AMENDMENT NO. 1
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 |
2019
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Canada | 98-0355078 | ||
(State or Other Jurisdiction of Incorporation or Organization) | (IRS Employer Identification No.) | ||
7550 Ogden Dale Road S.E. | |||
Calgary | AB | T2C 4X9 | |
(Address of Principal Executive Offices) | (Zip Code) |
Title of | Trading Symbol(s) | Name of | ||||||
Common Shares, without par value, of Canadian Pacific Railway Limited | CP | New York Stock Exchange | ||||||
Toronto Stock Exchange | ||||||||
Perpetual 4% Consolidated Debenture Stock of Canadian Pacific Railway Company | CP/40 | New York Stock Exchange | ||||||
BC87 | London Stock Exchange |
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of RegulationS-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form10-K or any amendment to this Form10-K. ☐
Large accelerated filer | þ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | ||||
Smaller reporting company | ☐ | ||||||||
Emerging growth company | ☐ |
The Company filed its Annual Report on Form10-K for the fiscal year ended December 31, 2017 (“2017 Form10-K”) on February 16, 2018. In Accordingly, in reliance upon and as permitted by Instruction G(3) to Form10-K, the Company iswill be filing an amendment to this Amendment No. 1 on Form10-K/A in order to include in the 2017 Form10-K containing the Part III information not previously included in the 2017 Form10-K.
No attempt has been made in this Amendment No. 1 on Form10-K/A to modify or update the other disclosures presented in the 2017 Form10-K. This Amendment No. 1 on Form10-K/A does not reflect events occurringno later than 120 days after the filingend of the 2017fiscal year covered by this Form10-K. Accordingly, this Amendment No. 1 onForm 10-K/A should be read in conjunction with the 2017 Form10-K and the Company’s other filings with the SEC.
In this Amendment No. 1 on Form10-K/A, we also refer to Canadian Pacific Railway Limited as “Canadian Pacific,” “we,” “us,” “our,” “our corporation,” or “the corporation.” References to “GAAP” mean generally accepted accounting principles in the United States.
All references to our websites and to our Canadian management proxy circular filed with the SEC on March 16, 2018 as Exhibit 99.1 to our Current Report on Form 8-K (the “Circular”) contained herein do not constitute incorporation by reference of information contained on such websites and the Circular and such information should not be considered part of this document.
PART I | ||||
Item 1. | Business | |||
Item 1A. | Risk Factors | |||
Item 1B. | Unresolved Staff Comments | |||
Item 2. | Properties | |||
Item 3. | Legal Proceedings | |||
Item 4. | Mine Safety Disclosures | |||
Information about our Executive Officers | ||||
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Item 5. | Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities | |||
Item 6. | Selected Financial Data | |||
Item 7. | Management's Discussion and Analysis of Financial Condition and Results of Operations | |||
Item 7A. | Quantitative and Qualitative Disclosures About Market Risk | |||
Item 8. | Financial Statements and Supplementary Data | |||
Item 9. | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure | |||
Item 9A. | Controls and Procedures | |||
Item 9B. | Other Information | |||
PART III | ||||
Item 10. | Directors, Executive Officers and Corporate Governance | |||
Item | Executive Compensation | |||
Item | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | |||
Item | Certain Relationships and Related Transactions, and Director Independence | |||
Item | Principal Accounting Fees and Services | |||
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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors
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Chairman of the Board since July 20, 2015. Brings extensive experience in executive management, law, corporate governance and the rail industry
BUSINESS EXPERIENCE
PUBLIC COMPANY BOARD EXPERIENCE
OTHER EXPERIENCE
Other Boards
Other experience
EDUCATION
SHARE OWNERSHIP
Shares: 4,031
DDSUs: 10,463
Options: 0
Meets share ownership requirements
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Brings senior level executive experience in public policy and regulatory affairs, especially in transport, environment andCanada-U.S. relations
BUSINESS EXPERIENCE
PUBLIC COMPANY BOARD EXPERIENCE
OTHER EXPERIENCE
Other Boards
Other experience
EDUCATION
SHARE OWNERSHIP
Shares: 0
DDSUs: 3,239
Options: 0
Has until May 2020 to meet the share ownership requirements
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Brings significant executive level management experience including financial and legal expertise
BUSINESS EXPERIENCE
PUBLIC COMPANY BOARD EXPERIENCE
OTHER EXPERIENCE
Other Boards
EDUCATION
SHARE OWNERSHIP
Shares: 900
DDSUs: 6,292
Options: 0
Meets share ownership requirements
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President and Chief Executive Officer of CP since January 31, 2017. Brings extensive railroad operating experience and expertise in executive management and marketing and sales
BUSINESS EXPERIENCE
OTHER EXPERIENCE
Other Boards
Other experience
EDUCATION
SHARE OWNERSHIP
Shares: 2,411
DSUs*: 31,218
Options*: 579,546
Meets executive share ownership requirements (see page 31)
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Brings significant experience in finance, corporate governance, human resources and executive management
BUSINESS EXPERIENCE
PUBLIC COMPANY BOARD EXPERIENCE
OTHER EXPERIENCE
Other Boards
EDUCATION
SHARE OWNERSHIP
Shares: 0
DDSUs: 1,509
Options: 0
Has until September 2021 to meet the share ownership requirements
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Brings extensive executive management, marketing, sales and corporate governance experience
BUSINESS EXPERIENCE
PUBLIC COMPANY BOARD EXPERIENCE
OTHER EXPERIENCE
Other Boards
Other experience
EDUCATION
SHARE OWNERSHIP
Shares: 0
DDSUs: 9,187
Options: 0
Meets share ownership requirements
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Brings significant expertise in financial markets, corporate finance, accounting and controls, and investor relations and extensive experience in international operations and marketing
BUSINESS EXPERIENCE
PUBLIC COMPANY BOARD EXPERIENCE
OTHER EXPERIENCE
Other Boards
EDUCATION
SHARE OWNERSHIP
Shares: 1,000
DDSUs: 3,350
Options: 0
Has until January 2021 to meet the share ownership requirements
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Brings significant Board and senior management experience and extensive knowledge and training in finance, accounting and corporate governance
BUSINESS EXPERIENCE
PUBLIC COMPANY BOARD EXPERIENCE
OTHER EXPERIENCE
Other Boards
EDUCATION
SHARE OWNERSHIP
Shares: 0
DDSUs: 1,275
Options: 0
Has until January 2021 to meet the share ownership requirements
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Brings extensive experience in the rail industry including executive positions in rail operations, sales and marketing and risk management
BUSINESS EXPERIENCE
OTHER EXPERIENCE
Other Boards
EDUCATION
SHARE OWNERSHIP
Shares: 0
DDSUs: 1,451
Options: 0
Has until January 2022 to meet the share ownership requirements
Notes:
Other than as disclosed below, none of the nominated directors is, or has been in the last 10 years:
Ms. Denham served as a director of Penn West Petroleum from June 2012 to June 2016, which was subject to cease trade orders on its securities following the July 2014 announcement of the review of it accounting practices and restatement of its financial statements. Those cease trade orders ended on September 23, 2014.
Ms. Peverett was a director of Postmedia Network Canada Corp. (Postmedia) from April 2013 to January 2016. On October 5, 2016, Postmedia completed a recapitalization transaction under a court-approved plan of arrangement under the Canada Business Corporations Act. Approximately US$268.6 million of debt was exchanged for shares that represented approximately 98% of the outstanding shares at that time. Postmedia repaid, extended and amended the terms of its outstanding debt obligations.
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Executive Officers
The information regarding executive officers is included in Part I of our 2017 Form 10-K under Executive Officers of the Registrant, following Item 4. Mine Safety Disclosures
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act required our directors and executive officers, and any certain persons owning more than 10% of our common shares, to file certain reports of ownership and changes in ownership with the SEC. As of June 30, 2017, Section 16(a) of the Exchange Act no longer applied to us because we qualified as a foreign private issuer under U.S. securities laws. Based solely on our review of the copies of Forms 3, 4 and 5 filed between January 1, 2017 and June 30, 2017, we believe that all reports required to be filed under Section 16(a) were made on a timely basis with respect to transactions that occurred during such period.
Code of Business Ethics
Our code of business ethics sets out our expectations for conduct. It covers confidentiality, protecting our assets, avoiding conflicts of interest, fair dealing with third parties, compliance with laws, rules and regulations, as well as reporting any illegal or unethical behaviour, among other things. The code applies to everyone at CP and our subsidiaries: directors, officers, employees (unionized andnon-unionized) and contractors who do work for us.
Directors, officers andnon-union employees must sign an acknowledgement every year that they have read, understood and agree to comply with the code. Directors must also confirm annually that they have complied with the code. The code is part of the terms and conditions of employment fornon-union employees, and contractors must agree to follow principles of standards of business conduct consistent with those set out in our code as part of the terms of engagement.
We also have a supplemental code of ethics for the CEO and senior financial officers (the CFO and the Controller) which sets out our longstanding principles of conduct for these senior roles.
A copy of the code (and any amendments) is posted on our website (www.cpr.ca). Only the Board or Governance Committee (audit committee in the case of the CEO and senior financial officers) can waive an aspect of the code. Any waivers are posted on our website. None were granted in 2017.
Corporate Governance
As a U.S. and Canadian listed company, our corporate governance practices comply with or exceed the requirements of the Canadian Securities Administrators (CSA) National Policy58-201 Effective Corporate Governance and the Toronto Stock Exchange (TSX), Item 407 of RegulationS-K of the SEC and the corporate governance guidelines of the New York Stock Exchange (NYSE). If significant corporate governance differences between CP’s governance practices and Item 303A of the NYSE arise, they will be disclosed on our website at investor.cpr.ca/governance.
CP’s audit committee has been established in accordance with Section 3(a)(58)(A) the Exchange Act and NYSE standards and CSA National Instrument52-110. The current members of the audit committee are Jane Peverett (chair), Jill Denham and Andrew Reardon, all of whom are independent. All members of the audit committee are “financially literate” as required by the NYSE and CSA. Ms. Peverett and Mr. Reardon have been determined to meet the audit committee financial expert criteria prescribed by the SEC.
ITEM 11. EXECUTIVE COMPENSATION
As a foreign private issuer in the United States, we are deemed to comply with this Item if we provide information required by Items 6.B and 6.E.2 of Form20-F, with more detailed information provided if otherwise made publicly available or required to be disclosed in Canada. We have provided information required by Items 6.B and 6.E.2 of Form20-F in our management proxy circular related to the Meeting (the “proxy circular”) and have filed it through the Canadian System for Electronic Document Analysis and Retrieval (“SEDAR”), the Canadian equivalent of the SEC’s Next-Generation EDGAR system, at www.sedar.com. In addition, our proxy circular has been furnished to the SEC on Form8-K. As a foreign private issuer in the U.S., we are not required to disclose executive compensation according to the requirements of RegulationS-K that apply to U.S. domestic
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issuers, and we are otherwise not required to adhere to the U.S. requirements relative to certain other proxy disclosures and requirements. Our executive compensation disclosure complies with Canadian requirements, which are, in most respects, substantially similar to the U.S. rules. We generally attempt to comply with the spirit of the U.S. proxy rules when possible and to the extent that they do not conflict, in whole or in part, with required Canadian corporate or securities requirements or disclosure.
All dollar amounts included in this Item 11 are in Canadian dollars, unless otherwise expressly stated to be in U.S. dollars.
EXECUTIVE COMPENSATION
Our executive compensation program is designed to pay for performance, and to align management’s interests with our business strategy and the interests of our shareholders.
The next section describes our compensation program and explains the 2017 compensation decisions for our named executives:
Compensation Committee Report
The management resources and compensation committee has reviewed and discussed the Compensation Discussion and Analysis with management. Based on its review and on the discussion described above, on February 14, 2018, the Compensation Committee recommended to the full Board that the Compensation Discussion and Analysis be included in the Circular and this Annual Report on Form 10-K/A.
Compensation Committee
Isabelle Courville (Chair)
John Baird
Rebecca MacDonald
Matthew Paull
Andrew Reardon
Gordon Trafton
Where to find it
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COMPENSATION DISCUSSION AND ANALYSIS
Our approach to executive compensation
We believe in the importance of paying for performance and aligning management’s interests with those of our shareholders.
Our executive compensation program supports our railroad-focused culture, is closely linked to the critical metrics that drive the achievement of our strategic plan without taking on undue risk, and is designed to create long-term sustainable value for our shareholders.
We have five key performance drivers designed to focus us on our goal of being the best railroad company in North America:
We implemented several changes to our compensation program in 2017, as disclosed in last year’s proxy circular. These changes were the result of an extensive shareholder engagement program and an extensive review of executive compensation by the Compensation Committee, the Board and our human resources group. You can read about the program changes starting on page 15, and in the letter of the Compensation Committee chair beginning on page 5 of the Circular.
We received a 71.11% votefor our 2017 advisory vote on executive compensation, compared to 49.9% in 2016. The Compensation Committee continues to focus on making sure our compensation program pays for performance, reflects sound principles, supports long-term sustainable value, is clear and transparent and aligns with shareholder interests.
Compensation mix
Attracting and retaining high calibre executives is key to our long-term success.
We believe strong performance should yield significant rewards. Our executive compensation includes fixed and variable(at-risk) pay and the proportion ofat-risk pay increases by level. Executives earn more if we perform well, and less when performance is not as strong. A significant portion of executive pay is tied to the value of our shares, aligning with shareholder interests. We require our executives to own CP equity and our share ownership guidelines increase by executive level (see page 10).
Variable cash compensation is more focused on corporate results for executives (75% of target) than for other employees (50% of target) who have more emphasis placed on individual and departmental goals.
This supports our view that the short-term incentive plan should be tied to overall corporate performance and the areas of our business that each employee influences directly.
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The table below shows the pay mix for our current named executives based on their total target compensation.
Benchmarking
We benchmark the compensation for our named executives against a peer group of companies that consists of BNSF Railway, CN, CSX Corporation, Kansas City Southern Railroad, Norfolk Southern Corporation and Union Pacific Corporation.
These companies are the Class 1 railroads, the North American railroad companies that we compete with for executive talent. Benchmarking against this peer group ensures that each component of our compensation program is competitive and in line with our strongest competitors, so we can attract and retain experienced railroad executives with highly specialized skills. We reviewed the peer group in 2017 to make sure it is still a relevant and appropriate benchmark in the context of our growth strategy and operations and do not plan to make changes to the comparator group for 2018.
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Compensation pays out over time
Variable pay includes short and long-term incentive awards to drive annual and longer-term performance and align with shareholder interests.
Incentive awards are cash and equity-based. Equity-based awards vest at the end of three years for performance share units and over four years for stock options. Stock options expire at the end of seven years.
The Compensation Committee ensures the performance objectives for the incentive plans align directly with our strategic plan, which is reviewed and approved by the Board.
Executives are CP shareholders
We require executives and senior management employees to own equity in the company so they have a stake in our future success. Share ownership requirements are set as a multiple of base salary and increase by level. Executives must satisfy the requirement within five years of being appointed to their position and can meet the requirements by holding common shares or deferred share units (DSUs). The CEO must maintain the ownership level of six times his base salary for one year after he retires or leaves CP.
DSUs are redeemed for cash no earlier than six months after the executive retires or leaves the company or until the end of the following calendar year for Canadian executives. Payment to U.S. executives who participate in the DSU plan is made after thesix-month waiting period to be in compliance with U.S. tax regulations.
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The table below shows the ownership requirement by level, which applied to approximately 77 executives and senior management employees in 2017.
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We use the acquisition value or our closing share price on the last trading day of the year (whichever is higher) to value the holdings.
Mr. Creel, Mr. Velani, Mr. Johnson, Mr. Pitz and Mr. Ellis are expected to meet their requirement within the five-year period following their appointment. We used our closing share price on December 29, 2017 to value their share ownership: $229.66 for the TSX or US$182.76 on the NYSE, depending on whether the executive is paid in Canadian or U.S. dollars. You can read about each executive’s share ownership in the profiles beginning on page 27.
Disciplined decision-making process
Executive compensation decisions involve management, the Compensation Committee and the Board. The Compensation Committee also receives advice and support from an external consultant from time to time.
The Board has final approval on all matters relating to executive compensation. It can also use its discretion to adjust pay decisions as appropriate.
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Qualified and experienced Compensation Committee
Compensation Committee Interlocks and Insider Participation
The Compensation Committee is responsible for our compensation philosophy and strategy, and for program design. The Compensation Committee consists of six independent directors.
The Compensation Committee has the relevant skills, background and experience for carrying out its duties. The table below shows the key skills and experience of each member:
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| PART IV | |||||||||||||||||||||||
Item 15. | Exhibits, Financial Statement Schedule | |||||||||||||||||||||||
Item 16. | Form 10-K Summary | |||||||||||||||||||||||
Signatures |
Compensation Committee members also have specific human resources
The Compensation Committee has no interlocks or insider participation. Noneowns all of the members were employedCommon Shares of Canadian Pacific Railway Company (“CPRC”), which was incorporated in 1881 by or had any relationship with CP during 2017 requiring disclosure under Item 404 or Item 407(e)(4) of RegulationS-KLetters Patent pursuant to an Act of the Parliament of Canada. CPRL's registered, executive and corporate head office is located at 7550 Ogden Dale Road S.E., Calgary, Alberta T2C 4X9. CPRL's Common Shares (the "Common Shares") are listed on the Toronto Stock Exchange Act. You can read about(“TSX”) and the backgroundNew York Stock Exchange (“NYSE”) under the symbol “CP”.
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Independent advice
The Compensation Committee and management retain separate independent executive compensation advisors to avoid any conflicts of interest:
Provide Service:Providing efficient and consistent transportation solutions for
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The next table shows the fees paid to Meridian and Willis Towers Watson in 2016 and 2017. Fees paid to Meridian in 2017 reflect work conducted early in the year, prior to ending the engagement. Any fees paid to Kingsdale for executive compensation services in 2017 were part of the overall retainer described on page 13 of the Circular.
2017 | 2016 | |||||||||||||||||||
Meridian | Willis Towers Watson | Meridian | Willis Towers Watson | |||||||||||||||||
Executive compensation-related fees | $ | 50,751 | $ | 78,923 | $ | 170,267 | $ | 59,264 | ||||||||||||
Other fees | - | $ | 1,975,629 | - | $ | 2,215,142 | ||||||||||||||
Total fees | $ | 50,751 | $ | 2,054,552 | $ | 170,267 | $ | 2,274,406 |
Fees paid
In 2016, $170,267 was paid to Meridian for executive compensation advisory fees provided to the Compensation Committee. This is 100% of the total fees paid to Meridian in 2016. In 2017, $50,751 was paid to Meridian for executive compensation advisory fees. This is 100% of the total fees paid to Meridian in 2017.
In 2017, $78,923 was paid to Willis Towers Watson for executive compensation advisory fees provided to management. The total executive compensation fees represent 4% of the $2,054,552 paid in total to Willis Towers Watson for all services provided to management including actuarial, pension and benefits consulting, corporate risk and insurance broking services.
Compensation risk
Effective risk management is integral to achieving our business strategies and to our long-term success.
The Board believes that our executive compensation program should not increase our risk profile. The Compensation Committee is responsible for overseeing compensation risk. It reviews the executive compensation program, incentive plan design and our policies and practices to make sure they encourage the right decisions and actions to reward performance and align with shareholder interests.
Incentive plan targets are linked to our corporate objectives and our corporate risk profile. The Compensation Committee believes that our approach to goal setting, establishing performance measures and targets and evaluating performance results helps mitigate risk-taking that could reward poor judgment by executives or have a negative effect on shareholder value.
All of the Compensation Committee members other than Mr. Paull are also a member of the Governance Committee. Mr. Reardon and Mr. Paull are also members of the finance committee and Mr. Reardon is a member of the audit committee. This cross-membership strengthens risk oversight because it gives the directors a broader perspective of risk oversight and a deeper understanding of our enterprise risks.
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Regular risk review
The Compensation Committee conducts a comprehensive compensation risk review every two years to make sure that we have identified the compensation risks and have appropriate measures in place to mitigate those risks. An independent consultant assists the Compensation Committee with the review, which includes looking at:
The last review was completed at the end of 2016 in conjunction with all the changes that were being proposed to the 2017 compensation plans. Based on the findings of the review, the Compensation Committee concluded that our compensation program, policies and practices are not reasonably likely to have an adverse effect on our business or the company overall.
Managing compensation risk
We mitigate risk in three ways:
Control Costs:Controlling and
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Key policies
In addition to CP’s code of business ethics, a number of other policies act to mitigate compensation risk. You can read more about ethical behaviour at CP and our code of business ethics and other policies beginning on page 5 of this Annual Report on Form 10-K/A and page 84 of the Circular.
Clawbacks
Our clawback policy allows the Board to recoup short and long-term incentive compensation paid to a current or former senior executive if:
The Board has sole discretion to determine whether it is in our best interests to pursue reimbursement of all or part of the incentive compensation and these actions would be separate from any actions by law enforcement agencies, regulators or other authorities.
Anti-hedging
Our disclosure and insider trading and reporting policy prohibits directors, executive officers and employees from buying financial instruments that are designed to hedge or offset a decrease in the market value of equity awards or CP shares they hold directly or indirectly.
Anti-pledging
Our anti-pledging policy prohibits directors and executive officers from holding any CP securities in a margin account or otherwise pledging the securities as collateral for a loan.
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Total direct compensation consists of salary, an annual short-term incentive and a long-term incentive award that focus executives on driving strong financial, operational and customer satisfaction results and building shareholder value. Executives also receive pension benefits and perquisites as part of their overall compensation.
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Optimize Assets:Through longer and
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Salary
Salaries are set every year based on the executive’s performance, leadership abilities, responsibilities and experience as well as succession and retention considerations. The Compensation Committee also considers the economic outlook and the median salary and practices of the comparator group before making its decisions.
The table below shows the annual salaries the named executives were paid as at December 31, 2017.
2017 | % change from 2016 | |||||
Keith Creel | US$1,125,000 | 17.6% | ||||
Nadeem Velani | $460,000 | 10.8% | ||||
Robert Johnson | US$435,000 | 0% | ||||
Laird Pitz | US$366,000 | 4.6% | ||||
Jeff Ellis | $445,000 | 0% |
Mr. Creel received a 17.6% increase when he became CEO on January 31, 2017. Mr. Velani received a step increase to bring his salary closer to the market median as a result of his appointment as Executive Vice-President and CFO. Mr. Pitz received an increase in 2017 when he was promoted to Senior Vice-President and Chief Risk Officer.
Short-term incentive plan
The short-term incentive award is an annual incentive that focuses executives on achieving strong financial, safety and operational results.
Operate Safely:Each year, CP safely moves millions of carloads of freight across North America while ensuring the |
Develop People:CP recognizes that none of the other foundations can be achieved without its people. Every CP employee is
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We use financial andnon-financial measures to assess corporate performance. Individual performance is assessed against individual performance objectives for the year and otherpre-determined goals that reflect the strategic and operational priorities critical to each executive’s role.
Corporate and individual performance factors are at capped at 200% to limit payouts and avoid excessive risk-taking.
An employee’s payout on the individual componentCentral Maine & Québec Railway Canada Inc. ("CMQ Canada") (together CMQ). The acquisition of the STIP may be zero or range from 50% to 200%. Any award payable under the individual componentshares of CMQ U.S. is subject to review and approval by the U.S. Surface Transportation Board
Actual STIP awards are also capped as a percentage of base salary, as shownCompany experienced severe winter operating conditions and an increase in the table to the right.
Assessing corporate performance
Last year we announced a numberfrequency and severity of changes to the measures for 2017 to reflect CP’s transition to focus on sustainable growth.
Payout as a % of base salary | ||||||||||||||||
Level | Below hurdle | Minimum | Target | Maximum | ||||||||||||
CEO | 0 | % | 60 | % | 120 | % | 240 | % | ||||||||
Other named executives | 0 | % | 30-37.5 | % | 60-75 | % | 120-150 | % |
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Corporate performance
The table below shows the 2017 scorecardcasualty incidents and results. The targets were set with adequate stretch to motivate strong performance.
The Board sets a corporate hurdle for operating income. There is no payout if we do not achieve that corporate hurdle. If we achieve the hurdle but corporate performance is below threshold for all measures, then only the individual performance factor is used to calculate the awards. Corporate results between 50% and 200% of target are interpolated. For 2017, the operating income hurdle was set at $2 billion.
Performance measure | Why it’s important | Threshold (50%) | Target (100%) | Exceptional (200%) | 2017 reported result | 2017 STIP result | Weighting | Score | ||||||||||||||||||||||
Financial measures | ||||||||||||||||||||||||||||||
STIP Operating ratio Operating expenses divided by total revenues based on an assumed fuel price and foreign exchange rate | Continues our focus on driving down costs while focusing on growth strategy | 57.50 | % | 57.25 | % | 56.75 | % | 57.4 | % | adj. 57.1 | % | | 40% (new) (reduced | | 137 | % | ||||||||||||||
STIP Operating income ($ millions) Total revenues less total operating expenses based on an assumed foreign exchange rate | Highlights the importance of revenue growth to our corporate strategy | 2,705 | 2,745 | 2,865 | 2,793 | | adj. 2,816 | | | 40%(new) (increased | | 159 | % | |||||||||||||||||
Safety measure(new) | ||||||||||||||||||||||||||||||
Federal Railroad Administration’s (FRA) frequency of train accidents per million train miles relative to Class 1 railroads | Safety is our top priority, and the measure pays out at maximum only if we achieve the stretch target and remain the best in the industry
Introducing this measure recognizes the feedback we received from shareholders who asked for safety to be explicitly included as a performance measure | 1.30 | 1.19 | 1.15 | 0.99 | 0.99 | 10% | 200 | % | |||||||||||||||||||||
Operating measure(new) | ||||||||||||||||||||||||||||||
Train speed measures the time and movement of trains in miles per hour from origin to destination It is a key component oftrip plan compliance and critical to the service we provide customers and to our growth strategy. Trip plan compliance, as a stand-alone measure, is a relatively new measure at CP. In 2018, now that we have built up enough historical data, we plan to use it as an operating performance measure for STIP rewards. | Train speed reflects our operating performance and is a key measure for improved asset utilization and delivery times, leading to an enhanced customer experience
Introducing this measure incorporates feedback from shareholders and provides a more balanced scorecard of performance criteria | 23.7 | 24.0 | 24.6 | 23.4 | 23.4 | 10% | 0 | % | |||||||||||||||||||||
Corporate performance factor | 138 | % |
Notes:
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CP delivered record financial performance in 2017. A growing top line coupled with disciplined cost control measures produced record operating income and adjusted earnings for the company. The reported operating ratio came in at 57.4% and reported operating income was $2,793 million – both areall-time bests for the company. From a safety perspective, CP’s personal injury rate improved one percent and our train accident frequency led the industry in this key safety metric. In 2017, CP continued to invest significantly in the capital program with an overall investment of $1.34 billion during 2017 while at the same time maintaining its strong commitment to shareholders by returning $691 million through share buybacks and dividends.
The Compensation Committee may adjust the results for unusual ornon-recurring items that are outside our normal business and do not accurately reflect our ongoing operating results or business trends and affect the comparability of our financial performance year over year. Results under the short-term incentive plan may therefore differ from our reported GAAP results. Significant items that were adjusted so that they do not impact, either favourably or unfavourably, the assumptions made when the STIP targets were planned include: a management transition recovery related to the retirement of Hunter Harrison as CEO; foreign exchange; fuel price; and land sales, all of which were adjusted to reflect assumptions made in our 2017 budget in order to incent good business decisions, made at the right time, to receive the best return.
Assessing individual performance
Executives set individual performance objectives before the start of every financial year.
The individual performance factor is based on the executive’s performance against those objectives and otherpre-defined quantitative and qualitative goals that reflect the strategic and operational priorities critical to each executive’s role, including operational management, safety, financial and other objectives.
Each objective has a minimum, target and maximum. The individual performance factor ranges from 0% to 200%.
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See the profiles beginning on page 27 to read about each executive’s individual performance in 2017.
Compensation Committee Discretion
The Compensation Committee has developed principles for the use of discretion. Adjustments should not relieve management from the consequences of their decision-making. Adjustments should also neither reward nor penalize management for decisions on discretionary transactions, events outside their control (such as foreign exchange rates and fuel prices that are beyond the assumptions used in the planning process) or transactions outside normal corporate planning and budgeting.
derailments. As a result, the Compensation Committee can reduce the corporate performance factor for any executive officer as it deems appropriate, as long as it follows the principles. The Board can also use its discretionCompany incurred significant costs to adjust the targets and payouts up or down, following the principles set out by the Compensation Committee.
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Long-term incentive plan
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Stock options are usually granted in January immediately after the fourth quarter financial statement blackout period ends, while performance share units (PSUs) are awarded in February after the Compensation Committee has reviewed theyear-end financial results in detail.
At the CEO’s recommendation, the Board may eliminate or adjust an executive’s actual grant (but may not increase a grant more than 25% above an executive’s target). In determining adjustments, the Compensation Committee considers the competitive positioning of each individual’s compensation, among other factors.
The Board does not take into consideration the amount or terms of previous awards when making grants because:
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Grants are also made for special situations like retention or new hires. Special grants can include PSUs, RSUs, DSUs or options. These grants are made on the first Tuesday of the month following approval. If we are in a blackout period, the grant is made after the blackout has been lifted.
2017 long-term incentive awards
To determine the appropriate value of long-term incentive grants provided to the named executives, the Compensation Committee considers the practices of our comparator group and external market datamanage severe weather conditions, as well as internal factors including executive retention, dilutive impactdirect casualty costs, and long-term value creation. The CEO did not recommend any adjustments to the 2017 awards.
The table below shows the 2017 long-term incentives awarded to the named executives.
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incentive | > | Allocation | ||||||||||||||||||||||||||
award | Performance share units | Stock options | ||||||||||||||||||||||||||
(grant value) | $ | # | $ | # | ||||||||||||||||||||||||
Keith Creel | 14,924,418 | 4,407,788 | 22,294 | 10,516,630 | 229,871 | |||||||||||||||||||||||
Nadeem Velani | 985,045 | 782,395 | 3,903 | 202,650 | 4,644 | |||||||||||||||||||||||
Robert Johnson | 1,514,778 | 958,705 | 4,849 | 556,073 | 11,557 | |||||||||||||||||||||||
Laird Pitz | 622,931 | 394,237 | 1,994 | 228,694 | 4,753 | |||||||||||||||||||||||
Jeffrey Ellis | 604,199 | 386,888 | 1,930 | 217,311 | 4,980 |
Notes:
As disclosed in last year’s proxy, when Mr. Creel became CEO on January 31, 2017, he received a special grant of performance stock options, designed to motivate strong CEO performance, build his equity ownership and retain him during ahigher operating costs. During this period of significant change in the railroad industry. To make the upfront grant, the Compensation Committee reduced Mr. Creel’s target long-term incentive award to 400% of salary for the next five years (from the market median of 500% among the Class 1 railroads), and used the difference (5 years x 100%) to make the award, which was allocated 100% to performance stock options (see page 23 for details about the vesting and performance conditions).
