Leases

3 Months Ended

Mar. 31, 2019

Leases [Abstract]

Leases of Lessee Disclosure [Text Block]

The Company has operating leases for rolling stock, buildings, vehicles, railway equipment, and roadway machines, and finance leases for rolling stock. CP has entered into rolling stock leases that are fully variable or contain both fixed and variable components. Variable components are dependent on the hours and miles that the underlying equipment has been used. Fixed term, short-term, and variable operating lease costs are recorded in Equipment rents and Purchased services and other on the Company's Interim Consolidated Income Statements. Components of finance lease costs are recorded in Depreciation and amortization and Net interest expense on the Company's Interim Consolidated Income Statements.

The Company determines lease existence and classification at the lease inception date. Leases are identified when an agreement conveys the right to control identified property for a period of time in exchange for consideration. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating leases are included in Other assets, Accounts payable and accrued liabilities, and Other long-term liabilities on the Company's Interim Consolidated Balance Sheets. Finance leases are included in Properties, Long-term debt maturing within one year, and Long-term debt on the Company's Interim Consolidated Balance Sheets.

Operating and finance lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. Lease payments include fixed and variable payments that are based on an index or a rate. As most of the Company's leases do not provide a readily determinable implicit interest rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. Operating and finance lease ROU assets also include lease prepayments and initial direct costs, but are reduced by lease incentives. The lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise these options. The Company’s leases have remaining terms from one to 12 years, some of which include options to extend for up to an additional 10 years and some of which include options to terminate within one year.

The Company has short-term operating leases with terms of 12 months or less, some of which include options to purchase that the Company is not reasonably certain to exercise. The Company has elected to apply the recognition exemption and, as such, accounts for leases with a term of 12 months or less off-balance sheet. Therefore, lease payments on these short-term operating leases are not included in operating lease ROU assets and liabilities, but are recognized as an expense in the Company's Consolidated Statements of Income on a straight-line basis over the term of the lease. Further, the Company has elected to combine lease and non-lease components for all leases, except for leases of roadway machines.

Residual value guarantees are provided on certain rolling stock and vehicle operating leases. Cumulatively, these guarantees are limited to $2 million and are not included in lease liabilities as it is not currently probable that any amounts will be owed under these residual value guarantees.

The components of lease expense are as follows:

	For the three months ended March 31
(in millions of Canadian dollars)	2019
Operating lease cost	$	22
Short-term lease cost	1
Variable lease cost	1
Finance Lease Cost
Amortization of right-of use-assets	2
Interest on lease liabilities	3
Total lease costs	$	29

Supplemental balance sheet information related to leases is as follows:

	As at March 31
(in millions of Canadian dollars)	2019
Operating Leases
Other assets	$	394
Accounts payable and accrued liabilities	71
Other long-term liabilities	315
Finance Leases
Properties, net book value	$	179
Long-term debt maturing within one year	5
Long-term debt	150
Weighted Average Remaining Lease Term
Operating leases	8 years
Finance leases	5 years
Weighted Average Discount Rate
Operating leases	3.50		%
Finance leases	7.12		%

Supplemental information related to leases is as follows:

	For the three months ended March 31
(in millions of Canadian dollars)	2019
Cash paid for amounts included in measurement of lease liabilities
Operating cash flows from operating leases	$	28
Operating cash flows from finance leases	3
Financing cash flows from finance leases	1
Right-of-use assets obtained in exchange for lease liabilities
Operating leases	$	9

Maturities of lease liabilities are as follows:

	As at March 31, 2019
(in millions of Canadian dollars)	Finance Leases		Operating Leases
2019	$	6	$	67
2020	9		70
2021	9		55
2022	111		48
2023	9		49
Thereafter	30		154
Total lease payments	$	174	$	443
Less: Imputed interest	19		57
Present value of lease payments	$	155	$	386