UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to

Commission File Number 001-01342

Canadian Pacific Railway Limited

(Exact name of registrant as specified in its charter)

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)

Registrant’s Telephone Number, Including Area Code: (403) 319-7000

Securities registered pursuant to Section 12(b) of the Act:

	Title of Each Class	Trading Symbol(s)		Name of Each Exchange on which Registered
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 whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes  þ    No o

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  þ    No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer  þ Accelerated Filer ☐ Non-accelerated Filer ☐ Smaller Reporting Company ☐ Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ

As of the close of business on July 21, 2020, there were 135,533,633 of the registrant’s Common Shares issued and outstanding.

CANADIAN PACIFIC RAILWAY LIMITED

FORM 10-Q

TABLE OF CONTENTS

	PART I - FINANCIAL INFORMATION
		Page
Item 1.	Financial Statements:
	Interim Consolidated Statements of Income	2
	For the Three and Six Months Ended June 30, 2020 and 2019
	Interim Consolidated Statements of Comprehensive Income	3
	For the Three and Six Months Ended June 30, 2020 and 2019
	Interim Consolidated Balance Sheets	4
	As at June 30, 2020 and December 31, 2019
	Interim Consolidated Statements of Cash Flows	5
	For the Three and Six Months Ended June 30, 2020 and 2019
	Interim Consolidated Statements of Changes in Shareholders' Equity	6
	For the Three and Six Months Ended June 30, 2020 and 2019
	Notes to Interim Consolidated Financial Statements	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	18
	Executive Summary	18
	Performance Indicators	20
	Financial Highlights	23
	Results of Operations	24
	Share Capital	39
	Liquidity and Capital Resources	39
	Non-GAAP Measures	43
	Off-Balance Sheet Arrangements	50
	Contractual Commitments	50
	Critical Accounting Estimates	51
	Forward-Looking Statements	51
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	53
Item 4.	Controls and Procedures	54
	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	55
Item 1A.	Risk Factors	55
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	55
Item 3.	Defaults Upon Senior Securities	55
Item 4.	Mine Safety Disclosures	55
Item 5.	Other Information	56
Item 6.	Exhibits	57
	Signature	58

PART I

ITEM 1. FINANCIAL STATEMENTS

INTERIM CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

	For the three months ended June 30						For the six months ended June 30
(in millions of Canadian dollars, except share and per share data)	2020			2019			2020			2019
Revenues (Note 3)
Freight	$	1,752		$	1,931		$	3,752		$	3,657
Non-freight	40			46			83			87
Total revenues	1,792			1,977			3,835			3,744
Operating expenses
Compensation and benefits	347			383			745			789
Fuel	131			236			343			445
Materials	50			54			109			111
Equipment rents	33			34			69			69
Depreciation and amortization	195			183			387			343
Purchased services and other	266			265			578			622
Total operating expenses	1,022			1,155			2,231			2,379
Operating income	770			822			1,604			1,365
Less:
Other (income) expense (Note 4)	(86		)	(40		)	125			(87		)
Other components of net periodic benefit recovery (Note 13)	(86		)	(98		)	(171		)	(195		)
Net interest expense	118			112			232			226
Income before income tax expense	824			848			1,418			1,421
Income tax expense (Note 5)	189			124			374			263
Net income	$	635		$	724		$	1,044		$	1,158
Earnings per share (Note 6)
Basic earnings per share	$	4.68		$	5.19		$	7.67		$	8.28
Diluted earnings per share	$	4.66		$	5.17		$	7.64		$	8.25
Weighted-average number of shares (millions) (Note 6)
Basic	135.6			139.7			136.1			139.9
Diluted	136.1			140.2			136.6			140.4
Dividends declared per share	$	0.8300		$	0.8300		$	1.6600		$	1.4800

See Notes to Interim Consolidated Financial Statements.

2

INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

	For the three months ended June 30						For the six months ended June 30
(in millions of Canadian dollars)	2020			2019			2020			2019
Net income	$	635		$	724		$	1,044		$	1,158
Net gain (loss) in foreign currency translation adjustments, net of hedging activities	31			15			(34		)	31
Change in derivatives designated as cash flow hedges	1			4			3			6
Change in pension and post-retirement defined benefit plans	45			21			90			41
Other comprehensive income before income taxes	77			40			59			78
Income tax (expense) recovery on above items	(47		)	(22		)	13			(44		)
Other comprehensive income (Note 7)	30			18			72			34
Comprehensive income	$	665		$	742		$	1,116		$	1,192

See Notes to Interim Consolidated Financial Statements.