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Performance share units (PSUs)
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PSUs earn additional units as dividend equivalents at the same rate as dividends paid on our common shares.
The award is paid out in cash based on the number of units that are earned and the average closing share price forsubsequent network recovery the 30 trading days prior to the endCompany also experienced losses and deferrals of the performance period on the TSX or NYSE, as applicable. The award may be paid outpotential revenues.
2017 PSU awards
The performance period for the 2017 PSU awards is January 1, 2017 to December 31, 2019. Performance will be assessed against the measures in the table below. Awards will be prorated if results fall between threshold and exceptional.
2017 PSU performance measures | Why the measure is important | Threshold (50%) | Target (100%) | Exceptional (200%) | Weighting | |||||||||||||
PSU three-year average return on invested capital (ROIC) Net operating profit after tax divided by average invested capital | Focuses executives on the effective use of capital as we grow. Ensures shareholders’ capital is employed in a value-accretive manner | 14.5% | 15% | 15.5% | | 60% (new) (increased | | |||||||||||
Total shareholder return Measured over three years. The percentile ranking of CP’s CAGR relative to the companies that make up the S&P TSX Capped Industrial Index | Compares our TSR to a broad range of Canadian investment alternatives Aligns long-term incentive compensation with long-term shareholder interests
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Total shareholder return Measured over three years. The percentile ranking of CP’s CAGR relative to the companies that make up the S&P 1500 Road and Rail Index | Compares our TSR to the companies that make up the S&P 1500 Road and Rail Index, a broad range of transportation peers, rather than the narrow group of publicly traded Class 1 peers making the payout less volatile and more consistent with the broader industry
Aligns long-term incentive compensation with long-term shareholder interests | | 25th percentile |
| | 50th percentile |
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Executive Officers
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Stock options
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Grant value ($) | # of options | Grant price | ||||||||||
Keith Creel | 1,630,352 | 33,884 | US$150.99 (NYSE) | |||||||||
896,816 | 18,762 | US$151.14 (NYSE) | ||||||||||
Nadeem Velani | 202,650 | 4,644 | $201.49 (TSX) | |||||||||
Robert Johnson | 556,073 | 11,557 | US$150.99 (NYSE) | |||||||||
Laird Pitz | 228,694 | 4,753 | US$150.99 (NYSE) | |||||||||
Jeffrey Ellis | 217,311 | 4,980 | $201.49 (TSX) |
The grant value of the stock option awards based on the NYSE trading price have been converted to Canadian dollars using a 2017 average exchange rate of $1.2986.
As disclosed in last year’s proxy, when Mr. Creel became CEO on January 31, 2017, he received a special grant of performance stock options, designed to motivate strong CEO performance, build his equity ownership and retain him during a period of significant change in the railroad industry (see below and the details on page 29). Mr. Creel also received an annual option award of $1,630,352 that was granted on January 20, 2017, and his grant of $896,816 on February 1, 2017 reflects the additional options he received to bring him to the CEO level of 400% of salary. See summary compensation table on page 41 for more information.
We calculated the number of options to be granted to each executive by dividing the grant value by the theoretical value of an option (using the Willis Towers Watson binomial option pricing methodology), applied to our 30-day average closing share price on the TSX or the NYSE prior to the day of the grant.
CEO performance stock options
Mr. Creel’s performance stock options cliff vest on February 1, 2022 (five years from the grant date) based on our five-year total shareholder return relative to two equally weighted measures:
Performance will be assessed over a five-year period. The starting point for determining relative TSR will be the10-day trading average of the closing price of CP shares and the two indices prior to February 1, 2017 and the closing point will be the10-day trading average of the closing price of CP shares and the two indices prior to January 31, 2022. The options expire on February 1, 2024. The table below shows the details of the special, upfront grant of performance stock options.
Grant value ($) | # of options | Exercise price | ||||||||||
Keith Creel | 7,989,462 | 177,225 | US$151.14 (NYSE) | The performance stock options expire after seven years. |
The grant value of the performance stock options is based on our shares traded on the NYSE and have been converted to Canadian dollars using a 2017 average exchange rate of $1.2986.
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About the stock option plan
The management stock option incentive plan (stock option plan) was introduced in October 2001.
Regular stock options granted before 2017 expire 10 years from the date of grant and generally vest 25% each year over four years, beginning on the anniversary of the grant date.
Stock options awarded January 1, 2017 and later have a seven-year term (reduced from 10 years). If the expiry date falls within a blackout period, the expiry date will be extended to 10 business days after the end of the blackout period date. If a further blackout period is imposed before the end of the extension, the term will be extended another 10 days after the end of the additional blackout period.
The table below sets out the limits for issuing options under the plan:
2019 Freight Revenues |
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We measuredilution by determining
The option grant price is the last closing market price of shares on the grant date on the TSX or the NYSE (for grants after December 15, 2014 depending on the currencyCompany’s total Freight revenues derived from each of the grant).
The table below shows theburn ratefor the last three fiscal years, calculated by dividing the number of stock options grantedmajor business lines in the fiscal year by the weighted average number of outstanding shares for the year.
(as at December 31) | 2015 | 2016 | 2017 | |||||||||
Number of options granted | 317,202 | 403,740 | 396,980 | |||||||||
Weighted number of shares outstanding | 159,733,222 | 149,565,498 | 145,863,318 | |||||||||
Burn rate | 0.20% | 0.27% | 0.25% |
The table below shows the options outstanding2019, 2018 and available for grant as at December 31, 2017.
Number of options/shares | Percentage of outstanding shares | |||||||
Options outstanding (as at December 31, 2017) | 1,361,950 | 0.94 | ||||||
Options available to grant (as at December 31, 2017) | 1,555,922 | 1.07 | ||||||
Shares issued on exercise of options in 2017 | 319,403 | 0.22 | ||||||
Options granted in 2017 | 369,980 | 0.26 |
Since the launch of the management stock option incentive plan in October 2001, a total of 18,078,642 shares have been available for issuance under the plan and 15,160,770 shares have been issued through the exercise of options.
A stand-alone option award was granted to Mr. Creel in 2013, as disclosed in prior proxy circulars. The award was not granted under the management stock option incentive plan.
We do not provide financial assistance to option holders to facilitate the purchase of shares under the plan.
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Other things to know
There is a double trigger on options so that if there is a change of control and only if an option holder is terminated without cause, all of his or her stock options will vest immediately according to the change in control provisions in the stock option plan.
If an employee retires, the options continue to vest and expire on the original expiry date or five years from retirement, whichever is earlier.
If an employee is terminated without cause, the employee has six months to exercise any vested options. If the employee resigns, the employee has 30 days to exercise any vested options. If an employee is terminated with cause all options are cancelled.
Options will continue to vest and expire on its normal expiry date if the holder’s employment ends due to permanent disability.
If an option holder dies, the options will expire 12 months following his death and may be exercised by the holder’s estate. Options can only be assigned to the holder’s family trust, personal holding corporation or retirement trust, or a legal representative of an option holder’s estate or a person who acquires the option holder’s rights by bequest or inheritance.
The CEO, the Chairman of the Board and the Compensation Committee chair have authority to grant options to certain employees based on defined parameters, such as the position of the employee and the expected value of the option award:
The Compensation Committee has again approved 50,000 options that the CEO may allocate at his discretion in 2018.
Making changes to the plan
The Board can make the following changes to the plan without shareholder approval:
The Board must receive shareholder approval to make other changes, including the following, among other things:
The Board has made two amendments to the plan since it was introduced in 2001:
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Payout of 2015 PSU award
The 2015 PSU grant for the period of January 1, 2015 to December 31, 2017 was paid out on February 23, 2018. The named executives received a payout of 160% on the award which includes dividends earned up to the payment date. The table below shows the difference between the actual payout value and the grant value for each named executive.
For Mr. Velani, the market share price was calculated using $225.47, the average30-day trading price of our shares prior to December 31, 2017 on the TSX. For Mr. Creel, Mr. Johnson and Mr. Pitz, the market share price was US$176.56, the average30-day trading price of our shares prior to December 31, 2017 on the NYSE, and the value of these shares were converted to Canadian dollars using theyear-end exchange rate of $1.2545. For comparability, for Mr. Creel, Mr. Johnson and Mr. Pitz, the 2015 grant value was converted using an exchange rate of 1.2787.
Mr. Ellis was not eligible for the 2015 Performance Plan payout as he was not an employee of CP at the time of grant.
How we calculated the 2015 PSU performance factor
The PSU performance factor for the three-year period from January 1, 2015 to December 31, 2017 is 160%, as shown in the table below. The payout value has been calculated in accordance with the terms of the performance share unit plan and the 2015 award agreement.
PSU measures | Threshold 50% | Target 100% | Maximum 200% | PSU Result | Weighting | Factor | ||||||||||||||||||
PSU Operating ratio Operating expenses divided by total revenues | 64% | 62% | 60% | adj. 57.1% | 50% | 200% | ||||||||||||||||||
PSU 2015 to 2017 average ROIC Net operating profit after tax divided by average invested capital | 13% | 14% | 15% | adj. 15.1% | 30% | 200% | ||||||||||||||||||
Total shareholder return Three-year CAGR relative to the S&P/TSX 60 Index | 0% | 1% | 5% | -5.6% | 10% | 0% | ||||||||||||||||||
Total shareholder return Ranking at the end of the three years relative to Class 1 Railroads | 4 | 3 | 1 | 5 | 10% | 0% | ||||||||||||||||||
PSU performance factor | 160% |
We make certain assumptions when we set the plan targets. Results under the PSU plan are adjusted to reflect changes to those assumptions so we measure the true operating performance of the business. Operating ratio was adjusted to reflect the following items: foreign exchange, the impact of a higher than forecaston-highway diesel (OHD) and land sales. ROIC was adjusted for the performance of the pension plan as its impact on the balance sheet was not a good indication of management’s ability to deliver returns from the core business on its invested capital.
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KEITH E. CREEL PRESIDENT AND CHIEF EXECUTIVE OFFICER
2018 Freight Revenues |
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2019 Bulk Revenues | 2018 Bulk Revenues | 2017 Bulk Revenues |
(40% of Freight Revenues) | (41% of Freight Revenues) | (44% of Freight Revenues) |
2019 Grain Revenues | 2018 Grain Revenues | 2017 Grain Revenues |
(55% of Bulk Revenues; 22% of Freight Revenues) | (53% of Bulk Revenues; 22% of Freight Revenues) | (54% of Bulk Revenues; 24% of Freight Revenues) |
2019 Coal Revenues | 2018 Coal Revenues | 2017 Coal Revenues |
(22% of Bulk Revenues; 9% of Freight Revenues) | (23% of Bulk Revenues; 9% of Freight Revenues) | (22% of Bulk Revenues; 10% of Freight Revenues) |
2019 Potash Revenues | 2018 Potash Revenues | 2017 Potash Revenues |
(15% of Bulk Revenues; 6% of Freight Revenues) | (16% of Bulk Revenues; 7% of Freight Revenues) | (15% of Bulk Revenues; 6% of Freight Revenues) |
2019 Fertilizers & Sulphur Revenues | 2018 Fertilizers & Sulphur Revenues | 2017 Fertilizers & Sulphur Revenues |
(8% of Bulk Revenues; 3% of Freight Revenues) | (8% of Bulk Revenues; 3% of Freight Revenues) | (9% of Bulk Revenues; 4% of Freight Revenues) |
2019 Merchandise Revenues | 2018 Merchandise Revenues | 2017 Merchandise Revenues |
(39% of Freight Revenues) | (37% of Freight Revenues) | (35% of Freight Revenues) |
2019 Forest Products Revenues | 2018 Forest Products Revenues | 2017 Forest Products Revenues |
(10% of Merchandise Revenues; 4% of Freight Revenues) | (11% of Merchandise Revenues; 4% of Freight Revenues) | (12% of Merchandise Revenues; 4% of Freight Revenues) |
2019 Energy, Chemicals & Plastics Revenues | 2018 Energy, Chemicals & Plastics Revenues | 2017 Energy, Chemicals & Plastics Revenues |
(52% of Merchandise Revenues; 20% of Freight Revenues) | (47% of Merchandise Revenues; 17% of Freight Revenues) | (41% of Merchandise Revenues; 14% of Freight Revenues) |
2019 Metals, Minerals & Consumer Products Revenues | 2018 Metals, Minerals & Consumer Products Revenues | 2017 Metals, Minerals & Consumer Products Revenues |
(26% of Merchandise Revenues; 10% of Freight Revenues) | (30% of Merchandise Revenues; 11% of Freight Revenues) | (34% of Merchandise Revenues; 12% of Freight Revenues) |
2019 Automotive Revenues | 2018 Automotive Revenues | 2017 Automotive Revenues |
(12% of Merchandise Revenues; 5% of Freight Revenues) | (12% of Merchandise Revenues; 5% of Freight Revenues) | (13% of Merchandise Revenues; 5% of Freight Revenues) |
2019 Intermodal Revenues | 2018 Intermodal Revenues | 2017 Intermodal Revenues |
(21% of Freight Revenues) | (22% of Freight Revenues) | (21% of Freight Revenues) |
Keith Creel was appointed Presidentno customer comprised more than 10% of Total revenues or accounts receivable.
In 2017 Mr. Creel focused on the following key areas:
2017 highlights
CP delivered record financialeconomic and safety performanceregulations. Economic regulatory oversight is provided by the STB which administers Title 49 of the United States Code and related Code of Federal Regulations. Safety regulatory oversight is exercised by the Federal Railroad Administration (“FRA”), and the Pipelines and Hazardous Materials Safety Administration (“PHMSA”). The STB is an economic regulatory body with jurisdiction over railroad rate and service issues and proposed railroad mergers and other transactions. The FRA regulates safety-related aspects of the Company’s railway operations in 2017.
Our total revenues grewthe U.S. under the
We invested $1.34 billionthe
Throughout, we remained steadfast in our commitmentflammable liquids and the phase-out schedule for older tank cars used to safety. We improved our train accident frequency rates by 12%, which marked the 12th consecutive year that we have led the industry on this key safety metric.
Strategic direction
Mr. Creel’s planned succession to the President and CEO role began when he arrived at CP in 2013 to work alongside the late legendary railroader Hunter Harrison and lay out a path for CP. CP achieved an extraordinary turnaround under the leadership of Mr. Harrison and Mr. Creel.
As President and CEO, Mr. Creel quickly began setting the direction for the next chaptertransport flammable liquids. The development of the CP story. CP has spent the last five years right sizing the organization and our asset base and improving our operations and service using CP’s precision railroading model. Our network now has the fastest and shortest transit times in the key markets we serve. Mr. Creel is leveraging those strengths and applying his20-plus years of railroading experience and the talent of his leadership team to grow our top line and achieve long term sustainable growth.
Our focus on safety, service and innovation, combined with our financial strength and our ability to capitalize on our network and deliver in a disciplined and cost-effective way, are key elements for achieving our strategy.
Employee engagement and team development
Building on his commitment to our people when he joined CP, Mr. Creel has devoted a significant amount of time in 2017 to deepen our relationship with employees in all areas of the business and support retention to help our future growth. He hosted a series of town halls and implemented CEO round tables to hear first-hand from employees across our network and respond to their questions, concerns and ideas about our strategy and our business. Under Mr. Creel’s leadership, CP conducted an employee engagement survey fornon-union employees, to solicit feedback and identify areas for opportunity. Mr. Creel is leading our efforts to increase diversity throughout the organization. At Mr. Creel’s direction we are also introducing new programs and tools to strengthen leadership and accountability, improve retention and outreach, and support the recruitment of women and indigenous peoples.
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Significant worktank car standard was done in coordination between TC, PHMSA and the FRA. This announcement was followed by publishing the new tank car standard and phase-out schedule in Canada on May 20, 2015. Canada has since issued two protective directions to advance phase-out dates. The first, Protective Direction 38, eliminated the ability to ship crude oil in legacy U.S. Department of Transportation ("DOT") 111 tank cars after November 1, 2016 (the phase-out date in the United States for these cars remained January 1, 2018). Protective Direction 39 was issued on September 19, 2018 and eliminated the ability to ship crude oil in unjacketed CPC 1232 tank cars after November 1, 2018, as well as certain condensates after January 1, 2019. The phase-out deadline for this car in the United States remains April 1, 2020. CP does not own any tank cars used for commercial transportation of hazardous commodities.
As part of his appointment as President and CEO, Mr. Creel established a new leadership team and structure that better leverages ourbest-in-class servicelong-haul interswitching regime; (2) modify the existing Level of Service remedy for shippers by instructing the Agency to meet the needsdetermine, upon receipt of current and future customers and support our long term sustainable growth strategy in the years ahead. These changes include the appointment of John Brooks as Chief Marketing Officer and the recruitment of two new vice-presidents in sales and marketing.
Business development
CPa complaint, if a railway company is creating the foundation for top line growth by focusing on new business opportunities and enhancing service. In 2017 we expanded our market reach through initiatives such as our sales presence in Asia, daily service from Vancouver to Detroit, and expansion into the Ohio Valley. CP is the first railroad to offer a direct route from Vancouverfulfilling its common carrier obligation to the Ohio Valley. We are already experiencing gains in market share through these enhanced offerings.
Additionally, we enhanced our service offerings such as our new “live” lift operation at Portal, North Dakota, our new large-scale, multi-commodity transload facility in Vancouver, and the roll out“highest level of our Auto Grate technology at all of our intermodal terminals. These initiatives makes it easier and faster for our customers to do business, provide more efficient transload services and increase network fluidity which provides our customers with a strategic advantage.
Operating and safety performance
We remain grounded in our foundations of precision railroading and continue to fine-tune our operations in our constant pursuit of operational, service and safety excellence while controlling costs. In 2017, CP moved 5% more volume, while sustaining key operating metrics and improving overall safety performance. CP ended 2017 with an industry-leading FRA train accident rate of 0.99. This result not only represents a 12% improvement over 2016, but also represents the 12th consecutive year that CP has led the industry on this metric. CP’s FRA personal injury rate was 1.65, a 1% improvement over 2016.
In 2017, CP continued to roll out its Home Safe program – an initiative designed to take CP’s safety culture to the next level. Home Safe is a commitment to be vigilant about personal safety and the safety ofco-workers. It is based on 100% compliance to operating rules and safety practices, partnering with all employees, and treating each other with mutual respect. It is the commitment each employee makes to watch out for each other and to let someone know if they are at risk.
Mr. Creel also championed our trip plan effort. His leadership has involved setting clear direction and expectations on how to set and measure trip plans, and hold Operations accountable for execution. In 2017, CP continued to develop and refine our ability to measure trip plan. Trip plan is a detailed schedule for a shipment that has become CP’s cornerstone operating principle. It aligns our service plan and customer expectations, fromcut-off to local service, through to the delivery at destination. Through trip plan, CP is generating superior service that is consistent and aligned with market requirements, while controlling costs through improved efficiencies. CP will continue to refine and enhance our trip planning processesreasonable in 2018, by modifying schedules and business rules to ensure we meet market needs.
Stakeholder engagement
Mr. Creel led a range of engagement activities in 2017 with a broad group of external stakeholders, including shareholders, senior legislators and policy makers, regulators, First Nations, and industry associations. Mr. Creel had numerous meetings in Ottawa and other locations to advocate for a balanced approach to industry regulation and legal changes tothe circumstances”; (3) allow the proactive useexisting Service Level Agreement arbitration remedy to include the consideration of reciprocal financial penalties; (4) increase the threshold for summary Final Offer Arbitrations from $750,000 to $2 million; (5) bifurcate the Volume-Related Composite Price Index (“VRCPI”) component of the annual MRE determination for transportation of regulated grain, to encourage hopper car investment by CP and CN; (6) mandate the installation of locomotive voice and video recorders ("LVVRs"), with statutory permission for random access by railway companies and TC to the LVVR data in order to proactively strengthen railway safety in Canada; and (7) compel railways to provide additional data to the federal government.
Allfuture be, subject to allegations or findings to the effect that it has violated, or is strictly liable under, environmental laws or regulations. The Company currently has obligations at existing sites for investigation, remediation and monitoring, and will likely have obligations at other sites in the future. The actual costs associated with both current and long-term liabilities may vary from the Company’s estimates due to a number of these initiatives support our effortsfactors including, but not limited to changes in: the content or interpretation of environmental laws and regulations; required remedial actions; technology associated with site investigation or remediation; and the involvement and financial viability of other parties that may be responsible for portions of those liabilities.
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2017 compensation
The table below shows the compensation awarded to Mr. Creel for 2017, compared to the previous two years.
| Compensation ($’000) | 2017 | 2016 | 2015 | ||||||||||
Fixed | ||||||||||||||
Base earnings | 1,437 | 1,261 | 1,164 | |||||||||||
Variable | ||||||||||||||
Short-term incentive | 2,419 | 1,901 | 1,602 | |||||||||||
Long-term incentive | ||||||||||||||
- PSUs | 4,408 | 2,404 | 1,959 | |||||||||||
- Stock options | 10,517 | 2,131 | 2,130 | |||||||||||
Total direct compensation | 18,781 | 7,697 | 6,855 | |||||||||||
Total target direct compensation | 9,058 | 6,336 | 5,836 | |||||||||||
Notes: Salary is the actual amount received that year. Payments made in U.S. dollars have been converted to Canadian dollars using an average exchange rate for the year: $1.2986 for 2017, $1.3248 for 2016 and $1.2787 for 2015.
In 2017, Mr. Creel received 177,225 performance stock options that cliff vest in five years based on our relative TSR against the companies that make up the S&P/TSX Capped Industrial Index and the companies that make up the S&P 1500 Road and Rail Index (see the2017 Long-term incentive – CEO granton page 23 and the summary compensation table on page 41 for details). |
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We signed a new employment agreement with Mr. Creel effective January 31, 2017, which sets out the terms of his compensation as CEO. these agreements or the Company's potential inability to negotiate acceptable contracts with these unions could result in, among other things, strikes, work stoppages, slowdowns or lockouts, which could cause a significant disruption of the Company's operations and have a material adverse effect on the Company's results of operations, financial condition and liquidity. Additionally, future national labour agreements, or provisions of labour agreements related to health care, could significantly increase the Company's costs for health and welfare benefits, which could have a material adverse impact on its financial condition and liquidity.
Salary
Mr. Creel receivedmay not continue to be available at commercially reasonable rates. Even with insurance, if any natural occurrence leads to a 17.6% increasecatastrophic interruption of services, the Company may not be able to US$1.125 million when he became CEOrestore services without a significant interruption in operations.
Short-term incentive
Basedtechnology and technological improvements to operate its business.
Year-end salaryoperations, financial position, and liquidity.
Long-term incentive
Mr. Creel received annual 2017 long-term incentive awards with athe lease exceeds 99 years. CP's track network represents the size of the Company's operations that connects markets, customers and other railways. Of the total grant value of $6,934,956, 100% of his target award. The grant was allocated 60% PSUs and 40% stock options.
As disclosedmileage operated, approximately 5,400 miles are located in last year’s proxy, when Mr. Creel became CEO on January 31, 2017, he received a special grant of performance stock options, designed to motivate strong CEO performance, build his equity ownership and retain him during a period of significant changewestern Canada, 2,500 miles in eastern Canada, 4,400 miles in the railroad industry. To make the upfront grant, the Compensation Committee reduced Mr. Creel’s target long-term incentive award to 400% of salary for the next five years (from the market median of 500% among the Class 1 railroads),U.S. Midwest and used the difference (5 years x 100%) to make the award, which was allocated 100% to performance stock options (see page 23 for details about the vesting and performance conditions).
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Realized and realizable pay
The value of Mr. Creel’s incentive compensation is based on our performance over the period and, for the long-term incentive, our share price when the awards vest.
The graph below shows the three-year average of Mr. Creel’s granted and realized and realizable pay from 2015 to 2017.
Notes:
Summary compensation table: average of salary earned, actual cash bonus received, and long-term incentives granted (using the grant date fair value from 2015 to 2017 as disclosed400 miles in the summary compensation table on page 41). The compensation figures have been converted to Canadian dollars usingU.S. Northeast. CP’s network accesses the following average exchange rates: $1.2787 for 2015, $1.3248 for 2016U.S. markets directly through three wholly owned subsidiaries: Soo Line Railroad Company (“Soo Line”), a Class I railway operating in the U.S. Midwest; the Dakota, Minnesota and $1.2986 for 2017.
Realized and realizable: averageEastern Railroad ("DM&E"), a wholly owned subsidiary of salary earned, actual cash bonus received, the value of long-term incentive awards that have vested or been exercised,Soo Line, which operates in the U.S. Midwest; and the estimated current value of unvested long-term incentive awards granted from 2015 to 2017:
We also compare the realized and realizable value of $100 awarded in total direct compensation to Mr. Creel in each year to the value of $100 invested in CP shares on the first trading day of the period, assuming reinvestment of dividends, to show a meaningful comparison of shareholder value.
30
Pay linked to shareholder value
The table below shows Mr. Creel’s total direct compensation in Canadian dollars in each of the last three years, compared to its realized and realizable value as at December 31, 2017. We also compare the realized and realizable value of $100 awarded in total direct compensation to Mr. Creel in each year to the value of $100 invested in CP shares on the first trading day of the period, assuming reinvestment of dividends, to show a meaningful comparison of shareholder value.
(Cdn$) | Value of $100 | |||||||||||||||||||
Compensation awarded | Realized and realizable value of compensation as at December 31, 2017 | Period | Keith Creel | Shareholder | ||||||||||||||||
2015 | $ | 6,855,631 | $ | 6,288,021 | Jan 1, 2015 to Dec 31, 2017 | 92 | 105 | |||||||||||||
2016 | $ | 7,696,926 | $ | 11,193.523 | Jan 1, 2016 to Dec 31, 2017 | 145 | 132 | |||||||||||||
2017 | $ | 18,780,304 | $ | 18,131,928 | Jan 1, 2017 to Dec 31, 2017 | 97 | 121 |
Mr. Creel’s compensation awardedoperated track miles is as disclosed in the summary compensation table. He receives his compensation in U.S. dollars. Annual compensation figures have been converted to Canadian dollars using the following average exchange rates: $1.2787 for 2015, $1.3248 for 2016 and $1.2986 for 2017.
Mr. Creel’s realized and realizable value for salary earned and actual bonus received have been converted to Canadian dollars using the following average exchange rates: $1.2787 for 2015, $1.3248 for 2016 and $1.2986 for 2017. The value of any realized and realizable long-term incentive is converted into Canadian dollars using the 2017year-end exchange rate of $1.2545.
Equity ownership (at December 31, 2017)
Requirement (as a multiple of salary) | Minimum ownership value ($) | Shares ($) | Deferred share units ($) | Total ownership value ($) | Total ownership (as a multiple of salary) | |||||||||
6x | $ | 8,467,875 | 552,707 | 7,157,512 | 7,710,219 | 5.46x |
Mr. Creel is on track to meeting his share ownership requirements by January 2022. Values are based on US$182.76, the closing price of our common shares on the NYSE on December 29, 2017 and have been converted using ayear-end exchange rate of $1.2545.
Mr. Creel received a special make-whole DSU grant when he was hired in 2013. These vested in 2016, but he cannot redeem them until six months after he retires or leaves the company.
31
NADEEM S. VELANI EXECUTIVE VICE-PRESIDENT AND CHIEF FINANCIAL OFFICER
Total | ||
First main track | 12,683 | |
Second and other main track | 1,088 | |
Passing sidings and yard track | 4,353 | |
Industrial and way track | 779 | |
Total track miles | 18,903 |
Major Classification Yards | Major Intermodal Terminals | Transload Facilities |
Vancouver, British Columbia | Vancouver, British Columbia | Vancouver, British Columbia |
Calgary, Alberta | Calgary, Alberta | Toronto, Ontario |
Edmonton, Alberta | Edmonton, Alberta | Hamilton, Ontario |
Moose Jaw, Saskatchewan | Regina, Saskatchewan | Lachine, Québec |
Winnipeg, Manitoba | Winnipeg, Manitoba | |
Toronto, Ontario | Vaughan, Ontario | |
Montréal, Québec | Montréal, Québec | |
Chicago, Illinois | Chicago, Illinois | |
St. Paul, Minnesota | Minneapolis, Minnesota |
Locomotives | Owned | Leased | Total | Average Age (in years) | ||||
Line haul | 731 | 88 | 819 | 13 | ||||
Road switcher | 560 | — | 560 | 28 | ||||
Total locomotives | 1,291 | 88 | 1,379 | 19 |
Freight cars | Owned | Leased | Total | Average Age (in years) | ||
Box car | 2,594 | 250 | 2,844 | 30 | ||
Covered hopper | 7,607 | 9,699 | 17,306 | 24 | ||
Flat car | 1,461 | 770 | 2,231 | 26 | ||
Gondola | 3,648 | 1,440 | 5,088 | 21 | ||
Intermodal | 1,319 | 150 | 1,469 | 15 | ||
Multi-level autorack | 2,894 | 719 | 3,613 | 26 | ||
Company service car | 2,396 | 174 | 2,570 | 45 | ||
Open top hopper | 105 | — | 105 | 32 | ||
Tank car | 33 | 9 | 42 | 12 | ||
Total freight cars | 22,057 | 13,211 | 35,268 | 25 |
Intermodal equipment | Owned | Leased | Total | Average Age (in years) | |
Containers | 8,804 | — | 8,804 | 7 | |
Chassis | 6,290 | 601 | 6,891 | 11 | |
Total intermodal equipment | 15,094 | 601 | 15,695 | 9 |
Name, Age and Position | Business Experience |
Keith Creel, 51 President and Chief Executive Officer | Mr. Prior to joining CP, Mr. Creel was Executive Vice-President and Mr. Creel began his railroad career at Burlington Northern Railway in 1992 as an intermodal ramp manager in Birmingham, Alabama. He also spent part of his career at Grand Trunk Western Railroad as a superintendent and general manager, and at Illinois Central Railroad as a trainmaster and director of corridor operations, prior to its merger with CN in 1999. |
Mark Redd, 49 Executive Vice-President, Operations | Mr. Redd has been Executive Vice-President Operations since September 1, 2019. Before this appointment, he was Senior Vice-President Operations Western Region from February 2, 2017 to August 31, 2019 and Vice-President Operations Western Region from April 20, 2016 to February 1, 2017. Previous to these roles, he was General Manager Operations U.S. West and General Manager Operations Central Division. He was named CP's 2016 Railroader of the Year. Prior to joining CP in October |
Nadeem Velani, 47 Executive Vice-President and Chief Financial Officer | Mr. Velani has been Executive Vice-President and CFO of CP since October 17, 2017.
