 2021; (v) the Interim Consolidated Statements of Changes in Shareholders’ Equity for the first three months ended March 31, 2022 and 2021; and (vi) the Notes to Interim Consolidated Financial Statements.
104*			Cover Page Interactive Data File (embedded within the Inline XBRL document)


CANADIAN PACIFIC RAILWAY LIMITED
(Registrant)
By:			/s/ NADEEM VELANI
			Nadeem Velani
			Executive Vice-President and Chief Financial Officer (Principal Financial Officer)



Vice-President, Human Resources & Chief Culture Officer						President and Chief Executive Officer


Grant Date			[ ]
PSU Service Year			[ ]
Below Threshold			[ ]% of Target
Threshold			[ ]% of Target
Maximum			[ ]% of Target
Performance Period			[ ] – [ ]
Payment in respect of PSUs covered by this Agreement will be based on the extent to which the Performance Criteria set out in Schedule A are satisfied at the end of the Performance Period.


			CANADIAN PACIFIC RAILWAY COMPANY, as Borrower
			Per:			/s/ Nadeem Velani
			Name:			Nadeem Velani
			Title:			Executive Vice-President & Chief Financial Officer


			CANADIAN PACIFIC RAILWAY LIMITED, as Covenantor
			Per:			/s/ Nadeem Velani
			Name:			Nadeem Velani
			Title:			Executive Vice-President & Chief Financial Officer


			THE ADMINISTRATIVE AGENT BANK OF MONTREAL
			Per:			/s/ Jeff Cowan
						Jeff Cowan, Director


			THE LENDERS BANK OF MONTREAL
			Per:			/s/ Jeff Cowan
						Jeff Cowan, Director


			CANADIAN IMPERIAL BANK OF COMMERCE
			Per:			/s/ Stephen Redding
						Stephen Redding
						Managing Director

			Per:			/s/ Danielle Bentley
						Danielle Bentley
						Director


			THE BANK OF NOVA SCOTIA
			Per:			/s/ Michael Linder
						Michael Linder
						Director


			Per:			/s/ Conor Jefferies
						Conor Jefferies
						Associate Director


			WELLS FARGO BANK N.A., CANADIAN BRANCH, as a Lender
			Per:			/s/ Marc-Philippe Piché
						Marc-Philippe Piché
						Managing Director


			Per:			/s/ Sean Buchan
						Sean Buchan
						Director



Date: April 27, 2022						/s/ KEITH CREEL
						Keith Creel
						President and Chief Executive Officer