(State or Other Jurisdiction of Incorporation or Organization) | (IRS Employer Identification No.) | ||||||||||
(Address of Principal Executive Offices) | (Zip Code) |
Title of Each Class | Trading Symbol(s) | Name of Each Exchange on which Registered | ||||||||||||||||||||||||
Canadian Pacific Railway Limited | ||||||||||||||||||||||||||
Toronto Stock Exchange | ||||||||||||||||||||||||||
BC87 | London Stock Exchange |
þ | Accelerated Filer | ☐ | Non-accelerated Filer | ☐ | Smaller Reporting Company | Emerging Growth Company |
PART I - FINANCIAL INFORMATION | ||||||||
Page | ||||||||
Item 1. | Financial Statements: | |||||||
Interim Consolidated Statements of Income | ||||||||
For the Three Months Ended March 31, 2021 and 2020 | ||||||||
Interim Consolidated Statements of Comprehensive Income | ||||||||
For the Three Months Ended March 31, 2021 and 2020 | ||||||||
Interim Consolidated Balance Sheets | ||||||||
As at March 31, 2021 and December 31, 2020 | ||||||||
Interim Consolidated Statements of Cash Flows | ||||||||
For the Three Months Ended March 31, 2021 and 2020 | ||||||||
Interim Consolidated Statements of Changes in Shareholders' Equity | ||||||||
For the Three Months Ended March 31, 2021 and 2020 | ||||||||
Notes to Interim Consolidated Financial Statements | ||||||||
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | |||||||
Executive Summary | ||||||||
Performance Indicators | ||||||||
Financial Highlights | ||||||||
Results of Operations | ||||||||
Liquidity and Capital Resources | ||||||||
Share Capital | ||||||||
Non-GAAP Measures | ||||||||
Off-Balance Sheet Arrangements | ||||||||
Contractual Commitments | ||||||||
Critical Accounting Estimates | ||||||||
Forward-Looking Statements | ||||||||
Item 3. | Quantitative and Qualitative Disclosures about Market Risk | |||||||
Item 4. | Controls and Procedures | |||||||
PART II - OTHER INFORMATION | ||||||||
Item 1. | Legal Proceedings | |||||||
Item 1A. | Risk Factors | |||||||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |||||||
Item 3. | Defaults Upon Senior Securities | |||||||
Item 4. | Mine Safety Disclosures | |||||||
Item 5. | Other Information | |||||||
Item 6. | Exhibits | |||||||
Signature |
For the three months ended March 31 | ||||||||
(in millions of Canadian dollars, except share and per share data) | 2021 | 2020 | ||||||
Revenues (Note 3) | ||||||||
Freight | $ | $ | ||||||
Non-freight | ||||||||
Total revenues | ||||||||
Operating expenses | ||||||||
Compensation and benefits | ||||||||
Fuel | ||||||||
Materials | ||||||||
Equipment rents | ||||||||
Depreciation and amortization | ||||||||
Purchased services and other (Note 9, 10) | ||||||||
Total operating expenses | ||||||||
Operating income | ||||||||
Less: | ||||||||
Other (income) expense (Note 4, 10) | ( | |||||||
Other components of net periodic benefit recovery (Note 14) | ( | ( | ||||||
Net interest expense | ||||||||
Income before income tax expense | ||||||||
Income tax expense (Note 5) | ||||||||
Net income | $ | $ | ||||||
Earnings per share (Note 6) | ||||||||
Basic earnings per share | $ | $ | ||||||
Diluted earnings per share | $ | $ | ||||||
Weighted-average number of shares (millions) (Note 6) | ||||||||
Basic | ||||||||
Diluted | ||||||||
Dividends declared per share | $ | $ | ||||||
Earnings per share - Pro forma post-split basis (Note 17) | ||||||||
Basic earnings per share | $ | $ | ||||||
Diluted earnings per share | $ | $ |
For the three months ended March 31 | ||||||||
(in millions of Canadian dollars) | 2021 | 2020 | ||||||
Net income | $ | $ | ||||||
Net gain (loss) in foreign currency translation adjustments, net of hedging activities | ( | |||||||
Change in derivatives designated as cash flow hedges | ||||||||
Change in pension and post-retirement defined benefit plans | ||||||||
Other comprehensive income (loss) before income taxes | ( | |||||||
Income tax (expense) recovery on above items | ( | |||||||
Other comprehensive income (Note 7) | ||||||||
Comprehensive income | $ | $ |
March 31 | December 31 | |||||||
(in millions of Canadian dollars) | 2021 | 2020 | ||||||
Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | $ | ||||||
Accounts receivable, net (Note 8) | ||||||||
Materials and supplies | ||||||||
Other current assets | ||||||||
Investments | ||||||||
Properties | ||||||||
Goodwill and intangible assets | ||||||||
Pension asset | ||||||||
Other assets | ||||||||
Total assets | $ | $ | ||||||
Liabilities and shareholders’ equity | ||||||||
Current liabilities | ||||||||
Accounts payable and accrued liabilities | $ | $ | ||||||
Long-term debt maturing within one year (Note 11, 12) | ||||||||
Pension and other benefit liabilities | ||||||||
Other long-term liabilities | ||||||||
Long-term debt (Note 11, 12) | ||||||||
Deferred income taxes | ||||||||
Total liabilities | ||||||||
Shareholders’ equity | ||||||||
Share capital | ||||||||
Additional paid-in capital | ||||||||
Accumulated other comprehensive loss (Note 7) | ( | ( | ||||||
Retained earnings | ||||||||
Total liabilities and shareholders’ equity | $ | $ |
For the three months ended March 31 | ||||||||
(in millions of Canadian dollars) | 2021 | 2020 | ||||||
Operating activities | ||||||||
Net income | $ | $ | ||||||
Reconciliation of net income to cash provided by operating activities: | ||||||||
Depreciation and amortization | ||||||||
Deferred income tax expense (Note 5) | ||||||||
Pension recovery and funding (Note 14) | ( | ( | ||||||
Foreign exchange (gain) loss on debt and lease liabilities (Note 4) | ( | |||||||
Other operating activities, net | ( | ( | ||||||
Change in non-cash working capital balances related to operations | ( | ( | ||||||
Cash provided by operating activities | ||||||||
Investing activities | ||||||||
Additions to properties | ( | ( | ||||||
Proceeds from sale of properties and other assets | ||||||||
Other | ( | |||||||
Cash used in investing activities | ( | ( | ||||||
Financing activities | ||||||||
Dividends paid | ( | ( | ||||||
Issuance of CP Common Shares | ||||||||
Purchase of CP Common Shares (Note 13) | ( | |||||||
Issuance of long-term debt, excluding commercial paper | ||||||||
Repayment of long-term debt, excluding commercial paper | ( | ( | ||||||
Net issuance (repayment) of commercial paper (Note 11) | ( | |||||||
Net increase in short-term borrowings | ||||||||
Acquisition-related financing fees (Note 10) | ( | |||||||
Other | ||||||||
Cash used in financing activities | ( | ( | ||||||
Effect of foreign currency fluctuations on U.S. dollar-denominated cash and cash equivalents | ( | |||||||
Cash position | ||||||||
Increase in cash and cash equivalents | ||||||||
Cash and cash equivalents at beginning of period | ||||||||
Cash and cash equivalents at end of period | $ | $ | ||||||
Supplemental disclosures of cash flow information: | ||||||||
Income taxes paid | $ | $ | ||||||
Interest paid | $ | $ |
For the three months ended March 31 | ||||||||||||||||||||||||||
(in millions of Canadian dollars except per share data) | Common Shares (in millions) | Share capital | Additional paid-in capital | Accumulated other comprehensive loss | Retained earnings | Total shareholders’ equity | ||||||||||||||||||||
Balance at January 1, 2021 | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||
Net income | — | |||||||||||||||||||||||||
Other comprehensive income (Note 7) | — | |||||||||||||||||||||||||
Dividends declared ($0.95 per share) | — | ( | ( | |||||||||||||||||||||||
Effect of stock-based compensation expense | — | |||||||||||||||||||||||||
Shares issued under stock option plan | ( | |||||||||||||||||||||||||
Balance at March 31, 2021 | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||
Balance at January 1, 2020 | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||
Net income | — | |||||||||||||||||||||||||
Other comprehensive income (Note 7) | — | |||||||||||||||||||||||||
Dividends declared ($0.83 per share) | — | ( | ( | |||||||||||||||||||||||
Effect of stock-based compensation expense | — | |||||||||||||||||||||||||
CP Common Shares repurchased (Note 13) | ( | ( | ( | ( | ||||||||||||||||||||||
Shares issued under stock option plan | ( | |||||||||||||||||||||||||
Balance at March 31, 2020 | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||
For the three months ended March 31 | ||||||||
(in millions of Canadian dollars) | 2021 | 2020 | ||||||
Freight | ||||||||
Grain | $ | $ | ||||||
Coal | ||||||||
Potash | ||||||||
Fertilizers and sulphur | ||||||||
Forest products | ||||||||
Energy, chemicals and plastics | ||||||||
Metals, minerals and consumer products | ||||||||
Automotive | ||||||||
Intermodal | ||||||||
Total freight revenues | ||||||||
Non-freight excluding leasing revenues | ||||||||
Revenues from contracts with customers | ||||||||
Leasing revenues | ||||||||
Total revenues | $ | $ | ||||||
For the three months ended March 31 | ||||||||
(in millions of Canadian dollars) | 2021 | 2020 | ||||||
Opening balance | $ | $ | ||||||
Revenue recognized that was included in the contract liability balance at the beginning of the period | ( | ( | ||||||
Increase due to consideration received, net of revenue recognized during the period | ||||||||
Closing balance | $ | $ |
For the three months ended March 31 | ||||||||
(in millions of Canadian dollars) | 2021 | 2020 | ||||||
Foreign exchange (gain) loss on debt and lease liabilities(1) | $ | ( | $ | |||||
Other foreign exchange losses (gains) | ( | |||||||
Acquisition-related costs (Note 10) | ||||||||
Other | ||||||||
Other (income) expense | $ | ( | $ |
For the three months ended March 31 | ||||||||
(in millions of Canadian dollars) | 2021 | 2020 | ||||||
Current income tax expense | $ | $ | ||||||
Deferred income tax expense | ||||||||
Income tax expense | $ | $ |
For the three months ended March 31 | ||||||||
(in millions) | 2021 | 2020 | ||||||
Weighted-average basic shares outstanding | ||||||||
Dilutive effect of stock options | ||||||||
Weighted-average diluted shares outstanding |
For the three months ended March 31 | ||||||||||||||
(in millions of Canadian dollars) | Foreign currency net of hedging activities(1) | Derivatives and other(1) | Pension and post- retirement defined benefit plans(1) | Total(1) | ||||||||||
Opening balance, January 1, 2021 | $ | $ | ( | $ | ( | $ | ( | |||||||
Other comprehensive income before reclassifications | ||||||||||||||
Amounts reclassified from accumulated other comprehensive loss | ||||||||||||||
Net other comprehensive income | ||||||||||||||
Closing balance, March 31, 2021 | $ | $ | ( | $ | ( | $ | ( | |||||||
Opening balance, January 1, 2020 | $ | $ | ( | $ | ( | $ | ( | |||||||
Other comprehensive income before reclassifications | ||||||||||||||
Amounts reclassified from accumulated other comprehensive loss | ||||||||||||||
Net other comprehensive income | ||||||||||||||
Closing balance, March 31, 2020 | $ | $ | ( | $ | ( | $ | ( |
For the three months ended March 31 | ||||||||
(in millions of Canadian dollars) | 2021 | 2020 | ||||||
Recognition of net actuarial loss(1) | $ | $ | ||||||
Income tax recovery | ( | ( | ||||||
Total net of income tax | $ | $ |
As at March 31, 2021 | As at March 31, 2020 | |||||||||||||||||||
(in millions of Canadian dollars) | Freight | Non-freight | Total | Freight | Non-freight | Total | ||||||||||||||
Total accounts receivable | $ | $ | $ | $ | $ | $ | ||||||||||||||
Allowance for credit losses | ( | ( | ( | ( | ( | ( | ||||||||||||||
Total accounts receivable, net | $ | $ | $ | $ | $ | $ |
For the three months ended March 31, 2021 | For the three months ended March 31, 2020 | |||||||||||||||||||
(in millions of Canadian dollars) | Freight | Non-freight | Total | Freight | Non-freight | Total | ||||||||||||||
Allowance for credit losses, opening balance | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||
Current period credit loss provision, net | ||||||||||||||||||||
Allowance for credit losses, closing balance | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( |
For the three months ended March 31 | ||||||||
2021 | 2020 | |||||||
Number of Common Shares repurchased(1) | ||||||||
Weighted-average price per share(2) | $ | $ | ||||||
Amount of repurchase (in millions of Canadian dollars)(2) | $ | $ |
For the three months ended March 31 | ||||||||||||||
Pensions | Other benefits | |||||||||||||
(in millions of Canadian dollars) | 2021 | 2020 | 2021 | 2020 | ||||||||||
Current service cost (benefits earned by employees) | $ | $ | $ | $ | ||||||||||
Other components of net periodic benefit (recovery) cost: | ||||||||||||||
Interest cost on benefit obligation | ||||||||||||||
Expected return on fund assets | ( | ( | ||||||||||||
Recognized net actuarial loss | ||||||||||||||
Total other components of net periodic benefit (recovery) cost | ( | ( | ||||||||||||
Net periodic benefit (recovery) cost | $ | ( | $ | ( | $ | $ | ||||||||
For the three months ended March 31, 2021 | |||||
Expected option life (years)(1) | |||||
Risk-free interest rate(2) | |||||
Expected share price volatility(3) | |||||
Expected annual dividends per share(4) | $ | ||||
Expected forfeiture rate(5) | |||||
Weighted-average grant date fair value per option granted during the period | $ |
For the three months ended March 31 | |||||||||||
2021 | 2020 | % Change | |||||||||
Operations Performance | |||||||||||
Gross ton-miles (“GTMs”) (millions) | 71,326 | 71,309 | — | ||||||||