Prior to joining CP, Mr. Velani spent |
2017 performance
The CEO assessed Mr. Velani’s performance in 2017 against his individual performance objectives, which included developing a culture and organizational structure in finance better aligned to support an operations-focused company, building a strong team of financial leaders, reviewing the pension plan investment strategy and improving the financial planning, budgeting and forecasting process. In addition, Mr. Velani was responsible for leading an update of the company’s strategic multi-year plan.
All aspects of these functions were taken into consideration as part of the assessment. Mr. Velani was assessed as exceeding his individual performance objectives for the year.
The assessment was reviewed by the Compensation Committee, and approved by the Board.
2017 compensation
The table below is a summary of the compensation awarded to Mr. Velani for 2017, compared to the two previous years.
Compensation ($’000) | 2017 | 2016 | 2015 | |||||||||||
Fixed | ||||||||||||||
Base earnings | 451 | 299 | 224 | |||||||||||
Variable | ||||||||||||||
Short-term incentive | 491 | 374 | 153 | |||||||||||
Long-term incentive | ||||||||||||||
- PSUs | 782 | 132 | 87 | |||||||||||
- Stock options | 203 | 105 | 72 | |||||||||||
- DSUs | 24 | - | 15 | |||||||||||
Total direct compensation | 1,951 | 910 | 551 | |||||||||||
Total target direct compensation | 1,840 | 1,141 | 576 |
Salary
Mr. Velani received a 10.8% step increase in 2017 to bring his salary closer to the market median and as a result of his appointment as Executive Vice-President and CFO on October 17, 2017.
2017 short-term incentive
Based on our 2017 corporate performance and the assessment of his individual performance, Mr. Velani received a cash bonus of $490,763 for 2017, calculated as follows:
32
2017 long-term incentive
Mr. Velani also received annual 2017 long-term incentive awards in the form of PSUs and Options with a total grant value of $985,045. When options were granted on January 20, 2017, Mr. Velani’s target was 115% of base salary of $415,000. This grant was allocated at 40% of target in stock options. When PSUs were granted, Mr. Velani’s target increased to 225% of base salary. This grant was allocated at 60% of target in PSUs.
Equity ownership (at December 31, 2017)
Requirement (as a multiple of salary) | Minimum ownership value ($) | Shares ($) | Deferred share units ($) | �� | Total ownership value ($) | Total ownership (as a multiple of salary) | ||||||||||||||
3x | 1,380,000 | 184,354 | 368,825 | 553,179 | 1.20x |
Mr. Velani is on track to meeting his share ownership requirements by February 2022. Values are based on $229.66, the closing price of our common shares on the TSX on December 29, 2017.
33
ROBERT A. JOHNSON EXECUTIVE VICE-PRESIDENT, OPERATIONS
John Brooks, 49 Executive Vice-President | Mr. Brooks has been Executive Vice-President and Chief Marketing Officer ("CMO") of CP since February 14, 2019. Previous to this appointment, he was the Senior Vice-President and CMO of CP from February 14, 2017 to February 13, 2019. He has worked in Mr. Brooks began his railroading career with UP and later helped start I&M Rail Link, LLC, which was purchased by DM&E in 2002. Mr. Brooks was Vice-President, Marketing at DM&E prior to it being acquired by CP in 2007. With more than 20 years in the railroading business, Mr. Brooks brings a breadth of | ||
James Clements, 50 Senior Vice-President, Strategic Planning and Technology Transformation | Mr. Clements has been Senior Vice-President, Strategic Planning and Technology Transformation since September 1, 2019. Before this appointment, he was the Vice-President, Strategic Planning and Transportation Services of CP since 2014. Mr. Clements has responsibilities that include strategic network issues, Network Service Centre operations and Information Services. In Mr. Clements has been at CP for 25 years and his previous experience covers a wide range of areas of CP’s business, including He has an MBA in Finance/International Business from McGill University and a
|
2017 performance
The CEO assessed Mr. Johnson’s performance in 2017 against his individual performance objectives in the areas of operational performance, cost control and safety. Mr. Johnson was instrumental in the implementation of our new “live” lift operation which enhances our cross-border operations at Portal, North Dakota for our intermodal traffic moving between Western Canada and the U.S. Midwest. Live lift allows us to lift single containers off trains for inspection by Canadian and U.S. authorities rather than having intermodal carsset-off. Mr. Johnson led the development of our new large-scale, multi-commodity transload facility in Vancouver as well as the implementation of operational efficiencies within that region to provide customers with more efficient services for imported and exported goods. Mr. Johnson championed our operational safety in 2017 which lead to a newall-time low train accident frequency. Mr. Johnson was assessed as having exceeded his overall individual performance objectives.
The assessment was reviewed by the Compensation Committee and reviewed and approved by the Board.
2017 compensation
The table below is summary of the compensation awarded to Mr. Johnson for 2017, compared to the two previous years.
| Compensation ($’000) | 2017 | 2016 | 2015 | ||||||||||
Fixed | ||||||||||||||
Base earnings | 565 | 532 | 425 | |||||||||||
Variable | ||||||||||||||
Short-term incentive | 597 | 648 | 362 | |||||||||||
Long-term incentive | ||||||||||||||
- PSUs | 959 | 359 | 300 | |||||||||||
- Stock options | 556 | 318 | 327 | |||||||||||
Total direct compensation | 2,677 | 1,857 | 1,414 | |||||||||||
Total target direct compensation | 2,260 | 2,305 | 1,203 | |||||||||||
Notes: Salary is the actual amount received that year. Payments made in U.S. dollars have been converted to Canadian dollars using an average exchange rate for the year: $1.2986 for 2017, $1.3248 for 2016 and $1.2787 for 2015. |
|
Salary
Mr. Johnson did not receive a salary increase in 2017. Variances are due to foreign exchange.
2017 short-term incentive
Based on our 2017 corporate performance and the assessment of his individual performance, Mr. Johnson received a cash bonus of $597,372 for 2017, calculated as follows:
34
Year end salary and the 2017 STIP award were made in U.S. dollars have been converted to Canadian dollars using an average exchange rate of $1.2986 for 2017.
2017 long-term incentive
Mr. Johnson received 2017 long-term incentive awards in the form of PSUs and Options with a total grant value of $1,514,778, 100% of his target award. The grant was allocated 60% PSUs and 40% stock options.
Equity ownership (at December 31, 2017)
Requirement (as a multiple of salary) | Minimum ownership value ($) | Shares ($) | Deferred share units ($) | Total ownership value ($) | Total ownership (as a multiple of salary) | |||||||||||||||
3x | 1,637,123 | 52,649 | 1,275,641 | 1,328,290 | 2.43x |
Mr. Johnson is on track to meeting his share ownership requirements by April 2021. Values are based on the US$182.76 closing price of our shares on the NYSE on December 29, 2017 and have been converted using ayear-end exchange rate of $1.2545.
35
LAIRD J. PITZ VICE-PRESIDENT AND CHIEF RISK OFFICER
Jeffrey Ellis, 52 Chief Legal Officer and Corporate Secretary |
|
2017 individual performance
The CEO assessed Mr. Pitz’s performance in 2017 against his individual performance objectives, which focused mainly on reducing risk and liability for the company. This included mitigating risk in several key areas: safety, environmental, police security, casualty management, regulatory/operating practices, forensic and internal audit and disability management. Under Mr. Pitz’s leadership, CP has made significant progress in mitigating its overall risk, including the following results in 2017: $200,000 settlement of a $250 million class action lawsuit, claims recoveries in excess of $40 million including a 40% reduction in CP’s Federal Employers Liability Act (FELA) liability ($4.8 million). Mr. Pitz was assessed as having exceeded his overall individual performance objectives.
The assessment was reviewed by the Compensation Committee, and reviewed and approved by the Board.
2017 compensation
The table below is a summary of the compensation awarded to Mr. Pitz for 2017, compared to the two previous years. Mr. Pitz was promoted to Senior Vice-President & Chief Risk Officer on October 17, 2017, and received a 4.6% increase in base salary and an increase in short-term and long-term incentive awards to recognize his increased areas of responsibility.
Compensation ($’000) | 2017 | 2016 | 2015 | |||||||||||
Fixed | ||||||||||||||
Base earnings | 458 | 438 | 406 | |||||||||||
Variable | ||||||||||||||
Short-term incentive | 436 | 417 | 331 | |||||||||||
Long-term incentive | ||||||||||||||
- PSUs | 394 | 315 | 265 | |||||||||||
- Stock options | 229 | 279 | 288 | |||||||||||
-DSUs | - | 83 | 83 | |||||||||||
Total direct compensation | 1,517 | 1,531 | 1,373 | |||||||||||
Total target direct compensation | 1,331 | 1,275 | 1,126 | |||||||||||
Notes: Salary is the actual amount received that year. Payments made in U.S. dollars have been converted to Canadian dollars using an average exchange rate for the year: $1.2986 for 2017, $1.3248 for 2016 and $1.2787 for 2015.
Mr. Pitz received a company matching contribution of DSUs in 2016 and 2015 as a result of deferring 100% of his 2015 and 2014 short-term incentive (see page 48 for information about deferred compensation). |
|
Salary
Mr. Pitz received a 4.6% increase in base salary when he was promoted to Senior Vice-President and Chief Risk Officer on October 17, 2017.
36
2017 short-term incentive
Based on our 2017 corporate performance and the assessment of his individual performance, Mr. Pitz received a cash bonus of $435,601 for 2017, calculated as follows:
Year-end salary and 2017 STIP award were made in U.S. dollars and have been converted to Canadian dollars using an average exchange rate of $1.2986 for 2017.
2017 long-term incentive
Mr. Pitz also received 2017 annual long-term incentive awards in the form of PSUs and Options with a total grant value of $622,931, 100% of his target award. The grant was allocated 60% PSUs and 40% stock options.
Equity ownership(at December 31, 2017)
Requirement (as a multiple of salary) | Minimum ownership value ($) | Shares ($) | Deferred share units ($) | Total ownership value ($) | Total ownership (as a multiple of salary) | |||||||||||||||
2x | 918,294 | 7,107 | 996,557 | 1,003,664 | 2.19x |
Mr. Pitz has met his share ownership requirements. Values are based on US$182.76, the closing price of our shares on the NYSE on December 29, 2017 and have been converted using ayear-end exchange rate of $1.2545.
37
JEFFREY J. ELLIS CHIEF LEGAL OFFICER AND CORPORATE SECRETARY
Mr. Ellis Mr. Ellis is accountable for the overall strategic leadership, oversight and performance of the legal, corporate secretarial, government relations and public affairs functions of CP in Canada and the U.S. Prior to joining CP in 2015, Mr. Ellis was the U.S. General Counsel at BMO Financial Group. Before joining BMO in 2006, Mr. Ellis was with the law firm of Borden Ladner Gervais LLP in Toronto, Ontario. Mr. Ellis has | ||
Mike Foran, 46 Vice-President, Market Strategy and Asset Management | Mr. Foran has been Vice-President, Market Strategy and Asset Management of CP since February 14, 2017. His prior roles with CP include Vice-President Network Transportation from 2014 to 2017, Assistant Vice-President Network Transportation from 2013 to 2014, and General Manager – Asset Management from 2012 to 2013. In over 20 years at CP, Mr. Foran has worked in operations, business development, marketing and general management. Mr. Foran holds an Executive MBA from the Ivey School of Business at Western University and a Bachelor of Commerce from the University of Calgary. | |
Michael Redeker, 59 Vice-President and Chief Information Officer | Mr. Redeker has been Vice-President and Chief Information Officer ("CIO") of CP since October 15, 2012. Prior to joining CP, Mr. Redeker was Vice-President and CIO of Alberta Treasury Branch from May 2007 to September 2012. He also spent 11 years at IBM Canada, where he focused on delivering quality information technology services within the financial services industry. | |
Laird Pitz, 75 Senior Vice-President and Chief Risk Officer | Mr. Pitz has been Senior Vice-President and Chief Risk Officer ("CRO") of CP since October 17, 2017. Previously, he was the Vice-President and CRO of CP from October 29, 2014 to October 16, 2017 and the Vice-President, Security and Risk Management of CP from April 2014 to October 2014. Prior to joining CP, Mr. Pitz was retired from March 2012 to April 2014, and Vice-President, Risk Mitigation of CN from September 2003 to March 2012. Mr. Pitz, a Vietnam War veteran and former Federal Bureau of Investigation special agent, is a 40-year career professional who has directed strategic and operational risk mitigation, security and crisis management functions for companies operating in a wide range of fields, including defence, logistics and transportation. | |
Chad Rolstad, 43 Vice-President, Human Resources and Chief Culture Officer | Mr. Rolstad has been Vice-President, Human Resources since February 14, 2019 and the Chief Culture Officer since September 1, 2019. Previous to this appointment, he was Assistant Vice-President, Human Resources of CP from August 1, 2018 to February 13, 2019 and Assistant Vice-President, Strategic Procurement of CP from April 10, 2017 to July 31, 2018. Prior to joining CP, Mr. Rolstad held various leadership positions at BNSF Railway in marketing and operations. Mr. Rolstad has a Bachelor of Science from the Colorado School of Mines and an MBA from Duke University. |
2017 performance
The assessment was reviewedbe issued by the Compensation Committee, and reviewed and approved byCompany’s MSOIP in the Board.
2017 compensation
future. CP has a Director's Stock Option Plan (“DSOP”), under which directors are granted options to purchase Common Shares. There are no outstanding options under the DSOP, which has 340,000 options available to be issued in the future.
| Compensation ($’000) | 2017 | 2016 | 2015 | ||||||||||
Fixed | ||||||||||||||
Base earnings | 443 | 422 | 27 | |||||||||||
Variable | ||||||||||||||
Short-term incentive | 376 | 401 | 29 | |||||||||||
Long-term incentive | ||||||||||||||
- PSUs | 387 | 269 | - | |||||||||||
- Stock options | 217 | 215 | - | |||||||||||
Make Whole Hiring Costs | ||||||||||||||
- Cash Payment | - | - | 244 | |||||||||||
- PSU | - | 126 | - | |||||||||||
- Stock options | - | 101 | - | |||||||||||
- DSU | - | 60 | - | |||||||||||
Total direct compensation | 1,423 | 1,594 | 300 | |||||||||||
Total target direct compensation | 1,224 | 1,224 | 1,018 |
Salary
Mr. Ellis did not receive an increase in salary in 2017. Salary as shown above reflects actual salary earnedTSX 60 Index (“TSX 60”), the Standard & Poor's 500 Stock Index (“S&P 500”), and the peer group index (comprising CN, KCS, UP, NS and CSX) on December 31 for each of the years indicated. The values for the assumed investments depicted on the graph and in the year. Mr. Ellis’ last salary increase was effective April 1, 2016.
2017 short-term incentive
Based on our 2017 corporate performance and the CEO’s assessment of his individual performance, Mr. Ellis received for a cash bonus of $376,470 for 2017, calculated as follows:
38
2017 long-term incentive
Mr. Ellis also received 2017 long-term incentive awards with a total grant value of $604,199, 100% of his target award. The grant was allocated 60% PSUs and 40% stock options.
Equity ownership(at December 31, 2017)
Requirement (as a multiple of salary) | Minimum ownership value ($) | Shares ($) | Deferred share units ($) | Total ownership value ($) | Total ownership (as a multiple of salary) | |||||||||||||||
2x | 890,000 | 73,154 | 84,596 | 157,750 | 0.35x |
Mr. Ellis is on track to meeting his share ownership requirements by November 2020. Values are based on $229.66, the closing price of our shares on the TSX on December 29, 2017.
39
Share performance and cost of management
The graph below shows the total shareholder return of $100 invested in CP shares compared to the two major market indices over the last five years ending December 31, 2017 and assumes reinvestment of dividends.
CP shares have outperformed the S&P/TSX Composite Index and the S&P 500 Index over the last five years. It shows a strong correlation between shareholder value and the total direct compensation paid to our named executives over the same period. Our share price on the TSX was $160.65 at the beginning of the performance period (US$151.32 on the NYSE) compared to $229.66 at the end of 2017 (US$182.76 on the NYSE), a growth in share appreciation of 43.0%, creating significant value for shareholders. Our total shareholder return over the five year period was 48.2%, assuming reinvestment of dividends.
Notes:
40
EXECUTIVE COMPENSATION DETAILS
The table below shows compensation for our six named executives for the three fiscal years ended December 31, 2017. Keith Creel succeeded Hunter Harrison as Chief Executive Officer on January 31, 2017, when Mr. Harrison resigned from CP.
All of the named executives except Mr. Velani and Mr. Ellis were paid in U.S. dollars. Their compensation has been converted to Canadian dollars using the average exchange rates for the year: $1.2986 for 2017, $1.3248 for 2016 and $1.2787 for 2015.
Non-equity Incentive plan compensation ($) | ||||||||||||||||||||||||||||||||||||
Name and principal position | Year | Salary ($) | Share-based awards ($) | Option-based awards ($) | Annual incentive plans | Long-term incentive plans | Pension value ($) | All other compensation ($) | Total compensation ($) | |||||||||||||||||||||||||||
Keith E. Creel | 2017 | 1,436,594 | 4,407,788 | 10,516,630 | 2,419,292 | - | 398,894 | 926,402 | 20,105,600 | |||||||||||||||||||||||||||
President and Chief | 2016 | 1,261,123 | 2,403,912 | 2,131,126 | 1,900,765 | - | 348,529 | 833,257 | 8,878,712 | |||||||||||||||||||||||||||
Executive Officer | 2015 | 1,164,270 | 1,959,244 | 2,130,228 | 1,601,889 | - | 328,426 | 486,557 | 7,670,614 | |||||||||||||||||||||||||||
E. Hunter Harrison | 2017 | 361,369 | - | - | - | - | - | 6,452,479 | 6,813,848 | |||||||||||||||||||||||||||
Former Chief | 2016 | 2,904,595 | - | 4,999,757 | 6,557,760 | - | - | 4,367,682 | 18,829,794 | |||||||||||||||||||||||||||
Executive Officer | 2015 | 2,803,522 | 4,887,846 | 5,314,137 | 6,002,537 | - | 13,492 | 1,173,789 | 20,195,323 | |||||||||||||||||||||||||||
Nadeem S. Velani | 2017 | 451,355 | 806,073 | 202,650 | 490,763 | - | 101,027 | 49,523 | 2,101,391 | |||||||||||||||||||||||||||
Executive Vice-President | 2016 | 298,838 | 131,634 | 105,305 | 373,500 | - | 49,682 | 42,015 | 1,000,974 | |||||||||||||||||||||||||||
and Chief Financial Officer | 2015 | 223,972 | 102,039 | 78,833 | 152,819 | - | 33,308 | 30,457 | 621,428 | |||||||||||||||||||||||||||
Robert A. Johnson | 2017 | 564,891 | 958,705 | 556,073 | 597,372 | - | 114,037 | 54,819 | 2,845,897 | |||||||||||||||||||||||||||
Executive Vice-President, | 2016 | 532,056 | 358,674 | 317,991 | 648,324 | - | 86,189 | 54,931 | 1,998,165 | |||||||||||||||||||||||||||
Operations | 2015 | 425,160 | 300,454 | 326,539 | 362,141 | - | 88,425 | 57,035 | 1,559,754 | |||||||||||||||||||||||||||
Laird J. Pitz | 2017 | 457,901 | 394,237 | 228,694 | 435,601 | - | 82,361 | 41,137 | 1,639,931 | |||||||||||||||||||||||||||
Senior Vice-President | 2016 | 437,720 | 397,394 | 279,071 | 417,312 | - | 74,178 | 41,203 | 1,646,878 | |||||||||||||||||||||||||||
and Chief Risk Officer | 2015 | 406,126 | 347,920 | 287,967 | 331,166 | - | 70,499 | 37,901 | 1,481,579 | |||||||||||||||||||||||||||
Jeffrey J. Ellis | 2017 | 443,479 | 386,888 | 217,311 | 376,470 | - | 101,277 | 50,540 | 1,575,965 | |||||||||||||||||||||||||||
Chief Legal Officer and | 2016 | 421,918 | 455,239 | 316,312 | 400,500 | - | 50,275 | 50,638 | 1,694,882 | |||||||||||||||||||||||||||
Corporate Secretary | 2015 | 26,946 | - | - | 28,922 | - | 2,964 | 247,468 | 306,300 |
Notes:
Salary
Salary earned during the year. Salary differs from annualized salary because annual increases generally go into effect on April 1.
Share-based awards
PSUs were granted on February 21, 2017. The grant date fair value of share awards granted to each named executive has been calculated in accordance with FASB ASC Topic 718: Compensation – Stock Compensation, which represents the grant date fair value (with reference to the Shares underlying the awards), measured using a latticed-based valuation model assuming the probable outcome of the applicable performance conditions and excluding the effect for estimated forfeitures during the applicable vesting periods. The 2017 grant date accounting fair value of the awards is $200.46 per share granted on the TSX or $152.25 per share granted on the NYSE. See Item 8,8. Financial Statements and Supplementary Data, Note 21: Stock-based compensation22 Shareholders' equity. During 2019, CP repurchased 3.8 million Common Shares for $1,141 million at a weighted average price of our 2017 Form 10-K$300.65. The following table presents the number of Common Shares repurchased during each month for more details.
We value our PSUs using the binomial lattice model methodology. fourth quarter of 2019 and the average price paid by CP for the repurchase of such Common Shares.
2019 | Total number of shares purchased(1) | Average price paid per share(2) | Total number of shares purchased as part of publicly announced plans or programs | Maximum number of shares (or units) that may yet be purchased under the plans or programs | |||||
October 1 to October 31 | 312,279 | $ | 284.65 | 312,279 | — | ||||
November 1 to November 30 | — | — | — | — | |||||
December 1 to December 31 | 298,409 | 333.96 | 298,409 | 4,502,453 | |||||
Ending Balance | 610,688 | $ | 308.74 | 610,688 | N/A |
Mr. Velani’s amount includes the value of matching DSU’s granted in 2017.
Mr. Harrison forfeited his 2015 PSU grant when he resigned from CP.
Option awards
Stock options were granted on January 20, 2017. The grant date fair value of stock option awards granted to each named executive has been calculated in accordance with FASB ASC Topic 718: Compensation – Stock Compensation. We used the Black-Scholes option-pricing model (with referenceyears ended, December 31, selected financial data related to the shares underlyingCompany’s financial results for the options).last five fiscal years. The grant date accounting fair valueselected financial data should be read in conjunction with Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 8. Financial Statements and Supplementary Data.
(in millions, except per share data, percentage and ratios) | 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||
Financial Performance and Liquidity | |||||||||||||||
Total revenues | $ | 7,792 | $ | 7,316 | $ | 6,554 | $ | 6,232 | $ | 6,712 | |||||
Operating income | 3,124 | 2,831 | 2,519 | 2,411 | 2,618 | ||||||||||
Adjusted operating income(1) | 3,124 | 2,831 | 2,468 | 2,411 | 2,550 | ||||||||||
Net income | 2,440 | 1,951 | 2,405 | 1,599 | 1,352 | ||||||||||
Adjusted income(1) | 2,290 | 2,080 | 1,666 | 1,549 | 1,625 | ||||||||||
Basic earnings per share ("EPS") | 17.58 | 13.65 | 16.49 | 10.69 | 8.47 | ||||||||||
Diluted EPS | 17.52 | 13.61 | 16.44 | 10.63 | 8.40 | ||||||||||
Adjusted diluted EPS(1) | 16.44 | 14.51 | 11.39 | 10.29 | 10.10 | ||||||||||
Dividends declared per share | 3.1400 | 2.5125 | 2.1875 | 1.8500 | 1.4000 | ||||||||||
Cash provided by operating activities | 2,990 | 2,712 | 2,182 | 2,089 | 2,459 | ||||||||||
Cash used in investing activities | (1,803 | ) | (1,458 | ) | (1,295 | ) | (1,069 | ) | (1,123 | ) | |||||
Cash used in financing activities | (1,111 | ) | (1,542 | ) | (700 | ) | (1,493 | ) | (957 | ) | |||||
Free cash(1) | 1,357 | 1,289 | 874 | 1,007 | 1,381 | ||||||||||
Financial Position | |||||||||||||||
Total assets(2) | $ | 22,367 | $ | 21,254 | $ | 20,135 | $ | 19,221 | $ | 19,637 | |||||
Total long-term debt, including current portion | 8,757 | 8,696 | 8,159 | 8,684 | 8,957 | ||||||||||
Total shareholders' equity | 7,069 | 6,636 | 6,437 | 4,626 | 4,796 | ||||||||||
Financial Ratios | |||||||||||||||
Operating ratio(3) | 59.9 | % | 61.3 | % | 61.6 | % | 61.3 | % | 61.0 | % | |||||
Adjusted operating ratio(1) | 59.9 | % | 61.3 | % | 62.4 | % | 61.3 | % | 62.0 | % | |||||
Return on invested capital ("ROIC")(1) | 17.9 | % | 15.3 | % | 20.5 | % | 14.4 | % | 12.9 | % | |||||
Adjusted ROIC(1) | 16.9 | % | 16.2 | % | 14.7 | % | 14.0 | % | 15.2 | % | |||||
Dividend payout ratio(4) | 17.9 | % | 18.5 | % | 13.3 | % | 17.4 | % | 16.7 | % | |||||
Adjusted dividend payout ratio(1) | 19.1 | % | 17.3 | % | 19.2 | % | 18.0 | % | 13.9 | % | |||||
Long-term debt to Net income ratio(5) | 3.6 | 4.5 | 3.4 | 5.4 | 6.6 | ||||||||||
Adjusted net debt to adjusted EBITDA ratio(1) | 2.4 | 2.6 | 2.6 | 2.9 | 2.8 |
(1) | These measures have no standardized meanings prescribed by accounting principles generally accepted in the United States of America ("GAAP") and, therefore, may not be comparable to similar measures presented by other companies. These measures are defined and reconciled in Non-GAAP Measures in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
(2) | Current period amount is as reported in compliance with GAAP following the adoption of Accounting Standards Update ("ASU") 2016-02 under the cumulative effect adjustment transition approach, discussed further in Item 8. Financial Statements and Supplementary Data, Note 2 Accounting changes. The comparative periods' amounts have not been restated and continue to be reported under the accounting standards in effect for those periods. |
(3) | Operating ratio is defined as operating expenses divided by revenues. |
(4) | Dividend payout ratio is defined as dividends declared per share divided by Diluted EPS. |
(5) | Long-term debt to Net income ratio is defined as long-term debt, including long-term debt maturing within one year, divided by Net income. |
Page | |
Executive Summary | |
2020 Outlook | |
Performance Indicators | |
Results of Operations | |
Impact of Foreign Exchange on Earnings | |
Impact of Fuel Price on Earnings | |
Impact of Share Price on Earnings | |
Operating Revenues | |
Operating Expenses | |
Other Income Statement Items | |
Liquidity and Capital Resources | |
Non-GAAP Measures | |
Off-Balance Sheet Arrangements | |
Critical Accounting Estimates | |
Forward-Looking Statements |
41
share. For the special performance grant made on February 1, 2017, the grant date accounting fair value is US$34.72 per share.See Incentive plan awards on page 44 for details about the 2018 awards. Seerelated notes in Item 8,8. Financial Statements and Supplementary Data, Note 21: Stock-based compensation of our 2017 Form 10-K for more details.
To calculate the number of options that an executive receives, we use Willis Towers Watson’s binomial Option pricing methodology whichand other information in this annual report. Except where otherwise indicated, all financial information reflected herein is fundamentally similar to the methodology used to determine the accounting fair value; however, some of the underlying assumptions are different. For example, the binomial methodology assumes a slightly lower historical volatility, a higher risk-free rate and includes a discount to account for vesting restrictions. The grant price on January 20, 2017 was $201.49 on the TSX with an underlying value of $42.31 and was US $150.99 on the NYSE with an underlying value of US$34.73.
Mr. Harrison forfeited his option awards when he resigned from CP.
Non-equity incentive plan compensation
Cash bonus earned under our short-term incentive plan for 2017 and paidexpressed in February 2018.
Pension value
Mr. Creel, Mr. Velani and Mr. Ellis participate in the Canadian defined contribution plan (DC plan) and in the defined contribution supplemental plan (DC SERP).
Mr. Creel, Mr. Johnson and Mr. Pitz participate in the U.S. defined contribution plan and the U.S. supplemental executive retirement plan.
SeeRetirement plans on page 47 for more details.
All other compensation
The named executives also receive certain benefits and perquisites. The table below shows the breakdown of all other compensation for 2017:
Perquisites | Other compensation | |||||||||||||||||||||||||||||||||||||||||||
Name | Personal use of company aircraft | Auto benefits | Housing allowance | Financial and tax planning | Additional medical | Club memberships | 401K Plan | Employer share purchase plan match | Tax reimbursement | Post- employment payments | Total | |||||||||||||||||||||||||||||||||
Keith Creel | 570,649 | 28,387 | 77,270 | 29,708 | - | 33,023 | 7,012 | 27,843 | 152,510 | - | 926,402 | |||||||||||||||||||||||||||||||||
Hunter Harrison | 83,361 | - | 3,921 | - | 42,286 | - | - | - | - | 6,322,911 | 6,452,479 | |||||||||||||||||||||||||||||||||
Nadeem Velani | - | 20,432 | - | - | - | 11,200 | - | 8,937 | 8,954 | - | 49,523 | |||||||||||||||||||||||||||||||||
Robert Johnson | - | 22,091 | - | - | - | 14,544 | 8,863 | 9,321 | - | - | 54,819 | |||||||||||||||||||||||||||||||||
Laird Pitz | - | 17,178 | - | - | - | 14,544 | 9,415 | - | - | - | 41,137 | |||||||||||||||||||||||||||||||||
Jeffrey Ellis | - | 19,679 | - | - | - | 11,200 | - | 8,781 | 10,880 | - | 50,540 |
42
Notes:
Financial performance– In 2019, CP reported Diluted earnings per share ("EPS") of | |||
| |||
Employment agreements
Except for Mr. Creel, employment agreements for executive officers are set out in a standard offer letter template. The letters contain the standard terms as described in the CD&A and include an annual salary, participation in the short and long-term incentive plans as approved annually by the Compensation Committee, participation in the benefit plans or programs generally available to management employees, and modest perquisites.
Mr. Creel’s 2017 employment agreement includes:
As of the 2017 tax year, Mr. Creel no longer receives tax equalization benefits as a result of working for CP in Canada, and cannot use the corporate jet for purposes other than for corporate travel and family visits within North America.
Mr. Ellis has an offer letter that also includes a modest severance package for a termination without cause. The letter also includes anon-compete/non-solicit agreement.
43
Outstanding share-based awards and option-based awards
The table below shows all vested and unvested equity incentive awards that are outstanding as of December 31, 2017. SeeLong-term incentives beginning on page 20 for more information about our stock option and share-based awards.
