Canadian Pacific Railway Limited today announced second-quarter net income of $166.6 million. Diluted earnings per share were $0.98, up 23 per cent from $0.80 in the second-quarter 2009 which included a $0.41 per share gain from an asset sale.
“We leveraged volume growth in the quarter to deliver a solid financial performance through a keen focus on cost management,” said Fred Green, President and CEO. “Our emphasis on safety, productivity and asset velocity is improving service reliability for our customers.”
SECOND-QUARTER 2010 COMPARED WITH SECOND-QUARTER 2009
- Adjusted diluted earnings per share increased 96 per cent to $0.92
- Total revenues were up 20 per cent to $1.23 billion
- Operating income increased 48 per cent to $274.1 million
- Adjusted earnings increased 97 per cent to $156.2 million
- Operating ratio improved 430 basis points to 77.8 per cent
“Markets are likely to remain volatile,” added Green. “Our proven track record of quickly adjusting our resources to meet changing volume demands position us well for the second half.”
Presentation of non-GAAP earnings measures
CP presents non-GAAP earnings measures in this news release to provide an additional basis for evaluating underlying earnings and liquidity trends in its business that can be compared with prior periods’ results of operations. When foreign exchange gains and losses on long-term debt and other specified items are excluded from diluted earnings per share, income and income tax expense, these are non-GAAP measures.
These non-GAAP earnings measures exclude foreign currency translation effects on long-term debt and related income taxes, which can be volatile and short term. The impact of volatile short-term rate fluctuations on foreign- denominated debt is only realized when long-term debt matures or is settled. A reconciliation of income, excluding foreign exchange gains and losses on long- term debt and other specified items, to net income as presented in the financial statements is detailed in the attached Summary of Rail Data. In addition, these non-GAAP measures exclude other specified items (described below) that are not a part of CP’s normal ongoing revenues and operating expenses.
Net income and diluted earnings per share, excluding foreign exchange gains and losses on long-term debt and other specified items, are referred to in this news release as “Adjusted earnings” and “Adjusted diluted earnings per share”.
Other specified items are material transactions that may include, but are not limited to, restructuring and asset impairment charges, gains and losses on non-routine sales of assets, unusual income tax adjustments, and other items that do not typify normal business activities.
The non-GAAP earnings measures described in this news release have no standardized meanings and are not defined by accounting principles generally accepted in the United States and, therefore, are unlikely to be comparable to similar measures presented by other companies.
FOREIGN EXCHANGE GAIN AND LOSS ON LONG-TERM DEBT AND OTHER SPECIFIED ITEMS
CP had a net foreign exchange gain on long-term debt of $9.4 million after tax in the second-quarter of 2010, compared with a loss of $15.7 million after tax in second-quarter of 2009.
As part of a consolidated financing strategy, CP structures its U.S. dollar long-term debt in different taxing jurisdictions. As well, a portion of this debt is designated as a net investment hedge against the net investment in foreign subsidiaries. Although the taxes on foreign exchange gains and losses on long-term debt generally offset one another, because they may be in different tax jurisdictions, the resulting net tax can vary significantly.
In the second quarter of 2010 the Company recorded an unrealized gain of $1.0 million after tax as a result of the change in the market assumptions used to estimate the fair value of our investment in long-term floating rate notes. Other specified items in the second-quarter of 2009 included an after tax gain on the sale of a portion of CP’s interest in the Detroit River Tunnel Partnership of $68.7 million. There was also a gain in 2009 in the fair value of long-term floating rates of $3.2 million after tax as a result of the change in the market assumptions.
For the first six months of 2010, CP had a foreign exchange gain on long- term debt of $6.3 million after tax, compared to a loss of $9.2 million after tax in the first half of 2009. CP also had a gain on long-term floating rate notes of $1.9 million after tax, down from $3.2 million after tax in the first half of 2009.
CP began reporting its financial results in accordance with U.S. GAAP as of January 1, 2010. All prior period comparative numbers contained in this release are to U.S. GAAP. Additional historical U.S. GAAP financial reports can be found at www.cpr.ca.
Note on forward-looking information
This news release contains certain forward-looking statements relating but not limited to our operations, anticipated financial performance and business prospects. Undue reliance should not be placed on forward-looking information as actual results may differ materially.
By its nature, CP’s forward-looking information involves numerous assumptions, inherent risks and uncertainties, including but not limited to the following factors: changes in business strategies; general North American and global economic, credit and business conditions; risks in agricultural production such as weather conditions and insect populations; the availability and price of energy commodities; the effects of competition and pricing pressures; industry capacity; shifts in market demand; changes in laws and regulations, including regulation of rates; changes in taxes and tax rates; potential increases in maintenance and operating costs; uncertainties of litigation; labour disputes; risks and liabilities arising from derailments; transportation of dangerous goods, timing of completion of capital and maintenance projects; currency and interest rate fluctuations; effects of changes in market conditions and discount rates on the financial position of pension plans and investments, including long-term floating rate notes; and various events that could disrupt operations, including severe weather conditions, security threats and governmental response to them, and technological changes.
There are factors that could cause actual results to differ from those described in the forward-looking statements contained in this news release. These more specific factors are identified and discussed elsewhere in this news release with the particular forward-looking statement in question.
Except as required by law, CP undertakes no obligation to update publicly or otherwise revise any forward-looking information, whether as a result of new information, future events or otherwise.