Train miles (thousands) | 7,803 | 8,367 | (7) | ||||||||
Average train weight - excluding local traffic (tons) | 9,795 | 9,188 | 7 | ||||||||
Average train length - excluding local traffic (feet) | 7,972 | 7,409 | 8 | ||||||||
Average terminal dwell (hours) | 7.4 | 6.2 | 19 | ||||||||
Average train speed (miles per hour, or "mph") | 20.9 | 21.6 | (3) | ||||||||
Locomotive productivity (GTMs / operating horsepower) | 201 | 201 | — | ||||||||
Fuel efficiency (U.S. gallons of locomotive fuel consumed / 1,000 GTMs) | 0.958 | 0.971 | (1) | ||||||||
Total Employees and Workforce | |||||||||||
Total employees (average) | 12,061 | 12,486 | (3) | ||||||||
Total employees (end of period) | 12,398 | 12,330 | 1 | ||||||||
Workforce (end of period) | 12,426 | 12,366 | — | ||||||||
Safety Indicators(1) | |||||||||||
FRA personal injuries per 200,000 employee-hours | 1.20 | 1.13 | 6 | ||||||||
FRA train accidents per million train-miles | 1.28 | 0.87 | 47 |
For the three months ended March 31 | ||||||||
(in millions, except per share data, percentages and ratios) | 2021 | 2020 | ||||||
Financial Performance and Liquidity | ||||||||
Total revenues | $ | 1,959 | $ | 2,043 | ||||
Operating income | 780 | 834 | ||||||
Adjusted operating income(1) | 813 | 834 | ||||||
Net income | 602 | 409 | ||||||
Adjusted income(1) | 600 | 607 | ||||||
Basic EPS | 4.52 | 2.99 | ||||||
Diluted EPS | 4.50 | 2.98 | ||||||
Adjusted diluted EPS(1) | 4.48 | 4.42 | ||||||
Dividends declared per share | 0.95 | 0.83 | ||||||
Cash provided by operating activities | 582 | 489 | ||||||
Cash used in investing activities | (286) | (362) | ||||||
Cash used in financing activities | (80) | (44) | ||||||
Free cash(1) | 296 | 158 | ||||||
Financial Position | As at March 31, 2021 | As at December 31, 2020 | ||||||
Total assets | $ | 24,121 | $ | 23,640 | ||||
Total long-term debt, including current portion | 9,740 | 9,771 | ||||||
Total shareholders’ equity | 7,866 | 7,319 | ||||||
For the three months ended March 31 | ||||||||
Financial Ratios | 2021 | 2020 | ||||||
Operating ratio(2) | 60.2 | % | 59.2 | % | ||||
Adjusted operating ratio(1) | 58.5 | % | 59.2 | % | ||||
For the twelve months ended March 31 | ||||||||
2021 | 2020 | |||||||
Return on average shareholders' equity(3) | 35.6 | % | 35.1 | % | ||||
Adjusted return on invested capital ("Adjusted ROIC")(1) | 15.8 | % | 17.4 | % | ||||
Long-term debt to Net income ratio(4) | 3.7 | 4.2 | ||||||
Adjusted net debt to adjusted EBITDA ratio(1) | 2.4 | 2.5 |
Average exchange rates (Canadian/U.S. dollar) | 2021 | 2020 | ||||||
For the three months ended - March 31 | $ | 1.27 | $ | 1.35 |
Ending exchange rates (Canadian/U.S. dollar) | 2021 | 2020 | ||||||
Beginning of year - January 1 | $ | 1.28 | $ | 1.30 | ||||
End of quarter - March 31 | $ | 1.26 | $ | 1.41 |
For the three months ended March 31 | ||||||||
High/Low exchange rates (Canadian/U.S. dollar) | 2021 | 2020 | ||||||
High | $ | 1.28 | $ | 1.45 | ||||
Low | $ | 1.24 | $ | 1.30 |
Average Fuel Price (U.S. dollars per U.S. gallon) | 2021 | 2020 | ||||||
For the three months ended - March 31 | $ | 2.39 | $ | 2.33 |
TSX (in Canadian dollars) | 2021 | 2020 | ||||||
Opening Common Share price, as at January 1 | $ | 441.53 | $ | 331.03 | ||||
Ending Common Share price, as at March 31 | $ | 480.00 | $ | 310.55 | ||||
Change in Common Share price for the three months ended March 31 | $ | 38.47 | $ | (20.48) |
NYSE (in U.S. dollars) | 2021 | 2020 | ||||||
Opening Common Share price, as at January 1 | $ | 346.69 | $ | 254.95 | ||||
Ending Common Share price, as at March 31 | $ | 379.29 | $ | 219.59 | ||||
Change in Common Share price for the three months ended March 31 | $ | 32.60 | $ | (35.36) |
For the three months ended March 31 | 2021 | 2020 | Total Change | % Change | FX Adjusted % Change(2) | ||||||||||||
Freight revenues (in millions)(1) | $ | 1,918 | $ | 2,000 | $ | (82) | (4) | (2) | |||||||||
Non-freight revenues (in millions) | 41 | 43 | (2) | (5) | (5) | ||||||||||||
Total revenues (in millions) | $ | 1,959 | $ | 2,043 | $ | (84) | (4) | (2) | |||||||||
Carloads (in thousands) | 691.4 | 690.6 | 0.8 | — | N/A | ||||||||||||
Revenue ton-miles (in millions) | 39,273 | 39,218 | 55 | — | N/A | ||||||||||||
Freight revenue per carload (in dollars) | $ | 2,774 | $ | 2,896 | $ | (122) | (4) | (2) | |||||||||
Freight revenue per revenue ton-mile (in cents) | 4.88 | 5.10 | (0.22) | (4) | (2) |
For the three months ended March 31 | 2021 | 2020 | Total Change | % Change | FX Adjusted % Change(1) | ||||||||||||
Freight revenues (in millions) | $ | 448 | $ | 418 | $ | 30 | 7 | 10 | |||||||||
Carloads (in thousands) | 116.4 | 100.6 | 15.8 | 16 | N/A | ||||||||||||
Revenue ton-miles (in millions) | 10,773 | 9,016 | 1,757 | 19 | N/A | ||||||||||||
Freight revenue per carload (in dollars) | $ | 3,849 | $ | 4,155 | $ | (306) | (7) | (5) | |||||||||
Freight revenue per revenue ton-mile (in cents) | 4.16 | 4.64 | (0.48) | (10) | (8) |
For the three months ended March 31 | 2021 | 2020 | Total Change | % Change | FX Adjusted % Change(1) | ||||||||||||
Freight revenues (in millions) | $ | 163 | $ | 150 | $ | 13 | 9 | 9 | |||||||||
Carloads (in thousands) | 72.0 | 63.8 | 8.2 | 13 | N/A | ||||||||||||
Revenue ton-miles (in millions) | 5,280 | 4,435 | 845 | 19 | N/A | ||||||||||||
Freight revenue per carload (in dollars) | $ | 2,264 | $ | 2,351 | $ | (87) | (4) | (3) | |||||||||
Freight revenue per revenue ton-mile (in cents) | 3.09 | 3.38 | (0.29) | (9) | (8) |
For the three months ended March 31 | 2021 | 2020 | Total Change | % Change | FX Adjusted % Change(1) | ||||||||||||
Freight revenues (in millions) | $ | 101 | $ | 112 | $ | (11) | (10) | (7) | |||||||||
Carloads (in thousands) | 34.4 | 36.4 | (2.0) | (5) | N/A | ||||||||||||
Revenue ton-miles (in millions) | 3,786 | 4,138 | (352) | (9) | N/A | ||||||||||||
Freight revenue per carload (in dollars) | $ | 2,936 | $ | 3,077 | $ | (141) | (5) | (2) | |||||||||
Freight revenue per revenue ton-mile (in cents) | 2.67 | 2.71 | (0.04) | (1) | 2 |
For the three months ended March 31 | 2021 | 2020 | Total Change | % Change | FX Adjusted % Change(1) | ||||||||||||
Freight revenues (in millions) | $ | 77 | $ | 70 | $ | 7 | 10 | 15 | |||||||||
Carloads (in thousands) | 16.3 | 15.1 | 1.2 | 8 | N/A | ||||||||||||
Revenue ton-miles (in millions) | 1,269 | 1,095 | 174 | 16 | N/A | ||||||||||||
Freight revenue per carload (in dollars) | $ | 4,724 | $ | 4,636 | $ | 88 | 2 | 6 | |||||||||
Freight revenue per revenue ton-mile (in cents) | 6.07 | 6.39 | (0.32) | (5) | (1) |
For the three months ended March 31 | 2021 | 2020 | Total Change | % Change | FX Adjusted % Change(1) | ||||||||||||
Freight revenues (in millions) | $ | 80 | $ | 78 | $ | 2 | 3 | 8 | |||||||||
Carloads (in thousands) | 17.5 | 18.1 | (0.6) | (3) | N/A | ||||||||||||
Revenue ton-miles (in millions) | 1,363 | 1,277 | 86 | 7 | N/A | ||||||||||||
Freight revenue per carload (in dollars) | $ | 4,571 | $ | 4,309 | $ | 262 | 6 | 12 | |||||||||
Freight revenue per revenue ton-mile (in cents) | 5.87 | 6.11 | (0.24) | (4) | 1 |
For the three months ended March 31 | 2021 | 2020 | Total Change | % Change | FX Adjusted % Change(1) | ||||||||||||
Freight revenues (in millions) | $ | 388 | $ | 491 | $ | (103) | (21) | (19) | |||||||||
Carloads (in thousands) | 87.2 | 101.8 | (14.6) | (14) | N/A | ||||||||||||
Revenue ton-miles (in millions) | 7,142 | 8,849 | (1,707) | (19) | N/A | ||||||||||||
Freight revenue per carload (in dollars) | $ | 4,450 | $ | 4,823 | $ | (373) | (8) | (5) | |||||||||
Freight revenue per revenue ton-mile (in cents) | 5.43 | 5.55 | (0.12) | (2) | 1 |
For the three months ended March 31 | 2021 | 2020 | Total Change | % Change | FX Adjusted % Change(1) | ||||||||||||
Freight revenues (in millions) | $ | 159 | $ | 189 | $ | (30) | (16) | (12) | |||||||||
Carloads (in thousands) | 55.7 | 58.2 | (2.5) | (4) | N/A | ||||||||||||
Revenue ton-miles (in millions) | 2,499 | 2,771 | (272) | (10) | N/A | ||||||||||||
Freight revenue per carload (in dollars) | $ | 2,855 | $ | 3,247 | $ | (392) | (12) | (8) | |||||||||
Freight revenue per revenue ton-mile (in cents) | 6.36 | 6.82 | (0.46) | (7) | (3) |
For the three months ended March 31 | 2021 | 2020 | Total Change | % Change | FX Adjusted % Change(1) | ||||||||||||
Freight revenues (in millions) | $ | 108 | $ | 87 | $ | 21 | 24 | 32 | |||||||||
Carloads (in thousands) | 33.4 | 28.2 | 5.2 | 18 | N/A | ||||||||||||
Revenue ton-miles (in millions) | 508 | 326 | 182 | 56 | N/A | ||||||||||||
Freight revenue per carload (in dollars) | $ | 3,234 | $ | 3,085 | $ | 149 | 5 | 11 | |||||||||
Freight revenue per revenue ton-mile (in cents) | 21.26 | 26.69 | (5.43) | (20) | (15) |
For the three months ended March 31 | 2021 | 2020 | Total Change | % Change | FX Adjusted % Change(1) | ||||||||||||
Freight revenues (in millions) | $ | 394 | $ | 405 | $ | (11) | (3) | (2) | |||||||||
Carloads (in thousands) | 258.5 | 268.4 | (9.9) | (4) | N/A | ||||||||||||
Revenue ton-miles (in millions) | 6,653 | 7,311 | (658) | (9) | N/A | ||||||||||||
Freight revenue per carload (in dollars) | $ | 1,524 | $ | 1,509 | $ | 15 | 1 | 2 | |||||||||
Freight revenue per revenue ton-mile (in cents) | 5.92 | 5.54 | 0.38 | 7 | 8 |
For the three months ended March 31 (in millions of Canadian dollars) | 2021 | 2020 | Total Change | % Change | FX Adjusted % Change(1) | ||||||||||||
Compensation and benefits | $ | 405 | $ | 398 | $ | 7 | 2 | 3 | |||||||||
Fuel | 206 | 212 | (6) | (3) | 1 | ||||||||||||
Materials | 59 | 59 | — | — | 2 | ||||||||||||
Equipment rents | 33 | 36 | (3) | (8) | (3) | ||||||||||||
Depreciation and amortization | 202 | 192 | 10 | 5 | 7 | ||||||||||||
Purchased services and other | 274 | 312 | (38) | (12) | (10) | ||||||||||||
Total operating expenses | $ | 1,179 | $ | 1,209 | $ | (30) | (2) | — |
For the three months ended March 31 (in millions of Canadian dollars) | 2021 | 2020 | Total Change | % Change | ||||||||||
Support and facilities | $ | 72 | $ | 75 | $ | (3) | (4) | |||||||
Track and operations | 60 | 75 | (15) | (20) | ||||||||||
Intermodal | 53 | 56 | (3) | (5) | ||||||||||
Equipment | 29 | 30 | (1) | (3) | ||||||||||
Casualty | 39 | 39 | — | — | ||||||||||
Property taxes | 34 | 36 | (2) | (6) | ||||||||||
Other | 41 | 5 | 36 | 720 | ||||||||||
Land sales | (54) | (4) | (50) | 1,250 | ||||||||||
Total Purchased services and other | $ | 274 | $ | 312 | $ | (38) | (12) |
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, 2021 | For the year ended December 31, 2020 | ||||||
Total revenues | $ | 1,464 | $ | 5,797 | ||||
Total operating expenses | 938 | 3,263 | ||||||
Operating income(1) | 526 | 2,534 | ||||||
Less: Other(2) | (9) | 127 | ||||||
Income before income tax expense | 535 | 2,407 | ||||||
Net income | $ | 391 | $ | 1,792 |
CPRC (Subsidiary Issuer) and CPRL (Parent Guarantor) | ||||||||
(in millions of Canadian dollars) | As at March 31, 2021 | As at December 31, 2020 | ||||||
Assets | ||||||||
Current assets | $ | 1,030 | $ | 907 | ||||
Properties | 10,988 | 10,865 | ||||||
Other non-current assets | 1,259 | 1,151 | ||||||
Liabilities | ||||||||
Current liabilities | $ | 2,851 | $ | 2,290 | ||||
Long-term debt | 7,955 | 8,585 | ||||||
Other non-current liabilities | 2,998 | 2,981 |
CPRC (Subsidiary Issuer) and CPRL (Parent Guarantor) | ||||||||
(in millions of Canadian dollars) | For the three months ended March 31, 2021 | For the year ended December 31, 2020 | ||||||
Dividend income from non-guarantor subsidiaries | $ | 7 | $ | 163 | ||||
Capital contributions to non-guarantor subsidiaries | — | — | ||||||
Redemption of shares by non-guarantor subsidiaries | — | 198 |
CPRC (Subsidiary Issuer) and CPRL (Parent Guarantor) | ||||||||
(in millions of Canadian dollars) | As at March 31, 2021 | As at December 31, 2020 | ||||||
Assets | ||||||||
Accounts receivable, intercompany | $ | 268 | $ | 327 | ||||
Short-term advances to affiliates | 48 | 20 | ||||||
Long-term advances to affiliates | 9 | 9 | ||||||
Liabilities | ||||||||
Accounts payable, intercompany | $ | 153 | $ | 179 | ||||
Short-term advances from affiliates | 3,661 | 3,658 | ||||||
Long-term advances from affiliates | 81 | 82 |
For the three months ended March 31 | For the twelve months ended December 31 | ||||||||||
(in millions of Canadian dollars) | 2021 | 2020 | 2020 | ||||||||
Net income as reported | $ | 602 | $ | 409 | $ | 2,444 | |||||
Less significant items (pre-tax): | |||||||||||
Acquisition-related costs | (36) | — | — | ||||||||
Impact of FX translation gain (loss) on debt and lease liabilities | 33 | (215) | 14 | ||||||||
Add: | |||||||||||
Tax effect of adjustments(1) | (5) | (17) | 2 | ||||||||
Income tax rate changes | — | — | (29) | ||||||||
Adjusted income | $ | 600 | $ | 607 | $ | 2,403 |
For the three months ended March 31 | For the twelve months ended December 31 | ||||||||||
2021 | 2020 | 2020 | |||||||||
Diluted earnings per share as reported | $ | 4.50 | $ | 2.98 | $ | 17.97 | |||||
Less significant items (pre-tax): | |||||||||||
Acquisition-related costs | (0.27) | — | — | ||||||||
Impact of FX translation gain (loss) on debt and lease liabilities | 0.25 | (1.57) | 0.10 | ||||||||
Add: | |||||||||||
Tax effect of adjustments(1) | (0.04) | (0.13) | 0.01 | ||||||||
Income tax rate changes | — | — | (0.21) | ||||||||