3

INTERIM CONSOLIDATED BALANCE SHEETS AS AT

(unaudited)

	June 30			December 31
(in millions of Canadian dollars)	2020			2019
Assets
Current assets
Cash and cash equivalents	$	277		$	133
Accounts receivable, net (Note 8)	776			805
Materials and supplies	192			182
Other current assets	110			90
	1,355			1,210
Investments (Note 9)	223			341
Properties	20,019			19,156
Goodwill and intangible assets (Note 9)	291			206
Pension asset	1,214			1,003
Other assets	460			451
Total assets	$	23,562		$	22,367
Liabilities and shareholders’ equity
Current liabilities
Accounts payable and accrued liabilities	$	1,577		$	1,693
Long-term debt maturing within one year (Note 10, 11)	91			599
	1,668			2,292
Pension and other benefit liabilities	784			785
Other long-term liabilities	544			562
Long-term debt (Note 10, 11)	9,457			8,158
Deferred income taxes	3,644			3,501
Total liabilities	16,097			15,298
Shareholders’ equity
Share capital	1,990			1,993
Additional paid-in capital	53			48
Accumulated other comprehensive loss (Note 7)	(2,450		)	(2,522		)
Retained earnings	7,872			7,550
	7,465			7,069
Total liabilities and shareholders’ equity	$	23,562		$	22,367

See Contingencies (Note 15)

See Notes to Interim Consolidated Financial Statements.

4

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	For the three months ended June 30						For the six months ended June 30
(in millions of Canadian dollars)	2020			2019			2020			2019
Operating activities
Net income	$	635		$	724		$	1,044		$	1,158
Reconciliation of net income to cash provided by operating activities:
Depreciation and amortization	195			183			387			343
Deferred income tax expense (recovery) (Note 5)	49			(18		)	88			20
Pension recovery and funding (Note 13)	(62		)	(89		)	(127		)	(177		)
Foreign exchange (gain) loss on debt and lease liabilities (Note 4)	(86		)	(37		)	129			(82		)
Other operating activities, net	27			18			(45		)	63
Change in non-cash working capital balances related to operations	77			(60		)	(152		)	(191		)
Cash provided by operating activities	835			721			1,324			1,134
Investing activities
Additions to properties	(502		)	(459		)	(857		)	(683		)
Investment in Central Maine & Québec Railway (Note 9)	19			—			19			—
Proceeds from sale of properties and other assets	5			8			7			14
Other	10			(4		)	1			(5		)
Cash used in investing activities	(468		)	(455		)	(830		)	(674		)
Financing activities
Dividends paid	(112		)	(91		)	(226		)	(182		)
Issuance of CP Common Shares	5			10			29			14
Purchase of CP Common Shares (Note 12)	(44		)	(257		)	(545		)	(464		)
Issuance of long-term debt, excluding commercial paper (Note 10)	(1		)	—			958			397
Repayment of long-term debt, excluding commercial paper	(10		)	(480		)	(25		)	(485		)
Net (repayment) issuance of commercial paper (Note 10)	(20		)	246			(573		)	246
Net (decrease) increase in short-term borrowings (Note 10)	(140		)	—			5			—
Other	—			—			11			—
Cash used in financing activities	(322		)	(572		)	(366		)	(474		)
Effect of foreign currency fluctuations on U.S. dollar-denominated cash and cash equivalents	(15		)	(1		)	16			(2		)
Cash position
Increase (decrease) in cash and cash equivalents	30			(307		)	144			(16		)
Cash and cash equivalents at beginning of period	247			352			133			61
Cash and cash equivalents at end of period	$	277		$	45		$	277		$	45
Supplemental disclosures of cash flow information:
Income taxes paid	$	5		$	108		$	144		$	257
Interest paid	$	63		$	83		$	220		$	232

See Notes to Interim Consolidated Financial Statements.