Option-based awards | Share-based awards | |||||||||||||||||||||||||||||||||
Name | Grant date | Number of securities | Option exercise price ($) | Option Date | Value of in-the-money | Grant type | Number of shares or units of shares that have not vested (#) | Market or payout value of share-based awards that have not vested ($) | Market or payout value of vested share-based awards not paid out or distributed ($) | |||||||||||||||||||||||||
Keith Creel | 4-Feb-2013 | 119,325 | 115.78 | 4-Feb-2023 | 13,588,731 | |||||||||||||||||||||||||||||
22-Feb-2013 | 53,350 | 119.18 | 22-Feb-2023 | 5,894,108 | ||||||||||||||||||||||||||||||
31-Jan-2014 | 39,900 | 168.84 | 31-Jan-2024 | 2,426,718 | ||||||||||||||||||||||||||||||
24-Jul-2014 | 47,940 | 210.32 | 24-Jul-2024 | 927,160 | ||||||||||||||||||||||||||||||
23-Jan-2015 | 33,910 | 175.92 | 23-Jan-2025 | 290,974 | ||||||||||||||||||||||||||||||
22-Jan-2016 | 55,250 | 116.80 | 22-Jan-2026 | 4,571,762 | ||||||||||||||||||||||||||||||
20-Jan-2017 | 33,884 | 150.99 | 20-Jan-2024 | 1,350,463 | ||||||||||||||||||||||||||||||
1-Feb-2017 | 18,762 | 151.14 | 1-Feb-2024 | 744,238 | ||||||||||||||||||||||||||||||
1-Feb-2017 | 177,225 | 151.14 | 1-Feb-2024 | 7,030,035 | ||||||||||||||||||||||||||||||
6-Feb-2013 | DSU | 7,157,512 | ||||||||||||||||||||||||||||||||
23-Jan-2015 | PSU | 3,230,887 | ||||||||||||||||||||||||||||||||
23-Feb-2016 | PSU | 15,091 | 3,459,873 | |||||||||||||||||||||||||||||||
21-Feb-2017 | PSU | 22,468 | 5,151,306 | |||||||||||||||||||||||||||||||
Total | 579,546 | 36,824,189 | 37,559 | 8,611,179 | 10,388,399 | |||||||||||||||||||||||||||||
Nadeem Velani | 2-Apr-2013 | 2,310 | 126.34 | 2-Apr-2023 | 238,669 | |||||||||||||||||||||||||||||
31-Jan-2014 | 1,820 | 168.84 | 31-Jan-2024 | 110,692 | ||||||||||||||||||||||||||||||
23-Jan-2015 | 1,539 | 218.78 | 23-Jan-2025 | 16,744 | ||||||||||||||||||||||||||||||
22-Jan-2016 | 2,927 | 165.74 | 22-Jan-2026 | 187,094 | ||||||||||||||||||||||||||||||
20-Jan-2017 | 4,644 | 201.49 | 20-Jan-2024 | 130,821 | ||||||||||||||||||||||||||||||
26-Feb-2014 | DSU | 152,164 | ||||||||||||||||||||||||||||||||
23-Jan-2015 | PSU | 149,157 | ||||||||||||||||||||||||||||||||
19-Feb-2015 | DSU | 67 | 15,397 | 61,589 | ||||||||||||||||||||||||||||||
23-Feb-2016 | PSU | 796 | 182,733 | |||||||||||||||||||||||||||||||
21-Feb-2017 | PSU | 3,933 | 903,367 | |||||||||||||||||||||||||||||||
24-Feb-2017 | DSU | 122 | 27,935 | 111,741 | ||||||||||||||||||||||||||||||
Total | 13,240 | 684,020 | 4,918 | 1,129,432 | 474,651 | |||||||||||||||||||||||||||||
Robert Johnson | 2-Jul-2013 | 3,640 | 129.54 | 2-Jul-2023 | 364,437 | |||||||||||||||||||||||||||||
31-Jan-2014 | 5,870 | 168.84 | 31-Jan-2024 | 357,013 | ||||||||||||||||||||||||||||||
23-Jan-2015 | 5,198 | 175.92 | 23-Jan-2025 | 44,603 | ||||||||||||||||||||||||||||||
22-Jan-2016 | 8,244 | 116.80 | 22-Jan-2026 | 682,165 | ||||||||||||||||||||||||||||||
20-Jan-2017 | 11,557 | 150.99 | 20-Jan-2024 | 460,610 | ||||||||||||||||||||||||||||||
24-Jun-2013 | DSU | 1,275,641 | ||||||||||||||||||||||||||||||||
23-Jan-2015 | PSU | 495,554 | ||||||||||||||||||||||||||||||||
23-Feb-2016 | PSU | 2,252 | 516,228 | |||||||||||||||||||||||||||||||
21-Feb-2017 | PSU | 4,887 | 1,120,422 | |||||||||||||||||||||||||||||||
Total | 34,509 | 1,908,828 | 7,139 | 1,636,650 | 1,771,195 | |||||||||||||||||||||||||||||
Laird Pitz | 3-Jun-2014 | 3,150 | 187.00 | 3-Jun-2024 | 134,379 | |||||||||||||||||||||||||||||
23-Jan-2015 | 4,584 | 175.92 | 23-Jan-2025 | 39,334 | ||||||||||||||||||||||||||||||
22-Jan-2016 | 5,426 | 116.80 | 22-Jan-2026 | 448,984 | ||||||||||||||||||||||||||||||
20-Jan-2017 | 4,753 | 150.99 | 20-Jan-2024 | 189,433 | ||||||||||||||||||||||||||||||
19-Feb-2015 | DSU | 351 | 80,374 | 321,498 | ||||||||||||||||||||||||||||||
23-Jan-2015 | PSU | 436,852 | ||||||||||||||||||||||||||||||||
23-Feb-2016 | DSU | 519 | 118,937 | 475,748 | ||||||||||||||||||||||||||||||
23-Feb-2016 | PSU | 1,976 | 453,012 | |||||||||||||||||||||||||||||||
21-Feb-2017 | PSU | 2,010 | 460,739 | |||||||||||||||||||||||||||||||
Total | 17,913 | 812,130 | 4,856 | 1,113,062 | 1,234,098 | |||||||||||||||||||||||||||||
Jeffrey Ellis | 22-Jan-2016 | 5,981 | 165.74 | 22-Jan-2026 | 382,306 | |||||||||||||||||||||||||||||
22-Jan-2016 | 2,811 | 165.74 | 22-Jan-2026 | 179,679 | ||||||||||||||||||||||||||||||
20-Jan-2017 | 4,980 | 201.49 | 20-Jan-2024 | 140,287 | ||||||||||||||||||||||||||||||
22-Jan-2016 | DSU | 74 | 16,919 | 67,677 | ||||||||||||||||||||||||||||||
23-Feb-2016 | PSU | 2,389 | 548,668 | |||||||||||||||||||||||||||||||
21-Feb-2017 | PSU | 1,945 | 446,707 | |||||||||||||||||||||||||||||||
Total | 13,772 | 702,272 | 4,408 | 1,012,294 | 67,677 |
44
Notes:
Options
In general regular options granted before 2017 vest 25% each year for four years beginning on the anniversary of the grant date and expire 10 years from the grant date. Grants made in 2017 expire seven years from grant date. Exercise prices are shown in Canadian dollars, except that, with respect to Mr. Creel, Mr. Johnson and Mr. Pitz option awards that were made in 2015 or later, exercise prices are in U.S dollars.
Value of unexercisedin-the-money options at 2017year-end
Based on $229.66, our closing share price on the TSX on December 29, 2017. For all the named executives except Mr. Velani and Mr. Ellis, option awards made in 2015 or later have been valued based on US$182.76, our closing share price on the NYSE on December 29, 2017 and converted into Canadian dollars using ayear-end exchange rate of $1.2545.
Mr. Creel was awarded performance stock options on July 24, 2014. These options vested upon meeting certain performance hurdles: 50% of the options vested upon CP achieving an annual operating ratio of 63%, and the other 50% vested upon CP achieving an annual operating income of $2,618 million. The options are not exercisable until June 1, 2018.
Mr. Creel was also awarded performance stock options on February 1, 2017. These options will vest on February 1, 2022 provided certain performance metrics are achieved. See page 23 for details. Amount reflects the market value of shares or units of shares that have not vested.
Mr. Velani and Mr. Ellis: the value of unvested PSUs and DSUs is based on $229.66, our closing share price on the TSX on December 29, 2017.
Mr. Creel, Mr. Johnson and Mr. Pitz: the value of PSUs or DSUs is based on US$182.76, our closing share price on the NYSE on December 29, 2017, converted into Canadian dollars using ayear-end exchange rate of $1.2545.
PSUs assume a payout at target (100%) for the 2016 and 2017 grants. The 2015 PSU value reflects a payout at 160% on the award which includes dividends earned up to the payment date. The DSU awards are deferred and cannot be redeemed until the executive leaves the company.
Incentive plan awards – value vested or earned during the year
The table below shows the amount of incentive compensation that vested or was paid in 2017.
Name | Option-based awards – Value vested during the year ($) | Share-based awards – Value vested during the year ($) | Non-equity incentive plan compensation – Value earned during the year ($) | |||||||||
Keith Creel | 7,825,458 | 3,230,887 | 2,419,292 | |||||||||
Nadeem Velani | 138,267 | 436,074 | 490,763 | |||||||||
Robert Johnson | 362,089 | 995,884 | 597,372 | |||||||||
Laird Pitz | 193,139 | 436,852 | 435,601 | |||||||||
Jeffrey Ellis | 140,560 | 67,677 | 376,470 |
Notes:
Share-based awards – value vested during the year
Includes 2015 PSUs that vested at 160% on December 31, 2017 and includes dividends earned up to the payment date. The value realized on vesting is calculated by multiplying the number of shares acquired on vesting by $225.47, the average30-day trading price of our shares prior to December 31, 2017 on the TSX for Mr. Velani, and US$176.56 on the NYSE for Mr. Creel, Mr. Johnson and Mr. Pitz converted to Canadian dollars using theyear-end exchange rate of $1.2545 and by multiplying the achieved performance factor.
Mr. Velani’s amount includes the value of DSUs that vested in 2017 and RSUs that vested on May 8, 2017. Mr. Ellis’ amount includes the value of DSUs that vested in 2017. Mr. Johnson’s amount includes the value of RSUs that vested on May 8, 2017.
45
Option exercises and vested stock awards
The table below shows the options exercised and sold by the named executives in 2017.
Name | Number of options exercised and sold | Option exercise price ($) | Value realized ($) | |||||||||
Keith Creel | - | - | - | |||||||||
Nadeem Velani | - | - | - | |||||||||
Robert Johnson | - | - | - | |||||||||
Laird Pitz | 1,809 | US$ | 116.80 | 89,745 | ||||||||
Jeffrey Ellis | - | - | - |
Value realized is calculated using the market price of the shares acquired on exercise of the respective options less the exercise price for those options. The value has been converted to Canadian dollars using the exercise date exchange rate of $1.2182.
Equity compensation plan information
The table below shows the securities authorized for issuance under equity compensation plansat December 31, 2017. These include the issuance of securities upon exercise of options outstanding under the management stock option incentive plan and the director stock option plan.
The table also shows the remaining number of shares available for issuance and includes 340,000 shares under the director plan. On July 21, 2003, the Board suspended any additional grants of options under the director plan.
Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in the first column) | |||||||||
Equity compensation plans approved by security holders | 1,481,275 | $ | 150.54 | 1,895,922 | ||||||||
Equity compensation plans not approved by security holders | - | - | - | |||||||||
Total | 1,481,275 | $ | 150.54 | 1,895,922 |
See page 24 to read more about the management stock option incentive plan. You can also read about the two equity compensation plans in our audited consolidated financial statements for the year ended December 31, 2017, available on our website (www.cpr.ca), and on SEDAR (www.sedar.com) and EDGAR (www.sec.gov).
46
Canadian pension plans
Mr. Creel, Mr. Velani and Mr. Ellis participated in our defined contribution plan (DC plan) in 2017.
Participants contribute between 4% and 6% of their earnings depending on their age and years of service, and the company contributes between 4% and 8% of earnings. Total contributions are limited to the maximum allowed under theIncome Tax Act (Canada) ($26,010 for 2017).
Defined contribution plan table
Accumulated value at start of year ($) | Compensatory ($) | Accumulated value at year end ($) | ||||||||||
Keith Creel | 402,371 | 376,688 | 842,518 | |||||||||
Nadeem Velani | 186,475 | 101,027 | 315,592 | |||||||||
Jeffrey Ellis | 66,157 | 101,277 | 183,455 |
Mr. Creel, Mr. Velani and Mr. Ellis also participate in a defined contribution supplemental plan (DC SERP), anon-registered plan that provides benefits in excess of theIncome Tax Act (Canada) limits for the DC plan. Specifically, the SERP provides a company contribution equal to 6% of a participant’s base salary and annual bonus. Company contributions vest after two years and employees do not contribute to the plan.
U.S. retirement plans
Our U.S. retirement program has three elements:
401(k) plan
Individuals can makepre-tax contributions to the 401(k) plan subject to limitations imposed by the IRS in the U.S. The company provides a matching contribution of 50% on the first 6% of eligible earnings. All contributions vest immediately.
U.S. Salaried Retirement Income Plan
The U.S. Salaried Retirement Income Plan is employer-funded with an annual contribution amount equal to 3.5% of eligible earnings, which include base salary and annual bonus. These earnings are subject to compensation limitations imposed by the IRS in the U.S. These amounts are included in the summary compensation table under All other compensation.
Supplemental defined contribution plan (U.S. DC SERP)
The U.S. DC SERP is an unfunded, nonqualified defined contribution plan that provides an additional company contribution equal to 6% of eligible earnings without regard to the limitations imposed by the IRS in the U.S. Eligible earnings include base salary and annual bonus. In addition, for earnings in excess of the limitations imposed by the U.S. Internal Revenue Code, an additional 3.5% contribution is made. Company contributions cliff vest at the end of three years.
Mr. Creel, Mr. Johnson and Mr. Pitz participated in the U.S. SERP in 2017.
Accumulated value at start of year ($) | Compensatory ($) | Accumulated value at year end ($) | ||||||||||
Keith Creel | 705,262 | 22,206 | 846,244 | |||||||||
Robert Johnson | 176,959 | 114,037 | 299,094 | |||||||||
Laird Pitz | 99,062 | 82,361 | 187,811 |
47
The values in the table have been converted to Canadian dollars using the 2017 average exchange rate of $1.2986.
About deferred compensation
Executive officers and members of senior management who have not met their share ownership requirement can choose to defer all or part of their short-term incentive by receiving it as deferred share units. They cannot defer more than the amount needed to meet the requirement, which includes our 25% match of the amount deferred in the year the bonus is actually paid. The matching units vest after three years.
Elections must be made before the beginning of the new fiscal year. The amount is converted to DSUs using the average market price of a CP common share for the 10 trading days immediately before December 31 of the performance year.
The table below shows the number of DSUs outstanding and their value based on our closing share price on December 29, 2017.
Unvested DSUs (#) | Vested DSUs (#) | Total units ($) | Value as at December 31, 2017 ($) | |||||||||||||
Keith Creel | - | 31,218 | 31,218 | 7,157,426 | ||||||||||||
Nadeem Velani | 189 | 1,417 | 1,606 | 368,834 | ||||||||||||
Robert Johnson | - | 5,564 | 5,564 | 1,275,672 | ||||||||||||
Laird Pitz | 869 | 3,477 | 4,346 | 996,418 | ||||||||||||
Jeffrey Ellis | 74 | 295 | 369 | 84,745 |
Mr. Creel received a special make-whole DSU grant when he was hired in 2013.
We valued the outstanding DSUs using $229.66, our closing share price on the TSX on December 29, 2017 for Mr. Velani and Mr. Ellis, and US$182.76, our closing share price on the NYSE and converted to Canadian dollars using ayear-end exchange rate of $1.2545 for Mr. Creel, Mr. Johnson and Mr. Pitz.
DSUs are redeemed for cash six months after the executive retires or leaves the company, or up until the end of the following calendar year for Canadian executives. U.S. executives who participate in the DSU plan must redeem their DSUs after thesix-month waiting period to be in compliance with U.S. tax regulations. We use the average market price of a CP common share for the 10 trading days immediately before the payment date to calculate the amount, which the participant receives in a lump sum.
48
Termination and change in control
Termination of employment
We have policies to cover different kinds of termination of employment.
Mr. Creel is covered under the terms of the new employment agreement effective January 31, 2017 that includesnon-competition,non-solicitation and confidentiality restrictions. Mr. Ellis has an agreement for termination without cause which also includesnon-competition,non-solicitation and confidentiality restrictions. Mr. Velani, Mr. Johnson and Mr. Pitz are subject to the same terms as all other employees for voluntary termination, retirement and termination for cause.
• | Total revenues– CP’s Total revenues increased by 7% to $7,792 million in 2019 from $7,316 million in 2018, driven primarily by higher freight rates. |
• | Operating performance – CP's average train speed increased by 3% to 22.2 miles per hour and average dwell time decreased by 6% to 6.4 hours in 2019 primarily due to the completion of network infrastructure projects which improved network fluidity. Average train weight remained relatively unchanged at 9,129 tons and average train length increased by 1% to 7,388 feet due to improvements in operating plan efficiency, in each case compared to 2018. These metrics are discussed further in Performance Indicators of this Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. |
RTM growth | Adjusted diluted EPS(1) | Capital expenditures | |||
Outlook | Mid-single digits Revised at the end of the third quarter to low-single digits | Double-digit Adjusted diluted EPS growth from full-year 2018 Adjusted diluted EPS of $14.51 | Approximately $1.60 billion | ||
Actual outcomes | Revenue ton-miles ("RTMs") increased by 171 million, or 0.1% | Adjusted diluted EPS growth of 13% to $16.44 | $1.65 billion |
% Change | ||||||||||
For the year ended December 31 | 2019 | 2018(1) | 2017(1) | 2019 vs. 2018 | 2018 vs. 2017 | |||||
Operations Performance | ||||||||||
Gross ton-miles (“GTMs”) (millions) | 280,724 | 275,362 | 252,195 | 2 | 9 | |||||
Train miles (thousands) | 32,924 | 32,312 | 30,632 | 2 | 5 | |||||
Average train weight – excluding local traffic (tons) | 9,129 | 9,100 | 8,806 | — | 3 | |||||
Average train length – excluding local traffic (feet) | 7,388 | 7,313 | 7,214 | 1 | 1 | |||||
Average terminal dwell (hours) | 6.4 | 6.8 | 6.6 | (6 | ) | 3 | ||||
Average train speed (miles per hour, or "mph") | 22.2 | 21.5 | 22.6 | 3 | (5 | ) | ||||
Fuel efficiency (U.S. gallons of locomotive fuel consumed /1,000 GTMs) | 0.955 | 0.953 | 0.980 | — | (3 | ) | ||||
Total employees (average) | 13,103 | 12,756 | 12,083 | 3 | 6 | |||||
Total employees (end of period) | 12,694 | 12,840 | 12,215 | (1 | ) | 5 | ||||
Workforce (end of period) | 12,732 | 12,866 | 12,294 | (1 | ) | 5 | ||||
Safety Indicators | ||||||||||
FRA personal injuries per 200,000 employee-hours | 1.42 | 1.48 | 1.65 | (4 | ) | (10 | ) | |||
FRA train accidents per million train-miles | 1.06 | 1.10 | 0.99 | (4 | ) | 11 |
• | the favourable impact of change in FX of $39 million; and |
• | the favourable impact from changes in fuel prices of $38 million. |
• | increased operating expense associated with higher casualty costs in 2019 of $76 million (excluding FX); |
• | higher stock-based compensation of $58 million; |
• | management transition recoveries of $51 million associated with Mr. E. Hunter Harrison's retirement as CEO of CP in 2017; and |
• | management transition recoveries of $51 million associated with Mr. E. Hunter Harrison's retirement as CEO of CP in 2017. |
Average exchange rates (Canadian/U.S. dollar) | 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||
For the year ended – December 31 | $ | 1.33 | $ | 1.30 | $ | 1.30 | $ | 1.33 | $ | 1.28 | |||||
For the three months ended – December 31 | $ | 1.32 | $ | 1.32 | $ | 1.27 | $ | 1.33 | $ | 1.34 |
Exchange rates (Canadian/U.S. dollar) | 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||
Beginning of year – January 1 | $ | 1.36 | $ | 1.25 | $ | 1.34 | $ | 1.38 | $ | 1.16 | |||||
Beginning of quarter – April 1 | $ | 1.33 | $ | 1.29 | $ | 1.33 | $ | 1.30 | $ | 1.27 | |||||
Beginning of quarter – July 1 | $ | 1.31 | $ | 1.32 | $ | 1.30 | $ | 1.29 | $ | 1.25 | |||||
Beginning of quarter – October 1 | $ | 1.32 | $ | 1.29 | $ | 1.25 | $ | 1.31 | $ | 1.33 | |||||
End of year – December 31 | $ | 1.30 | $ | 1.36 | $ | 1.25 | $ | 1.34 | $ | 1.38 |
High/Low exchange rates (Canadian/U.S. dollar) | 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||
High | $ | 1.36 | $ | 1.37 | $ | 1.37 | $ | 1.46 | $ | 1.40 | |||||
Low | $ | 1.30 | $ | 1.23 | $ | 1.21 | $ | 1.25 | $ | 1.17 |
Average Fuel Price (U.S. dollars per U.S. gallon) | 2019 | 2018 | 2017(1) | ||||||
For the year ended – December 31 | $ | 2.49 | $ | 2.72 | $ | 2.16 | |||
For the three months ended – December 31 | $ | 2.53 | $ | 2.71 | $ | 2.43 |
Toronto Stock Exchange (in Canadian dollars) | 2019 | 2018 | 2017 | ||||||
Opening Common Share price, as at January 1 | $ | 242.24 | $ | 229.66 | $ | 191.56 | |||
Ending Common Share price, as at March 31 | $ | 275.34 | $ | 227.20 | $ | 195.35 | |||
Ending Common Share price, as at June 30 | $ | 308.43 | $ | 240.92 | $ | 208.65 | |||
Ending Common Share price, as at September 30 | $ | 294.42 | $ | 273.23 | $ | 209.58 | |||
Ending Common Share price, as at December 31 | $ | 331.03 | $ | 242.24 | $ | 229.66 | |||
Change in Common Share price for the year ended December 31 | $ | 88.79 | $ | 12.58 | $ | 38.10 |
New York Stock Exchange (in U.S. dollars) | 2019 | 2018 | 2017 | ||||||
Opening Common Share price, as at January 1 | $ | 177.62 | $ | 182.76 | $ | 142.77 | |||
Ending Common Share price, as at March 31 | $ | 206.03 | $ | 176.50 | $ | 146.92 | |||
Ending Common Share price, as at June 30 | $ | 235.24 | $ | 183.02 | $ | 160.81 | |||
Ending Common Share price, as at September 30 | $ | 222.46 | $ | 211.94 | $ | 168.03 | |||
Ending Common Share price, as at December 31 | $ | 254.95 | $ | 177.62 | $ | 182.76 | |||
Change in Common Share price for the year ended December 31 | $ | 77.33 | $ | (5.14 | ) | $ | 39.99 |
2019 vs. 2018 | 2018 vs. 2017 | ||||||||||||||||||||
For the year ended December 31 | 2019 | 2018 | 2017 | Total Change | % Change | FX Adjusted % Change(2) | Total Change | % Change | FX Adjusted % Change(2) | ||||||||||||
Freight revenues (in millions)(1) | $ | 7,613 | $ | 7,152 | $ | 6,375 | $ | 461 | 6 | 5 | $ | 777 | 12 | 12 | |||||||
Non-freight revenues (in millions) | 179 | 164 | 179 | 15 | 9 | 8 | (15 | ) | (8 | ) | (8 | ) | |||||||||
Total revenues (in millions) | $ | 7,792 | $ | 7,316 | $ | 6,554 | $ | 476 | 7 | 5 | $ | 762 | 12 | 12 | |||||||
Carloads (in thousands) | 2,766.4 | 2,739.8 | 2,634.2 | 26.6 | 1 | N/A | 105.6 | 4 | N/A | ||||||||||||
Revenue ton-miles (in millions) | 154,378 | 154,207 | 142,540 | 171 | — | N/A | 11,667 | 8 | N/A | ||||||||||||
Freight revenue per carload (in dollars) | $ | 2,752 | $ | 2,611 | $ | 2,420 | $ | 141 | 5 | 4 | $ | 191 | 8 | 8 | |||||||
Freight revenue per revenue ton-mile (in cents) | 4.93 | 4.64 | 4.47 | 0.29 | 6 | 5 | 0.17 | 4 | 4 |
2019 vs. 2018 | 2018 vs. 2017 | |||||||||||||||||||
For the year ended December 31 | 2019 | 2018 | 2017 | Total Change | % Change | FX Adjusted % Change(1) | Total Change | % Change | FX Adjusted % Change(1) | |||||||||||
Freight revenues (in millions) | $ | 1,684 | $ | 1,566 | $ | 1,532 | $ | 118 | 8 | 6 | $ | 34 | 2 | 2 | ||||||
Carloads (in thousands) | 431.4 | 429.4 | 440.7 | 2.0 | — | N/A | (11.3 | ) | (3 | ) | N/A | |||||||||
Revenue ton-miles (in millions) | 36,941 | 36,856 | 37,377 | 85 | — | N/A | (521 | ) | (1 | ) | N/A | |||||||||
Freight revenue per carload (in dollars) | $ | 3,904 | $ | 3,645 | $ | 3,477 | $ | 259 | 7 | 6 | $ | 168 | 5 | 5 | ||||||
Freight revenue per revenue ton-mile (in cents) | 4.56 | 4.25 | 4.10 | 0.31 | 7 | 6 | 0.15 | 4 | 4 |
2019 vs. 2018 | 2018 vs. 2017 | ||||||||||||||||||||
For the year ended December 31 | 2019 | 2018 | 2017 | Total Change | % Change | FX Adjusted % Change(1) | Total Change | % Change | FX Adjusted % Change(1) | ||||||||||||
Freight revenues (in millions) | $ | 682 | $ | 673 | $ | 631 | $ | 9 | 1 | 1 | $ | 42 | 7 | 7 | |||||||
Carloads (in thousands) | 304.3 | 304.3 | 306.0 | — | — | N/A | (1.7 | ) | (1 | ) | N/A | ||||||||||
Revenue ton-miles (in millions) | 21,820 | 22,443 | 22,660 | (623 | ) | (3 | ) | N/A | (217 | ) | (1 | ) | N/A | ||||||||
Freight revenue per carload (in dollars) | $ | 2,241 | $ | 2,211 | $ | 2,061 | $ | 30 | 1 | 1 | $ | 150 | 7 | 7 | |||||||
Freight revenue per revenue ton-mile (in cents) | 3.13 | 3.00 | 2.78 | 0.13 | 4 | 4 | 0.22 | 8 | 8 |
2019 vs. 2018 | 2018 vs. 2017 | ||||||||||||||||||||
For the year ended December 31 | 2019 | 2018 | 2017 | Total Change | % Change | FX Adjusted % Change(1) | Total Change | % Change | FX Adjusted % Change(1) | ||||||||||||
Freight revenues (in millions) | $ | 462 | $ | 486 | $ | 411 | $ | (24 | ) | (5 | ) | (6 | ) | $ | 75 | 18 | 19 | ||||
Carloads (in thousands) | 149.3 | 158.4 | 137.4 | (9.1 | ) | (6 | ) | N/A | 21.0 | 15 | N/A | ||||||||||
Revenue ton-miles (in millions) | 17,297 | 18,371 | 15,751 | (1,074 | ) | (6 | ) | N/A | 2,620 | 17 | N/A | ||||||||||
Freight revenue per carload (in dollars) | $ | 3,094 | $ | 3,071 | $ | 2,988 | $ | 23 | 1 | — | $ | 83 | 3 | 3 | |||||||
Freight revenue per revenue ton-mile (in cents) | 2.67 | 2.65 | 2.61 | 0.02 | 1 | — | 0.04 | 2 | 2 |
2019 vs. 2018 | 2018 vs. 2017 | |||||||||||||||||||||
For the year ended December 31 | 2019 | 2018 | 2017 | Total Change | % Change | FX Adjusted % Change(1) | Total Change | % Change | FX Adjusted % Change(1) | |||||||||||||
Freight revenues (in millions) | $ | 250 | $ | 243 | $ | 241 | $ | 7 | 3 | 1 | $ | 2 | 1 | 1 | ||||||||
Carloads (in thousands) | 57.0 | 58.1 | 57.7 | (1.1 | ) | (2 | ) | N/A | 0.4 | 1 | N/A | |||||||||||
Revenue ton-miles (in millions) | 3,846 | 4,051 | 3,849 | (205 | ) | (5 | ) | N/A | 202 | 5 | N/A | |||||||||||
Freight revenue per carload (in dollars) | $ | 4,386 | $ | 4,186 | $ | 4,178 | $ | 200 | 5 | 3 | $ | 8 | — | 1 | ||||||||
Freight revenue per revenue ton-mile (in cents) | 6.50 | 6.00 | 6.27 | 0.50 | 8 | 7 | (0.27 | ) | (4 | ) | (4 | ) |
2019 vs. 2018 | 2018 vs. 2017 | ||||||||||||||||||
For the year ended December 31 | 2019 | 2018 | 2017 | Total Change | % Change | FX Adjusted % Change(1) | Total Change | % Change | FX Adjusted % Change(1) | ||||||||||
Freight revenues (in millions) | $ | 304 | $ | 284 | $ | 265 | $ | 20 | 7 | 5 | $ | 19 | 7 | 8 | |||||
Carloads (in thousands) | 71.5 | 68.6 | 65.8 | 2.9 | 4 | N/A | 2.8 | 4 | N/A | ||||||||||
Revenue ton-miles (in millions) | 4,974 | 4,763 | 4,484 | 211 | 4 | N/A | 279 | 6 | N/A | ||||||||||
Freight revenue per carload (in dollars) | $ | 4,252 | $ | 4,139 | $ | 4,036 | $ | 113 | 3 | 1 | $ | 103 | 3 | 3 | |||||
Freight revenue per revenue ton-mile (in cents) | 6.11 | 5.96 | 5.92 | 0.15 | 3 | 1 | 0.04 | 1 | 1 |
2019 vs. 2018 | 2018 vs. 2017 | ||||||||||||||||||
For the year ended December 31 | 2019 | 2018 | 2017 | Total Change | % Change | FX Adjusted % Change(1) | Total Change | % Change | FX Adjusted % Change(1) | ||||||||||
Freight revenues (in millions) | $ | 1,534 | $ | 1,243 | $ | 898 | $ | 291 | 23 | 22 | $ | 345 | 38 | 39 | |||||
Carloads (in thousands) | 358.1 | 334.6 | 269.5 | 23.5 | 7 | N/A | 65.1 | 24 | N/A | ||||||||||
Revenue ton-miles (in millions) | 29,356 | 27,830 | 21,327 | 1,526 | 5 | N/A | 6,503 | 30 | N/A | ||||||||||
Freight revenue per carload (in dollars) | $ | 4,284 | $ | 3,715 | $ | 3,333 | $ | 569 | 15 | 14 | $ | 382 | 11 | 12 | |||||
Freight revenue per revenue ton-mile (in cents) | 5.23 | 4.47 | 4.21 | 0.76 | 17 | 15 | 0.26 | 6 | 6 |
2019 vs. 2018 | 2018 vs. 2017 | |||||||||||||||||||||
For the year ended December 31 | 2019 | 2018 | 2017 | Total Change | % Change | FX Adjusted % Change(1) | Total Change | % Change | FX Adjusted % Change(1) | |||||||||||||
Freight revenues (in millions) | $ | 752 | $ | 797 | $ | 739 | $ | (45 | ) | (6 | ) | (8 | ) | $ | 58 | 8 | 8 | |||||
Carloads (in thousands) | 234.3 | 252.2 | 255.3 | (17.9 | ) | (7 | ) | N/A | (3.1 | ) | (1 | ) | N/A | |||||||||
Revenue ton-miles (in millions) | 10,684 | 11,858 | 11,468 | (1,174 | ) | (10 | ) | N/A | 390 | 3 | N/A | |||||||||||
Freight revenue per carload (in dollars) | $ | 3,210 | $ | 3,161 | $ | 2,894 | $ | 49 | 2 | — | $ | 267 | 9 | 9 | ||||||||
Freight revenue per revenue ton-mile (in cents) | 7.04 | 6.72 | 6.44 | 0.32 | 5 | 3 | 0.28 | 4 | 4 |
2019 vs. 2018 | 2018 vs. 2017 | ||||||||||||||||||
For the year ended December 31 | 2019 | 2018 | 2017 | Total Change | % Change | FX Adjusted % Change(1) | Total Change | % Change | FX Adjusted % Change(1) | ||||||||||