Adjusted diluted earnings per share | $ | 4.48 | $ | 4.42 | $ | 17.67 |
For the three months ended March 31 | ||||||||
(in millions of Canadian dollars) | 2021 | 2020 | ||||||
Operating income as reported | $ | 780 | $ | 834 | ||||
Less significant item: | ||||||||
Acquisition-related costs | (33) | — | ||||||
Adjusted operating income | $ | 813 | $ | 834 |
For the three months ended March 31 | ||||||||
2021 | 2020 | |||||||
Operating ratio as reported | 60.2 | % | 59.2 | % | ||||
Less significant item: | ||||||||
Acquisition-related costs | 1.7 | % | — | % | ||||
Adjusted operating ratio | 58.5 | % | 59.2 | % |
For the twelve months ended March 31 | ||||||||
(in millions of Canadian dollars, except for percentages) | 2021 | 2020 | ||||||
Net income as reported | $ | 2,637 | $ | 2,415 | ||||
Average shareholders' equity | $ | 7,411 | $ | 6,884 | ||||
Return on average shareholders' equity | 35.6 | % | 35.1 | % |
For the twelve months ended March 31 | ||||||||
(in millions of Canadian dollars) | 2021 | 2020 | ||||||
Net income as reported | $ | 2,637 | $ | 2,415 | ||||
Add: | ||||||||
Net interest expense | 454 | 448 | ||||||
Tax on interest(1) | (112) | (112) | ||||||
Significant items (pre-tax): | ||||||||
Acquisition-related costs | 36 | — | ||||||
Impact of FX translation (gain) loss on debt and lease liabilities | (262) | 166 | ||||||
Tax on significant items(2) | 14 | (12) | ||||||
Income tax rate changes | (29) | (88) | ||||||
Provision for uncertain tax item | — | 24 | ||||||
Adjusted return | $ | 2,738 | $ | 2,841 |
For the twelve months ended March 31 | ||||||||
(in millions of Canadian dollars) | 2021 | 2020 | ||||||
Average shareholders' equity | $ | 7,411 | $ | 6,884 | ||||
Average Long-term debt, including long-term debt maturing within one year | 9,905 | 9,497 | ||||||
$ | 17,316 | $ | 16,381 | |||||
Less: | ||||||||
Significant item (pre-tax): | ||||||||
Acquisition-related costs | (18) | — | ||||||
Tax on significant item(1) | 4 | — | ||||||
Income tax rate changes | 15 | 44 | ||||||
Provision for uncertain tax item | — | (12) | ||||||
Adjusted average invested capital | $ | 17,315 | $ | 16,349 |
For the twelve months ended March 31 | ||||||||
(in millions of Canadian dollars, except for percentages) | 2021 | 2020 | ||||||
Adjusted return | $ | 2,738 | $ | 2,841 | ||||
Adjusted average invested capital | $ | 17,315 | $ | 16,349 | ||||
Adjusted ROIC | 15.8 | % | 17.4 | % |
For the three months ended March 31 | ||||||||
(in millions of Canadian dollars) | 2021 | 2020 | ||||||
Cash provided by operating activities | $ | 582 | $ | 489 | ||||
Cash used in investing activities | (286) | (362) | ||||||
Effect of foreign currency fluctuations on U.S. dollar-denominated cash and cash equivalents | (3) | 31 | ||||||
Less: | ||||||||
Acquisition-related costs | (3) | — | ||||||
Free cash | $ | 296 | $ | 158 |
For the three months ended March 31 | |||||||||||||||||
(in millions of Canadian dollars) | Reported 2021 | Reported 2020 | Variance due to FX | FX Adjusted 2020 | FX Adjusted % Change | ||||||||||||
Freight revenues by line of business | |||||||||||||||||
Grain | $ | 448 | $ | 418 | $ | (10) | $ | 408 | 10 | ||||||||
Coal | 163 | 150 | (1) | 149 | 9 | ||||||||||||
Potash | 101 | 112 | (3) | 109 | (7) | ||||||||||||
Fertilizers and sulphur | 77 | 70 | (3) | 67 | 15 | ||||||||||||
Forest products | 80 | 78 | (4) | 74 | 8 | ||||||||||||
Energy, chemicals and plastics | 388 | 491 | (13) | 478 | (19) | ||||||||||||
Metals, minerals and consumer products | 159 | 189 | (8) | 181 | (12) | ||||||||||||
Automotive | 108 | 87 | (5) | 82 | 32 | ||||||||||||
Intermodal | 394 | 405 | (5) | 400 | (2) | ||||||||||||
Freight revenues | 1,918 | 2,000 | (52) | 1,948 | (2) | ||||||||||||
Non-freight revenues | 41 | 43 | — | 43 | (5) | ||||||||||||
Total revenues | $ | 1,959 | $ | 2,043 | $ | (52) | $ | 1,991 | (2) |
For the three months ended March 31 | |||||||||||||||||
(in millions of Canadian dollars) | Reported 2021 | Reported 2020 | Variance due to FX | FX Adjusted 2020 | FX Adjusted % Change | ||||||||||||
Compensation and benefits | $ | 405 | $ | 398 | $ | (5) | $ | 393 | 3 | ||||||||
Fuel | 206 | 212 | (8) | 204 | 1 | ||||||||||||
Materials | 59 | 59 | (1) | 58 | 2 | ||||||||||||
Equipment rents | 33 | 36 | (2) | 34 | (3) | ||||||||||||
Depreciation and amortization | 202 | 192 | (3) | 189 | 7 | ||||||||||||
Purchased services and other | 274 | 312 | (8) | 304 | (10) | ||||||||||||
Total operating expenses | $ | 1,179 | $ | 1,209 | $ | (27) | $ | 1,182 | — |
(in millions of Canadian dollars, except for ratios) | 2021 | 2020 | ||||||
Long-term debt including long-term debt maturing within one year as at March 31 | $ | 9,740 | $ | 10,070 | ||||
Net income for the twelve months ended March 31 | 2,637 | 2,415 | ||||||
Long-term debt to Net income ratio | 3.7 | 4.2 |
(in millions of Canadian dollars) | 2021 | 2020 | ||||||
Long-term debt including long-term debt maturing within one year as at March 31 | $ | 9,740 | $ | 10,070 | ||||
Add: | ||||||||
Pension plans deficit(1) | 327 | 300 | ||||||
Operating lease liabilities | 284 | 365 | ||||||
Less: | ||||||||
Cash and cash equivalents | 360 | 247 | ||||||
Adjusted net debt as at March 31 | $ | 9,991 | $ | 10,488 |
For the twelve months ended March 31 | ||||||||
(in millions of Canadian dollars) | 2021 | 2020 | ||||||
Net income as reported | $ | 2,637 | $ | 2,415 | ||||
Add: | ||||||||
Net interest expense | 454 | 448 | ||||||
Income tax expense | 764 | 752 | ||||||
EBIT | 3,855 | 3,615 | ||||||
Less significant items (pre-tax): | ||||||||
Acquisition-related costs | (36) | — | ||||||
Impact of FX translation gain (loss) on debt and lease liabilities | 262 | (166) | ||||||
Adjusted EBIT | 3,629 | 3,781 | ||||||
Add: | ||||||||
Operating lease expense | 76 | 83 | ||||||
Depreciation and amortization | 789 | 738 | ||||||
Less: | ||||||||
Other components of net periodic benefit recovery | 352 | 369 | ||||||
Adjusted EBITDA | $ | 4,142 | $ | 4,233 |
(in millions of Canadian dollars, except for ratios) | 2021 | 2020 | ||||||
Adjusted net debt as at March 31 | $ | 9,991 | $ | 10,488 | ||||
Adjusted EBITDA for the twelve months ended March 31 | 4,142 | 4,233 | ||||||
Adjusted net debt to Adjusted EBITDA ratio | 2.4 | 2.5 |
Payments due by period (in millions of Canadian dollars) | Total | 2021 | 2022 & 2023 | 2024 & 2025 | Thereafter | ||||||||||||
Contractual commitments | |||||||||||||||||
Interest on long-term debt and finance leases | $ | 10,602 | $ | 279 | $ | 754 | $ | 685 | $ | 8,884 | |||||||
Long-term debt | 9,684 | 1,235 | 936 | 962 | 6,551 | ||||||||||||
Finance leases | 143 | 5 | 110 | 15 | 13 | ||||||||||||
Operating leases(1) | 320 | 66 | 109 | 75 | 70 | ||||||||||||
Supplier purchases | 1,818 | 463 | 1,074 | 95 | 186 | ||||||||||||
Other long-term liabilities(2) | 482 | 42 | 102 | 98 | 240 | ||||||||||||
Total contractual commitments | $ | 23,049 | $ | 2,090 | $ | 3,085 | $ | 1,930 | $ | 15,944 |
Payments due by period (in millions of Canadian dollars) | Total | 2021 | 2022 & 2023 | 2024 & 2025 | Thereafter | ||||||||||||
Certain other financial commitments | |||||||||||||||||
Letters of credit | $ | 58 | $ | 58 | $ | — | $ | — | $ | — | |||||||
Capital commitments | 473 | 289 | 85 | 41 | 58 | ||||||||||||
Total certain other financial commitments | $ | 531 | $ | 347 | $ | 85 | $ | 41 | $ | 58 |
Exhibit | Description | ||||
101.INS* | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | ||||
101.SCH* | Inline XBRL Taxonomy Extension Schema Document | ||||
101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | ||||
101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document | ||||
101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | ||||
101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | ||||
The following financial information from Canadian Pacific Railway Limited's Quarterly Report on Form 10-Q for the first quarter ended March 31, 2021, formatted in Extensible Business Reporting Language (XBRL) includes: (i) the Interim Consolidated Statements of Income for the first three months ended March 31, 2021 and 2020; (ii) the Interim Consolidated Statements of Comprehensive Income for the first three months ended March 31, 2021 and 2020; (iii) the Interim Consolidated Balance Sheets at March 31, 2021, and December 31, 2020; (iv) the Interim Consolidated Statements of Cash Flows for the first three months ended March 31, 2021 and 2020; (v) the Interim Consolidated Statements of Changes in Shareholders’ Equity for the first three months ended March 31, 2021 and 2020; 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) |
CANADIAN PACIFIC RAILWAY COMPANY, | ||||||||
as Borrower | ||||||||
Per: | /s/ Nadeem Velani | |||||||
Name: | Nadeem Velani | |||||||
Title: | Executive Vice-President and Chief Financial Officer |
CANADIAN PACIFIC RAILWAY LIMITED, | ||||||||
as Covenantor | ||||||||
Per: | /s/ Nadeem Velani | |||||||
Name: | Nadeem Velani | |||||||
Title: | Executive Vice-President and Chief Financial Officer |
THE ADMINISTRATIVE AGENT | ||||||||
ROYAL BANK OF CANADA | ||||||||
Per: | /s/ Susan Khokher | |||||||
Authorized Signatory |
THE CONSENTING LENDERS | ||||||||
ROYAL BANK OF CANADA | ||||||||
Per: | /s/ Tim VandeGriend | |||||||
Tim VandeGriend Authorized Signatory |
BANK OF MONTREAL | ||||||||
Per: | /s/ Martin Stevenson | |||||||
Authorized Signing Officer |
BANK OF AMERICA, N.A., CANADA BRANCH | ||||||||
Per: | /s/ Marc Ahlers | |||||||
Marc Ahlers, Director |
BARCLAYS BANK PLC | ||||||||
Per: | /s/ Craig Malloy | |||||||
Authorized Signing Officer |
CANADIAN IMPERIAL BANK OF COMMERCE | ||||||||
Per: | /s/ Sophia Soofi | |||||||
Authorized Signing Officer | ||||||||
Per: | /s/ Stephen Redding | |||||||
Authorized Signing Officer |
HSBC BANK CANADA | ||||||||
Per: | /s/ Dieter Stefely | |||||||
Authorized Signing Officer | ||||||||
Per: | /s/ Sudip Mukherjee | |||||||
Authorized Signing Officer |
MORGAN STANLEY BANK, N.A. | ||||||||
Per: | /s/ Jack Kuhns | |||||||
Name: | Jack Kuhns | |||||||
Title: | Vice President |
MUFG BANK, LTD., CANADA BRANCH | ||||||||
Per: | /s/ Beau Filkowski | |||||||
Beau Filkowski, Director |
THE BANK OF NOVA SCOTIA | ||||||||
Per: | /s/ Michael Linder | |||||||
Michael Linder | ||||||||
Director | ||||||||
Per: | /s/ Jonathan Leach | |||||||
Jonathan Leach | ||||||||
Associate Director |
WELLS FARGO BANK N.A., CANADIAN BRANCH | ||||||||
Per: | /s/ Sean Buchan | |||||||
Authorized Signing Officer | ||||||||
Sean Buchan, Director |
ATB FINANCIAL | ||||||||
Per: | /s/ Maximiliano Herrera | |||||||
Authorized Signing Officer | ||||||||
Per: | /s/ Chris Hamel | |||||||
Authorized Signing Officer |
FÉDÉRATION DES CAISSES DESJARDINS DU QUÉBEC | ||||||||
Per: | /s/ Oliver Sumugod | |||||||
Authorized Signing Officer | ||||||||
Per: | /s/ Matt van Remmen | |||||||
Authorized Signing Officer |
SUMITOMO MITSUI BANKING CORPORATION, CANADA BRANCH | ||||||||
Per: | /s/ Steve Nishimura | |||||||
Authorized Signing Officer |
Very truly yours, | ||||||||
GOLDMAN SACHS LENDING PARTNERS LLC | ||||||||
By: | /s/ Robert Ehudin | |||||||
Name: | Robert Ehudin | |||||||
Title: | Authorized Signatory |
BANK OF MONTREAL | ||||||||
By: | /s/ Martin Stevenson | |||||||
Name: | Martin Stevenson | |||||||
Title: | Managing Director |
ACCEPTED AND AGREED AS OF | ||||||||
THE DATE FIRST WRITTEN ABOVE: | ||||||||
CANADIAN PACIFIC RAILWAY LIMITED | ||||||||
By: | /s/ Nadeem Velani | |||||||
Name: | Nadeem Velani | |||||||
Title: | Executive Vice President and Chief Financial Officer | |||||||
CANADIAN PACIFIC RAILWAY COMPANY | ||||||||
By: | /s/ Nadeem Velani | |||||||
Name: | Nadeem Velani | |||||||
Title: | Executive Vice President and Chief Financial Officer |
Borrower: | Canadian Pacific Railway Company (the “Borrower”). | |||||||
Guarantors: | All obligations of the Borrower under the Facility will be unconditionally guaranteed by Canadian Pacific Railway Limited (the “Covenantor”) and any subsidiary of the Covenantor that has provided or is required to provide a guarantee in respect of, or is a borrower or issuer in respect of, the Borrower’s Existing Credit Agreement, the Notes or any other senior debt for borrowed money of the Borrower or its domestic subsidiaries (collectively, the “Guarantors”). | |||||||
Administrative Agent: | Bank of Montreal (“Bank of Montreal”) will act as sole administrative agent (in such capacity, the “Administrative Agent”) for a syndicate of banks, financial institutions and other institutional lenders approved in accordance with the Commitment Letter (together with Bank of Montreal and Goldman Sachs Lending Partners LLC (“Goldman Sachs”), the “Lenders”), and will perform the duties customarily associated with such role. | |||||||
Syndication Agent: | Goldman Sachs will act as sole syndication agent for the Facility and will perform the duties customarily associated with such role. | |||||||
Joint Bookrunners and Joint Lead Arrangers: | BMO Capital Markets (“BMOCM”) and Goldman Sachs will act as exclusive joint bookrunners and joint lead arrangers for the Facility described below (BMOCM and Goldman Sachs, collectively in such capacities, the “Arrangers”), and will perform the duties customarily associated with such roles. |