5

INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(unaudited)

	For the three months ended June 30
(in millions of Canadian dollars except per share data)		Common shares (in millions)		Share capital			Additional paid-in capital			Accumulated other comprehensive loss			Retained earnings			Total shareholders’ equity
Balance at April 1, 2020		135.6		$	1,985		$	51		$	(2,480	)	$	7,399		$	6,955
Net income		—		—			—			—			635			635
Other comprehensive income (Note 7)		—		—			—			30			—			30
Dividends declared ($0.8300 per share)		—		—			—			—			(113		)	(113		)
Effect of stock-based compensation expense		—		—			4			—			—			4
CP Common Shares repurchased (Note 12)		(0.1	)	(3		)	—			—			(49		)	(52		)
Shares issued under stock option plan		—		8			(2		)	—			—			6
Balance at June 30, 2020		135.5		$	1,990		$	53		$	(2,450	)	$	7,872		$	7,465
Balance at April 1, 2019		139.8		$	1,997		$	46		$	(2,027	)	$	6,798		$	6,814
Net income		—		—			—			—			724			724
Other comprehensive income (Note 7)		—		—			—			18			—			18
Dividends declared ($0.8300 per share)		—		—			—			—			(115		)	(115		)
Effect of stock-based compensation expense		—		—			3			—			—			3
CP Common Shares repurchased (Note 12)		(0.9	)	(14		)	—			—			(282		)	(296		)
Shares issued under stock option plan		0.2		13			(4		)	—			—			9
Balance at June 30, 2019		139.1		$	1,996		$	45		$	(2,009	)	$	7,125		$	7,157
	For the six months ended June 30
(in millions of Canadian dollars except per share data)		Common shares (in millions)		Share capital			Additional paid-in capital			Accumulated other comprehensive loss			Retained earnings			Total shareholders’ equity
Balance at December 31, 2019, as previously reported		137.0		$	1,993		$	48		$	(2,522	)	$	7,550		$	7,069
Impact of accounting change (Note 2)		—		—			—			—			(1		)	(1		)
Balance at January 1, 2020, as restated		137.0		$	1,993		$	48		$	(2,522	)	$	7,549		$	7,068
Net income		—		—			—			—			1,044			1,044
Other comprehensive income (Note 7)		—		—			—			72			—			72
Dividends declared ($1.6600 per share)		—		—			—			—			(225		)	(225		)
Effect of stock-based compensation expense		—		—			9			—			—			9
CP Common Shares repurchased (Note 12)		(1.7	)	(24		)	—			—			(496		)	(520		)
Shares issued under stock option plan		0.2		21			(4		)	—			—			17
Balance at June 30, 2020		135.5		$	1,990		$	53		$	(2,450	)	$	7,872		$	7,465
Balance at January 1, 2019		140.5		$	2,002		$	42		$	(2,043	)	$	6,630		$	6,631
Net income		—		—			—			—			1,158			1,158
Other comprehensive income (Note 7)		—		—			—			34			—			34
Dividends declared ($1.4800 per share)		—		—			—			—			(206		)	(206		)
Effect of stock-based compensation expense		—		—			8			—			—			8
CP Common Shares repurchased (Note 12)		(1.6	)	(24		)	—			—			(457		)	(481		)
Shares issued under stock option plan		0.2		18			(5		)	—			—			13
Balance at June 30, 2019		139.1		$	1,996		$	45		$	(2,009	)	$	7,125		$	7,157

See Notes to Interim Consolidated Financial Statements.

6

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(unaudited)

1    Basis of presentation

These unaudited interim Consolidated Financial Statements of Canadian Pacific Railway Limited (“CP”, or “the Company”), expressed in Canadian dollars, reflect management’s estimates and assumptions that are necessary for their fair presentation in conformity with generally accepted accounting principles in the United States of America (“GAAP”). They do not include all disclosures required under GAAP for annual financial statements and should be read in conjunction with the 2019 annual Consolidated Financial Statements and notes included in CP's 2019 Annual Report on Form 10-K. The accounting policies used are consistent with the accounting policies used in preparing the 2019 annual Consolidated Financial Statements, except for the newly adopted accounting policy discussed in Note 2.

