Shares issued under
stock option plan 0.6 25 (5) -- -- 20
--------------------- --------- -------- ------------ ------------- -------- -----------------
Balance at September
30, 2021 666.9 $ 2,008 $ 68 $ (2,643) $ 10,035 $ 9,468
===================== ========= ======= ======== ============ ======= =============
Balance at January 1,
2020 685.0 $ 1,993 $ 48 $ (2,522) $ 7,549 $ 7,068
Net income -- -- -- -- 1,642 1,642
Other comprehensive
income (Note 7) -- -- -- 106 -- 106
Dividends declared
($0.522 per share)
(Note 1) -- -- -- -- (353) (353)
Effect of
stock-based
compensation
expense -- -- 13 -- -- 13
CP Common Shares
repurchased (Note
13) (13.7) (39) -- -- (877) (916)
Shares issued under
stock option plan 1.2 24 (5) -- -- 19
--------------------- --------- -------- ------------ ------------- -------- -----------------
Balance at September
30, 2020 672.5 $ 1,978 $ 56 $ (2,416) $ 7,961 $ 7,579
--------------------- --------- ------- -------- ------------ ------- -------------
See Notes to Interim Consolidated Financial Statements.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021
(unaudited)
1 Basis of presentation
These unaudited Interim Consolidated Financial Statements ("Interim Consolidated Financial Statements") of Canadian Pacific Railway Limited ("CPRL") and its subsidiaries (collectively, "CP", or "the Company"), expressed in Canadian dollars, reflect management's estimates and assumptions that are necessary for their fair presentation in conformity with generally accepted accounting principles in the United States of America ("GAAP"). They do not include all disclosures required under GAAP for annual financial statements and should be read in conjunction with the 2020 annual Consolidated Financial Statements and notes included in CP's 2020 Annual Report on Form 10-K. The accounting policies used are consistent with the accounting policies used in preparing the 2020 annual Consolidated Financial Statements.
On April 21, 2021, the Company's shareholders approved a five-for-one share split of the Company's issued and outstanding Common Shares. On May 13, 2021, the Company's shareholders of record as of May 5, 2021 received four additional shares for every Common Share held. Ex-distribution trading in the Company's Common Shares on a split-adjusted basis commenced on May 14, 2021. Proportional adjustments were also made to outstanding awards under the Company's stock-based compensation plans in order to reflect the share split. All outstanding Common Shares, stock-based compensation awards, and per share amounts herein have been retrospectively adjusted to reflect the share split.
CP's operations can be affected by seasonal fluctuations such as changes in customer demand and weather-related issues. This seasonality could impact quarter-over-quarter comparisons.
In management's opinion, the Interim Consolidated Financial Statements include all adjustments (consisting of normal and recurring adjustments) necessary to present fairly such information. Interim results are not necessarily indicative of the results expected for the fiscal year.
2 Accounting changes
Accounting pronouncements that became effective during the period covered by the Interim Consolidated Financial Statements did not have a material impact on the Company's Interim Consolidated Balance Sheets, Interim Consolidated Statements of Income, or Interim Consolidated Statements of Cash Flows. Likewise, accounting pronouncements issued, but not effective until after September 30, 2021, are not expected to have a material impact on the Company's Consolidated Balance Sheets, Consolidated Statements of Income, or Consolidated Statements of Cash Flows.
Future changes
Reference Rate Reform
In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. From the end of 2021, banks will no longer be required to report information that is used to determine the London Interbank Offered Rate ("LIBOR"), which is a benchmark interest rate commonly referenced in a variety of contractual agreements. As a result, LIBOR or other reference rates used globally could be discontinued.
The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to transactions affected by reference rate reform if certain criteria are met. These transactions include contract modifications, hedging relationships, and sale or transfer of debt securities classified as held-to-maturity.
The guidance in the ASU was effective starting on March 12, 2020, and is available to be adopted on a prospective basis no later than December 31, 2022. The Company currently has a fully drawn U.S. $500 million non-revolving term credit facility referencing LIBOR that could be affected by the provisions of this ASU (See Note 11 - Debt). The Company also has a revolving credit facility that references LIBOR. The Company had no outstanding borrowings under the revolving credit facility as at September 30, 2021. The Company is evaluating the effects that the adoption of the ASU will have on its Consolidated Financial Statements and related disclosures, and whether it will elect to apply any of the optional expedients and exceptions provided in the ASU.
3 Revenues
The following table disaggregates the Company's revenues from contracts with customers by major source:
For the three months For the nine months
ended September 30 ended September 30
(in millions of
Canadian
dollars) 2021 2020 2021 2020
================ ============ ========= ============ ===========
Freight
Grain $ 352 $ 457 $ 1,244 $ 1,321
Coal 158 130 491 411
Potash 113 132 348 390
Fertilizers and
sulphur 72 65 227 212
Forest products 89 85 259 244
Energy,
chemicals and
plastics 392 321 1,149 1,153
Metals,
minerals and
consumer
products 196 152 535 474
Automotive 83 94 289 215
Intermodal 441 385 1,280 1,153
---------------- ------------ --------- ------------ -----------
Total freight
revenues 1,896 1,821 5,822 5,573
Non-freight
excluding
leasing
revenues 25 27 75 80
---------------- ------------ --------- ------------ -----------
Revenues from
contracts with
customers 1,921 1,848 5,897 5,653
Leasing revenues 21 15 58 45
---------------- ------------ --------- ------------ -----------
Total revenues $ 1,942 $ 1,863 $ 5,955 $ 5,698
================ ======== ======== ======== =======
Contract liabilities
Contract liabilities represent payments received for performance obligations not yet satisfied and relate to deferred revenue, and are presented as components of "Accounts payable and accrued liabilities" and "Other long-term liabilities" on the Company's Interim Consolidated Balance Sheets.
The following table summarizes the changes in contract liabilities:
For the three months For the nine months
ended September 30 ended September 30
(in millions of
Canadian
dollars) 2021 2020 2021 2020
================ ============= ========== ============ =============
Opening balance $ 245 $ 79 $ 61 $ 146
Revenue
recognized that
was included in
the contract
liability
balance at the
beginning of
the period (93) (25) (36) (95)
Increase due to
consideration
received, net
of revenue
recognized
during the
period 4 5 131 8
---------------- ------------- ---------- ------------ -----------
Closing balance $ 156 $ 59 $ 156 $ 59
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