Facility: | A senior unsecured bridge term loan credit facility in an aggregate principal amount of up to $8,500 million (as automatically reduced from time to time in accordance with this Annex A and as may be voluntarily reduced by the Borrower in accordance with this Annex A) (the “Facility”). | |||||||
Purpose: | The proceeds of the Facility will be used by the Borrower (a) to pay a portion of the Acquisition Consideration and (b) to pay the Transaction Expenses. | |||||||
Availability: | The Facility may be drawn in a single drawing on the closing date of the Acquisition upon satisfaction of the conditions precedent to funding described in Annex B to this Commitment Letter (the “Closing Date”). Amounts borrowed under the Facility that are repaid or prepaid may not be reborrowed. | |||||||
Interest Rates and Fees: | As set forth on Annex A-I hereto. | |||||||
Final Maturity and Amortization: | The Facility will mature on the day that is 364 days after the Closing Date (the “Maturity Date”). There will be no scheduled amortization payments. | |||||||
Mandatory Prepayments and Commitment Reductions: | Unless otherwise agreed to by the Lenders, on or prior to the Closing Date, the aggregate commitments in respect of the Facility under the Commitment Letter or under the Bridge Facility Documentation (as applicable) shall be automatically and permanently reduced, and after the Closing Date, the aggregate loans under the Facility shall be prepaid, without penalty or premium, in each case, dollar for dollar, by the following amounts (in each case subject to exceptions to be agreed): | |||||||
(a) 100% of the net cash proceeds of all asset sales or other dispositions of property by the Covenantor and its subsidiaries (excluding (q) the sale or other disposition of assets in the ordinary course of business including dispositions of property or assets no longer useful or obsolete (as reasonably determined by the Covenantor), (r) the sale or other disposition of assets held by joint ventures, (s) the unwinding of hedge arrangements, (t) factoring and similar arrangements, including dispositions of receivables, in the ordinary course of business, (u) any equipment financing or leasing transactions, (v) sale-leaseback transactions in the ordinary course of business, (w) transactions identified to the Arrangers prior to the signing of the |
Commitment Letter as “Arbutus” and “Chicago Tollway”, (x) the sale by the Acquired Business of its ownership interests in or the assets and operations of TFCM, S. de R.L. de C.V. and/or TranServe, Inc. (d/b/a Superior Tie & Timber), (y) dispositions by the Covenantor’s non-U.S. and non-Canadian subsidiaries to the extent the repatriation of the proceeds of such dispositions would result in adverse tax consequences other than immaterial adverse tax consequences (as reasonably determined by the Covenantor) and (z) any insurance and condemnation proceeds), subject to exceptions to be agreed, including exceptions for (i) intercompany sales or other dispositions of assets, (ii) sales of assets in the ordinary course of business not exceeding $150,000,000, (iii) any sale or other disposition of assets pursuant to a contract or arrangement in effect as of, and disclosed in writing to the Arrangers prior to, the date of the Commitment Letter and (iv) sales of assets to the extent the net cash proceeds from such sale are reinvested in other assets used or useful in the business of the Covenantor or any of its subsidiaries (or used to replace damaged or destroyed assets) within nine (9) months after receipt of such proceeds (or in the case of any casualty or condemnation event, such period as may be reasonably required to replace or repair the affected asset); | ||||||||
(b) 100% of the net cash proceeds received from any issuance of debt securities (including the Notes), equity securities and equity-linked securities, in each case, in a public offering or private placement by the Covenantor or any of its subsidiaries (other than Excluded Debt and Excluded Equity Offerings (each as defined below)); and (c) without duplication of any reduction provided pursuant to clause (d) below, 100% of the net cash proceeds from any bank financing (other than Excluded Debt); and (d) 100% of the committed amount under any Qualifying Bank Financing (as defined below) (such reduction under this clause (d) to occur automatically upon the effectiveness of definitive documentation for such bank financing and receipt by the Arrangers of a notice from the Borrower that such bank financing constitutes a Qualifying Bank Financing). Any mandatory prepayment of the Facility resulting from any of the foregoing after the Closing Date shall |
be made on or prior to the fifth business day after the applicable net cash proceeds are received. “Excluded Equity Offerings” shall mean (i) issuances pursuant to employee compensation plans, employee benefit plans, employee-based incentive plans or arrangements, employee stock purchase plans, dividend reinvestment plans and retirement plans or issued as compensation to officers and/or non-employee directors or upon conversion or exercise of outstanding options or other equity awards, (ii) issuances to or by a subsidiary of the Covenantor to the Covenantor or any other subsidiary of the Covenantor (including in connection with existing joint venture arrangements), (iii) prior to the Closing Date or, in the event of a Trust Closing, from the Closing Date and until the end of the Trust Period (as defined below), issuances to or by a subsidiary of the Acquired Company to the Acquired Company or any other subsidiary of the Acquired Company (including, in each case, in connection with existing joint venture arrangements), (iv) issuances of directors’ qualifying shares and/or other nominal amounts required to be held by persons other than the Covenantor or its subsidiaries and, after the Closing Date in the event of a Trust Closing, the Acquired Company or its subsidiaries, in each case under applicable law, (v) issuances by the Covenantor’s non-Canadian subsidiaries or the Acquired Company’s non-U.S. subsidiaries to the extent the repatriation of the proceeds of such issuances would result in adverse tax consequences other than immaterial adverse tax consequences (as reasonably determined by the Covenantor), (vi) any equity issued as consideration in an acquisition (including the Acquisition Consideration), (vii) issuances with aggregate net proceeds not to exceed $500,000,000 and (viii) additional customary exceptions to be mutually agreed. “Qualifying Bank Financing” shall mean a committed but unfunded bank facility for the incurrence of debt for borrowed money that has become effective for the purposes of financing the Transactions and that is subject to conditions precedent to funding that are no less favorable to the Covenantor or its applicable subsidiary than the conditions set forth herein to the funding of the Facility. In addition, on or prior to the Closing Date, the |
aggregate commitments in respect of the Facility under the Commitment Letter or under the Bridge Facility Documentation (as applicable) shall be permanently reduced to zero immediately upon the Commitment Termination Date. Notwithstanding the foregoing, in the event of a Trust Closing, the Facility shall be prepaid by an amount equal to (a) 100% of the net cash proceeds received by the Covenantor or any of its subsidiaries (other than any subsidiaries held through the Voting Trust) from the sale of all or substantially all of the property, or major assets or capital stock, of the Acquired Business and (b) 100% of the net cash proceeds received by way of distributions to the Covenantor or any of its subsidiaries (other than any subsidiaries held through the Voting Trust) from the Voting Trust to the extent constituting net cash proceeds from any other sale or other disposition of assets of, or debt incurrence by, the Acquired Business or its subsidiaries to the extent such asset sale or disposition or debt incurrence would otherwise result in a mandatory prepayment hereunder if consummated by the Covenantor or any of its subsidiaries (other than any subsidiaries held through the Voting Trust). “Excluded Debt” shall mean (i) any indebtedness incurred to refinance any indebtedness existing on the date of the Commitment Letter, which is scheduled to mature within twelve (12) months of the date of incurrence of such refinancing indebtedness; (ii) intercompany indebtedness of the Covenantor and its subsidiaries or the Acquired Company and its subsidiaries; (iii) ordinary-course purchase money indebtedness, equipment financing or capital lease obligations; (iv) indebtedness issued in connection with leases (including sale-leasebacks), financial leases or capital lease obligations and similar obligations; (v) ordinary-course borrowings under the Existing Credit Agreements; (vi) the Revolver Backstop Bridge Facilities; (vii) issuances of commercial paper, (viii) indebtedness arising under hedging and cash management arrangements; (ix) indebtedness under letter of credit facilities, surety or other similar bonds, working capital facilities, overdraft facilities, local facilities (including, in each case, the renewal, roll-over, replacement or refinancing thereof), in each case in the ordinary course of business; (x) any non-recourse indebtedness incurred by any of the Covenantor’s subsidiaries or the Acquired Company’s subsidiaries |
or joint ventures (including, for the avoidance of doubt, any such indebtedness for which a pledge of ownership interests in such joint ventures is required) after the date hereof to finance projects initiated before or after the date hereof; (xi) the outstanding programs of the Covenantor, the Borrower and the Designated Subsidiaries (as defined in the Borrower’s Existing Credit Agreement) for the securitization of accounts receivable not in excess of Cdn. $500,000,000; (xii) any “Securitization Transactions” (as defined in the Acquired Company’s Existing Credit Agreement) of the Acquired Business; and (xiii) any other indebtedness in an aggregate principal amount not to exceed $100,000,000. The Borrower shall provide the Administrative Agent with prompt written notice of any mandatory prepayment or commitment reduction hereunder. | ||||||||
Voluntary Prepayments and Reductions in Commitments: | Voluntary prepayments of borrowings under the Facility will be permitted at any time, in minimum principal amounts to be agreed upon, without premium or penalty, subject to reimbursement of the Lenders’ redeployment costs in the case of a prepayment of Adjusted LIBOR (as defined below) borrowings other than on the last day of the relevant interest period. The Borrower may voluntarily reduce unutilized portions of the commitments under the Facility at any time without penalty. | |||||||
Documentation: | The making of the loans under the Facility will be governed by definitive loan and related agreements and documentation (collectively, the “Bridge Facility Documentation” and the principles set forth in this paragraph, the “Documentation Principles”) to be negotiated in good faith based on, and substantially the same as, the Borrower’s Existing Credit Agreement, with only those modifications set forth in this Annex A. For the purposes hereof, the words “based on” and “substantially consistent with” the Borrower’s Existing Credit Agreement and words of similar import shall mean substantially the same as the Borrower’s Existing Credit Agreement with modifications (a) as are necessary to reflect the terms specifically set forth in the Commitment Letter (including the exhibits thereto) (including the nature of the Facility as a bridge facility) and the Fee Letter, (b) to reflect any changes in law or accounting standards since the date of the Borrower’s Existing Credit Agreement, (c) to reflect the operational or administrative requirements of the Administrative |
Agent as reasonably agreed by the Covenantor and the Borrower, including as to erroneous payments, (d) to accommodate the structure of the Acquisition and the business plan of the Covenantor and the Borrower and (e) to incorporate customary updates agreed by the Covenantor, the Borrower and the Administrative Agent. The Bridge Facility Documentation will contain only those conditions to borrowing, mandatory prepayments, representations, warranties, affirmative and negative covenants and events of default expressly set forth in this Annex A and in Annex B, with such modifications to the terms thereof as shall be made in accordance with the flex provisions of the Fee Letter. The Bridge Facility Documentation will contain (i) customary European Union and UK “bail-in” provisions and (ii) customary LIBOR successor provisions based on the ARRC “hardwired” approach. It is understood and agreed that, in the event of a Trust Closing, from the Closing Date until the date on which either (x) the Surface Transportation Board (“STB”) approves the Acquisition, the Voting Trust Agreement is terminated and the Acquired Company becomes subject to the control of the Covenantor and its subsidiaries or (y) the date on which the Covenantor directly or indirectly disposes of the Acquired Business following receipt of a final order by the STB that disallows the control of the Acquired Company by the Covenantor (such period, the “Trust Period”), the Acquired Business and its subsidiaries shall not constitute “subsidiaries” for the purpose of the Bridge Facility Documentation and shall not be subject to the provisions of the Bridge Facility Documentation, except as expressly set forth herein. | ||||||||