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 unaudited 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

Implemented in 2020

Financial Instruments - Credit Losses

On January 1, 2020, the Company adopted the new Accounting Standards Update ("ASU") 2016-13, issued by the Financial Accounting Standards Board ("FASB"), and all related amendments under FASB Accounting Standards Codification ("ASC") Topic 326, Financial Instruments - Credit Losses. Using a modified retrospective approach, the Company recognized a cumulative-effect adjustment to its opening retained earnings balance in the period of adoption. Accordingly, comparative financial information has not been restated and continues to be reported under the accounting standards in effect for those periods.

The impact of the adoption of ASC 326 as at January 1, 2020 was an increase in the allowance for credit losses of $1 million, with the offsets to "Deferred income taxes" and "Retained earnings" on the Company's Interim Consolidated Balance Sheet. See Note 8 for further discussion of the current period credit loss.

Simplification of Financial Disclosures about Guarantors

During the second quarter of 2020, the Company early adopted the Securities and Exchange Commission amendments to the financial disclosure requirements for guarantors and issuers of guaranteed securities, as specified in Rule 3-10 of Regulation S-X. The amendments simplify disclosure requirements by replacing condensed consolidating financial information (“CCFI”) with summarized financial information and expanded qualitative non-financial disclosures about the guarantees, issuers, and guarantors. This disclosure can be found in the Liquidity and Capital Resources section of Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

7

3    Revenues

The following table disaggregates the Company’s revenues from contracts with customers by major source:

	For the three months ended June 30				For the six months ended June 30
(in millions of Canadian dollars)	2020		2019		2020		2019
Freight
Grain	$	446	$	422	$	864	$	802
Coal	131		173		281		331
Potash	146		136		258		250
Fertilizers and sulphur	77		63		147		120
Forest products	81		78		159		151
Energy, chemicals and plastics	341		346		832		661
Metals, minerals and consumer products	133		205		322		378
Automotive	34		104		121		180
Intermodal	363		404		768		784
Total freight revenues	1,752		1,931		3,752		3,657
Non-freight excluding leasing revenues	25		30		54		57
Revenues from contracts with customers	1,777		1,961		3,806		3,714
Leasing revenues	15		16		29		30
Total revenues	$	1,792	$	1,977	$	3,835	$	3,744

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 ended June 30						For the six months ended June 30
(in millions of Canadian dollars)	2020			2019			2020			2019
Opening balance	$	112		$	73		$	146		$	2
Revenue recognized that was included in the contract liability balance at the beginning of the period	(37		)	(3		)	(73		)	(2		)
Increase due to consideration received, net of revenue recognized during the period	4			4			6			74
Closing balance	$	79		$	74		$	79		$	74

4    Other (income) expense

	For the three months ended June 30						For the six months ended June 30
(in millions of Canadian dollars)	2020			2019			2020			2019
Foreign exchange (gain) loss on debt and lease liabilities	$	(86	)	$	(37	)	$	129		$	(82	)
Other foreign exchange losses (gains)	1			(4		)	(4		)	(6		)
Other	(1		)	1			—			1
Other (income) expense	$	(86	)	$	(40	)	$	125		$	(87	)

8

5    Income taxes

	For the three months ended June 30					For the six months ended June 30
(in millions of Canadian dollars)	2020		2019			2020		2019
Current income tax expense	$	140	$	142		$	286	$	243
Deferred income tax expense (recovery)	49		(18		)	88		20
Income tax expense	$	189	$	124		$	374	$	263

The effective tax rates for the three and six months ended June 30, 2020 were 22.98% and 26.38%, respectively, compared to 14.63% and 18.50%, respectively for the same periods of 2019.

For the three months ended June 30, 2020, the effective tax rate was 25.00%, excluding the discrete item of the foreign exchange ("FX") gain of $86 million on debt and lease liabilities.

For the three months ended June 30, 2019, the effective tax rate was 25.75%, excluding the discrete items of the FX gain of $37 million on debt and lease liabilities and an $88 million deferred income tax recovery from the revaluation of deferred income tax balances as at January 1, 2019 on the enactment of Alberta provincial corporate income tax rate decrease.

For the six months ended June 30, 2020, the effective tax rate was 25.00%, excluding the discrete item of the FX loss of $129 million on debt and lease liabilities.

For the six months ended June 30, 2019, the effective tax rate was 25.75%, excluding the discrete items of the FX gain of $82 million on debt and lease liabilities and the aforementioned deferred tax recovery of $88 million on the Alberta provincial corporate income tax rate decrease.