Freight revenues (in millions) | $ | 352 | $ | 322 | $ | 293 | $ | 30 | 9 | 7 | $ | 29 | 10 | 11 | |||||
Carloads (in thousands) | 114.4 | 108.3 | 105.1 | 6.1 | 6 | N/A | 3.2 | 3 | N/A | ||||||||||
Revenue ton-miles (in millions) | 1,427 | 1,347 | 1,321 | 80 | 6 | N/A | 26 | 2 | N/A | ||||||||||
Freight revenue per carload (in dollars) | $ | 3,077 | $ | 2,975 | $ | 2,785 | $ | 102 | 3 | 1 | $ | 190 | 7 | 7 | |||||
Freight revenue per revenue ton-mile (in cents) | 24.67 | 23.92 | 22.15 | 0.75 | 3 | 1 | 1.77 | 8 | 8 |
2019 vs. 2018 | 2018 vs. 2017 | ||||||||||||||||||||
For the year ended December 31 | 2019 | 2018 | 2017 | Total Change | % Change | FX Adjusted % Change(1) | Total Change | % Change | FX Adjusted % Change(1) | ||||||||||||
Freight revenues (in millions) | $ | 1,593 | $ | 1,538 | $ | 1,365 | $ | 55 | 4 | 3 | $ | 173 | 13 | 13 | |||||||
Carloads (in thousands) | 1,046.1 | 1,025.9 | 996.7 | 20.2 | 2 | N/A | 29.2 | 3 | N/A | ||||||||||||
Revenue ton-miles (in millions) | 28,033 | 26,688 | 24,303 | 1,345 | 5 | N/A | 2,385 | 10 | N/A | ||||||||||||
Freight revenue per carload (in dollars) | $ | 1,523 | $ | 1,499 | $ | 1,370 | $ | 24 | 2 | 1 | $ | 129 | 9 | 9 | |||||||
Freight revenue per revenue ton-mile (in cents) | 5.68 | 5.76 | 5.62 | (0.08 | ) | (1 | ) | (2 | ) | 0.14 | 2 | 2 |
2019 Operating Expenses | 2018 Operating Expenses | 2017 Operating Expenses |
2019 vs. 2018 | 2018 vs. 2017 | ||||||||||||||||||||||
For the year ended December 31 (in millions) | 2019 | 2018 | 2017 | Total Change | % Change | FX Adjusted % Change(1) | Total Change | % Change | FX Adjusted % Change(1) | ||||||||||||||
Compensation and benefits | $ | 1,540 | $ | 1,468 | $ | 1,309 | $ | 72 | 5 | 4 | $ | 159 | 12 | 12 | |||||||||
Fuel | 882 | 918 | 677 | (36 | ) | (4 | ) | (6 | ) | 241 | 36 | 36 | |||||||||||
Materials | 210 | 201 | 190 | 9 | 4 | 4 | 11 | 6 | 6 | ||||||||||||||
Equipment rents | 137 | 130 | 142 | 7 | 5 | 3 | (12 | ) | (8 | ) | (8 | ) | |||||||||||
Depreciation and amortization | 706 | 696 | 661 | 10 | 1 | 1 | 35 | 5 | 5 | ||||||||||||||
Purchased services and other | 1,193 | 1,072 | 1,056 | 121 | 11 | 10 | 16 | 2 | 2 | ||||||||||||||
Total operating expenses | $ | 4,668 | $ | 4,485 | $ | 4,035 | $ | 183 | 4 | 3 | $ | 450 | 11 | 11 |
• | increased operating expense associated with higher casualty costs incurred in 2019 of $76 million (excluding FX); |
• | higher stock-based compensation primarily driven by an increase in stock price of $58 million; |
• | the unfavourable impact of the change in FX of $48 million; |
• | the unfavourable impact from changes in fuel prices of $197 million; |
• | management transition recoveries of $51 million associated with Mr. E. Hunter Harrison's retirement as CEO of CP in 2017; |
• | a charge associated with a loss contingency of $20 million; |
• | higher stock-based compensation primarily driven by an increase in stock price of $58 million; |
• | the unfavourable impact of the change in FX of $11 million; and |
• | lower pension current service cost of $14 million; and |
• | management transition recoveries of $51 million associated with Mr. E. Hunter Harrison's retirement as CEO of CP; |
• | the unfavourable impact from higher fuel prices of $197 million; |
• | a fuel tax recovery received in 2017 that related to prior periods of $8 million. |
• | the unfavourable impact of the change in FX of $1 million. |
2019 vs. 2018 | 2018 vs. 2017 | ||||||||||||||||||
For the year ended December 31 (in millions) | 2019 | 2018 | 2017 | Total Change | % Change | Total Change | % Change | ||||||||||||
Support and facilities | $ | 278 | $ | 264 | $ | 266 | $ | 14 | 5 | $ | (2 | ) | (1 | ) | |||||
Track and operations | 278 | 268 | 251 | 10 | 4 | 17 | 7 | ||||||||||||
Intermodal | 222 | 221 | 197 | 1 | — | 24 | 12 | ||||||||||||
Equipment | 125 | 143 | 157 | (18 | ) | (13 | ) | (14 | ) | (9 | ) | ||||||||
Casualty | 149 | 73 | 72 | 76 | 104 | 1 | 1 | ||||||||||||
Property taxes | 133 | 124 | 121 | 9 | 7 | 3 | 2 | ||||||||||||
Other | 29 | 20 | 7 | 9 | 45 | 13 | 186 | ||||||||||||
Land sales | (21 | ) | (41 | ) | (15 | ) | 20 | (49 | ) | (26 | ) | 173 | |||||||
Total Purchased services and other | $ | 1,193 | $ | 1,072 | $ | 1,056 | $ | 121 | 11 | $ | 16 | 2 |
• | an increase in number and severity of casualty incidents of $73 million (excluding FX), which were the result of difficult operating conditions due to weather in the first half of 2019, reported in Casualty; |
• | lower gains on land sales of $20 million mainly as a result of the sale of the Bass Lake railway line in 2018; |
• | the unfavourable impact of the change in FX of $11 million; |
• | a decrease in charges associated with contingencies of $10 million, reported in Other; |
• | a charge associated with a loss contingency of $20 million, reported in Other; |
• | an increase in unrecognized tax benefits of $24 million; and |
• | net income tax recoveries in 2018 of $21 million as a result of the Iowa and Missouri corporate tax rate decreases. |
For the year ended December 31 (in millions, except for track miles and crossties) | 2019 | 2018 | 2017 | ||||||
Additions to capital | |||||||||
Track and roadway | $ | 1,004 | $ | 965 | $ | 958 | |||
Rolling stock and containers | 426 | 401 | 198 | ||||||
Information systems(1) | 70 | 86 | 78 | ||||||
Buildings and other | 164 | 122 | 132 | ||||||
Total – accrued additions to capital | 1,664 | 1,574 | 1,366 | ||||||
Less: | |||||||||
Non-cash transactions | 17 | 23 | 26 | ||||||
Cash invested in additions to properties (per Consolidated Statements of Cash Flows) | $ | 1,647 | $ | 1,551 | $ | 1,340 | |||
Track installation capital programs | |||||||||
Track miles of rail laid (miles) | 246 | 281 | 313 | ||||||
Track miles of rail capacity expansion (miles) | 11 | 4 | 4 | ||||||
Crossties installed (thousands) | 1,122 | 1,015 | 1,138 |
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 | Baa1 | stable | |
Commercial paper program | |||
Standard & Poor's | A-2 | N/A | |
Moody's | P-2 | N/A |
• | in the fourth quarter, a deferred tax expense of $24 million as a result of a provision for an uncertain tax item of a prior period that unfavourably impacted Diluted EPS by 17 cents; |
• | in the second quarter, a deferred tax recovery of $88 million due to the change in the Alberta provincial corporate income tax rate that favourably impacted Diluted EPS by 63 cents; and |
• | during the course of the year, a net non-cash gain of $94 million ($86 million after deferred tax) due to FX translation of debt and lease liabilities as follows: |
– | in the fourth quarter, a $37 million gain ($32 million after deferred tax) that favourably impacted Diluted EPS by 22 cents; |
– | in the third quarter, a $25 million loss ($22 million after deferred tax) that unfavourably impacted Diluted EPS by 15 cents; |
– | in the second quarter, a $37 million gain ($34 million after deferred tax) that favourably impacted Diluted EPS by 24 cents; and |
– | in the first quarter, a $45 million gain ($42 million after deferred tax) that favourably impacted Diluted EPS by 30 cents. |
• | in the second quarter, a deferred tax recovery of $21 million due to reductions in the Missouri and Iowa state tax rates that favourably impacted Diluted EPS by 15 cents; and |
• | during the course of the year, a net non-cash loss of $168 million ($150 million after deferred tax) due to FX translation of debt as follows: |
– | in the fourth quarter, a $113 million loss ($103 million after deferred tax) that unfavourably impacted Diluted EPS by 72 cents; |
– | in the third quarter, a $38 million gain ($33 million after deferred tax) that favourably impacted Diluted EPS by 23 cents; |
– | in the second quarter, a $44 million loss ($38 million after deferred tax) that unfavourably impacted Diluted EPS by 27 cents; and |
– | in the first quarter, a $49 million loss ($42 million after deferred tax) that unfavourably impacted Diluted EPS by 29 cents. |
• | in the second quarter, a charge on hedge roll and de-designation of $13 million ($10 million after deferred tax) that unfavourably impacted Diluted EPS by 7 cents; |
• | in the second quarter, an insurance recovery of a legal settlement of $10 million ($7 million after current tax) that favourably impacted Diluted EPS by 5 cents; |
• | in the first quarter, a management transition recovery of $51 million related to the retirement of Mr. E. Hunter Harrison as CEO of CP ($39 million after deferred tax) that favourably impacted Diluted EPS by 27 cents; |
• | during the course of the year, a net deferred tax recovery of $541 million as a result of changes in income tax rates as follows: |
– | in the fourth quarter, a deferred tax recovery of $527 million, primarily due to the U.S. tax reform, that favourably impacted Diluted EPS by $3.63; |
– | in the third quarter, a deferred tax expense of $3 million as a result of the change in the Illinois state corporate income tax rate change that unfavourably impacted Diluted EPS by 2 cents; |
– | in the second quarter, a deferred tax recovery of $17 million as a result of the change in the Saskatchewan provincial corporate income tax rate that favourably impacted Diluted EPS by 12 cents; and |
• | during the course of the year, a net non-cash gain of $186 million ($162 million after deferred tax) due to FX translation of debt as follows: |
– | in the fourth quarter, a $14 million loss ($12 million after deferred tax) that unfavourably impacted Diluted EPS by 8 cents; |
– | in the third quarter, a $105 million gain ($91 million after deferred tax) that favourably impacted Diluted EPS by 62 cents; |
– | in the second quarter, a $67 million gain ($59 million after deferred tax) that favourably impacted Diluted EPS by 40 cents; and |
– | in the first quarter, a $28 million gain ($24 million after deferred tax) that favourably impacted Diluted EPS by 16 cents. |
• | in the third quarter, a $25 million expense ($18 million after current tax) related to a legal settlement that unfavourably impacted Diluted EPS by 12 cents; and |
• | during the course of the year, a net non-cash gain of $79 million ($68 million after deferred tax) due to FX translation of debt as follows: |
– | in the fourth quarter, a $74 million loss ($64 million after deferred tax) that unfavourably impacted Diluted EPS by 43 cents; |
– | in the third quarter, a $46 million loss ($40 million after deferred tax) that unfavourably impacted Diluted EPS by 27 cents; |
– | in the second quarter, an $18 million gain ($16 million after deferred tax) that favourably impacted Diluted EPS by 10 cents; and |
– | in the first quarter, a $181 million gain ($156 million after deferred tax) that favourably impacted Diluted EPS by $1.01. |
• | in the third quarter, a $68 million gain ($42 million after current tax) related to the sale of Delaware & Hudson Railway Company, Inc. ("D&H") South that favourably impacted Diluted EPS by 26 cents; |
• | in the third quarter, a $47 million charge ($35 million after deferred tax) related to the early redemption premium on notes that unfavourably impacted Diluted EPS by 22 cents; |
• | in the second quarter, a deferred income tax expense of $23 million as a result of the change in the Alberta provincial corporate income tax rate that unfavourably impacted Diluted EPS by 14 cents; and |
• | during the course of the year, a net non-cash loss of $297 million ($257 million after deferred tax) due to FX translation of debt as follows: |
– | in the fourth quarter, a $115 million loss ($100 million after deferred tax) that unfavourably impacted Diluted EPS by 64 cents; |
– | in the third quarter, a $128 million loss ($111 million after deferred tax) that unfavourably impacted Diluted EPS by 69 cents; |
– | in the second quarter, a $10 million gain ($9 million after deferred tax) that favourably impacted Diluted EPS by 5 cents; and |
– | in the first quarter, a $64 million loss ($55 million after deferred tax) that unfavourably impacted Diluted EPS by 34 cents. |
For the year ended December 31 | |||||||||||||||
(in millions) | 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||
Net income as reported | $ | 2,440 | $ | 1,951 | $ | 2,405 | $ | 1,599 | $ | 1,352 | |||||
Less significant items (pre-tax): | |||||||||||||||
Legal settlement charge | — | — | — | (25 | ) | — | |||||||||
Insurance recovery of legal settlement | — | — | 10 | — | — | ||||||||||
Charge on hedge roll and de-designation | — | — | (13 | ) | — | — | |||||||||
Gain on sale of D&H South | — | — | — | — | 68 | ||||||||||
Management transition recovery | — | — | 51 | — | — | ||||||||||
Impact of FX translation gain (loss) on debt and lease liabilities | 94 | (168 | ) | 186 | 79 | (297 | ) | ||||||||
Early redemption premium on notes | — | — | — | — | (47 | ) | |||||||||
Add: | |||||||||||||||
Tax effect of adjustments(1) | 8 | (18 | ) | 36 | 4 | (26 | ) | ||||||||
Income tax rate changes | (88 | ) | (21 | ) | (541 | ) | — | 23 | |||||||
Provision for uncertain tax item | 24 | — | — | — | — | ||||||||||
Adjusted income | $ | 2,290 | $ | 2,080 | $ | 1,666 | $ | 1,549 | $ | 1,625 |
For the year ended December 31 | |||||||||||||||
2019 | 2018 | 2017 | 2016 | 2015 | |||||||||||
Diluted earnings per share as reported | $ | 17.52 | $ | 13.61 | $ | 16.44 | $ | 10.63 | $ | 8.40 | |||||
Less significant items (pre-tax): | |||||||||||||||
Legal settlement charge | — | — | — | (0.17 | ) | — | |||||||||
Insurance recovery of legal settlement | — | — | 0.07 | — | — | ||||||||||
Charge on hedge roll and de-designation | — | — | (0.09 | ) | — | — | |||||||||
Gain on sale of D&H South | — | — | — | — | 0.42 | ||||||||||
Management transition recovery | — | — | 0.35 | — | — | ||||||||||
Impact of FX translation gain (loss) on debt and lease liabilities | 0.67 | (1.17 | ) | 1.27 | 0.53 | (1.84 | ) | ||||||||
Early redemption premium on notes | — | — | — | — | (0.30 | ) | |||||||||
Add: | |||||||||||||||
Tax effect of adjustments(1) | 0.05 | (0.12 | ) | 0.25 | 0.02 | (0.16 | ) | ||||||||
Income tax rate changes | (0.63 | ) | (0.15 | ) | (3.70 | ) | — | 0.14 | |||||||
Provision for uncertain tax item | 0.17 | — | — | — | — | ||||||||||
Adjusted diluted earnings per share | $ | 16.44 | $ | 14.51 | $ | 11.39 | $ | 10.29 | $ | 10.10 |
For the year ended December 31 | |||||||||||||||
(in millions) | 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||
Operating income as reported | $ | 3,124 | $ | 2,831 | $ | 2,519 | $ | 2,411 | $ | 2,618 | |||||
Less significant items: | |||||||||||||||
Gain on sale of D&H South | — | — | — | — | 68 | ||||||||||
Management transition recovery | — | — | 51 | — | — | ||||||||||
Adjusted operating income | $ | 3,124 | $ | 2,831 | $ | 2,468 | $ | 2,411 | $ | 2,550 |
For the year ended December 31 | ||||||||||
2019 | 2018 | 2017 | 2016 | 2015 | ||||||
Operating ratio as reported | 59.9 | % | 61.3 | % | 61.6 | % | 61.3 | % | 61.0 | % |
Less significant items: | ||||||||||
Gain on sale of D&H South | — | — | — | — | (1.0 | ) | ||||
Management transition recovery | — | — | (0.8 | ) | — | — | ||||
Adjusted operating ratio | 59.9 | % | 61.3 | % | 62.4 | % | 61.3 | % | 62.0 | % |
For the year ended December 31 | |||||||||||||||
(in millions, except for percentages) | 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||
Operating income | $ | 3,124 | $ | 2,831 | $ | 2,519 | $ | 2,411 | $ | 2,618 | |||||
Less: | |||||||||||||||
Other (income) expense | (89 | ) | 174 | (178 | ) | (45 | ) | 335 | |||||||
Other components of net periodic benefit recovery | (381 | ) | (384 | ) | (274 | ) | (167 | ) | (70 | ) | |||||
Tax(1) | 806 | 749 | 111 | 675 | 728 | ||||||||||
$ | 2,788 | $ | 2,292 | $ | 2,860 | $ | 1,948 | $ | 1,625 | ||||||
Average invested capital | $ | 15,579 | $ | 14,964 | $ | 13,961 | $ | 13,532 | $ | 12,561 | |||||
ROIC | 17.9 | % | 15.3 | % | 20.5 | % | 14.4 | % | 12.9 | % |
For the year ended December 31 | |||||||||||||||
(in millions, except for percentages) | 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||
Adjusted operating income | $ | 3,124 | $ | 2,831 | $ | 2,468 | $ | 2,411 | $ | 2,550 | |||||
Less: | |||||||||||||||
Other (income) expense | (89 | ) | 174 | (178 | ) | (45 | ) | 335 | |||||||
Other components of net periodic benefit recovery | (381 | ) | (384 | ) | (274 | ) | (167 | ) | (70 | ) | |||||
Significant items (pre-tax): | |||||||||||||||
Legal settlement charge | — | — | — | (25 | ) | — | |||||||||
Insurance recovery of legal settlement | — | — | 10 | — | — | ||||||||||
Charge on hedge roll and de-designation | — | — | (13 | ) | — | — | |||||||||
Impact of FX translation gain (loss) on debt and lease liabilities | 94 | (168 | ) | 186 | 79 | (297 | ) | ||||||||
Early redemption premium on notes | — | — | — | — | (47 | ) | |||||||||
Tax(1) | 874 | 788 | 724 | 673 | 716 | ||||||||||
$ | 2,626 | $ | 2,421 | $ | 2,013 | $ | 1,896 | $ | 1,913 | ||||||
Average invested capital | $ | 15,579 | $ | 14,964 | $ | 13,961 | $ | 13,532 | $ | 12,561 | |||||
Less impact of periodic significant items net of tax on the above average: | |||||||||||||||
Income tax recovery from income tax rate changes | 44 | 11 | 270 | — | (11 | ) | |||||||||
Provision for uncertain tax item | (12 | ) | — | — | — | — | |||||||||
Legal settlement charge | — | — | — | (9 | ) | — | |||||||||
Insurance recovery of legal settlement | — | — | 4 | — | — | ||||||||||
Charge on hedge roll and de-designation | — | — | (5 | ) | — | — | |||||||||
Gain on sale of D&H South | — | — | — | — | 21 | ||||||||||
Early redemption premium on notes | — | — | — | — | (18 | ) | |||||||||
Management transition recovery | — | — | 20 | — | — | ||||||||||
Adjusted average for the 12 months of total shareholders' equity, long-term debt, long-term debt maturing within one year and short-term borrowing | $ | 15,547 | $ | 14,953 | $ | 13,672 | $ | 13,541 | $ | 12,569 | |||||
Adjusted ROIC | 16.9 | % | 16.2 | % | 14.7 | % | 14.0 | % | 15.2 | % |
For the year ended December 31 | |||||||||||||||
(in millions) | 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||
Cash provided by operating activities | $ | 2,990 | $ | 2,712 | $ | 2,182 | $ | 2,089 | $ | 2,459 | |||||
Cash used in investing activities | (1,803 | ) | (1,458 | ) | (1,295 | ) | (1,069 | ) | (1,123 | ) | |||||
Effect of foreign currency fluctuations on U.S. dollar-denominated cash and cash equivalents | (4 | ) | 11 | (13 | ) | (13 | ) | 45 | |||||||
Less: | |||||||||||||||
Settlement of forward starting swaps on debt issuance | — | (24 | ) | — | — | — | |||||||||
Investment in Central Maine & Québec Railway | (174 | ) | — | — | — | — | |||||||||
Free cash | $ | 1,357 | $ | 1,289 | $ | 874 | $ | 1,007 | $ | 1,381 |
2019 vs. 2018 | 2018 vs. 2017 | |||||||||||||||||||||||||
(in millions) | Reported 2019 | Reported 2018 | Reported 2017 | Variance due to FX | FX Adjusted 2018 | FX Adj. % Change | Variance due to FX | FX Adjusted 2017 | FX Adj. % Change | |||||||||||||||||
Freight revenues by line of business | ||||||||||||||||||||||||||
Grain | $ | 1,684 | $ | 1,566 | $ | 1,532 | $ | 19 | $ | 1,585 | 6 | $ | — | $ | 1,532 | 2 | ||||||||||
Coal | 682 | 673 | 631 | 2 | 675 | 1 | — | 631 | 7 | |||||||||||||||||
Potash | 462 | 486 | 411 | 6 | 492 | (6 | ) | (1 | ) | 410 | 19 | |||||||||||||||
Fertilizers and sulphur | 250 | 243 | 241 | 4 | 247 | 1 | (1 | ) | 240 | 1 | ||||||||||||||||
Forest products | 304 | 284 | 265 | 5 | 289 | 5 | (1 | ) | 264 | 8 | ||||||||||||||||
Energy, chemicals and plastics | 1,534 | 1,243 | 898 | 17 | 1,260 | 22 | (1 | ) | 897 | 39 | ||||||||||||||||
Metals, minerals, and consumer products | 752 | 797 | 739 | 16 | 813 | (8 | ) | (1 | ) | 738 | 8 | |||||||||||||||
Automotive | 352 | 322 | 293 | 7 | 329 | 7 | (2 | ) | 291 | 11 | ||||||||||||||||
Intermodal | 1,593 | 1,538 | 1,365 | 10 | 1,548 | 3 | (1 | ) | 1,364 | 13 | ||||||||||||||||
Freight revenues | 7,613 | 7,152 | 6,375 | 86 | 7,238 | 5 | (8 | ) | 6,367 | 12 | ||||||||||||||||
Non-freight revenues | 179 | 164 | 179 | 1 | 165 | 8 | — | 179 | (8 | ) | ||||||||||||||||
Total revenues | $ | 7,792 | $ | 7,316 | $ | 6,554 | $ | 87 | $ | 7,403 | 5 | $ | (8 | ) | $ | 6,546 | 12 |
2019 vs. 2018 | 2018 vs. 2017 | |||||||||||||||||||||||||
(in millions) | Reported 2019 | Reported 2018 | Reported 2017 | Variance due to FX | FX Adjusted 2018 | FX Adj. % Change | Variance due to FX | FX Adjusted 2017 | FX Adj. % Change | |||||||||||||||||
Compensation and benefits | $ | 1,540 | $ | 1,468 | $ | 1,309 | $ | 11 | $ | 1,479 | 4 | $ | (1 | ) | $ | 1,308 | 12 | |||||||||
Fuel | 882 | 918 | 677 | 18 | 936 | (6 | ) | — | 677 | 36 | ||||||||||||||||
Materials | 210 | 201 | 190 | 1 | 202 | 4 | — | 190 | 6 | |||||||||||||||||
Equipment rents | 137 | 130 | 142 | 3 | 133 | 3 | — | 142 | (8 | ) | ||||||||||||||||
Depreciation and amortization | 706 | 696 | 661 | 4 | 700 | 1 | — | 661 | 5 | |||||||||||||||||
Purchased services and other | 1,193 | 1,072 | 1,056 | 11 | 1,083 | 10 | (3 | ) | 1,053 | 2 | ||||||||||||||||
Total operating expenses | $ | 4,668 | $ | 4,485 | $ | 4,035 | $ | 48 | $ | 4,533 | 3 | $ | (4 | ) | $ | 4,031 | 11 |
For the year ended December 31 | |||||||||||||||
(in dollars, except for percentages) | 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||
Dividends declared per share | $ | 3.1400 | $ | 2.5125 | $ | 2.1875 | $ | 1.8500 | $ | 1.4000 | |||||
Diluted EPS | 17.52 | 13.61 | 16.44 | 10.63 | 8.40 | ||||||||||
Dividend payout ratio | 17.9 | % | 18.5 | % | 13.3 | % | 17.4 | % | 16.7 | % |
For the year ended December 31 | |||||||||||||||
(in dollars, except for percentages) | 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||
Dividends declared per share | $ | 3.1400 | $ | 2.5125 | $ | 2.1875 | $ | 1.8500 | $ | 1.4000 | |||||
Adjusted diluted EPS | 16.44 | 14.51 | 11.39 | 10.29 | 10.10 | ||||||||||
Adjusted dividend payout ratio | 19.1 | % | 17.3 | % | 19.2 | % | 18.0 | % | 13.9 | % |
(in millions, except for ratios) | 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||
Long-term debt including long-term debt maturing within one year as at December 31 | $ | 8,757 | $ | 8,696 | $ | 8,159 | $ | 8,684 | $ | 8,957 | |||||
Net income for the year ended December 31 | 2,440 | 1,951 | 2,405 | 1,599 | 1,352 | ||||||||||
Long-term debt to Net income ratio | 3.6 | 4.5 | 3.4 | 5.4 | 6.6 |
(in millions) | 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||
Long-term debt including long-term debt maturing within one year as at December 31 | $ | 8,757 | $ | 8,696 | $ | 8,159 | $ | 8,684 | $ | 8,957 | |||||
Add: | |||||||||||||||
Pension plans deficit(1) | 294 | 266 | 278 | 273 | 295 | ||||||||||
Operating lease liabilities(2) | 354 | 387 | 281 | 361 | 439 | ||||||||||
Less: | |||||||||||||||
Cash and cash equivalents | 133 | 61 | 338 | 164 | 650 | ||||||||||
Adjusted net debt as at December 31 | $ | 9,272 | $ | 9,288 | $ | 8,380 | $ | 9,154 | $ | 9,041 |
For the year ended December 31 | |||||||||||||||
(in millions) | 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||
Net income as reported | $ | 2,440 | $ | 1,951 | $ | 2,405 | $ | 1,599 | $ | 1,352 | |||||
Add: | |||||||||||||||
Net interest expense | 448 | 453 | 473 | 471 | 394 | ||||||||||
Income tax expense | 706 | 637 | 93 | 553 | 607 | ||||||||||
EBIT | 3,594 | 3,041 | 2,971 | 2,623 | 2,353 | ||||||||||
Less significant items (pre-tax): | |||||||||||||||
Legal settlement charge | — | — | — | (25 | ) | — | |||||||||
Insurance recovery of legal settlement | — | — | 10 | — | — | ||||||||||
Charge on hedge roll and de-designation | — | — | (13 | ) | — | — | |||||||||
Gain on sale of D&H South | — | — | — | — | 68 | ||||||||||
Management transition recovery | — | — | 51 | — | — | ||||||||||
Impact of FX translation gain (loss) on debt and lease liabilities | 94 | (168 | ) | 186 | 79 | (297 | ) | ||||||||
Early redemption premium on notes | — | — | — | — | (47 | ) | |||||||||
Adjusted EBIT | 3,500 | 3,209 | 2,737 | 2,569 | 2,629 | ||||||||||
Add: | |||||||||||||||
Operating lease expense | 83 | 97 | 104 | 111 | 127 | ||||||||||
Depreciation and amortization | 706 | 696 | 661 | 640 | 595 | ||||||||||
Less: | |||||||||||||||
Other components of net periodic benefit recovery | 381 | 384 | 274 | 167 | 70 | ||||||||||
Adjusted EBITDA | $ | 3,908 | $ | 3,618 | $ | 3,228 | $ | 3,153 | $ | 3,281 |
(in millions, except for ratios) | 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||
Adjusted net debt as at December 31 | $ | 9,272 | $ | 9,288 | $ | 8,380 | $ | 9,154 | $ | 9,041 | |||||
Adjusted EBITDA for the year ended December 31 | 3,908 | 3,618 | 3,228 | 3,153 | 3,281 | ||||||||||
Adjusted net debt to Adjusted EBITDA ratio | 2.4 | 2.6 | 2.6 | 2.9 | 2.8 |
Payments due by period (in millions) | Total | 2020 | 2021 & 2022 | 2023 & 2024 | Thereafter | ||||||||||
Contractual commitments | |||||||||||||||
Interest on long-term debt and finance leases | $ | 11,117 | $ | 431 | $ | 804 | $ | 690 | $ | 9,192 | |||||
Long-term debt | 8,692 | 592 | 842 | 568 | 6,690 | ||||||||||
Finance leases | 151 | 7 | 113 | 13 | 18 | ||||||||||
Operating leases(1) | 395 | 80 | 106 | 79 | 130 | ||||||||||
Supplier purchase | 3,090 | 699 | 1,295 | 727 | 369 | ||||||||||
Other long-term liabilities(2) | 495 | 53 | 102 | 99 | 241 | ||||||||||
Total contractual commitments | $ | 23,940 | $ | 1,862 | $ | 3,262 | $ | 2,176 | $ | 16,640 |
Payments due by period (in millions) | Total | 2020 | 2021 & 2022 | 2023 & 2024 | Thereafter | ||||||||||
Certain other financial commitments | |||||||||||||||
Letters of credit | $ | 80 | $ | 80 | $ | — | $ | — | $ | — | |||||
Capital commitments | 664 | 332 | 200 | 61 | 71 | ||||||||||
Total certain other financial commitments | $ | 744 | $ | 412 | $ | 200 | $ | 61 | $ | 71 |
2019 | 2018 | |||||||||||||||||
(in millions of Canadian dollars) | Current service cost | Other components | Total | Current service cost | Other components | Total | ||||||||||||
Defined benefit pensions | $ | 107 | $ | (414 | ) | $ | (307 | ) | $ | 120 | $ | (405 | ) | $ | (285 | ) | ||
Defined contribution pensions | 11 | — | 11 | 10 | — | 10 | ||||||||||||
Post-retirement benefits | 4 | 16 | 20 | 5 | 18 | 23 | ||||||||||||
Self-insured workers' compensation and long-term disability benefits | 7 | 17 | 24 | 7 | 3 | 10 | ||||||||||||
All plans | $ | 129 | $ | (381 | ) | $ | (252 | ) | $ | 142 | $ | (384 | ) | $ | (242 | ) |
Key Assumptions | Assessments |
• Whole and remaining asset lives | • Statistical analysis of historical retirement patterns;• Evaluation of management strategy and its impact on operations and the future use of specific property assets;• Assessment of technological advances;• Engineering estimates of changes in current operations and analysis of historic, current and projected future usage;• Additional factors considered for track assets: density of traffic and whether rail is new or has been re-laid in a subsequent position;• Assessment of policies and practices for the management of assets including maintenance; and• Comparison with industry data. |
• Salvage values | • Analysis of historical, current and estimated future salvage values. |
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49
The next table shows the estimated incremental amounts that would be paid to Mr. Creel and Mr. Ellis if their employment had been terminated without cause onof December 31, 2017. None2019 and 2018, the related consolidated statements of income, comprehensive income, cash flows, and changes in shareholders’ equity, for each of the named executive receivesthree years in the period ended December 31, 2019, and the related notes and the financial statement schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America ("US GAAP").