Representations and Warranties: | The Bridge Facility Documentation will include only the following representations and warranties, which shall be made by the Covenantor and the Borrower on the Effective Date (as defined below) and on the Closing Date, and be substantially consistent with those in the Borrower’s Existing Credit Agreement (and subject to the Documentation Principles and the Limited Conditionality Provision): incorporation and qualification; corporate power; no conflict with other instruments; corporate actions and governmental approvals; execution and binding obligation; authorizations; ownership of property; no litigation; environmental matters; financial condition; no material adverse effect; ranking; contractual |
restrictions; and anti-corruption laws and sanctions. In addition, the Bridge Facility Documentation shall contain customary representations as to solvency (after giving effect to the Transactions, with “solvency” to be defined consistent with the solvency certificate attached hereto as Annex B-I), absence of payment and bankruptcy events of default and the Patriot Act. | ||||||||
Conditions Precedent to Borrowing on the Closing Date: | The borrowing under the Facility on the Closing Date will be subject solely to the conditions precedent set forth in Annex B to the Commitment Letter (the “Funding Conditions”). | |||||||
Affirmative Covenants: | The Bridge Facility Documentation will include only the following affirmative covenants, which shall be applicable to the Covenantor and the Borrower and become effective on the Effective Date, and be substantially consistent with those in the Borrower’s Existing Credit Agreement (and subject to the Documentation Principles and the Limited Conditionality Provision): financial statements and other information; notices of material events; corporate existence; compliance with laws; maintenance of properties and insurance; books and records; payment of taxes; ownership of subsidiaries; anti-corruption laws and sanctions; and, in the event of a Trust Closing, delivery of the financial statements of the Acquired Business (to the extent received therefrom) and other information regarding the Voting Trust and associated STB matters. | |||||||
Negative Covenants: | The Bridge Facility Documentation will include only the following negative covenants, which shall be applicable to the Covenantor and the Borrower and become effective on the Effective Date, and be substantially consistent with those in the Borrower’s Existing Credit Agreement (and subject to the Documentation Principles and the Limited Conditionality Provision): limitations on liens; mergers, etc.; use of proceeds; disposal of assets; change in business; receivables programs; and Covenantor, Borrower and Designated Subsidiary property (provided that, in the event of a Trust Closing and for so long as the Acquired Business is subject to the Voting Trust, the asset value of the Acquired Business shall be disregarded for purposes of this ring-fencing covenant); and in the event of a Trust Closing, prohibition on modifications of the Voting Trust Agreement or the granting of consents |
thereunder, in each case, that would be materially adverse to the interests of the Lenders, other than any such modifications or consents which are requested by the STB or mandated by applicable law. | ||||||||
Financial Covenant: | Effective as of the Closing Date and tested commencing with the first fiscal quarter ending after the Closing Date, maintenance of a maximum ratio of Funded Net Debt to EBITDA of the Covenantor of not more than 4.75 to 1.0 on the last day of any period of four consecutive Financial Quarters, calculated in accordance with (and capitalized terms to have the meanings set forth in) the Borrower’s Existing Credit Agreement; provided that the term “Funded Net Debt” shall mean the Funded Debt less unrestricted cash and cash equivalents of the Covenantor and its subsidiaries on a consolidated basis from time to time, including, in the event of a Trust Closing, the unrestricted cash and cash equivalents of the Acquired Company and its subsidiaries on a consolidated basis during the Calculation Period (as defined below) (the “Financial Covenant”). For the purposes of testing compliance with the Financial Covenant for all periods ending on or prior to the earlier of (i) the date of termination of the Voting Trust and the release of the shares of the Acquired Company from the Voting Trust to the Covenantor or the Borrower following receipt of a final order by the STB approving or exempting the control of the Acquired Company by the Covenantor or (ii) the date of receipt of a final order by the STB which disallows the control of the Acquired Company by the Covenantor (such earlier date, the “Calculation Date” and the period between the Trust Closing and the Calculation Date, the “Calculation Period”), (x) EBITDA of the Covenantor shall be calculated to include the EBITDA of the Acquired Business and its subsidiaries (collectively, the “Acquired Company EBITDA”) to the same extent as if the Acquisition had been consummated without the Trust Closing and (y) EBITDA shall not include consolidated net income received by the Covenantor or any of its subsidiaries from the Acquired Company during such period that is accounted for by the equity method of accounting; provided that, if at any time prior to the Calculation Date, there has occurred (i) a material adverse change in the business, financial condition, operations, performance or properties of the Acquired Company and its subsidiaries, taken as a whole, or (ii) an insolvency event with respect to the |
Acquired Company of the type contemplated by section 9.1(h) of the Borrower’s Existing Credit Agreement (each of clause (i) or (ii), an “Excluding Event”), then (x) EBITDA shall include the Acquired Company EBITDA only to the extent of cash actually received by the Covenantor, the Borrower or any Designated Subsidiary Guarantor and (y) Funded Debt shall be calculated to exclude the Funded Debt attributable to the Acquired Company and its subsidiaries that is non-recourse to the Covenantor and its subsidiaries (excluding, for the avoidance of doubt, the Acquired Company and its subsidiaries). For all periods ending after the Calculation Date, except to the extent the Acquired Company is a subsidiary of the Covenantor, EBITDA shall include the Acquired Company EBITDA only to the extent of cash actually received by the Covenantor, the Borrower or any Designated Subsidiary Guarantor during such period. During the Calculation Period (and subject to the occurrence of any Excluding Event), Funded Debt shall be calculated to include the Funded Debt attributable to the Acquired Company, notwithstanding that the Acquired Company is not consolidated with the Covenantor under U.S. GAAP. For the avoidance of doubt, after the Calculation Period, Funded Debt of the Covenantor shall be calculated to exclude the Funded Debt attributable to the Acquired Company for so long as the Acquired Company remains in the Voting Trust, unless and until the Acquired Company and its subsidiaries become subsidiaries of the Covenantor upon termination of the Voting Trust. | ||||||||
Events of Default: | The Bridge Facility Documentation will include only the following events of default, which shall be substantially consistent with those in the Borrower’s Existing Credit Agreement (including grace periods, where applicable) (and subject to the Documentation Principles and the Limited Conditionality Provision): non-payment of principal, interest, fees or other amounts; failure of any representation or warranty to be true and correct in any material respect when made or deemed made; non-observance or non-performance of covenants; cross-payment default and cross-acceleration to indebtedness of Covenantor, the Borrower or any Designated Subsidiary in excess of the greater of Cdn. $150,000,000 and 2.0% of Consolidated Equity (as defined in the Borrower’s |
Existing Credit Agreement) (the “Threshold Amount”); bankruptcy or insolvency of Covenantor, the Borrower or any Designated Subsidiary; judgments in excess of the Threshold Amount; Covenantor ceasing to own directly or indirectly 100% of the Borrower (or, during the Trust Period, 100% of the trust certificates issued by, and any other equity interest in, the Voting Trust); or invalidity or unenforceability of the guarantee. | ||||||||
Actions between the Effective Date and the Closing Date: | During the period from and including the effectiveness of the Bridge Facility Documentation (the “Effective Date”) to and including the earlier of the Commitment Termination Date and the funding of the loans under the Facility on the Closing Date, and notwithstanding (i) that any representation given as a condition to the Effective Date (excluding the Specified Representations and Acquisition Agreement Representations constituting Funding Conditions) was incorrect, (ii) any failure by the Covenantor or the Borrower to comply with the affirmative covenants and negative covenants (excluding compliance on the Closing Date with certain negative covenants constituting Funding Conditions), (iii) any provision to the contrary in the Bridge Facility Documentation or (iv) that any condition to the Effective Date may subsequently be determined not to have been satisfied, neither the Administrative Agent nor any Lender shall be entitled to (unless an event of default under the Bridge Facility Documentation shall have occurred and is continuing with respect to bankruptcy of the Covenantor or the Borrower) (a) cancel any of its commitments in respect of the Facility (except as set forth in “Mandatory Prepayments and Commitment Reductions” above), (b) rescind, terminate or cancel the Bridge Facility Documentation or any of its commitments thereunder or exercise any right or remedy under the Bridge Facility Documentation, to the extent to do so would prevent, limit or delay the making of its loan under the Facility, (c) refuse to participate in making its loan under the Facility or (d) exercise any right of set-off or counterclaim in respect of its loan under the Facility to the extent to do so would prevent, limit or delay the making of its loan under the Facility; provided that from the Closing Date after giving effect to the funding of the loans under the Facility on such date, all of the rights, remedies and entitlements of the Administrative Agent and the Lenders shall be available notwithstanding that such rights were not available prior to such time as a result of the |
foregoing. | ||||||||
Voting: | Substantially consistent with the Borrower’s Existing Credit Agreement. | |||||||
Cost and Yield Protection: | Usual and customary for facilities and transactions of this type, including customary tax gross-up provisions, consistent with the Borrower’s Existing Credit Agreement (including but not limited to provisions relating to Dodd-Frank and Basel III). | |||||||
Assignments and Participations: | Subject to the Documentation Principles and substantially consistent with, and no less favorable to the Borrower than, the Borrower’s Existing Credit Agreement as follows: Prior to the Closing Date, the Lenders will not be permitted to assign commitments under the Facility to any person except in accordance with the terms of the syndication provisions of the Commitment Letter. | |||||||
From and after the Closing Date, the Lenders will be permitted to assign loans under the Facility to eligible assignees subject to the consent of the Borrower (not to be unreasonably withheld or delayed); provided that no such consent shall be required with respect to any assignment (x) to a Lender, an affiliate of a Lender or an approved fund or (y) if an event of default shall have occurred and be continuing; provided, further, that such consent shall be deemed to have been given if the Borrower shall not have responded to a written request for consent within 10 business days. All assignments shall require the consent of the Administrative Agent (not to be unreasonably withheld or delayed). Each assignment shall be accompanied by the payment of a $3,500 assignment processing fee to Administrative Agent (which fee may be waived by the Administrative Agent in its sole discretion). | ||||||||
Lenders may sell participations without the consent of any person, provided that any such participation does not create rights in participants to approve amendments or waivers, except in respect of certain customary matters consistent with the Borrower’s Existing Credit Agreement. | ||||||||
Defaulting Lenders: | The Bridge Facility Documentation will contain customary “defaulting Lender” provisions consistent with those found in the Borrower’s Existing Credit Agreement, including the suspension of voting rights and rights to receive certain fees, and the termination |
or assignment of commitments or loans of defaulting Lenders. | ||||||||