6    Earnings per share

Basic earnings per share has been calculated using Net income for the period divided by the weighted-average number of shares outstanding during the period. The number of shares used in the earnings per share calculations are reconciled as follows:

	For the three months ended June 30		For the six months ended June 30
(in millions)	2020	2019	2020	2019
Weighted-average basic shares outstanding	135.6	139.7	136.1	139.9
Dilutive effect of stock options	0.5	0.5	0.5	0.5
Weighted-average diluted shares outstanding	136.1	140.2	136.6	140.4

For the three and six months ended June 30, 2020, there were 0.2 million options excluded from the computation of diluted earnings per share because their effects were not dilutive (three and six months ended June 30, 2019 - nil and 0.1 million, respectively).

9

7    Changes in Accumulated other comprehensive loss ("AOCL") by component

	For the three months ended June 30
(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, April 1, 2020	$	119		$	(52	)	$	(2,547	)	$	(2,480	)
Other comprehensive loss before reclassifications	(3		)	(2		)	—			(5		)
Amounts reclassified from accumulated other comprehensive loss	—			2			33			35
Net other comprehensive (loss) income	(3		)	—			33			30
Closing balance, June 30, 2020	$	116		$	(52	)	$	(2,514	)	$	(2,450	)
Opening balance, April 1, 2019	$	113		$	(61	)	$	(2,079	)	$	(2,027	)
Other comprehensive (loss) income before reclassifications	(1		)	1			—			—
Amounts reclassified from accumulated other comprehensive loss	—			2			16			18
Net other comprehensive (loss) income	(1		)	3			16			18
Closing balance, June 30, 2019	$	112		$	(58	)	$	(2,063	)	$	(2,009	)

⁽¹⁾  Amounts are presented net of tax.

	For the six months ended June 30
(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, 2020	$	112		$	(54	)	$	(2,580	)	$	(2,522	)
Other comprehensive income (loss) before reclassifications	4			(2		)	—			2
Amounts reclassified from accumulated other comprehensive loss	—			4			66			70
Net other comprehensive income	4			2			66			72
Closing balance, June 30, 2020	$	116		$	(52	)	$	(2,514	)	$	(2,450	)
Opening balance, January 1, 2019	$	113		$	(62	)	$	(2,094	)	$	(2,043	)
Other comprehensive loss before reclassifications	(1		)	—			(1		)	(2		)
Amounts reclassified from accumulated other comprehensive loss	—			4			32			36
Net other comprehensive (loss) income	(1		)	4			31			34
Closing balance, June 30, 2019	$	112		$	(58	)	$	(2,063	)	$	(2,009	)

⁽¹⁾  Amounts are presented net of tax.

Amounts in Pension and post-retirement defined benefit plans reclassified from AOCL are as follows:

	For the three months ended June 30						For the six months ended June 30
(in millions of Canadian dollars)	2020			2019			2020			2019
Amortization of prior service costs(1)	$	—		$	1		$	—		$	1
Recognition of net actuarial loss(1)	45			20			90			41
Total before income tax	45			21			90			42
Income tax recovery	(12		)	(5		)	(24		)	(10		)
Total net of income tax	$	33		$	16		$	66		$	32

⁽¹⁾  Impacts "Other components of net periodic benefit recovery" on the Interim Consolidated Statements of Income.

10

8    Accounts receivable, net

Accounts receivable from customers are recognized initially at fair value and subsequently measured at amortized cost less allowance for expected credit losses. Losses on accounts receivable are estimated based on historical credit loss experience of receivables with similar risk characteristics. Historical loss experience is adjusted to reflect any management expectations that current or future conditions will differ from conditions that existed for the period over which historical information is evaluated.

To determine expected credit losses, customer receivables are disaggregated by credit characteristics, type of customer service, customer line of business, and receivable aging.

	For the three months ended June 30, 2020									For the six months ended June 30, 2020
(in millions of Canadian dollars)	Freight			Non-freight			Total			Freight			Non-freight			Total
Allowance for credit losses, opening balance(1)	$	(27	)	$	(14	)	$	(41	)	$	(27	)	$	(16	)	$	(43	)
Current period credit loss provision, net	1			—			1			1			2			3
Allowance for credit losses, closing balance	$	(26	)	$	(14	)	$	(40	)	$	(26	)	$	(14	)	$	(40	)

⁽¹⁾  Opening balance at January 1, 2020 was restated as described in Note 2.