Severance payment | ||||||||||||||||||||||||||||
Name | Severance period (# of months) | Base pay ($) | Short-term Incentive ($) | Additional retirement benefits ($) | Other benefits ($) | Value of vesting of options and equity-based awards ($) | Payable on termination without cause ($) | |||||||||||||||||||||
Keith Creel | 24 | 2,822,625 | 3,387,150 | - | 34,169 | 6,369,723 | 12,613,667 | |||||||||||||||||||||
Jeffrey Ellis | 12 | 445,000 | 267,000 | - | 14,592 | 690,249 | 1,416,841 | |||||||||||||||||||||
Total | 3,267,625 | 3,654,150 | - | 48,761 | 7,059,972 | 14,030,508 |
Notes:
– |
– |
– |
50
– | Assessing the methodology used in management’s determination of the expected return on fund assets, |
– | Testing the underlying source information, and |
– | Comparing management’s assumptions to historical data and available market trends. |
Year ended December 31 (in millions of Canadian dollars, except per share data) | 2019 | 2018 | 2017 | ||||||
Revenues (Note 3) | |||||||||
Freight | $ | 7,613 | $ | 7,152 | $ | 6,375 | |||
Non-freight | 179 | 164 | 179 | ||||||
Total revenues | 7,792 | 7,316 | 6,554 | ||||||
Operating expenses | |||||||||
Compensation and benefits (Note 23, 24) | 1,540 | 1,468 | 1,309 | ||||||
Fuel | 882 | 918 | 677 | ||||||
Materials | 210 | 201 | 190 | ||||||
Equipment rents | 137 | 130 | 142 | ||||||
Depreciation and amortization | 706 | 696 | 661 | ||||||
Purchased services and other (Note 12) | 1,193 | 1,072 | 1,056 | ||||||
Total operating expenses | 4,668 | 4,485 | 4,035 | ||||||
Operating income | 3,124 | 2,831 | 2,519 | ||||||
Less: | |||||||||
Other (income) expense (Note 4) | (89 | ) | 174 | (178 | ) | ||||
Other components of net periodic benefit recovery (Note 23) | (381 | ) | (384 | ) | (274 | ) | |||
Net interest expense (Note 5) | 448 | 453 | 473 | ||||||
Income before income tax expense | 3,146 | 2,588 | 2,498 | ||||||
Income tax expense (Note 6) | 706 | 637 | 93 | ||||||
Net income | $ | 2,440 | $ | 1,951 | $ | 2,405 | |||
Earnings per share (Note 7) | |||||||||
Basic earnings per share | $ | 17.58 | $ | 13.65 | $ | 16.49 | |||
Diluted earnings per share | $ | 17.52 | $ | 13.61 | $ | 16.44 | |||
Weighted-average number of shares (millions) (Note 7) | |||||||||
Basic | 138.8 | 142.9 | 145.9 | ||||||
Diluted | 139.3 | 143.3 | 146.3 |
Year ended December 31 (in millions of Canadian dollars) | 2019 | 2018 | 2017 | ||||||
Net income | $ | 2,440 | $ | 1,951 | $ | 2,405 | |||
Net gain (loss) in foreign currency translation adjustments, net of hedging activities | 37 | (60 | ) | 24 | |||||
Change in derivatives designated as cash flow hedges | 10 | 38 | 19 | ||||||
Change in pension and post-retirement defined benefit plans | (661 | ) | (449 | ) | 80 | ||||
Other comprehensive (loss) income before income taxes | (614 | ) | (471 | ) | 123 | ||||
Income tax recovery (expense) on above items | 135 | 169 | (65 | ) | |||||
Other comprehensive (loss) income (Note 8) | (479 | ) | (302 | ) | 58 | ||||
Comprehensive income | $ | 1,961 | $ | 1,649 | $ | 2,463 |
As at December 31 (in millions of Canadian dollars, except Common Shares) | 2019 | 2018 | ||||
Assets | ||||||
Current assets | ||||||
Cash and cash equivalents | $ | 133 | $ | 61 | ||
Accounts receivable, net (Note 10) | 805 | 815 | ||||
Materials and supplies | 182 | 173 | ||||
Other current assets | 90 | 68 | ||||
1,210 | 1,117 | |||||
Investments (Note 13) | 341 | 203 | ||||
Properties (Note 14, 21) | 19,156 | 18,418 | ||||
Goodwill and intangible assets (Note 11, 15) | 206 | 202 | ||||
Pension asset (Note 23) | 1,003 | 1,243 | ||||
Other assets (Note 16, 21) | 451 | 71 | ||||
Total assets | $ | 22,367 | $ | 21,254 | ||
Liabilities and shareholders’ equity | ||||||
Current liabilities | ||||||
Accounts payable and accrued liabilities (Note 17, 21) | $ | 1,693 | $ | 1,449 | ||
Long-term debt maturing within one year (Note 18, 19, 21) | 599 | 506 | ||||
2,292 | 1,955 | |||||
Pension and other benefit liabilities (Note 23) | 785 | 718 | ||||
Other long-term liabilities (Note 20, 21) | 562 | 237 | ||||
Long-term debt (Note 18, 19, 21) | 8,158 | 8,190 | ||||
Deferred income taxes (Note 6) | 3,501 | 3,518 | ||||
Total liabilities | 15,298 | 14,618 | ||||
Shareholders’ equity | ||||||
Share capital (Note 22) Authorized unlimited Common Shares without par value. Issued and outstanding are 137.0 million and 140.5 million as at December 31, 2019 and 2018, respectively. | 1,993 | 2,002 | ||||
Authorized unlimited number of first and second preferred shares; none outstanding. | ||||||
Additional paid-in capital | 48 | 42 | ||||
Accumulated other comprehensive loss (Note 8) | (2,522 | ) | (2,043 | ) | ||
Retained earnings | 7,550 | 6,635 | ||||
7,069 | 6,636 | |||||
Total liabilities and shareholders’ equity | $ | 22,367 | $ | 21,254 |
|
| |||||||||
| /s/ JANE L. PEVERETT | |||||||||
| Jane L. Peverett, Director, | |||||||||
| Chair of the Audit and Finance Committee |
Year ended December 31 (in millions of Canadian dollars) | 2019 | 2018 | 2017 | ||||||
Operating activities | |||||||||
Net income | $ | 2,440 | $ | 1,951 | $ | 2,405 | |||
Reconciliation of net income to cash provided by operating activities: | |||||||||
Depreciation and amortization | 706 | 696 | 661 | ||||||
Deferred income taxes (Note 6) | 181 | 256 | (210 | ) | |||||
Pension recovery and funding (Note 23) | (360 | ) | (321 | ) | (237 | ) | |||
Foreign exchange (gain) loss on debt and lease liabilities (Note 4) | (94 | ) | 168 | (186 | ) | ||||
Settlement of forward starting swaps on debt issuance (Note 18, 19) | — | (24 | ) | — | |||||
Other operating activities, net | 143 | (79 | ) | (113 | ) | ||||
Change in non-cash working capital balances related to operations (Note 9) | (26 | ) | 65 | (138 | ) | ||||
Cash provided by operating activities | 2,990 | 2,712 | 2,182 | ||||||
Investing activities | |||||||||
Additions to properties | (1,647 | ) | (1,551 | ) | (1,340 | ) | |||
Investment in Central Maine & Québec Railway (Note 11) | (174 | ) | — | — | |||||
Proceeds from sale of properties and other assets (Note 12) | 26 | 78 | 42 | ||||||
Other | (8 | ) | 15 | 3 | |||||
Cash used in investing activities | (1,803 | ) | (1,458 | ) | (1,295 | ) | |||
Financing activities | |||||||||
Dividends paid | (412 | ) | (348 | ) | (310 | ) | |||
Issuance of CP Common Shares (Note 22) | 26 | 24 | 45 | ||||||
Purchase of CP Common shares (Note 22) | (1,134 | ) | (1,103 | ) | (381 | ) | |||
Issuance of long-term debt, excluding commercial paper (Note 18) | 397 | 638 | — | ||||||
Repayment of long-term debt, excluding commercial paper (Note 18) | (500 | ) | (753 | ) | (32 | ) | |||
Net issuance of commercial paper (Note 18) | 524 | — | — | ||||||
Settlement of forward starting swaps on de-designation (Note 19) | — | — | (22 | ) | |||||
Other | (12 | ) | — | — | |||||
Cash used in financing activities | (1,111 | ) | (1,542 | ) | (700 | ) | |||
Effect of foreign currency fluctuations on U.S. dollar-denominated cash and cash equivalents | (4 | ) | 11 | (13 | ) | ||||
Cash position | |||||||||
Increase (decrease) in cash and cash equivalents | 72 | (277 | ) | 174 | |||||
Cash and cash equivalents at beginning of year | 61 | 338 | 164 | ||||||
Cash and cash equivalents at end of year | $ | 133 | $ | 61 | $ | 338 | |||
Supplemental disclosures of cash flow information: | |||||||||
Income taxes paid | $ | 506 | $ | 318 | $ | 425 | |||
Interest paid | $ | 444 | $ | 463 | $ | 475 |
(in millions of Canadian dollars, except per share data) | Share capital | Additional paid-in capital | Accumulated other comprehensive loss | Retained earnings | Total shareholders’ equity | ||||||||||
Balance at December 31, 2016 | $ | 2,002 | $ | 52 | $ | (1,799 | ) | $ | 4,371 | $ | 4,626 | ||||
Net income | — | — | — | 2,405 | 2,405 | ||||||||||
Other comprehensive income (Note 8) | — | — | 58 | — | 58 | ||||||||||
Dividends declared ($2.1875 per share) | — | — | — | (319 | ) | (319 | ) | ||||||||
Effect of stock-based compensation expense | — | 3 | — | — | 3 | ||||||||||
CP Common Shares repurchased (Note 22) | (27 | ) | — | — | (354 | ) | (381 | ) | |||||||
Shares issued under stock option plan (Note 22) | 57 | (12 | ) | — | — | 45 | |||||||||
Balance at December 31, 2017 | 2,032 | 43 | (1,741 | ) | 6,103 | 6,437 | |||||||||
Net income | — | — | — | 1,951 | 1,951 | ||||||||||
Other comprehensive loss (Note 8) | — | — | (302 | ) | — | (302 | ) | ||||||||
Dividends declared ($2.5125 per share) | — | — | — | (358 | ) | (358 | ) | ||||||||
Effect of stock-based compensation expense | — | 11 | — | — | 11 | ||||||||||
CP Common Shares repurchased (Note 22) | (66 | ) | — | — | (1,061 | ) | (1,127 | ) | |||||||
Shares issued under stock option plan (Note 22) | 36 | (12 | ) | — | — | 24 | |||||||||
Balance at December 31, 2018 | 2,002 | 42 | (2,043 | ) | 6,635 | 6,636 | |||||||||
Impact of accounting change (Note 2) | — | — | — | (5 | ) | (5 | ) | ||||||||
Balance at January 1, 2019, as restated | 2,002 | 42 | (2,043 | ) | 6,630 | 6,631 | |||||||||
Net income | — | — | — | 2,440 | 2,440 | ||||||||||
Other comprehensive loss (Note 8) | — | — | (479 | ) | — | (479 | ) | ||||||||
Dividends declared ($3.1400 per share) | — | — | — | (434 | ) | (434 | ) | ||||||||
Effect of stock-based compensation expense | — | 15 | — | — | 15 | ||||||||||
CP Common Shares repurchased (Note 22) | (54 | ) | — | — | (1,086 | ) | (1,140 | ) | |||||||
Shares issued under stock option plan (Note 22) | 45 | (9 | ) | — | — | 36 | |||||||||
Balance at December 31, 2019 | $ | 1,993 | $ | 48 | $ | (2,522 | ) | $ | 7,550 | $ | 7,069 |
Principal subsidiary | Incorporated under the laws of | |
Canadian Pacific Railway Company | Canada | |
Soo Line Railroad Company (“Soo Line”) | Minnesota | |
Delaware and Hudson Railway Company, Inc. (“D&H”) | Delaware | |
Dakota, Minnesota & Eastern Railroad Corporation (“DM&E”) | Delaware | |
Mount Stephen Properties Inc. (“MSP”) | Canada |
We reimburse directors
(in millions of Canadian dollars) | As reported December 31, 2018 | New lease standard cumulative-effect | As restated January 1, 2019 | ||||||
Assets | |||||||||
Properties | $ | 18,418 | $ | (12 | ) | $ | 18,406 | ||
Other assets | 71 | 399 | 470 | ||||||
Liabilities | |||||||||
Accounts payable and accrued liabilities | 1,449 | 58 | 1,507 | ||||||
Other long-term liabilities | 237 | 337 | 574 | ||||||
Deferred income taxes | 3,518 | (3 | ) | 3,515 | |||||
Shareholders' equity | |||||||||
Retained earnings | $ | 6,635 | $ | (5 | ) | $ | 6,630 |
(in millions of Canadian dollars) | 2019 | 2018 | 2017 | ||||||
Freight | |||||||||
Grain | $ | 1,684 | $ | 1,566 | $ | 1,532 | |||
Coal | 682 | 673 | 631 | ||||||
Potash | 462 | 486 | 411 | ||||||
Fertilizers and sulphur | 250 | 243 | 241 | ||||||
Forest products | 304 | 284 | 265 | ||||||
Energy, chemicals and plastics | 1,534 | 1,243 | 898 | ||||||
Metals, minerals and consumer products | 752 | 797 | 739 | ||||||
Automotive | 352 | 322 | 293 | ||||||
Intermodal | 1,593 | 1,538 | 1,365 | ||||||
Total freight revenues | 7,613 | 7,152 | 6,375 | ||||||
Non-freight excluding leasing revenues | 116 | 102 | 117 | ||||||
Revenues from contracts with customers | 7,729 | 7,254 | 6,492 | ||||||
Leasing revenues | 63 | 62 | 62 | ||||||
Total revenues | $ | 7,792 | $ | 7,316 | $ | 6,554 |
(in millions of Canadian dollars) | 2019 | 2018 | ||||
Opening balance | $ | 2 | $ | 2 | ||
Revenue recognized that was included in the contract liability balance at the beginning of the period | (2 | ) | (2 | ) | ||
Increases due to consideration received, net of revenue recognized during the period | 146 | 2 | ||||
Closing balance | $ | 146 | $ | 2 |
(in millions of Canadian dollars) | 2019 | 2018 | 2017 | ||||||
Foreign exchange (gain) loss on debt and lease liabilities | $ | (94 | ) | $ | 168 | $ | (186 | ) | |
Other foreign exchange (gains) losses | (4 | ) | 3 | (7 | ) | ||||
Insurance recovery of legal settlement | — | — | (10 | ) | |||||
Charge on hedge roll and de-designation | — | — | 13 | ||||||
Other | 9 | 3 | 12 | ||||||
Other (income) expense | $ | (89 | ) | $ | 174 | $ | (178 | ) |
(in millions of Canadian dollars) | 2019 | 2018 | 2017 | ||||||
Interest cost | $ | 471 | $ | 475 | $ | 491 | |||
Interest capitalized to Properties | (17 | ) | (20 | ) | (16 | ) | |||
Interest expense | 454 | 455 | 475 | ||||||
Interest income | (6 | ) | (2 | ) | (2 | ) | |||
Net interest expense | $ | 448 | $ | 453 | $ | 473 |
(in millions of Canadian dollars) | 2019 | 2018 | 2017 | ||||||
Current income tax expense | $ | 525 | $ | 381 | $ | 303 | |||
Deferred income tax expense | |||||||||
Origination and reversal of temporary differences | 316 | 214 | 371 | ||||||
Effect of tax rate decrease | (95 | ) | (21 | ) | (541 | ) | |||
Effect of hedge of net investment in foreign subsidiaries | (38 | ) | 64 | (42 | ) | ||||
Other | (2 | ) | (1 | ) | 2 | ||||
Total deferred income tax expense (recovery) | 181 | 256 | (210 | ) | |||||
Total income taxes | $ | 706 | $ | 637 | $ | 93 | |||
Income before income tax expense | |||||||||
Canada | $ | 2,392 | $ | 1,788 | $ | 1,829 | |||
Foreign | 754 | 800 | 669 | ||||||
Total income before income tax expense | $ | 3,146 | $ | 2,588 | $ | 2,498 | |||
Income tax expense | |||||||||
Current | |||||||||
Canada | $ | 410 | $ | 336 | $ | 257 | |||
Foreign | 115 | 45 | 46 | ||||||
Total current income tax expense | 525 | 381 | 303 | ||||||
Deferred | |||||||||
Canada | 141 | 174 | 256 | ||||||
Foreign | 40 | 82 | (466 | ) | |||||
Total deferred income tax expense (recovery) | 181 | 256 | (210 | ) | |||||
Total income taxes | $ | 706 | $ | 637 | $ | 93 |
(in millions of Canadian dollars) | 2019 | 2018 | ||||
Deferred income tax assets | ||||||
Amount related to tax losses carried forward | $ | 6 | $ | 11 | ||
Liabilities carrying value in excess of tax basis | 139 | 97 | ||||
Unrealized foreign exchange losses | 26 | 85 | ||||
Environmental remediation costs | 22 | 23 | ||||
Other | 4 | 2 | ||||
Total deferred income tax assets | 197 | 218 | ||||
Valuation allowance | — | (5 | ) | |||
Total net deferred income tax assets | 197 | 213 | ||||
Deferred income tax liabilities | ||||||
Properties carrying value in excess of tax basis | 3,524 | 3,496 | ||||
Pensions carrying value in excess of tax basis | 83 | 164 | ||||
Other | 91 | 71 | ||||
Total deferred income tax liabilities | 3,698 | 3,731 | ||||
Total net deferred income tax liabilities | $ | 3,501 | $ | 3,518 |
(in millions of Canadian dollars, except percentage) | 2019 | 2018 | 2017 | ||||||
Statutory federal and provincial income tax rate (Canada) | 26.77 | % | 26.86 | % | 26.56 | % | |||
Expected income tax expense at Canadian enacted statutory tax rates | $ | 842 | $ | 695 | $ | 663 | |||
(Decrease) increase in taxes resulting from: | |||||||||
(Gains) losses not subject to tax | (19 | ) | 8 | (27 | ) | ||||
Canadian tax rate differentials | — | — | 1 | ||||||
Foreign tax rate differentials | (33 | ) | (55 | ) | (9 | ) | |||
Effect of tax rate decrease | (95 | ) | (21 | ) | (541 | ) | |||
Valuation allowance | (5 | ) | 5 | — | |||||
Unrecognized tax benefits(1) | 33 | — | 1 | ||||||
Other(1) | (17 | ) | 5 | 5 | |||||
Income tax expense | $ | 706 | $ | 637 | $ | 93 |
(in millions of Canadian dollars) | 2019 | 2018 | 2017 | ||||||
Unrecognized tax benefits at January 1 | $ | 13 | $ | 13 | $ | 13 | |||
Increase in unrecognized: | |||||||||
Tax benefits related to the current year | 9 | 1 | — | ||||||
Tax benefits related to prior years | 34 | — | — | ||||||
Dispositions: | |||||||||
Gross uncertain tax benefits related to prior years | — | (1 | ) | — | |||||
Settlements with taxing authorities | (4 | ) | — | — | |||||
Unrecognized tax benefits at December 31 | $ | 52 | $ | 13 | $ | 13 |
(in millions of Canadian dollars, except per share data) | 2019 | 2018 | 2017 | ||||||
Net income | $ | 2,440 | $ | 1,951 | $ | 2,405 | |||
Weighted-average basic shares outstanding (millions) | 138.8 | 142.9 | 145.9 | ||||||
Dilutive effect of stock options (millions) | 0.5 | 0.4 | 0.4 | ||||||
Weighted-average diluted shares outstanding (millions) | 139.3 | 143.3 | 146.3 | ||||||
Earnings per share – basic | $ | 17.58 | $ | 13.65 | $ | 16.49 | |||
Earnings per share – diluted | $ | 17.52 | $ | 13.61 | $ | 16.44 |
(in millions of Canadian dollars) | Before tax amount | Income tax (expense) recovery | Net of tax amount | ||||||
For the year ended December 31, 2019 | |||||||||
Unrealized foreign exchange (loss) gain on: | |||||||||
Translation of the net investment in U.S. subsidiaries | $ | (251 | ) | $ | — | $ | (251 | ) | |
Translation of the U.S. dollar-denominated long-term debt designated as a hedge of the net investment in U.S. subsidiaries (Note 19) | 288 | (38 | ) | 250 | |||||
Realized loss on derivatives designated as cash flow hedges recognized in income | 10 | (2 | ) | 8 | |||||
Change in pension and other benefits actuarial gains and losses | (661 | ) | 175 | (486 | ) | ||||
Other comprehensive loss | $ | (614 | ) | $ | 135 | $ | (479 | ) | |
For the year ended December 31, 2018 | |||||||||
Unrealized foreign exchange gain (loss) on: | |||||||||
Translation of the net investment in U.S. subsidiaries | $ | 419 | $ | — | $ | 419 | |||
Translation of the U.S. dollar-denominated long-term debt designated as a hedge of the net investment in U.S. subsidiaries (Note 19) | (479 | ) | 64 | (415 | ) | ||||
Change in derivatives designated as cash flow hedges: | |||||||||
Realized loss on cash flow hedges recognized in income | 10 | (3 | ) | 7 | |||||
Unrealized gain on cash flow hedges and other | 28 | (8 | ) | 20 | |||||
Change in pension and other benefits actuarial gains and losses | (447 | ) | 115 | (332 | ) | ||||
Change in prior service pension and other benefit costs | (2 | ) | 1 | (1 | ) | ||||
Other comprehensive loss | $ | (471 | ) | $ | 169 | $ | (302 | ) | |
For the year ended December 31, 2017 | |||||||||
Unrealized foreign exchange (loss) gain on: | |||||||||
Translation of the net investment in U.S. subsidiaries | $ | (295 | ) | $ | — | $ | (295 | ) | |
Translation of the U.S. dollar-denominated long-term debt designated as a hedge of the net investment in U.S. subsidiaries (Note 19) | 319 | (42 | ) | 277 | |||||
Change in derivatives designated as cash flow hedges: | |||||||||
Realized loss on cash flow hedges recognized in income | 25 | (6 | ) | 19 | |||||
Unrealized loss on cash flow hedges and other | (6 | ) | 2 | (4 | ) | ||||
Change in pension and other benefits actuarial gains and losses | 84 | (20 | ) | 64 | |||||
Change in prior service pension and other benefit costs | (4 | ) | 1 | (3 | ) | ||||
Other comprehensive income | $ | 123 | $ | (65 | ) | $ | 58 |
(in millions of Canadian dollars) | 2019 | 2018 | ||||
Unrealized foreign exchange gain on translation of the net investment in U.S. subsidiaries | $ | 611 | $ | 862 | ||
Unrealized foreign exchange loss on translation of the U.S. dollar-denominated long-term debt designated as a hedge of the net investment in U.S. subsidiaries | (499 | ) | (749 | ) | ||
Net deferred losses on derivatives and other | (54 | ) | (62 | ) | ||
Amounts for defined benefit pension and other post-retirement plans not recognized in income (Note 23) | (2,580 | ) | (2,094 | ) | ||
Accumulated other comprehensive loss | $ | (2,522 | ) | $ | (2,043 | ) |
(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, 2019 | $ | 113 | $ | (62 | ) | $ | (2,094 | ) | $ | (2,043 | ) | |
Other comprehensive loss before reclassifications | (1 | ) | — | (550 | ) | (551 | ) | |||||
Amounts reclassified from accumulated other comprehensive loss | — | 8 | 64 | 72 | ||||||||
Net current-period other comprehensive (loss) income | (1 | ) | 8 | (486 | ) | (479 | ) | |||||
Closing balance, December 31, 2019 | $ | 112 | $ | (54 | ) | $ | (2,580 | ) | $ | (2,522 | ) | |
Opening balance, January 1, 2018 | $ | 109 | $ | (89 | ) | $ | (1,761 | ) | $ | (1,741 | ) | |
Other comprehensive income (loss) before reclassifications | 4 | 19 | (417 | ) | (394 | ) | ||||||
Amounts reclassified from accumulated other comprehensive loss | — | 8 | 84 | 92 | ||||||||
Net current-period other comprehensive income (loss) | 4 | 27 | (333 | ) | (302 | ) | ||||||
Closing balance, December 31, 2018 | $ | 113 | $ | (62 | ) | $ | (2,094 | ) | $ | (2,043 | ) |
(in millions of Canadian dollars) | 2019 | 2018 | ||||
Amortization of prior service costs(1) | $ | — | $ | (2 | ) | |
Recognition of net actuarial loss(1) | 84 | 117 | ||||
Total before income tax | 84 | 115 | ||||
Income tax recovery | (20 | ) | (31 | ) | ||
Total net of income tax | $ | 64 | $ | 84 |
(in millions of Canadian dollars) | 2019 | 2018 | 2017 | ||||||
Source (use) of cash: | |||||||||
Accounts receivable, net | $ | 27 | $ | (107 | ) | $ | (91 | ) | |
Materials and supplies | (8 | ) | (11 | ) | 9 | ||||
Other current assets | (24 | ) | 30 | (26 | ) | ||||
Accounts payable and accrued liabilities | (21 | ) | 153 | (30 | ) | ||||
Change in non-cash working capital | $ | (26 | ) | $ | 65 | $ | (138 | ) |
(in millions of Canadian dollars) | 2019 | 2018 | ||||
Freight | $ | 637 | $ | 677 | ||
Non-freight | 210 | 168 | ||||
847 | 845 | |||||
Allowance for doubtful accounts | (42 | ) | (30 | ) | ||
Total accounts receivable, net | $ | 805 | $ | 815 |
(in millions of Canadian dollars) | 2019 | ||
Fair value of net assets acquired: | |||
Accounts receivable, net | $ | 7 | |
Properties | 42 | ||
Intangible assets (Note 15) | 5 | ||
Accounts payable and accrued liabilities | (2 | ) | |
Long-term debt maturing within one year (Note 18) | (11 | ) | |
Other long-term liabilities | (4 | ) | |
Total identifiable assets and liabilities | $ | 37 | |
Goodwill (Note 15) | 10 | ||
$ | 47 | ||
Consideration: | |||
Cash, net of cash acquired | $ | 47 |
(in millions of Canadian dollars) | 2019 | 2018 | ||||
Investment in CMQ U.S. accounted for on an equity basis (Note 11) | $ | 127 | $ | — | ||
Other rail investments accounted for on an equity basis | 166 | 160 | ||||
Other investments | 48 | 43 | ||||
Total investments | $ | 341 | $ | 203 |
(in millions of Canadian dollars except percentages) | 2019 | 2019 | 2018 | ||||||||||||||||||||||
Weighted-average annual depreciation rate | Cost | Accumulated depreciation | Net book value | Cost | Accumulated depreciation | Net book value | |||||||||||||||||||
Track and roadway | 2.8 | % | $ | 19,299 | $ | 5,522 | $ | 13,777 | $ | 18,599 | $ | 5,236 | $ | 13,363 | |||||||||||
Buildings | 2.9 | % | 833 | 237 | 596 | 781 | 218 | 563 | |||||||||||||||||
Rolling stock | 2.8 | % | 4,529 | 1,445 | 3,084 | 4,467 | 1,613 | 2,854 | |||||||||||||||||
Information systems software(1) | 10.0 | % | 527 | 215 | 312 | 551 | 252 | 299 | |||||||||||||||||
Other | 5.2 | % | 2,067 | 680 | 1,387 | 1,984 | 645 | 1,339 | |||||||||||||||||
Total | $ | 27,255 | $ | 8,099 | $ | 19,156 | $ | 26,382 | $ | 7,964 | $ | 18,418 |
(in millions of Canadian dollars) | 2019 | 2018 | ||||||||||||||||
Cost | Accumulated depreciation | Net book value | Cost | Accumulated depreciation | Net book value | |||||||||||||
Buildings | $ | — | $ | — | $ | — | $ | 1 | $ | 1 | $ | — | ||||||
Rolling stock | 303 | 130 | 173 | 311 | 124 | 187 | ||||||||||||
Other | 4 | — | 4 | — | — | — | ||||||||||||
Total assets held under finance lease | $ | 307 | $ | 130 | $ | 177 | $ | 312 | $ | 125 | $ | 187 |
Goodwill | Intangible assets | |||||||||||||||
(in millions of Canadian dollars) | Net carrying amount | Cost | Accumulated amortization | Net carrying amount | Total goodwill and intangible assets | |||||||||||
Balance at December 31, 2017 | $ | 178 | $ | 22 | $ | (13 | ) | $ | 9 | $ | 187 | |||||
Amortization | — | — | (1 | ) | (1 | ) | (1 | ) | ||||||||
Foreign exchange impact | 16 | — | — | — | 16 | |||||||||||
Balance at December 31, 2018 | 194 | 22 | (14 | ) | 8 | 202 | ||||||||||
Additions (Note 11) | 10 | 5 | — | 5 | 15 | |||||||||||
Amortization | — | — | (1 | ) | (1 | ) | (1 | ) | ||||||||
Foreign exchange impact | (10 | ) | — | — | — | (10 | ) | |||||||||
Balance at December 31, 2019 | $ | 194 | $ | 27 | $ | (15 | ) | $ | 12 | $ | 206 |
(in millions of Canadian dollars) | 2019 | 2018 | ||||
Operating lease ROU assets (Note 2, 21) | $ | 358 | $ | — | ||
Long-term materials | 41 | 26 | ||||
Contracted customer incentives | 32 | 11 | ||||
Prepaid leases | — | 10 | ||||
Other | 20 | 24 | ||||
Total other assets | $ | 451 | $ | 71 |
(in millions of Canadian dollars) | 2019 | 2018 | ||||
Trade payables | $ | 453 | $ | 474 | ||
Accrued charges | 348 | 360 | ||||
Contract liabilities(1) (Note 3) | 142 | 2 | ||||
Income and other taxes payable | 139 | 104 | ||||
Accrued interest | 131 | 135 | ||||
Dividends payable | 114 | 91 | ||||
Stock-based compensation liabilities | 85 | 53 | ||||
Payroll-related accruals | 78 | 78 | ||||
Operating lease liabilities (Note 2, 21) | 69 | — | ||||
Accrued vacation | 60 | 61 | ||||
Personal injury and other claims provision | 55 | 68 | ||||
Provision for environmental remediation (Note 20) | 7 | 8 | ||||
Other(1) | 12 | 15 | ||||
Total accounts payable and accrued liabilities | $ | 1,693 | $ | 1,449 |
(in millions of Canadian dollars except percentages) | Maturity | Currency in which payable | 2019 | 2018 | ||||||
7.250% | 10-year Notes | (A) | May 2019 | U.S.$ | $ | — | $ | 477 | ||
9.450% | 30-year Debentures | (A) | Aug 2021 | U.S.$ | 325 | 341 | ||||
5.100% | 10-year Medium Term Notes | (A) | Jan 2022 | CDN$ | 125 | 125 | ||||
4.500% | 10-year Notes | (A) | Jan 2022 | U.S.$ | 324 | 339 | ||||
4.450% | 12.5-year Notes | (A) | Mar 2023 | U.S.$ | 454 | 477 | ||||
2.900% | 10-year Notes | (A) | Feb 2025 | U.S.$ | 909 | 955 | ||||
3.700% | 10.5-year Notes | (A) | Feb 2026 | U.S.$ | 324 | 340 | ||||
4.000% | 10-year Notes | (A) | Jun 2028 | U.S.$ | 649 | 682 | ||||
3.150% | 10-year Notes | (A) | Mar 2029 | CDN$ | 399 | — | ||||
7.125% | 30-year Debentures | (A) | Oct 2031 | U.S.$ | 454 | 477 | ||||
5.750% | 30-year Debentures | (A) | Mar 2033 | U.S.$ | 318 | 334 | ||||
4.800% | 20-year Notes | (A) | Sep 2035 | U.S.$ | 388 | 408 | ||||
5.950% | 30-year Notes | (A) | May 2037 | U.S.$ | 578 | 607 | ||||
6.450% | 30-year Notes | (A) | Nov 2039 | CDN$ | 400 | 400 | ||||
5.750% | 30-year Notes | (A) | Jan 2042 | U.S.$ | 319 | 336 | ||||
4.800% | 30-year Notes | (A) | Aug 2045 | U.S.$ | 712 | 748 | ||||
6.125% | 100-year Notes | (A) | Sep 2115 | U.S.$ | 1,169 | 1,228 | ||||
8.000% | 5-year Promissory Notes | (B) | up to Jun 2020 | U.S.$ | 11 | — | ||||
5.41% | Senior Secured Notes | (C) | Mar 2024 | U.S.$ | 100 | 113 | ||||
6.91% | Secured Equipment Notes | (D) | Oct 2024 | CDN$ | 91 | 106 | ||||
7.49% | Equipment Trust Certificates | (E) | Jan 2021 | U.S.$ | 55 | 57 | ||||
Obligations under finance leases | ||||||||||
2.97% | (F) | Jun 2020 | CDN$ | 3 | — | |||||
6.99% | (F) | Mar 2022 | U.S.$ | 99 | 104 | |||||
6.57% | (F) | Dec 2026 | U.S.$ | 45 | 52 | |||||
12.77% | (F) | Jan 2031 | CDN$ | 4 | 4 | |||||
Commercial Paper | U.S.$ | 516 | — | |||||||
8,771 | 8,710 | |||||||||
Perpetual 4% Consolidated Debenture Stock | (G) | U.S.$ | 39 | 41 | ||||||
Perpetual 4% Consolidated Debenture Stock | (G) | G.B.£ | 6 | 6 | ||||||
8,816 | 8,757 | |||||||||
Unamortized fees on long-term debt | (59 | ) | (61 | ) | ||||||
8,757 | 8,696 | |||||||||
Less: Long-term debt maturing within one year | 599 | 506 | ||||||||
$ | 8,158 | $ | 8,190 |
Mr. Creelcommercial paper, all of which have a maturity of less than 90 days, in the Company's Consolidated Statements of Cash Flows on a net basis.