Expenses and Indemnification: | Subject to the limitations set forth in Section 5 of the Commitment Letter, the Borrower will indemnify the Arrangers, the Administrative Agent, the Lenders and their respective partners, members, directors, agents, employees and controlling persons (each, an “Indemnified Person”) and hold them harmless from and against all losses, claims, damages or liabilities of such Indemnified Person arising out of or relating to any action, proceeding or investigation (whether or not such investigation, litigation, claim or proceeding is brought by the Borrower, its equity holders or creditors or an Indemnified Person and whether or not any such Indemnified Person is a party thereto) that relates to the Transactions, including the financing contemplated hereby, the Acquisition or any transactions in connection therewith; provided that no Indemnified Person will be indemnified for any losses, claims, damages or liabilities to the extent arising from (x) the gross negligence, willful misconduct or bad faith of the indemnified party or any of its affiliates or (y) such indemnified party’s or any of its affiliates’ material breach of the Bridge Facility Documentation or (z) disputes among Lenders not arising from the Covenantor’s breach of its obligations under the Bridge Facility Documentation (other than a dispute involving a claim against an indemnified party for its acts or omissions in its capacity as an arranger, bookrunner, agent or similar role in respect of the Facility and other than any claims arising out of any act or omission on the part of the Covenantor or its affiliates). Subject to the limitations set forth in Section 5 of the Commitment Letter, the Borrower shall pay (a) all reasonable, documented and invoiced out-of-pocket expenses of the Arrangers and the Administrative Agent in connection with the syndication of the Facility and the preparation, execution, delivery and administration of the Bridge Facility Documentation and any amendment or waiver with respect thereto (provided that any legal expenses shall be limited to one U.S. and one Canadian counsel for the Arrangers and the Administrative Agent and, if reasonably necessary, a single local counsel in each other relevant jurisdiction (which may be a single local counsel acting in multiple jurisdictions)) and (b) all reasonable, documented and invoiced out-of-pocket |
expenses of the Administrative Agent and the Lenders (provided that any legal expenses shall be limited to one U.S. and one Canadian counsel for the Arrangers and the Administrative Agent and if reasonably necessary, a single local counsel in each other relevant jurisdiction (which may be a single local counsel acting in multiple jurisdictions) and additional counsel to the extent reasonably determined by any Lender to avoid any actual or potential conflicts of interest or the availability of different claims or defenses) in connection with the enforcement of the Bridge Facility Documentation. | ||||||||
Governing Law and Forum: | New York; provided that (a) the interpretation of the definition of “Company Material Adverse Effect” and whether there shall have occurred a Company Material Adverse Effect, (b) whether the Acquisition has been consummated as contemplated by the Acquisition Agreement and (c) whether the representations and warranties made by or with respect to the Acquired Business in the Acquisition Agreement are true and correct and whether as a result of any failure thereof to be true and correct the Borrower (or its affiliates) has the right to terminate its (or their) obligations under the Acquisition Agreement or not to consummate the Acquisition, shall be determined in accordance with the laws of the State of Delaware without regard to principles of conflicts of laws that would result in the application of the laws of another jurisdiction. | |||||||
Arrangers’ and Administrative Agent’s Counsel: | Davis Polk & Wardwell LLP. |
Interest Rates: | The interest rates under the Facility will be, at the option of the Borrower, (a) Adjusted LIBOR plus the Applicable Adjusted LIBOR Margin (each as defined below) or (b) ABR (as defined below) plus the Applicable Adjusted LIBOR Margin minus 1.00%. The Borrower may elect interest periods of one, three or six months for Adjusted LIBOR borrowings. Calculation of interest shall be on the basis of the actual number of days elapsed in a year of 360 days (or 365 or 366 days, as the case may be, in the case of ABR loans based on the prime rate) and interest shall be paid in arrears (i) at the end of each interest period and no less frequently than quarterly, in the case of Adjusted LIBOR advances, and (ii) quarterly, in the case of ABR advances. “ABR” is the Alternate Base Rate, which is the highest of (a) the Administrative Agent’s prime rate, (b) the Federal Funds Rate (to be defined in the Bridge Facility Documentation) plus one-half of 1.0%, and (c) Adjusted LIBOR for a one-month interest period, plus 1.0%. “Adjusted LIBOR” is the London interbank offered rate for dollars and will at all times include statutory reserves. Adjusted LIBOR shall not be less than 0.00%. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Applicable Adjusted LIBOR Margin: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Borrower’s Senior Unsecured Debt Rating as Assigned by S&P or Moody’s, respectively2 | Closing Date until 89 days following the Closing Date | 90th day following the Closing Date until 179th day following the Closing Date | 180th day following the Closing Date until 269th day following the Closing Date | From the 270th day following the Closing Date | ||||||||||||||||||||||||||||||||||||||||||||||||||||
A2/A or higher | 87.5 bps | 112.5 bps | 137.5 bps | 162.5 bps | ||||||||||||||||||||||||||||||||||||||||||||||||||||
A-/A3 | 100 bps | 125 bps | 150 bps | 175 bps | ||||||||||||||||||||||||||||||||||||||||||||||||||||
BBB+/Baa1 | 112.5 bps | 137.5 bps | 162.5 bps | 187.5 bps | ||||||||||||||||||||||||||||||||||||||||||||||||||||
BBB/Baa2 | 125 bps | 150 bps | 175 bps | 200 bps | ||||||||||||||||||||||||||||||||||||||||||||||||||||
BBB-/Baa3 | 150 bps | 175 bps | 200 bps | 225 bps | ||||||||||||||||||||||||||||||||||||||||||||||||||||
BB+/Ba1 or lower | 175 bps | 200 bps | 225 bps | 250 bps | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Default Rate: | At any time when the Borrower is in default in the payment of any amount of principal due under the Facility, the overdue amount shall bear interest at 2% above the rate otherwise applicable thereto. Overdue interest, fees and other amounts shall bear interest at 2% above the rate applicable to ABR loans. |
Default Rate: | At any time when the Borrower is in default in the payment of any amount of principal due under the Facility, the overdue amount shall bear interest at 2% above the rate otherwise applicable thereto. Overdue interest, fees and other amounts shall bear interest at 2% above the rate applicable to ABR loans. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ticking Fee: | The Borrower will pay a fee (the “Ticking Fee”), to the Administrative Agent for the account of each Lender, which will accrue from and including the date that is the later of the Effective Date and the date this is 90 days after the date of the Commitment Letter until and including the earlier of (a) the Closing Date and (b) the termination of the commitments in respect of the Facility, equal to the rate per annum specified in the grid below (computed on the basis of the actual number of days elapsed in a year of 360 days) of the daily undrawn amount of such Lender’s commitment with respect to the Facility, which fee will be due and payable on such earlier date. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Borrower’s Senior Unsecured Debt Rating as Assigned by S&P or Moody’s, respectively3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
≥ A2/A | A-/A3 | BBB+/Baa1 | BBB/Baa2 | BBB-/Baa3 | ≤ BB+/Ba1 | |||||||||||||||||||||||||||||||||||||||||||||||||||
7 bps | 9 bps | 10 bps | 12.5 bps | 20 bps | 25 bps |
Duration Fee: | The Borrower will pay a fee (the “Duration Fee”), for the ratable benefit of the Lenders, in an amount equal to (i) 0.50% of the aggregate principal amount of the loans under the Facility outstanding on the date which is 90 days after the Closing Date, due and payable in cash on such 90th day (or if such day is not a business day, the next business day); (ii) 0.75% of the aggregate principal amount of the loans under the Facility outstanding on the date which is 180 days after the Closing Date, due and payable in cash on such 180th day (or if such day is not a business day, the next business day); and (iii) 1.00% of the aggregate principal amount of the loans under the Facility outstanding on the date which is 270 days after the Closing Date, due and payable in cash on such 270th day (or if such day is not a business day, the next business day). |
Date: April 21, 2021 | /s/ KEITH CREEL | |||||||
Keith Creel | ||||||||
President and Chief Executive Officer |
Date: April 21, 2021 | /s/ NADEEM VELANI | |||||||
Nadeem Velani | ||||||||
Executive Vice-President and Chief Financial Officer |
Date: April 21, 2021 | /s/ KEITH CREEL | |||||||||||||
Keith Creel | ||||||||||||||
President and Chief Executive Officer |
Date: April 21, 2021 | /s/ NADEEM VELANI | |||||||||||||
Nadeem Velani | ||||||||||||||
Executive Vice-President and Chief Financial Officer |
INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited) - CAD ($) $ in Millions |
3 Months Ended | |
---|---|---|
Mar. 31, 2021 |
Mar. 31, 2020 |
|
Statement of Comprehensive Income [Abstract] | ||
Net income | $ 602 | $ 409 |
Net gain (loss) in foreign currency translation adjustments, net of hedging activities | 10 | (65) |
Change in derivatives designated as cash flow hedges | 25 | 2 |
Change in pension and post-retirement defined benefit plans | 53 | 45 |
Other comprehensive income (loss) before income taxes | 88 | (18) |
Income tax (expense) recovery on above items | (30) | 60 |
Other comprehensive income | 58 | 42 |
Comprehensive income | $ 660 | $ 451 |
Basis of Presentation |
3 Months Ended |
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Mar. 31, 2021 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Basis of Presentation | Basis of presentation These unaudited Interim Consolidated Financial Statements ("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 2020 annual Consolidated Financial Statements and notes included in CP's 2020 Annual Report on Form 10-K. The accounting policies used are consistent with the accounting policies used in preparing the 2020 annual Consolidated Financial Statements. CP's operations can be affected by seasonal fluctuations such as changes in customer demand and weather-related issues. This seasonality could impact quarter-over-quarter comparisons. In management’s opinion, the Interim Consolidated Financial Statements include all adjustments (consisting of normal and recurring adjustments) necessary to present fairly such information. Interim results are not necessarily indicative of the results expected for the fiscal year.
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Accounting Changes |
3 Months Ended |
---|---|
Mar. 31, 2021 | |
Accounting Standards Update and Change in Accounting Principle [Abstract] | |
Accounting Changes | Accounting changes Accounting pronouncements that became effective during the period covered by the Interim Consolidated Financial Statements did not have a material impact on the Company's Interim Consolidated Balance Sheets, Interim Consolidated Statements of Income, or Interim Consolidated Statements of Cash Flows. Likewise, accounting pronouncements issued, but not effective until after March 31, 2021, are not expected to have a material impact on the Company's Consolidated Balance Sheets, Consolidated Statements of Income, or Consolidated Statements of Cash Flows. |
Revenues |
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Revenue from Contract with Customer [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenues | Revenues The following table disaggregates the Company’s revenues from contracts with customers by major source:
Contract liabilities Contract liabilities represent payments received for performance obligations not yet satisfied and relate to deferred revenue, and are presented as components of "Accounts payable and accrued liabilities" and "Other long-term liabilities" on the Company's Interim Consolidated Balance Sheets. The following table summarizes the changes in contract liabilities:
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Other (Income) Expense |
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Other Income and Expenses [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Income and Expenses | Other (income) expense
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Income Taxes |
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Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Taxes | Income taxes
The effective tax rates including discrete items for the three months ended March 31, 2021 was 24.05%, compared to 31.10% for the same period of 2020. For the three months ended March 31, 2021, the effective tax rate was 24.60%, excluding the discrete items of the acquisition-related costs of $36 million and the FX gain of $33 million on debt and lease liabilities. For the three months ended March 31, 2020, the effective tax rate was 25.00%, excluding the discrete item of the FX loss of $215 million on debt and lease liabilities.