	As at June 30, 2020
(in millions of Canadian dollars)	Freight			Non-freight			Total
Total accounts receivable	$	633		$	183		$	816
Allowance for credit losses	(26		)	(14		)	(40		)
Total accounts receivable, net	$	607		$	169		$	776

Receivables are considered to be in default and are written off against the allowance for credit losses when it is probable that all remaining contractual payments due will not be collected in accordance with the terms of the customer contracts. Subsequent recoveries of amounts previously written off are credited to earnings in the period recovered.

9    Business combination

On December 30, 2019, CP purchased 100% of Central Maine & Québec Railway Canada Inc. ("CMQ Canada") and Central Maine & Québec Railway U.S. ("CMQ U.S.") (together "CMQ").

The acquisition of CMQ Canada did not require regulatory approval and was accounted for as a business combination under the acquisition method of accounting on December 30, 2019.

The acquisition of CMQ U.S. was subject to approval from the United States Surface Transportation Board ("STB"). From the December 30, 2019 date of purchase, all purchased shares of CMQ U.S. were held in an independent voting trust (the "Trust") pending the STB's approval of CP's application for control of CMQ U.S. Approval was granted with an effective date of June 3, 2020. Between December 30, 2019 and June 3, 2020, CP accounted for its acquisition of CMQ U.S. as an equity method investment. During this time, CP paid additional consideration for CMQ of $3 million, representing changes from the finalization of previously estimated closing date working capital.

On June 3, 2020 the Trust was dissolved and CP assumed control of CMQ U.S. At this time, CP accounted for its acquisition in CMQ U.S. as a business combination using the acquisition method of accounting. Accordingly, the acquired tangible and intangible assets and assumed liabilities were recorded at their estimated fair values as at June 3, 2020 and results from operations and cash flows were consolidated prospectively. There was no material change in the acquisition-date fair value of the equity interest held by the Company in CMQ U.S. immediately before the acquisition date. Fair values were determined primarily through the use of an income approach.

The purchase price allocation was prepared on a preliminary basis and is subject to change as additional information becomes available concerning the fair value and tax bases of the net assets acquired. Any adjustments to the purchase price allocation will be made as soon as practicable but no later than one year from the date of acquisition.

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The following summarizes the estimated fair values of the acquired assets and liabilities of CMQ U.S. at June 3, 2020:

(in millions of Canadian dollars)	June 3, 2020
Fair value of net assets acquired:
Cash and cash equivalents	$	22
Accounts receivable, net	2
Properties	54
Intangible assets	27
Accounts payable and accrued liabilities	(13		)
Other long-term liabilities	(5		)
Total identifiable assets and liabilities	$	87
Goodwill	51
	$	138
Consideration:
Fair value of previously held equity method investment	$	138

Goodwill of $51 million relates primarily to expected operating business synergies between the Company and CMQ U.S. The factors that contribute to the goodwill are revenue growth from customers which are currently not served by CP, access to new routes, and an assembled workforce. Goodwill recognized is not deductible for tax purposes.

Intangible assets of $27 million reflect customer lists acquired in the purchase of CMQ U.S., and have amortization periods of 20 years.

Acquired cash and cash equivalents of $22 million is presented as a reduction of cash used in investing activities in the Company's Interim Consolidated Statement of Cash Flows for the three and six months ended June 30, 2020, and is presented net of finalized closing working capital adjustments for CMQ of $3 million as described above.

CP has not provided pro forma information relating to the pre-acquisition period as it is not material.

10    Debt

Issuance of long-term debt

During the three months ended March 31, 2020, the Company issued U.S. $500 million 2.050% 10-year unsecured notes due March 5, 2030 for net proceeds of approximately U.S. $495 million ($662 million) and $300 million 3.050% 30-year unsecured notes due March 9, 2050 for net proceeds of approximately $296 million. These notes pay interest semi-annually and carry a negative pledge.