(in millions of Canadian dollars) | December 31, 2019 | December 31, 2018 | ||||
Long-term debt (including current maturities): | ||||||
Fair value | $ | 10,149 | $ | 9,639 | ||
Carrying value | 8,757 | 8,696 |
Benchmarking
Similarbeing reclassified to executive compensation, we benchmark director compensation so we can attract"Net interest expense" on the right director talent andCompany's Consolidated Statements of Income until the underlying hedged notes are repaid.
We use a comparator group of 21 companies,Company had net unamortized losses related to interest rate locks, which are capital-intensive Canadian businesses ranging fromone-thirdaccounted for as cash flow hedges, settled in previous years totalling $18 million (December 31, 2018 – $19 million). This amount is composed of various unamortized gains and losses related to three timesspecific debts which are reflected in “Accumulated other comprehensive loss” and are amortized to “Net interest expense” in the sizeperiod that interest on the related debt is charged. The amortization of these gains and losses resulted in a $1 million increase to “Net interest expense” and “Other comprehensive (loss) income” in 2019 (2018 – $1 million; 2017 – $1 million). The Company expects that during the next 12 months, a net loss of $1 million related to these previously settled derivatives will be reclassified to “Net interest expense”.
(in millions of Canadian dollars) | 2019 | 2018 | ||||
Operating lease liabilities, net of current portion (Note 2, 21) | $ | 285 | $ | — | ||
Stock-based compensation liabilities, net of current portion | 111 | 81 | ||||
Provision for environmental remediation, net of current portion(1) | 70 | 74 | ||||
Deferred revenue on rights-of-way license agreements, net of current portion(2) | 20 | 24 | ||||
Deferred gains on sale leaseback transactions(2) | 6 | 13 | ||||
Other, net of current portion | 70 | 45 | ||||
Total other long-term liabilities | $ | 562 | $ | 237 |
the contamination, as well as the location of the property and surrounding areas that may be adversely affected by the presence of contaminants, considering available technologies, treatment and disposal facilities and the acceptability of site-specific plans based on the local regulatory environment. Site-specific plans range from containment and risk management of the contaminants through to the removal and treatment of the contaminants and affected soils and groundwater. The details of the estimates reflect the environmental liability at each property. 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” (see Note 17). Payments are expected to be made over 10 years to 2029.
(in millions of Canadian dollars) | 2019 | ||
Operating lease cost | $ | 89 | |
Short-term lease cost | 10 | ||
Variable lease cost | 13 | ||
Sublease income | (3 | ) | |
Finance Lease Cost | |||
Amortization of right-of use-assets | 9 | ||
Interest on lease liabilities | 11 | ||
Total lease costs | $ | 129 |
(in millions of Canadian dollars) | Classification | 2019 | ||
Assets | ||||
Operating | Other assets | $ | 358 | |
Finance | Properties, net book value | 177 | ||
Liabilities | ||||
Current | ||||
Operating | Accounts payable and accrued liabilities | 69 | ||
Finance | Long-term debt maturing within one year | 7 | ||
Long-term | ||||
Operating | Other long-term liabilities | 285 | ||
Finance | Long-term debt | 144 |
| 2019 | ||
Weighted-Average Remaining Lease Term | |||
| 7 years | ||
Finance leases | 4 years | ||
| |||
Operating leases | 3.45 | % | |
Finance leases | 7.07 | % |
51
We also look
(in millions of Canadian dollars) | 2019 | ||
Cash paid for amounts included in measurement of lease liabilities | |||
Operating cash outflows from operating leases | $ | 82 | |
Operating cash outflows from finance leases | 10 | ||
Financing cash outflows from finance leases | 6 | ||
Right-of-use assets obtained in exchange for lease liabilities | |||
Operating leases | 38 | ||
Finance leases | 4 |
(in millions of Canadian dollars) | Finance Leases | Operating Leases | ||||
2020 | $ | 11 | $ | 80 | ||
2021 | 10 | 55 | ||||
2022 | 108 | 51 | ||||
2023 | 8 | 39 | ||||
2024 | 9 | 40 | ||||
Thereafter | 21 | 130 | ||||
Total lease payments | 167 | 395 | ||||
Imputed interest | (16 | ) | (41 | ) | ||
Present value of lease payments | $ | 151 | $ | 354 |
(number of shares in millions) | 2019 | 2018 | 2017 | |||
Share capital, January 1 | 140.5 | 144.9 | 146.3 | |||
CP Common Shares repurchased | (3.8 | ) | (4.6 | ) | (1.9 | ) |
Shares issued under stock option plan | 0.3 | 0.2 | 0.5 | |||
Share capital, December 31 | 137.0 | 140.5 | 144.9 |
Independent advice
shares and any excess allocated to "Retained earnings".
2019 | 2018 | 2017 | |||||||
Number of Common Shares repurchased(1) | 3,794,149 | 4,683,162 | 1,888,100 | ||||||
Weighted-average price per share(2) | $ | 300.65 | $ | 240.68 | $ | 201.53 | |||
Amount of repurchase (in millions)(2) | $ | 1,141 | $ | 1,127 | $ | 381 |
Pensions | Other benefits | ||||||||||||||||||
(in millions of Canadian dollars) | 2019 | 2018 | 2017 | 2019 | 2018 | 2017 | |||||||||||||
Current service cost (benefits earned by employees) | $ | 107 | $ | 120 | $ | 103 | $ | 11 | $ | 12 | $ | 12 | |||||||
Other components of net periodic benefit cost (recovery): | |||||||||||||||||||
Interest cost on benefit obligation | 450 | 438 | 451 | 20 | 19 | 20 | |||||||||||||
Expected return on fund assets | (947 | ) | (955 | ) | (893 | ) | — | — | — | ||||||||||
Recognized net actuarial loss | 84 | 114 | 153 | 12 | 2 | (1 | ) | ||||||||||||
Amortization of prior service costs | (1 | ) | (2 | ) | (5 | ) | 1 | — | 1 | ||||||||||
Total other components of net periodic benefit (recovery) cost | (414 | ) | (405 | ) | (294 | ) | 33 | 21 | 20 | ||||||||||
Net periodic benefit (recovery) cost | $ | (307 | ) | $ | (285 | ) | $ | (191 | ) | $ | 44 | $ | 33 | $ | 32 |
Pensions | Other benefits | ||||||||||||
(in millions of Canadian dollars) | 2019 | 2018 | 2019 | 2018 | |||||||||
Change in projected benefit obligation: | |||||||||||||
Benefit obligation at January 1 | $ | 11,372 | $ | 11,679 | $ | 501 | $ | 518 | |||||
Current service cost | 107 | 120 | 11 | 12 | |||||||||
Interest cost | 450 | 438 | 20 | 19 | |||||||||
Employee contributions | 41 | 47 | — | 1 | |||||||||
Benefits paid | (646 | ) | (640 | ) | (34 | ) | (33 | ) | |||||
Foreign currency changes | (10 | ) | 20 | — | 2 | ||||||||
Actuarial loss (gain) | 1,296 | (292 | ) | 43 | (18 | ) | |||||||
Projected benefit obligation at December 31 | $ | 12,610 | $ | 11,372 | $ | 541 | $ | 501 |
Pensions | Other benefits | ||||||||||||
(in millions of Canadian dollars) | 2019 | 2018 | 2019 | 2018 | |||||||||
Change in fund assets: | |||||||||||||
Fair value of fund assets at January 1 | $ | 12,349 | $ | 12,808 | $ | 4 | $ | 4 | |||||
Actual return on fund assets | 1,528 | 82 | 1 | — | |||||||||
Employer contributions | 53 | 36 | 34 | 32 | |||||||||
Employee contributions | 41 | 47 | — | 1 | |||||||||
Benefits paid | (646 | ) | (640 | ) | (34 | ) | (33 | ) | |||||
Foreign currency changes | (6 | ) | 16 | — | — | ||||||||
Fair value of fund assets at December 31 | $ | 13,319 | $ | 12,349 | $ | 5 | $ | 4 | |||||
Funded status – plan surplus (deficit) | $ | 709 | $ | 977 | $ | (536 | ) | $ | (497 | ) |
2019 | 2018 | ||||||||||||
(in millions of Canadian dollars) | Pension plans in surplus | Pension plans in deficit | Pension plans in surplus | Pension plans in deficit | |||||||||
Projected benefit obligation at December 31 | $ | (12,076 | ) | $ | (534 | ) | $ | (10,884 | ) | $ | (488 | ) | |
Fair value of fund assets at December 31 | 13,079 | 240 | 12,127 | 222 | |||||||||
Funded Status | $ | 1,003 | $ | (294 | ) | $ | 1,243 | $ | (266 | ) |
Pensions | Other benefits | ||||||||||||
(in millions of Canadian dollars) | 2019 | 2018 | 2019 | 2018 | |||||||||
Pension asset | $ | 1,003 | $ | 1,243 | $ | — | $ | — | |||||
Accounts payable and accrued liabilities | (11 | ) | (11 | ) | (34 | ) | (34 | ) | |||||
Pension and other benefit liabilities | (283 | ) | (255 | ) | (502 | ) | (463 | ) | |||||
Total amount recognized | $ | 709 | $ | 977 | $ | (536 | ) | $ | (497 | ) |
Pensions | Other benefits | ||||||||||||
(in millions of Canadian dollars) | 2019 | 2018 | 2019 | 2018 | |||||||||
Net actuarial loss: | |||||||||||||
Other than deferred investment gains | $ | 3,434 | $ | 2,233 | $ | 91 | $ | 61 | |||||
Deferred investment gains | 41 | 611 | — | — | |||||||||
Prior service cost | 1 | — | 1 | 2 | |||||||||
Deferred income tax | (964 | ) | (797 | ) | (24 | ) | (16 | ) | |||||
Total (Note 8) | $ | 2,512 | $ | 2,047 | $ | 68 | $ | 47 |
(percentages) | 2019 | 2018 | 2017 | |||
Benefit obligation at December 31: | ||||||
Discount rate | 3.25 | 4.01 | 3.80 | |||
Projected future salary increases | 2.75 | 2.75 | 2.75 | |||
Health care cost trend rate | 5.50 | (1) | 6.00 | (1) | 7.00 | (2) |
Benefit cost for year ended December 31: | ||||||
Discount rate | 4.01 | 3.80 | 4.02 | |||
Expected rate of return on fund assets (3) | 7.50 | 7.75 | 7.75 | |||
Projected future salary increases | 2.75 | 2.75 | 2.75 | |||
Health care cost trend rate | 6.00 | (1) | 7.00 | (2) | 7.00 | (2) |
2017 director compensation
We paid directors2022 and thereafter.
All of our directorsinfrastructure values are required to receive at least 50% of their compensation in director deferred share units (DDSUs). The total represents the approximate dollar value of DDSUs credited to each director’s DDSU account in 2017, based on the closing fair market value of our common shareseach fund’s assets as calculated by the fund manager, generally using third party appraisals or discounted cash flow analysis and taking into account current market conditions and recent sales transactions where practical and appropriate. Private debt values are based on the grant date plusvalue of each fund’s assets as calculated by the cash portion paid wherefund manager taking into account current market conditions and reviewed annually by external parties. Absolute return investments are a director electedportfolio of units of externally managed hedge funds and are valued by the fund administrators.
Percentage of plan assets at December 31 | ||||
Asset allocation (percentage) | Asset allocation target | Policy range | 2019 | 2018 |
Cash and cash equivalents | 1.2 | 0 – 10 | 0.9 | 1.1 |
Fixed income | 24.1 | 20 – 40 | 24.6 | 25.6 |
Public equity | 45.1 | 35 – 55 | 54.5 | 50.2 |
Real estate and infrastructure | 9.8 | 4 – 13 | 6.8 | 7.7 |
Private debt | 9.8 | 4 – 13 | 2.4 | 1.3 |
Absolute return | 10.0 | 4 – 13 | 10.8 | 14.1 |
Total | 100.0 | 100.0 | 100.0 |
Assets Measured at Fair Value | Investments measured at NAV(1) | Total Plan Assets | ||||||||||
(in millions of Canadian dollars) | Quoted prices in active markets for identical assets (Level 1) | Significant other observable inputs (Level 2) | ||||||||||
December 31, 2019 | ||||||||||||
Cash and cash equivalents | $ | 112 | $ | — | $ | — | $ | 112 | ||||
Fixed income | ||||||||||||
Government bonds(2) | 233 | 1,857 | — | 2,090 | ||||||||
Corporate bonds(2) | 273 | 819 | — | 1,092 | ||||||||
Mortgages(3) | 159 | 5 | — | 164 | ||||||||
Public equities | ||||||||||||
Canada | 1,351 | — | — | 1,351 | ||||||||
U.S. and international | 5,883 | 22 | — | 5,905 | ||||||||
Real estate(4) | — | — | 724 | 724 | ||||||||
Infrastructure(5) | — | — | 187 | 187 | ||||||||
Private debt(6) | — | — | 313 | 313 | ||||||||
Derivative instruments(7) | — | (59 | ) | — | (59 | ) | ||||||
Absolute return(8) | ||||||||||||
Funds of hedge funds | — | — | 1,418 | 1,418 | ||||||||
Multi-strategy funds | — | — | 22 | 22 | ||||||||
$ | 8,011 | $ | 2,644 | $ | 2,664 | $ | 13,319 | |||||
December 31, 2018 | ||||||||||||
Cash and cash equivalents | $ | 127 | $ | 12 | $ | — | $ | 139 | ||||
Fixed income | ||||||||||||
Government bonds(2) | 101 | 1,281 | — | 1,382 | ||||||||
Corporate bonds(2) | 128 | 1,606 | — | 1,734 | ||||||||
Mortgages(3) | 41 | — | — | 41 | ||||||||
Public equities | ||||||||||||
Canada | 1,287 | — | — | 1,287 | ||||||||
U.S. and international | 4,892 | 24 | — | 4,916 | ||||||||
Real estate(4) | — | — | 697 | 697 | ||||||||
Infrastructure(5) | — | — | 259 | 259 | ||||||||
Private debt(6) | — | — | 162 | 162 | ||||||||
Derivative instruments(7) | — | (7 | ) | — | (7 | ) | ||||||
Absolute return(8) | ||||||||||||
Funds of hedge funds | — | — | 1,189 | 1,189 | ||||||||
Multi-strategy funds | — | — | 286 | 286 | ||||||||
Credit funds | — | — | 32 | 32 | ||||||||
Equity funds | — | — | 232 | 232 | ||||||||
$ | 6,576 | $ | 2,916 | $ | 2,857 | $ | 12,349 |
Mr. Creel doesinfrastructure investments. The values of the investments have been estimated using the capital accounts representing the plans' ownership interest in the funds. Of the total, $119 million is subject to redemption frequencies ranging from monthly to annually and a redemption notice period of 90 days (2018 – $130 million). The remaining $68 million is not receive director compensation because hesubject to redemption and is compensatednormally returned through distributions as a result of the liquidation of the underlying infrastructure investments (2018 – $129 million).
Name | Fees earned ($) | Share-based awards ($) | Option-based awards ($) | Non-equity incentive plan compensation ($) | Pension value | All other compensation ($) | Total ($) | |||||||||||||||||||||
John Baird | - | 235,987 | - | - | - | 1,000 | 236,987 | |||||||||||||||||||||
Isabelle Courville | 132,500 | 133,056 | - | - | - | 1,000 | 266,556 | |||||||||||||||||||||
Jill Denham | - | 235,987 | - | - | - | 1,000 | 236,987 | |||||||||||||||||||||
William Fatt | - | 228,846 | - | - | - | 1,000 | 229,846 | |||||||||||||||||||||
Rebecca MacDonald | - | 266,113 | - | - | - | 1,000 | 267,113 | |||||||||||||||||||||
Matthew Paull | - | 326,824 | - | - | - | 1,000 | 327,824 | |||||||||||||||||||||
Jane Peverett | - | 255,391 | - | - | - | 1,000 | 256,391 | |||||||||||||||||||||
Andrew Reardon | - | 518,392 | - | - | - | 1,000 | 519,392 | |||||||||||||||||||||
Gordon Trafton | - | 308,410 | - | - | - | 1,000 | 309,410 |
(in millions of Canadian dollars) | Pensions | Other benefits | ||||
2020 | $ | 620 | $ | 34 | ||
2021 | 623 | 32 | ||||
2022 | 627 | 31 | ||||
2023 | 630 | 30 | ||||
2024 | 633 | 30 | ||||
2025 – 2029 | 3,203 | 144 |
Options outstanding | Non-vested options | |||||||||
Number of options | Weighted-average exercise price | Number of options | Weighted-average grant date fair value | |||||||
Outstanding, January 1, 2019 | 1,533,598 | $ | 176.02 | 714,102 | $ | 48.94 | ||||
Granted | 224,730 | $ | 269.99 | 224,730 | $ | 63.69 | ||||
Exercised | (334,127 | ) | $ | 125.12 | N/A | N/A | ||||
Vested | N/A | N/A | (169,193 | ) | $ | 47.59 | ||||
Forfeited | (7,855 | ) | $ | 234.59 | (7,855 | ) | $ | 54.75 | ||
Outstanding, December 31, 2019 | 1,416,346 | $ | 199.12 | 761,784 | $ | 53.54 | ||||
Vested or expected to vest at December 31, 2019(1) | 1,385,626 | $ | 197.89 | N/A | N/A | |||||
Exercisable, December 31, 2019 | 654,562 | $ | 162.59 | N/A | N/A |
Options outstanding | Options exercisable | ||||||||||||||||
Range of exercise prices | Number of options | Weighted-average years to expiration | Weighted-average exercise price | Aggregate intrinsic value (millions) | Number of options | Weighted-average exercise price | Aggregate intrinsic value (millions) | ||||||||||
$51.17 – $167.50 | 354,357 | 4.1 | $ | 123.00 | $ | 74 | 303,455 | $ | 116.84 | $ | 65 | ||||||
$167.51 – $197.05 | 355,040 | 4.1 | $ | 188.53 | $ | 51 | 135,532 | $ | 175.30 | $ | 21 | ||||||
$197.06– $247.87 | 376,654 | 4.8 | $ | 222.75 | $ | 41 | 215,465 | $ | 218.98 | $ | 24 | ||||||
$247.88 – $313.16 | 330,295 | 5.9 | $ | 265.23 | $ | 22 | 110 | $ | 260.52 | $ | — | ||||||
Total(1) | 1,416,346 | 4.7 | $ | 199.12 | $ | 187 | 654,562 | $ | 162.59 | $ | 110 |
2019 | 2018 | 2017 | |||||||
Expected option life (years)(1) | 5.00 | 5.00 | 5.48 | ||||||
Risk-free interest rate(2) | 2.22 | % | 2.22 | % | 1.85 | % | |||
Expected stock price volatility(3) | 25.04 | % | 24.81 | % | 26.94 | % | |||
Expected annual dividends per share(4) | $ | 2.6191 | $ | 2.3854 | $ | 2.0010 | |||
Expected forfeiture rate(5) | 6.05 | % | 4.70 | % | 2.80 | % | |||
Weighted-average grant date fair value of options granted during the year | $ | 63.69 | $ | 55.63 | $ | 45.78 |
(in millions of Canadian dollars) | 2019 | 2018 | 2017 | ||||||
Total intrinsic value | $ | 63 | $ | 17 | $ | 36 | |||
Cash received by the Company upon exercise of options | 26 | 24 | 45 |
2019 | 2018 | |||
Outstanding, January 1 | 395,048 | 334,028 | ||
Granted | 134,260 | 162,255 | ||
Units, in lieu of dividends | 4,032 | 3,643 | ||
Settled | (117,228 | ) | (66,243 | ) |
Forfeited | (12,976 | ) | (38,635 | ) |
Outstanding, December 31 | 403,136 | 395,048 |
2019 | 2018 | |||
Outstanding, January 1 | 152,760 | 156,547 | ||
Granted | 19,912 | 16,481 | ||
Units, in lieu of dividends | 1,608 | 1,551 | ||
Settled | (12,110 | ) | (20,072 | ) |
Forfeited | (951 | ) | (1,747 | ) |
Outstanding, December 31 | 161,219 | 152,760 |
(in millions of Canadian dollars) | 2019 | 2018 | 2017 | ||||||
Plan | |||||||||
PSUs | $ | 54 | $ | 30 | $ | 31 | |||
DSUs | 4 | 6 | 6 | ||||||
Other | — | 1 | 2 | ||||||
Total | $ | 58 | $ | 37 | $ | 39 |
(1) | Québec's Minister of Sustainable Development, Environment, Wildlife and Parks ordered various parties, including CP, to clean up the derailment site and served CP with a Notice of Claim for $95 million for those cleanup 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 exercised custody or control over the petroleum crude oil until its delivery to Irving Oil and was negligent in that custody and control; 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, and property damage. |
(4) | NaN subrogated insurers sued CP in the Québec Superior Court claiming approximately $16 million in damages, which was amended and reduced to $14 million (the “Promutuel Action”), and 2 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, and therefore overlap with the claims process under the Plans is unclear. The Royal Action is stayed pending determination of the consolidated proceedings described below. |
(5) | NaN plaintiffs (all individual claims joined in one action) sued CP, MMAC and Harding in the Québec Superior Court claiming approximately U.S. $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 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. estate representative commenced an action against CP in November 2014 in the Maine Bankruptcy Court claiming that CP failed to abide by certain regulations and seeking damages for MMAR’s loss in business value (as yet unquantified). This action asserts that CP knew or ought to have known that the shipper misclassified the petroleum crude oil and therefore should have refused to transport it. |
(7) | The class and mass tort action commenced against CP in June 2015 in Texas (on behalf of Lac-Mégantic residents and wrongful death representatives) and the wrongful death and personal injury actions commenced against CP in June 2015 in Illinois and Maine, were all transferred and consolidated in |
(8) | The trustee for the wrongful death trust commenced Carmack Amendment claims against CP in North Dakota Federal Court, seeking to recover approximately U.S. $6 million for damaged rail cars and lost crude and reimbursement for the settlement paid by the consignor and the consignee under the Plans (alleged to be U.S. $110 million and U.S. $60 million, respectively). This action is scheduled for trial in August 2020. |
• | a guarantee to uphold an equity investee's credit facility of $19 million at December 31, 2019; |
(in millions of Canadian dollars) | Canada | United States | Total | ||||||
2019 | |||||||||
Revenues | $ | 5,675 | $ | 2,117 | $ | 7,792 | |||
Long-term assets excluding financial instruments and pension assets | 13,131 | 7,020 | 20,151 | ||||||
2018 | |||||||||
Revenues | 5,232 | 2,084 | 7,316 | ||||||
Long-term assets excluding financial instruments and pension assets | 12,133 | 6,759 | 18,892 | ||||||
2017 | |||||||||
Revenues | 4,667 | 1,887 | 6,554 | ||||||
Long-term assets excluding financial instruments and pension assets | 11,505 | 5,947 | 17,452 |
For the quarter ended | 2019 | 2018 | ||||||||||||||||||||||
(in millions of Canadian dollars, except per share data) | Dec. 31 | Sep. 30 | Jun. 30 | Mar. 31 | Dec. 31 | Sep. 30 | Jun. 30 | Mar. 31 | ||||||||||||||||
Total revenues | $ | 2,069 | $ | 1,979 | $ | 1,977 | $ | 1,767 | $ | 2,006 | $ | 1,898 | $ | 1,750 | $ | 1,662 | ||||||||
Operating income | 890 | 869 | 822 | 543 | 874 | 790 | 627 | 540 | ||||||||||||||||
Net income | 664 | 618 | 724 | 434 | 545 | 622 | 436 | 348 | ||||||||||||||||
Basic earnings per share(1) | $ | 4.84 | $ | 4.47 | $ | 5.19 | $ | 3.10 | $ | 3.84 | $ | 4.36 | $ | 3.05 | $ | 2.41 | ||||||||
Diluted earnings per share(1) | 4.82 | 4.46 | 5.17 | 3.09 | 3.83 | 4.35 | 3.04 | 2.41 |
(in millions of Canadian dollars) | CPRL (Parent Guarantor) | CPRC (Subsidiary Issuer) | Non-Guarantor Subsidiaries | Consolidating Adjustments and Eliminations | CPRL Consolidated | ||||||||||
Revenues | |||||||||||||||
Freight | $ | — | $ | 5,527 | $ | 2,084 | $ | 2 | $ | 7,613 | |||||
Non-freight | — | 135 | 570 | (526 | ) | 179 | |||||||||
Total revenues | — | 5,662 | 2,654 | (524 | ) | 7,792 | |||||||||
Operating expenses | |||||||||||||||
Compensation and benefits | — | 1,042 | 490 | 8 | 1,540 | ||||||||||
Fuel | — | 695 | 187 | — | 882 | ||||||||||
Materials | — | 142 | 53 | 15 | 210 | ||||||||||
Equipment rents | — | 177 | (9 | ) | (31 | ) | 137 | ||||||||
Depreciation and amortization | — | 423 | 283 | — | 706 | ||||||||||
Purchased services and other | — | 967 | 742 | (516 | ) | 1,193 | |||||||||
Total operating expenses | — | 3,446 | 1,746 | (524 | ) | 4,668 | |||||||||
Operating income | — | 2,216 | 908 | — | 3,124 | ||||||||||
Less: | |||||||||||||||
Other (income) expense | (12 | ) | (86 | ) | 9 | — | (89 | ) | |||||||
Other components of net periodic benefit (recovery) cost | — | (388 | ) | 7 | — | (381 | ) | ||||||||
Net interest (income) expense | (1 | ) | 474 | (25 | ) | — | 448 | ||||||||
Income before income tax expense and equity in net earnings of subsidiaries | 13 | 2,216 | 917 | — | 3,146 | ||||||||||
Less: Income tax expense | 3 | 522 | 181 | — | 706 | ||||||||||
Add: Equity in net earnings of subsidiaries | 2,430 | 736 | — | (3,166 | ) | — | |||||||||
Net income | $ | 2,440 | $ | 2,430 | $ | 736 | $ | (3,166 | ) | $ | 2,440 |
(in millions of Canadian dollars) | CPRL (Parent Guarantor) | CPRC (Subsidiary Issuer) | Non-Guarantor Subsidiaries | Consolidating Adjustments and Eliminations | CPRL Consolidated | ||||||||||
Revenues | |||||||||||||||
Freight | $ | — | $ | 5,098 | $ | 2,054 | $ | — | $ | 7,152 | |||||
Non-freight | — | 120 | 361 | (317 | ) | 164 | |||||||||
Total revenues | — | 5,218 | 2,415 | (317 | ) | 7,316 | |||||||||
Operating expenses | |||||||||||||||
Compensation and benefits | — | 996 | 466 | 6 | 1,468 | ||||||||||
Fuel | — | 716 | 202 | — | 918 | ||||||||||
Materials | — | 139 | 49 | 13 | 201 | ||||||||||
Equipment rents | — | 137 | (7 | ) | — | 130 | |||||||||
Depreciation and amortization | — | 424 | 272 | — | 696 | ||||||||||
Purchased services and other | — | 886 | 522 | (336 | ) | 1,072 | |||||||||
Total operating expenses | — | 3,298 | 1,504 | (317 | ) | 4,485 | |||||||||
Operating income | — | 1,920 | 911 | — | 2,831 | ||||||||||
Less: | |||||||||||||||
Other expense (income) | 19 | 193 | (38 | ) | — | 174 | |||||||||
Other components of net periodic benefit (recovery) cost | — | (386 | ) | 2 | — | (384 | ) | ||||||||
Net interest expense (income) | 3 | 478 | (28 | ) | — | 453 | |||||||||
(Loss) income before income tax (recovery) expense and equity in net earnings of subsidiaries | (22 | ) | 1,635 | 975 | — | 2,588 | |||||||||
Less: Income tax (recovery) expense | (4 | ) | 469 | 172 | — | 637 | |||||||||