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Earnings Per Share |
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share | Earnings per share Basic earnings per share has been calculated using Net income for the period divided by the weighted-average number of shares outstanding during the period. The number of shares used in the earnings per share calculations are reconciled as follows:
For the three months ended March 31, 2021, there were no options excluded from the computation of diluted earnings per share (three months ended March 31, 2020 - 0.1 million).
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Changes in Accumulated Other Comprehensive Loss ("AOCL") by Component |
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Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Changes in Accumulated Other Comprehensive Loss (AOCL) by Component | Changes in Accumulated other comprehensive loss ("AOCL") by component
(1)Amounts are presented net of tax. Amounts in Pension and post-retirement defined benefit plans reclassified from AOCL are as follows:
(1)Impacts "Other components of net periodic benefit recovery" on the Interim Consolidated Statements of Income.
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Accounts Receivable, Net |
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Accounts Receivable, after Allowance for Credit Loss [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounts and Nontrade Receivable | Accounts receivable, net
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Property Sale |
3 Months Ended |
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Mar. 31, 2021 | |
Discontinued Operations and Disposal Groups [Abstract] | |
Property sale | Property sale Gain on exchange of property and easements in Chicago During the first quarter of 2021, the Company exchanged property and property easements in Chicago with a government agency for proceeds of $103 million including cash of $61 million and property assets at a fair value of $42 million. Fair value was determined based on comparable market transactions. The Company recorded a gain in the first quarter within "Purchased services and other" of $50 million ($38 million after tax) from the transaction, and a deferred gain of $53 million which will be recognized in income over the period of use of certain easements.
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Business Acquisition |
3 Months Ended |
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Mar. 31, 2021 | |
Business Combinations [Abstract] | |
Business Combination | Business acquisition Pending Kansas City Southern Transaction On March 21, 2021, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with Kansas City Southern ("KCS"). Upon the approval of the transaction by the shareholders of both the Company and KCS, and satisfaction or waiver of customary closing conditions, the shares of KCS will be deposited into a voting trust subject to a voting trust agreement, pending final approval of the transaction by the Surface Transportation Board ("STB"). This step is expected to be completed in the second half of 2021. Under the Merger Agreement, common shareholders of KCS will receive 0.489 (exchange ratio) of a common share of the Company and U.S. $90 in cash for each KCS common share held. Preferred shareholders will receive U.S. $37.50 in cash for each KCS preferred share held. The share split (see Note 17) will change the exchange ratio as defined in the Merger Agreement to 2.445 CP shares for every KCS common share. As of the signing of the Merger Agreement, the transaction represented an enterprise value of approximately U.S. $29 billion, which includes the assumption of U.S. $3.8 billion of outstanding KCS debt. The actual value of the transaction may fluctuate based upon changes in the price of the Company's common shares and the number of shares of KCS common shares, preferred shares and equity awards units outstanding on the closing date. Subject to final approval of the transaction by the STB and other applicable regulatory authorities, the transaction is expected to be completed by the middle of 2022. In the first quarter of 2021, the Company incurred $36 million in acquisition-related expenses, of which $33 million was recorded within "Purchased services and other" and $3 million was recorded within "Other (income) expense" including the amortization of financing fees associated with new credit facilities (see Note 11). Certain additional acquisition-related costs will become payable only upon closing of the transaction into the voting trust. Total financing fees paid during the first quarter of 2021 for the anticipated debt issuance were $33 million, presented under Cash flow from financing activities in the Company's Interim Consolidated Statements of Cash Flows. The Merger Agreement includes termination fees for both the Company and KCS. The Company or KCS will be required to pay a termination fee equal to U.S. $700 million if the Merger Agreement is terminated in certain circumstances, including if the Merger Agreement is terminated either because the Company’s or KCS’ boards of directors have changed their recommendation, respectively. The Company will be required to pay a termination fee equal to U.S. $1 billion if the Merger Agreement is terminated in certain circumstances, including (i) failure to obtain required approval from the STB to close into voting trust or (ii) a final non-appealable injunction or similar order that is issued under applicable railroad laws or Section 721 of the United States Defense Production Act of 1950 prohibiting the transaction.
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Debt |
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Mar. 31, 2021 | |
Debt Disclosure [Abstract] | |
Debt | Debt Credit facility Effective March 21, 2021, the Company obtained commitments for a new U.S. $8.5 billion 364-day senior unsecured facility to bridge financing requirements for the pending KCS transaction. Effective April 9, 2021, the Company amended the financial covenant within its existing revolving credit facility to provide flexibility upon close of the pending KCS transaction. 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, 2021, the Company had total commercial paper borrowings of U.S. $715 million (December 31, 2020 - U.S. $644 million). The weighted-average interest rate on these borrowings was 0.21% (December 31, 2020 - 0.27%). The Company presents issuances and repayments of commercial paper, all of which have a maturity of less than 90 days, in the Company's Interim Consolidated Statements of Cash Flows on a net basis.
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Financial Instruments |
3 Months Ended |
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Mar. 31, 2021 | |
Derivative Instruments and Hedging Activities Disclosure [Abstract] | |
Financial Instruments | Financial instruments A. Fair values of financial instruments The Company categorizes its financial assets and liabilities measured at fair value into a three-level hierarchy established by GAAP that prioritizes those inputs to valuation techniques used to measure fair value based on the degree to which they are observable. The three levels of the fair value hierarchy are as follows: Level 1 inputs are quoted prices in active markets for identical assets and liabilities; Level 2 inputs, other than quoted prices included within Level 1, are observable for the asset or liability either directly or indirectly; and Level 3 inputs are not observable in the market. For non-exchange traded derivatives classified as Level 2, the Company uses standard valuation techniques to calculate fair value. Primary inputs to these techniques include observable market prices (interest, FX, and commodity) and volatility, depending on the type of derivative and nature of the underlying risk. The Company uses inputs and data used by willing market participants when valuing derivatives and considers its own credit default swap spread as well as those of its counterparties in its determination of fair value. All derivatives are classified as Level 2. The Company’s short-term financial instruments include cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, and short-term borrowings including commercial paper. The carrying value of short-term financial instruments all approximate their fair values. The carrying value of the Company’s debt and finance lease liabilities do not approximate their fair value. Their estimated fair value 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. All measurements are classified as Level 2. The Company’s debt and finance lease liabilities, including current maturities, with a carrying value of $8,841 million at March 31, 2021 (December 31, 2020 - $8,951 million), had a fair value of $10,609 million (December 31, 2020 - $11,597 million). B. Financial risk management FX management Net investment hedge The effect of the Company's net investment hedge for the three months ended March 31, 2021 was an unrealized FX gain of $76 million (three months ended March 31, 2020 - an unrealized FX loss of $555 million) recognized in “Other comprehensive income”. FX forward contracts During the first quarter of 2021, the Company entered into various FX forward contracts totalling a notional U.S. $800 million to fix the FX rate and lock-in a portion of the amount of Canadian dollars it may borrow to finance the U.S. dollar-denominated cash purchase consideration of the pending KCS transaction. The changes in fair value on the FX forward contracts were recorded in "Other (income) expense" on the Company's Interim Consolidated Statements of Income, with the offsetting unrealized gains and losses included in "Other current assets" and "Accounts payable and accrued liabilities" on the Company's Interim Consolidated Balance Sheets. For the three months ended March 31, 2021, the change in fair value on the FX forward contracts was negligible. During April 2021, the Company entered into additional FX forward contracts totalling a notional U.S. $200 million to fix the FX rate and lock-in a portion of the amount of Canadian dollars it may use to finance the pending U.S. dollar-denominated KCS transaction. Interest rate management Forward starting swaps During the first quarter of 2021, the Company entered into forward starting floating-to-fixed interest rate swap agreements ("forward starting swaps") with terms of up to 30 years, totalling a notional U.S. $1.8 billion to fix the benchmark rate on cash flows associated with highly probable forecasted issuances of long-term notes. The changes in fair value on the forward starting swaps is recorded in “Accumulated other comprehensive loss”, net of tax, as cash flow hedges until the notes are issued. Subsequent to the notes issuance, amounts in “Accumulated other comprehensive loss” will be reclassified to “Net interest expense”. As at March 31, 2021, the unrealized fair value gain derived from the forward starting swaps of $20 million was included in "Other current assets" on the Company’s Interim Consolidated Balance Sheets, with the offset reflected in "Other comprehensive income" on the Company’s Interim Consolidated Statements of Comprehensive Income. During April 2021, the Company entered into additional forward starting swaps with terms of up to 30 years, totalling a notional U.S. $600 million to fix the benchmark rate on cash flows associated with highly probable issuances of long-term notes. Bond locks During the first quarter of 2021, the Company entered into 7-year interest rate bond locks totalling a notional $600 million to fix the benchmark rate on cash flows associated with highly probable forecasted issuance of long-term notes. The changes in fair value on the bond locks is recorded in “Accumulated other comprehensive loss”, net of tax, as cash flow hedges until the notes are issued. Subsequent to the notes issuance, amounts in “Accumulated other comprehensive loss” will be reclassified to “Net interest expense”. As at March 31, 2021, the unrealized fair value gain derived from the bond locks of $2 million was included in "Other current assets" on the Company’s Interim Consolidated Balance Sheets, with the offset reflected in "Other comprehensive income" on the Company’s Interim Consolidated Statements of Comprehensive Income.
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Shareholders' Equity |
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Stockholders' Equity Note [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shareholders' Equity | Shareholders' equity On January 27, 2021, the Company announced a normal course issuer bid ("NCIB"), commencing January 29, 2021, to purchase up to 3.33 million Common Shares in the open market for cancellation on or before January 28, 2022. As at March 31, 2021, the Company had not purchased any Common Shares under this NCIB. As a result of the pending KCS transaction, the Company does not plan to purchase any Common Shares under this program. On December 17, 2019, the Company announced a NCIB, commencing December 20, 2019, to purchase up to 4.80 million Common Shares for cancellation on or before December 19, 2020. Upon expiry of this NCIB, the Company had purchased 4.27 million Common Shares for $1,577 million. 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 ("TSX"), 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:
(1)Includes shares repurchased but not yet cancelled at end of period. (2)Includes brokerage fees.
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Pension and Other Benefits |
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Retirement Benefits [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pensions and Other Benefits | Pension and other benefits In the three months ended March 31, 2021, the Company made contributions of $4 million (three months ended March 31, 2020 - $9 million) to its defined benefit pension plans. Net periodic benefit costs for defined benefit pension plans and other benefits included the following components:
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Stock-Based Compensation |
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Share-based Payment Arrangement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||
Stock-Based Compensation | Stock-based compensation At March 31, 2021, 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, 2021 of $24 million (three months ended March 31, 2020 - expense of $11 million). Stock option plan In the three months ended March 31, 2021, under CP’s stock option plans, the Company issued 266,698 options at the weighted-average price of $437.94 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 $25 million. The weighted-average fair value assumptions were approximately:
(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 share 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, 2021, the Company issued 84,672 Performance Share Units ("PSUs") with a grant date fair value of approximately $36 million and 2,539 Performance Deferred Share Units ("PDSUs") with a grant date fair value, including the value of expected future matching units, of approximately $1 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. Vested PSUs are settled in cash. Vested PDSUs are settled in cash pursuant to the Deferred Share Unit ("DSU") Plan and are eligible for a 25% match if the holder has not exceeded their share ownership requirements, and are paid out only when the holder ceases their employment with CP. The performance period for PSUs and PDSUs issued in the three months ended March 31, 2021 is January 1, 2021 to December 31, 2023 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 2018 was January 1, 2018 to December 31, 2020. The performance factors for 125,280 PSUs were ROIC, TSR compared to the S&P/TSX Capped Industrial Index, and TSR compared to the S&P 1500 Road and Rail Index. The resulting payout was 200% of the outstanding units multiplied by the Company's average share price calculated using the last 30 trading days preceding December 31, 2020. In the first quarter of 2021, payouts occurred on 114,014 total outstanding awards, including dividends reinvested, totalling $98 million. The performance factors for the remaining 36,975 PSUs were annual revenue for the fiscal year 2020, diluted earnings per share for the fiscal year 2020, and share price appreciation. Deferred share unit plan During the three months ended March 31, 2021, the Company granted 9,170 DSUs with a grant date fair value of approximately $4 million. DSUs vest over various periods of up to 36 months and are only redeemable for a specified period after employment is terminated. The expense for DSUs is recognized over the vesting period for both the initial subscription price and the change in value between reporting periods.
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Contingencies |
3 Months Ended |
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Mar. 31, 2021 | |
Commitments and Contingencies Disclosure [Abstract] | |
Contingencies | Contingencies In the normal course of its operations, the Company becomes involved in various legal actions, including claims relating to injuries and damage to property. The Company maintains provisions it considers to be adequate for such actions. While the final outcome with respect to actions outstanding or pending at March 31, 2021 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 on or around September 13, 2021, 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 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 approximately U.S. $30 million in damages for MMAR’s loss in business value according to a recent report. 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 is pending. (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). The Court issued an Order on August 6, 2020 granting and denying in parts the parties' summary judgment motions which has been reviewed and confirmed following motions by the parties for clarification and reconsideration. This action is scheduled for trial on September 21, 2021. 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, 2021 was $2 million (three months ended March 31, 2020 - $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, 2021 was $81 million (December 31, 2020 - $80 million). Payments are expected to be made over 10 years through 2030.