Credit facility

The Company's revolving credit facility consists of a U.S. $1.0 billion tranche maturing September 27, 2024 and a U.S. $300 million tranche maturing September 27, 2021. During the three months ended March 31, 2020, the Company drew U.S. $100 million from the U.S. $300 million tranche of its revolving credit facility. During the three months ended June 30, 2020, the Company repaid this amount in full. As at June 30, 2020, the revolving credit facility was undrawn (December 31, 2019 - undrawn). The Company presents draws and repayments on its revolving credit facility in the Company's Interim Consolidated Statements of Cash Flows on a net basis.

Commercial paper program

The Company has a commercial paper program which enables it to issue commercial paper up to a maximum aggregate principal amount of U.S. $1.0 billion in the form of unsecured promissory notes. This commercial paper program is backed by the U.S. $1.3 billion revolving credit facility. As at June 30, 2020, the Company had no commercial paper borrowings outstanding (December 31, 2019 - U.S. $397 million). The Company presents issuances and repayments of commercial paper, all of which have a maturity of less than 90 days, in the Company's Interim Consolidated Statements of Cash Flows on a net basis.

11    Financial instruments

A. Fair values of financial instruments

The Company categorizes its financial assets and liabilities measured at fair value into a three-level hierarchy established by GAAP that prioritizes those inputs to valuation techniques used to measure fair value based on the degree to which they are observable.

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The three levels of the fair value hierarchy are as follows: Level 1 inputs are quoted prices in active markets for identical assets and liabilities; Level 2 inputs, other than quoted prices included within Level 1, are observable for the asset or liability either directly or indirectly; and Level 3 inputs are not observable in the market.

The carrying values of financial instruments equal or approximate their fair values with the exception of long-term debt as at:

(in millions of Canadian dollars)	June 30, 2020		December 31, 2019
Long-term debt (including current maturities):
Fair value	$	12,115	$	10,149
Carrying value	9,548		8,757

All long-term debt is classified as Level 2. The estimated fair value of current and long-term borrowings has been determined based on market information where available, or by discounting future payments of principal and interest at estimated interest rates expected to be available to the Company at period end.

B. Financial risk management

The effect of the Company's net investment hedge for the three and six months ended June 30, 2020 was an unrealized FX gain of $264 million and an unrealized FX loss of $291 million, respectively (three and six months ended June 30, 2019 - unrealized FX gains of $120 million and $240 million, respectively) recognized in “Other comprehensive income”.

12    Shareholders' equity

On December 17, 2019, the Company announced a normal course issuer bid ("NCIB"), commencing December 20, 2019, to purchase up to 4.80 million Common Shares in the open market for cancellation on or before December 19, 2020. As at June 30, 2020, the Company had purchased 1.90 million Common Shares for $620 million under this NCIB.

On October 19, 2018, the Company announced a NCIB, commencing October 24, 2018, to purchase up to 5.68 million Common Shares for cancellation on or before October 23, 2019. The Company completed this NCIB on October 23, 2019.

All purchases were made in accordance with the respective NCIB at prevailing market prices plus brokerage fees, or such other prices that were permitted by the Toronto Stock Exchange, with consideration allocated to share capital up to the average carrying amount of the shares and any excess allocated to "Retained earnings".

The following table provides activities under the share repurchase programs:

	For the three months ended June 30				For the six months ended June 30
	2020		2019		2020		2019
Number of Common Shares repurchased(1)	150,860		956,243		1,606,714		1,663,921
Weighted-average price per share(2)	$	341.27	$	308.84	$	323.54	$	288.80
Amount of repurchase (in millions of Canadian dollars)(2)	$	52	$	296	$	520	$	481

⁽¹⁾  Includes shares repurchased but not yet cancelled at end of period.

⁽²⁾  Includes brokerage fees.

13    Pension and other benefits

In the three months ended June 30, 2020, the Company made contributions of $6 million (three months ended June 30, 2019 - $12 million) to its defined benefit pension plans. In the six months ended June 30, 2020, the Company made contributions of $15 million (six months ended June 30, 2019 - $23 million) to its defined benefit pension plans.

13

Net periodic benefit costs for defined benefit pension plans and other benefits included the following components:

	For the three months ended June 30
	Pensions					Other benefits
(in millions of Canadian dollars)	2020			2019		2020		2019
Current service cost (benefits earned by employees)	$	35		$	27	$	3	$	3
Other components of net periodic benefit (recovery) cost:
Interest cost on benefit obligation	101			113		4		5
Expected return on fund assets	(236		)	(237