Add: Equity in net earnings of subsidiaries | 1,969 | 803 | — | (2,772 | ) | — | |||||||||
Net income | $ | 1,951 | $ | 1,969 | $ | 803 | $ | (2,772 | ) | $ | 1,951 |
(in millions of Canadian dollars) | CPRL (Parent Guarantor) | CPRC (Subsidiary Issuer) | Non-Guarantor Subsidiaries | Consolidating Adjustments and Eliminations | CPRL Consolidated | ||||||||||
Revenues | |||||||||||||||
Freight | $ | — | $ | 4,516 | $ | 1,859 | $ | — | $ | 6,375 | |||||
Non-freight | — | 140 | 372 | (333 | ) | 179 | |||||||||
Total revenues | — | 4,656 | 2,231 | (333 | ) | 6,554 | |||||||||
Operating expenses | |||||||||||||||
Compensation and benefits | — | 879 | 423 | 7 | 1,309 | ||||||||||
Fuel | — | 522 | 155 | — | 677 | ||||||||||
Materials | — | 134 | 41 | 15 | 190 | ||||||||||
Equipment rents | — | 143 | (1 | ) | — | 142 | |||||||||
Depreciation and amortization | — | 400 | 261 | — | 661 | ||||||||||
Purchased services and other | — | 826 | 585 | (355 | ) | 1,056 | |||||||||
Total operating expenses | — | 2,904 | 1,464 | (333 | ) | 4,035 | |||||||||
Operating income | — | 1,752 | 767 | — | 2,519 | ||||||||||
Less: | |||||||||||||||
Other (income) expense | (33 | ) | (149 | ) | 4 | — | (178 | ) | |||||||
Other components of net periodic benefit (recovery) cost | — | (278 | ) | 4 | — | (274 | ) | ||||||||
Net interest (income) expense | (12 | ) | 517 | (32 | ) | — | 473 | ||||||||
Income before income tax expense (recovery) and equity in net earnings of subsidiaries | 45 | 1,662 | 791 | — | 2,498 | ||||||||||
Less: Income tax expense (recovery) | 7 | 475 | (389 | ) | — | 93 | |||||||||
Add: Equity in net earnings of subsidiaries | 2,367 | 1,180 | — | (3,547 | ) | — | |||||||||
Net income | $ | 2,405 | $ | 2,367 | $ | 1,180 | $ | (3,547 | ) | $ | 2,405 |
(in millions of Canadian dollars) | CPRL (Parent Guarantor) | CPRC (Subsidiary Issuer) | Non-Guarantor Subsidiaries | Consolidating Adjustments and Eliminations | CPRL Consolidated | ||||||||||
Net income | $ | 2,440 | $ | 2,430 | $ | 736 | $ | (3,166 | ) | $ | 2,440 | ||||
Net gain (loss) in foreign currency translation adjustments, net of hedging activities | — | 288 | (251 | ) | — | 37 | |||||||||
Change in derivatives designated as cash flow hedges | — | 10 | — | — | 10 | ||||||||||
Change in pension and post-retirement defined benefit plans | — | (651 | ) | (10 | ) | — | (661 | ) | |||||||
Other comprehensive loss before income taxes | — | (353 | ) | (261 | ) | — | (614 | ) | |||||||
Income tax recovery on above items | — | 132 | 3 | — | 135 | ||||||||||
Equity accounted investments | (479 | ) | (258 | ) | — | 737 | — | ||||||||
Other comprehensive loss | (479 | ) | (479 | ) | (258 | ) | 737 | (479 | ) | ||||||
Comprehensive income | $ | 1,961 | $ | 1,951 | $ | 478 | $ | (2,429 | ) | $ | 1,961 |
(in millions of Canadian dollars) | CPRL (Parent Guarantor) | CPRC (Subsidiary Issuer) | Non-Guarantor Subsidiaries | Consolidating Adjustments and Eliminations | CPRL Consolidated | ||||||||||
Net income | $ | 1,951 | $ | 1,969 | $ | 803 | $ | (2,772 | ) | $ | 1,951 | ||||
Net (loss) gain in foreign currency translation adjustments, net of hedging activities | — | (479 | ) | 419 | — | (60 | ) | ||||||||
Change in derivatives designated as cash flow hedges | — | 38 | — | — | 38 | ||||||||||
Change in pension and post-retirement defined benefit plans | — | (455 | ) | 6 | — | (449 | ) | ||||||||
Other comprehensive (loss) income before income taxes | — | (896 | ) | 425 | — | (471 | ) | ||||||||
Income tax recovery (expense) on above items | — | 171 | (2 | ) | — | 169 | |||||||||
Equity accounted investments | (302 | ) | 423 | — | (121 | ) | — | ||||||||
Other comprehensive (loss) income | (302 | ) | (302 | ) | 423 | (121 | ) | (302 | ) | ||||||
Comprehensive income | $ | 1,649 | $ | 1,667 | $ | 1,226 | $ | (2,893 | ) | $ | 1,649 |
(in millions of Canadian dollars) | CPRL (Parent Guarantor) | CPRC (Subsidiary Issuer) | Non-Guarantor Subsidiaries | Consolidating Adjustments and Eliminations | CPRL Consolidated | ||||||||||
Net income | $ | 2,405 | $ | 2,367 | $ | 1,180 | $ | (3,547 | ) | $ | 2,405 | ||||
Net gain (loss) in foreign currency translation adjustments, net of hedging activities | — | 318 | (294 | ) | — | 24 | |||||||||
Change in derivatives designated as cash flow hedges | — | 19 | — | — | 19 | ||||||||||
Change in pension and post-retirement defined benefit plans | — | 82 | (2 | ) | — | 80 | |||||||||
Other comprehensive income (loss) before income taxes | — | 419 | (296 | ) | — | 123 | |||||||||
Income tax (expense) recovery on above items | — | (66 | ) | 1 | — | (65 | ) | ||||||||
Equity accounted investments | 58 | (295 | ) | — | 237 | — | |||||||||
Other comprehensive income (loss) | 58 | 58 | (295 | ) | 237 | 58 | |||||||||
Comprehensive income | $ | 2,463 | $ | 2,425 | $ | 885 | $ | (3,310 | ) | $ | 2,463 |
(in millions of Canadian dollars) | CPRL (Parent Guarantor) | CPRC (Subsidiary Issuer) | Non-Guarantor Subsidiaries | Consolidating Adjustments and Eliminations | CPRL Consolidated | ||||||||||
Assets | |||||||||||||||
Current assets | |||||||||||||||
Cash and cash equivalents | $ | — | $ | 37 | $ | 96 | $ | — | $ | 133 | |||||
Accounts receivable, net | 24 | 597 | 184 | — | 805 | ||||||||||
Accounts receivable, intercompany | 164 | 313 | 249 | (726 | ) | — | |||||||||
Short-term advances to affiliates | — | 1,387 | 3,700 | (5,087 | ) | — | |||||||||
Materials and supplies | — | 144 | 38 | — | 182 | ||||||||||
Other current assets | — | 41 | 49 | — | 90 | ||||||||||
188 | 2,519 | 4,316 | (5,813 | ) | 1,210 | ||||||||||
Long-term advances to affiliates | 1,090 | 7 | 84 | (1,181 | ) | — | |||||||||
Investments | — | 32 | 309 | — | 341 | ||||||||||
Investments in subsidiaries | 10,522 | 11,165 | — | (21,687 | ) | — | |||||||||
Properties | — | 10,287 | 8,869 | — | 19,156 | ||||||||||
Goodwill and intangible assets | — | — | 206 | — | 206 | ||||||||||
Pension asset | — | 1,003 | — | — | 1,003 | ||||||||||
Other assets | — | 173 | 278 | — | 451 | ||||||||||
Deferred income taxes | 4 | — | — | (4 | ) | — | |||||||||
Total assets | $ | 11,804 | $ | 25,186 | $ | 14,062 | $ | (28,685 | ) | $ | 22,367 | ||||
Liabilities and shareholders’ equity | |||||||||||||||
Current liabilities | |||||||||||||||
Accounts payable and accrued liabilities | $ | 146 | $ | 1,189 | $ | 358 | $ | — | $ | 1,693 | |||||
Accounts payable, intercompany | 6 | 402 | 318 | (726 | ) | — | |||||||||
Short-term advances from affiliates | 4,583 | 490 | 14 | (5,087 | ) | — | |||||||||
Long-term debt maturing within one year | — | 548 | 51 | — | 599 | ||||||||||
4,735 | 2,629 | 741 | (5,813 | ) | 2,292 | ||||||||||
Pension and other benefit liabilities | — | 698 | 87 | — | 785 | ||||||||||
Long-term advances from affiliates | — | 1,174 | 7 | (1,181 | ) | — | |||||||||
Other long-term liabilities | — | 206 | 356 | — | 562 | ||||||||||
Long-term debt | — | 8,145 | 13 | — | 8,158 | ||||||||||
Deferred income taxes | — | 1,812 | 1,693 | (4 | ) | 3,501 | |||||||||
Total liabilities | 4,735 | 14,664 | 2,897 | (6,998 | ) | 15,298 | |||||||||
Shareholders’ equity | |||||||||||||||
Share capital | 1,993 | 538 | 4,610 | (5,148 | ) | 1,993 | |||||||||
Additional paid-in capital | 48 | 406 | 265 | (671 | ) | 48 | |||||||||
Accumulated other comprehensive (loss) income | (2,522 | ) | (2,522 | ) | 581 | 1,941 | (2,522 | ) | |||||||
Retained earnings | 7,550 | 12,100 | 5,709 | (17,809 | ) | 7,550 | |||||||||
7,069 | 10,522 | 11,165 | (21,687 | ) | 7,069 | ||||||||||
Total liabilities and shareholders’ equity | $ | 11,804 | $ | 25,186 | $ | 14,062 | $ | (28,685 | ) | $ | 22,367 |
(in millions of Canadian dollars) | CPRL (Parent Guarantor) | CPRC (Subsidiary Issuer) | Non-Guarantor Subsidiaries | Consolidating Adjustments and Eliminations | CPRL Consolidated | ||||||||||
Assets | |||||||||||||||
Current assets | |||||||||||||||
Cash and cash equivalents | $ | — | $ | 42 | $ | 19 | $ | — | $ | 61 | |||||
Accounts receivable, net | — | 629 | 186 | — | 815 | ||||||||||
Accounts receivable, intercompany | 125 | 167 | 224 | (516 | ) | — | |||||||||
Short-term advances to affiliates | — | 1,602 | 4,651 | (6,253 | ) | — | |||||||||
Materials and supplies | — | 136 | 37 | — | 173 | ||||||||||
Other current assets | — | 39 | 29 | — | 68 | ||||||||||
125 | 2,615 | 5,146 | (6,769 | ) | 1,117 | ||||||||||
Long-term advances to affiliates | 1,090 | 5 | 93 | (1,188 | ) | — | |||||||||
Investments | — | 24 | 179 | — | 203 | ||||||||||
Investments in subsidiaries | 11,443 | 12,003 | — | (23,446 | ) | — | |||||||||
Properties | — | 9,579 | 8,839 | — | 18,418 | ||||||||||
Goodwill and intangible assets | — | — | 202 | — | 202 | ||||||||||
Pension asset | — | 1,243 | — | — | 1,243 | ||||||||||
Other assets | — | 57 | 14 | — | 71 | ||||||||||
Deferred income taxes | 6 | — | — | (6 | ) | — | |||||||||
Total assets | $ | 12,664 | $ | 25,526 | $ | 14,473 | $ | (31,409 | ) | $ | 21,254 | ||||
Liabilities and shareholders’ equity | |||||||||||||||
Current liabilities | |||||||||||||||
Accounts payable and accrued liabilities | $ | 115 | $ | 1,017 | $ | 317 | $ | — | $ | 1,449 | |||||
Accounts payable, intercompany | 4 | 344 | 168 | (516 | ) | — | |||||||||
Short-term advances from affiliates | 5,909 | 341 | 3 | (6,253 | ) | — | |||||||||
Long-term debt maturing within one year | — | 506 | — | — | 506 | ||||||||||
6,028 | 2,208 | 488 | (6,769 | ) | 1,955 | ||||||||||
Pension and other benefit liabilities | — | 639 | 79 | — | 718 | ||||||||||
Long-term advances from affiliates | — | 1,182 | 6 | (1,188 | ) | — | |||||||||
Other long-term liabilities | — | 120 | 117 | — | 237 | ||||||||||
Long-term debt | — | 8,135 | 55 | — | 8,190 | ||||||||||
Deferred income taxes | — | 1,799 | 1,725 | (6 | ) | 3,518 | |||||||||
Total liabilities | 6,028 | 14,083 | 2,470 | (7,963 | ) | 14,618 | |||||||||
Shareholders’ equity | |||||||||||||||
Share capital | 2,002 | 538 | 5,946 | (6,484 | ) | 2,002 | |||||||||
Additional paid-in capital | 42 | 1,656 | 92 | (1,748 | ) | 42 | |||||||||
Accumulated other comprehensive (loss) income | (2,043 | ) | (2,043 | ) | 839 | 1,204 | (2,043 | ) | |||||||
Retained earnings | 6,635 | 11,292 | 5,126 | (16,418 | ) | 6,635 | |||||||||
6,636 | 11,443 | 12,003 | (23,446 | ) | 6,636 | ||||||||||
Total liabilities and shareholders’ equity | $ | 12,664 | $ | 25,526 | $ | 14,473 | $ | (31,409 | ) | $ | 21,254 |
(in millions of Canadian dollars) | CPRL (Parent Guarantor) | CPRC (Subsidiary Issuer) | Non-Guarantor Subsidiaries | Consolidating Adjustments and Eliminations | CPRL Consolidated | ||||||||||
Cash provided by operating activities | $ | 1,601 | $ | 2,133 | $ | 1,026 | $ | (1,770 | ) | $ | 2,990 | ||||
Investing activities | |||||||||||||||
Additions to properties | — | (1,243 | ) | (404 | ) | — | (1,647 | ) | |||||||
Investment in Central Maine & Québec Railway | — | (47 | ) | (127 | ) | — | (174 | ) | |||||||
Proceeds from sale of properties and other assets | — | 21 | 5 | — | 26 | ||||||||||
Advances to affiliates | — | (263 | ) | (396 | ) | 659 | — | ||||||||
Repayment of advances to affiliates | — | 468 | 1,350 | (1,818 | ) | — | |||||||||
Capital contributions to affiliates | — | (125 | ) | — | 125 | — | |||||||||
Repurchase of share capital from affiliates | 1,246 | 1,345 | — | (2,591 | ) | — | |||||||||
Other | — | 1 | (9 | ) | — | (8 | ) | ||||||||
Cash provided by (used in) investing activities | 1,246 | 157 | 419 | (3,625 | ) | (1,803 | ) | ||||||||
Financing activities | |||||||||||||||
Dividends paid | (412 | ) | (1,612 | ) | (158 | ) | 1,770 | (412 | ) | ||||||
Issuance of share capital | — | — | 125 | (125 | ) | — | |||||||||
Return of share capital to affiliates | — | (1,246 | ) | (1,345 | ) | 2,591 | — | ||||||||
Issuance of CP Common Shares | 26 | — | — | — | 26 | ||||||||||
Purchase of CP Common Shares | (1,132 | ) | (2 | ) | — | — | (1,134 | ) | |||||||
Issuance of long-term debt, excluding commercial paper | — | 397 | — | — | 397 | ||||||||||
Repayment of long-term debt, excluding commercial paper | — | (500 | ) | — | — | (500 | ) | ||||||||
Net issuance of commercial paper | — | 524 | — | — | 524 | ||||||||||
Advances from affiliates | 495 | 151 | 13 | (659 | ) | — | |||||||||
Repayment of advances from affiliates | (1,813 | ) | (5 | ) | — | 1,818 | — | ||||||||
Other | (11 | ) | (1 | ) | — | — | (12 | ) | |||||||
Cash used in financing activities | (2,847 | ) | (2,294 | ) | (1,365 | ) | 5,395 | (1,111 | ) | ||||||
Effect of foreign currency fluctuations on U.S. dollar-denominated cash and cash equivalents | — | (1 | ) | (3 | ) | — | (4 | ) | |||||||
Cash position | |||||||||||||||
(Decrease) increase in cash and cash equivalents | — | (5 | ) | 77 | — | 72 | |||||||||
Cash and cash equivalents at beginning of year | — | 42 | 19 | — | 61 | ||||||||||
Cash and cash equivalents at end of year | $ | — | $ | 37 | $ | 96 | $ | — | $ | 133 |
(in millions of Canadian dollars) | CPRL (Parent Guarantor) | CPRC (Subsidiary Issuer) | Non-Guarantor Subsidiaries | Consolidating Adjustments and Eliminations | CPRL Consolidated | ||||||||||
Cash provided by operating activities | $ | 316 | $ | 1,968 | $ | 1,128 | $ | (700 | ) | $ | 2,712 | ||||
Investing activities | |||||||||||||||
Additions to properties | — | (971 | ) | (580 | ) | — | (1,551 | ) | |||||||
Proceeds from sale of properties and other assets | — | 35 | 43 | — | 78 | ||||||||||
Advances to affiliates | — | (611 | ) | (209 | ) | 820 | — | ||||||||
Repayment of advances to affiliates | — | — | 866 | (866 | ) | — | |||||||||
Repurchase of share capital from affiliates | 500 | 964 | — | (1,464 | ) | — | |||||||||
Other | — | 18 | (3 | ) | — | 15 | |||||||||
Cash provided by (used in) investing activities | 500 | (565 | ) | 117 | (1,510 | ) | (1,458 | ) | |||||||
Financing activities | |||||||||||||||
Dividends paid | (348 | ) | (348 | ) | (352 | ) | 700 | (348 | ) | ||||||
Return of share capital to affiliates | — | (500 | ) | (964 | ) | 1,464 | — | ||||||||
Issuance of CP Common Shares | 24 | — | — | — | 24 | ||||||||||
Purchase of CP Common Shares | (1,103 | ) | — | — | — | (1,103 | ) | ||||||||
Issuance of long-term debt, excluding commercial paper | — | 638 | — | — | 638 | ||||||||||
Repayment of long-term debt, excluding commercial paper | — | (753 | ) | — | — | (753 | ) | ||||||||
Advances from affiliates | 820 | — | — | (820 | ) | — | |||||||||
Repayment of advances from affiliates | (209 | ) | (657 | ) | — | 866 | — | ||||||||
Cash used in financing activities | (816 | ) | (1,620 | ) | (1,316 | ) | 2,210 | (1,542 | ) | ||||||
Effect of foreign currency fluctuations on U.S. dollar-denominated cash and cash equivalents | — | 18 | (7 | ) | — | 11 | |||||||||
Cash position | |||||||||||||||
Decrease in cash and cash equivalents | — | (199 | ) | (78 | ) | — | (277 | ) | |||||||
Cash and cash equivalents at beginning of year | — | 241 | 97 | — | 338 | ||||||||||
Cash and cash equivalents at end of year | $ | — | $ | 42 | $ | 19 | $ | — | $ | 61 |
(in millions of Canadian dollars) | CPRL (Parent Guarantor) | CPRC (Subsidiary Issuer) | Non-Guarantor Subsidiaries | Consolidating Adjustments and Eliminations | CPRL Consolidated | ||||||||||
Cash provided by operating activities | $ | 338 | $ | 1,334 | $ | 989 | $ | (479 | ) | $ | 2,182 | ||||
Investing activities | |||||||||||||||
Additions to properties | — | (950 | ) | (390 | ) | — | (1,340 | ) | |||||||
Proceeds from sale of properties and other assets | — | 29 | 13 | — | 42 | ||||||||||
Advances to affiliates | (590 | ) | (550 | ) | (1,528 | ) | 2,668 | — | |||||||
Repayment of advances to affiliates | — | 242 | 243 | (485 | ) | — | |||||||||
Capital contributions to affiliates | — | (1,039 | ) | — | 1,039 | — | |||||||||
Repurchase of share capital from affiliates | — | 156 | — | (156 | ) | — | |||||||||
Other | — | 5 | (2 | ) | — | 3 | |||||||||
Cash used in investing activities | (590 | ) | (2,107 | ) | (1,664 | ) | 3,066 | (1,295 | ) | ||||||
Financing activities | |||||||||||||||
Dividends paid | (310 | ) | (310 | ) | (169 | ) | 479 | (310 | ) | ||||||
Issuance of share capital | — | — | 1,039 | (1,039 | ) | — | |||||||||
Return of share capital to affiliates | — | — | (156 | ) | 156 | — | |||||||||
Issuance of CP Common Shares | 45 | — | — | — | 45 | ||||||||||
Purchase of CP Common Shares | (381 | ) | — | — | — | (381 | ) | ||||||||
Repayment of long-term debt, excluding commercial paper | — | (32 | ) | — | — | (32 | ) | ||||||||
Advances from affiliates | 1,383 | 1,285 | — | (2,668 | ) | — | |||||||||
Repayment of advances from affiliates | (485 | ) | — | — | 485 | — | |||||||||
Settlement of forward starting swaps | — | (22 | ) | — | — | (22 | ) | ||||||||
Cash provided by (used in) financing activities | 252 | 921 | 714 | (2,587 | ) | (700 | ) | ||||||||
Effect of foreign currency fluctuations on U.S. dollar-denominated cash and cash equivalents | — | (7 | ) | (6 | ) | — | (13 | ) | |||||||
Cash position | |||||||||||||||
Increase in cash and cash equivalents | — | 141 | 33 | — | 174 | ||||||||||
Cash and cash equivalents at beginning of year | — | 100 | 64 | — | 164 | ||||||||||
Cash and cash equivalents at end of year | $ | — | $ | 241 | $ | 97 | $ | — | $ | 338 |
The Governance Committee reviews director compensation every two to three yearsinternal control based on the directors’ responsibilitiesassessed risk, and time commitmentperforming such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
52
Equity Compensation Plan Information
See
Beneficial Ownership Table
The table below sets forth the number and percentage of outstanding Shares of Common Stock beneficially owned by each person, or group of persons, known by Canadian Pacific based on publicly available information as of March 15, 2017, to own beneficially more than five percent of our Common Stock, each of our directors, each of our NEOs and all directors and executive officers as a group.
Unless otherwise indicatedwill be contained in the table, the address of each of the individuals named below is c/o Canadian Pacific, 7550 Ogden Dale Road S.E., Calgary, Alberta, T2C 4X9.
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Company’s Form 10-K/A, which will be filed no later than 120 days after December 31, 2019.
Related party transactions
Directors, officers and employees are
In 2017, there wereCompany’s Form 10-K/A, which will be filed no transactions between CP and a related person as describedlater than 120 days after December 31, 2019. This information will also be contained in Item 404 of RegulationS-K, which defines arelated person as:
Any director who has a material interest in a transaction or agreement involving CP must disclose the interest to the CEO and the Chairman of the Board immediately, and does not participate in any discussions or votes on the matter.
The Board reviews related party transactions when it does its annual review of director independence. Our accounting and legal departments review any related party transactions reported by officers and employees.
53
Independence
The Board has adopted standards for director independence based on the criteria of the NYSE, SEC and CSA.
It reviews director independence annually using director questionnaires, reviewing updated biographical information, meeting with directors individually, and conducting a comprehensive assessment of all business and other relationships and interests of each director with respect to CP and our subsidiaries. In 2017 the Board determinedmanagement proxy circular that each director, except for Mr. Creel, is independentwe prepare in accordance with the standards for independence established by the NYSE,applicable Canadian corporate andNI 58-101 Disclosure of Corporate Governance Practices. Mr. Creel is not independent because of his position as President and Chief Executive Officer of CP.
The Board has also determined that each member of the audit committee meets the additional independence standards for audit committee members under the NYSE, Section 10A(m)(3) andRule 10A-3(b)(1) of the Exchange Act, andNI 52-110 Audit Committees.
securities law requirements.
For the year ended December 31 | 2017 | 2016 | ||||||
Audit fees | $ | 3,834,100 | $ | 2,398,500 | ||||
for audit of our annual financial statements, reviews of quarterly reports and services relating to statutory and regulatory filings or engagements (including attestation services and audit of financial statements of certain subsidiaries and certain pension and benefits plans, and advice on accounting and/or disclosure matters) | ||||||||
Audit-related fees | $ | 21,000 | $ | 289,800 | ||||
for assurance and services related to the audit but not included in the audit fees above, including securities filings, compliance review of third-party agreements, refinancing of subsidiary companies and accounting training | ||||||||
Tax fees | $ | 153,100 | $ | 147,000 | ||||
for services relating to tax compliance, tax planning and tax advice and access fees for taxation database resources | ||||||||
All other fees | $ | 34,600 | $ | 26,100 | ||||
for services provided relating to CP’s corporate sustainability report | ||||||||
Total | $ | 4,042,800 | $ | 2,861,400 |
Pre-approval of audit services and fees
The audit committee has a written policy forpre-approving audit andnon-audit services by the independent auditor and their fees,prepare in accordance with the laws and requirements of stock exchangesapplicable Canadian corporate and securities regulatory authorities.
The policy sets out the following governance procedures:
The audit committee or committee chair must be satisfied that any services itpre-approves will not compromise the independence of the external auditor. The committeepre-approved all services performed by the external auditor in 2017, in accordance with the policy.
54
(a) | Financial Statements |
Part IV (Item 15)
(b) | Financial Statement Schedule |
(in millions of Canadian dollars) | Beginning balance at January 1 | Additions charged to expenses | Payments and other reductions | Impact of FX | Ending balance at December 31 | ||||||||||
Accruals for personal injury and other claims provision(1) | |||||||||||||||
2017 | $ | 130 | $ | 66 | $ | (77 | ) | $ | (1 | ) | $ | 118 | |||
2018 | $ | 118 | $ | 93 | $ | (60 | ) | $ | 1 | $ | 152 | ||||
2019 | $ | 152 | $ | 142 | $ | (152 | ) | $ | (1 | ) | $ | 141 | |||
Environmental liabilities | |||||||||||||||
2017 | $ | 85 | $ | 5 | $ | (8 | ) | $ | (4 | ) | $ | 78 | |||
2018 | $ | 78 | $ | 6 | $ | (7 | ) | $ | 5 | $ | 82 | ||||
2019 | $ | 82 | $ | 6 | $ | (8 | ) | $ | (3 | ) | $ | 77 |
(c) | Exhibits |
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| ||
Description | |||
3 | Articles of Incorporation and Bylaws: | ||
4 | Instruments Defining the Rights of Security Holders, Including Indentures: | ||
10 | Material Contracts: |
101.INS** | Inline XBRL Instance 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 |
104 ** | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
The following financial information from Canadian Pacific Railway Limited’s Annual Report on Form |
55
CANADIAN PACIFIC RAILWAY LIMITED | ||
(Registrant) | ||
By: | /s/ KEITH CREEL | |
Keith Creel | ||
Chief Executive Officer |
Dated: April 5, 2018
February 20, 2020
Signature | Title | |
| /s/ KEITH CREEL | Chief Executive Officer and Director |
Keith Creel | (Principal Executive Officer) | |
/s/ NADEEM VELANI
| Executive Vice-President and Chief Financial Officer | |
Nadeem Velani | (Principal Financial | |
| ||
Isabelle Courville | ||
| ||
/s/ JOHN R. | BAIRD | Director |
John R. Baird | ||
| ||
/s/ GILLIAN H. DENHAM | Director | |
Gillian H. Denham | ||
/s/ EDWARD R. HAMBERGER | Director | |
Edward R. Hamberger | ||
| ||
/s/ REBECCA MACDONALD | Director | |
Rebecca MacDonald | ||
| ||
/s/ EDWARD L. MONSER | Director | |
Edward L. Monser | ||
| ||
/s/ MATTHEW H. PAULL | Director | |
Matthew H. Paull | ||
| ||
/s/ JANE L. PEVERETT | Director | |
Jane L. Peverett | ||
/s/ | Director | |
Andrea Robertson | ||
/s/ GORDON T. TRAFTON | Director | |
Gordon T. Trafton |
56