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Subsequent Event |
3 Months Ended |
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Mar. 31, 2021 | |
Subsequent Events [Abstract] | |
Subsequent Event | Subsequent event On April 21, 2021, the Company's shareholders approved a five-for-one share split of the Company's issued and outstanding Common Shares such that, as a result of the share split, each Common Share will become five Common Shares. The record date for the share split will be May 5, 2021 and the shareholders of record as of the record date will receive, on the payment date of May 13, 2021, four additional shares for every one Common Share held. Proportional adjustments will also be made to outstanding awards under the Company's stock-based compensation plans in order to reflect the share split. Pro forma earnings per share amounts are disclosed in the Company's Interim Consolidated Statements of Income to show the effect of the share split.
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Basis of Presentation (Policies) |
3 Months Ended |
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Mar. 31, 2021 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Basis of presentation | These unaudited Interim Consolidated Financial Statements ("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 2020 annual Consolidated Financial Statements and notes included in CP's 2020 Annual Report on Form 10-K. The accounting policies used are consistent with the accounting policies used in preparing the 2020 annual Consolidated Financial Statements. CP's operations can be affected by seasonal fluctuations such as changes in customer demand and weather-related issues. This seasonality could impact quarter-over-quarter comparisons. In management’s opinion, the Interim Consolidated Financial Statements include all adjustments (consisting of normal and recurring adjustments) necessary to present fairly such information. Interim results are not necessarily indicative of the results expected for the fiscal year.
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Accounting Changes (Policies) |
3 Months Ended |
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Mar. 31, 2021 | |
Accounting Standards Update and Change in Accounting Principle [Abstract] | |
Accounting Changes | Accounting pronouncements that became effective during the period covered by the Interim Consolidated Financial Statements did not have a material impact on the Company's Interim Consolidated Balance Sheets, Interim Consolidated Statements of Income, or Interim Consolidated Statements of Cash Flows. Likewise, accounting pronouncements issued, but not effective until after March 31, 2021, are not expected to have a material impact on the Company's Consolidated Balance Sheets, Consolidated Statements of Income, or Consolidated Statements of Cash Flows. |
Revenues (Tables) |
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Revenue from Contract with Customer [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disaggregation of Revenue | The following table disaggregates the Company’s revenues from contracts with customers by major source:
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Changes in Contract Liabilities | The following table summarizes the changes in contract liabilities:
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Other (Income) Expense (Tables) |
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Other Income and Expenses |
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Income Taxes (Tables) |
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Summary of Income Tax Expense |
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Earnings Per Share (Tables) |
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares Used in the Earnings Per Share Calculation | The number of shares used in the earnings per share calculations are reconciled as follows:
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Changes in Accumulated Other Comprehensive Loss ("AOCL") by Component (Tables) |
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Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Changes in Accumulated Other Comprehensive Income Loss by Component |
(1)Amounts are presented net of tax.
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Amounts in Pension and Post-retirement Defined Benefit Plans Reclassified from AOCL | Amounts in Pension and post-retirement defined benefit plans reclassified from AOCL are as follows:
(1)Impacts "Other components of net periodic benefit recovery" on the Interim Consolidated Statements of Income.
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Accounts Receivable, Net (Tables) |
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Accounts Receivable, after Allowance for Credit Loss [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Accounts Receivable, Net |
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Accounts Receivable, Allowance for Credit Loss |
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Shareholders' Equity (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Stockholders' Equity Note [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Activities Under Share Repurchase Program | The following table provides activities under the share repurchase programs:
(1)Includes shares repurchased but not yet cancelled at end of period. (2)Includes brokerage fees.
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Pension and Other Benefits (Tables) |
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Retirement Benefits [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Periodic Benefit Cost for Defined Benefit Pension Plans and Other Benefits | Net periodic benefit costs for defined benefit pension plans and other benefits included the following components:
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Stock-Based Compensation (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||
Share-based Payment Arrangement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||
Weighted-Average Fair Value Assumptions | The weighted-average fair value assumptions were approximately:
(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 share 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.
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Revenues - Contract Liabilities (Details) - CAD ($) $ in Millions |
3 Months Ended | |
---|---|---|
Mar. 31, 2021 |
Mar. 31, 2020 |
|
Contract with Customer, Liability [Abstract] | ||
Opening balance | $ 61 | $ 146 |
Revenue recognized that was included in the contract liability balance at the beginning of the period | (11) | (37) |
Increase due to consideration received, net of revenue recognized during the period | 64 | 3 |
Closing balance | $ 114 | $ 112 |
Other (Income) Expense - Other Income and Expense (Details) - CAD ($) $ in Millions |
3 Months Ended | |
---|---|---|
Mar. 31, 2021 |
Mar. 31, 2020 |
|
Other Income and Expenses [Abstract] | ||
Foreign exchange (gain) loss on debt and lease liabilities | $ (33) | $ 215 |
Other foreign exchange losses (gains) | 1 | (5) |
Acquisition-related costs, Other (income) expense | 3 | 0 |
Other | 1 | 1 |
Other (income) expense | $ (28) | $ 211 |
Income Taxes - Summary of Income Tax Expense (Details) - CAD ($) $ in Millions |
3 Months Ended | |
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Mar. 31, 2021 |
Mar. 31, 2020 |
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Income Tax Disclosure [Abstract] | ||
Current income tax expense | $ 140 | $ 146 |
Deferred income tax expense | 51 | 39 |
Income tax expense | $ 191 | $ 185 |
Income Taxes - Narrative (Details) - CAD ($) $ in Millions |
3 Months Ended | |
---|---|---|
Mar. 31, 2021 |
Mar. 31, 2020 |
|
Income Tax Disclosure [Abstract] | ||
Effective tax rate | 24.05% | 31.10% |
Effective tax rate, excluding discrete items | 24.60% | 25.00% |
Foreign exchange (gain) loss on debt and lease liabilities | $ (33) | $ 215 |
Acquisition-related costs | $ (36) |
Earnings Per Share - Number of Shares Used in the Earnings Per Share Calculations (Details) - shares shares in Millions |
3 Months Ended | |
---|---|---|
Mar. 31, 2021 |
Mar. 31, 2020 |
|
Earnings Per Share [Abstract] | ||
Weighted-average basic shares outstanding | 133.3 | 136.7 |
Dilutive effect of stock options | 0.6 | 0.5 |
Weighted-average diluted shares outstanding | 133.9 | 137.2 |
Earnings Per Share - Narrative (Details) - shares shares in Millions |
3 Months Ended | |
---|---|---|
Mar. 31, 2021 |
Mar. 31, 2020 |
|
Stock Options | ||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
Number of options excluded from the computation of diluted earnings per share | 0.0 | 0.1 |
Changes in Accumulated Other Comprehensive Loss ("AOCL") by Component - Amounts in Pension and Post-retirement Defined Benefit Plans Reclassified from AOCL (Details) - Reclassification out of Accumulated Other Comprehensive Income - CAD ($) $ in Millions |
3 Months Ended | |
---|---|---|
Mar. 31, 2021 |
Mar. 31, 2020 |
|
Accumulated Other Comprehensive Income (Loss) [Line Items] | ||
Recognition of net actuarial loss | $ 53 | $ 45 |
Income tax recovery | (14) | (12) |
Total net of income tax | $ 39 | $ 33 |
Accounts Receivable, Net - Schedule of Accounts Receivable (Details) - CAD ($) $ in Millions |
Mar. 31, 2021 |
Dec. 31, 2020 |
Mar. 31, 2020 |
Dec. 31, 2019 |
---|---|---|---|---|
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||||
Total accounts receivable | $ 879 | $ 926 | ||
Allowance for credit losses | (39) | $ (40) | (41) | $ (43) |
Total accounts receivable, net | 840 | 885 | ||
Freight | ||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||||
Total accounts receivable | 681 | 724 | ||
Allowance for credit losses | (24) | (25) | (27) | (27) |
Total accounts receivable, net | 657 | 697 | ||
Non-freight | ||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||||
Total accounts receivable | 198 | 202 | ||
Allowance for credit losses | (15) | $ (15) | (14) | $ (16) |
Total accounts receivable, net | $ 183 | $ 188 |
Accounts Receivable, Net - Allowance for Credit Loss (Details) - CAD ($) $ in Millions |
3 Months Ended | |
---|---|---|
Mar. 31, 2021 |
Mar. 31, 2020 |
|
Allowance for Credit Loss [Roll Forward] | ||
Allowance for credit losses, opening balance | $ (40) | $ (43) |
Current period credit loss provision, net | 1 | 2 |
Allowance for credit losses, closing balance | (39) | (41) |
Freight | ||
Allowance for Credit Loss [Roll Forward] | ||
Allowance for credit losses, opening balance | (25) | (27) |
Current period credit loss provision, net | 1 | 0 |
Allowance for credit losses, closing balance | (24) | (27) |
Non-freight | ||
Allowance for Credit Loss [Roll Forward] | ||
Allowance for credit losses, opening balance | (15) | (16) |
Current period credit loss provision, net | 0 | 2 |
Allowance for credit losses, closing balance | $ (15) | $ (14) |
Property Sale (Details) - Chicago property and easements $ in Millions |
3 Months Ended |
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Mar. 31, 2021
CAD ($)
| |
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | |
Proceeds from exchanged property and property easements | $ 103 |
Cash proceeds from properties and easements | 61 |
Property assets, Fair value acquired | 42 |
Gain on exchange of properties and easements | 50 |
Gain on exchange of property and easements, after tax | 38 |
Deferred gain on exchange of property and easements | $ 53 |
Debt - Narrative (Details) - USD ($) |
Mar. 31, 2021 |
Dec. 31, 2020 |
---|---|---|
Commercial Paper | ||
Debt Instrument [Line Items] | ||
Maximum borrowing capacity | $ 1,000,000,000.0 | |
Commercial paper borrowings | $ 715,000,000 | $ 644,000,000 |
Weighted-average interest rate | 0.21% | 0.27% |
U.S. $8.5 Billion Bridge Facility | ||
Debt Instrument [Line Items] | ||
Maximum borrowing capacity | $ 8,500,000,000 | |
Revolving Credit Facility | ||
Debt Instrument [Line Items] | ||
Maximum borrowing capacity | $ 1,300,000,000 |
Shareholders' Equity - Narrative (Details) - CAD ($) $ in Millions |
3 Months Ended | 12 Months Ended | |||
---|---|---|---|---|---|
Mar. 31, 2021 |
Mar. 31, 2020 |
Dec. 19, 2020 |
Jan. 29, 2021 |
Dec. 20, 2019 |
|
Common Shares repurchased | 1,600,000 | ||||
Common Shares repurchased (value) | $ 468 | ||||
2021 Normal Course Issuer Bid (NCIB) | |||||
Common Shares authorized to be repurchased | 3,330,000 | ||||
Common Shares repurchased | 0 | ||||
Common Shares repurchased (value) | $ 0 | ||||
2019 Normal Course Issuer Bid (NCIB) | |||||
Common Shares authorized to be repurchased | 4,800,000 | ||||
Common Shares repurchased | 1,455,854 | 4,270,000 | |||
Common Shares repurchased (value) | $ 468 | $ 1,577 |
Shareholders' Equity - Activities Under Share Repurchase Program (Detail) - CAD ($) $ / shares in Units, $ in Millions |
3 Months Ended | 12 Months Ended | |
---|---|---|---|
Mar. 31, 2021 |
Mar. 31, 2020 |
Dec. 19, 2020 |
|
Number of Common Shares repurchased | 1,600,000 | ||
Amount of repurchase (in millions of Canadian dollars) | $ 468 | ||
2021 Normal Course Issuer Bid (NCIB) | |||
Number of Common Shares repurchased | 0 | ||
Weighted-average price per share | $ 0 | ||
Amount of repurchase (in millions of Canadian dollars) | $ 0 | ||
2019 Normal Course Issuer Bid (NCIB) | |||
Number of Common Shares repurchased | 1,455,854 | 4,270,000 | |
Weighted-average price per share | $ 321.71 | ||
Amount of repurchase (in millions of Canadian dollars) | $ 468 | $ 1,577 |
Pension and Other Benefits - Narrative (Details) - CAD ($) $ in Millions |
3 Months Ended | |
---|---|---|
Mar. 31, 2021 |
Mar. 31, 2020 |
|
Defined Benefit Pension Plan | ||
Defined Benefit Plan Disclosure [Line Items] | ||
Contributions made by the Company | $ 4 | $ 9 |
Stock-Based Compensation - Weighted-Average Fair Value Assumptions (Details) - Stock Options |
3 Months Ended |
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Mar. 31, 2021
CAD ($)
$ / shares
| |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Expected option life (years) | 4 years 9 months |
Risk-free interest rate | 0.53% |
Expected stock price volatility | 27.14% |
Expected annual dividends per share | $ | $ 3.80 |
Expected forfeiture rate | 2.60% |
Weighted-average grant date fair value per option granted during the period | $ / shares | $ 95.16 |
Contingencies - Environmental Liabilities (Details) - CAD ($) $ in Millions |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2021 |
Mar. 31, 2020 |
Dec. 31, 2020 |
|
Site Contingency [Line Items] | |||
Total amount provided for provisions for environmental remediation costs | $ 81 | $ 80 | |
Term for expected payments to be made | 10 years | ||
Purchased services and other | |||
Site Contingency [Line Items] | |||
Environmental remediation expense | $ 2 | $ 1 |
Subsequent Event (Details) |
3 Months Ended |
---|---|
Mar. 31, 2021 | |
Subsequent Events [Abstract] | |
Share split ratio | five-for-one |
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