10-Q

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 March 31, 2021

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 April 20, 2021, there were 133,321,717 of the registrant’s Common Shares issued and outstanding (this value does not reflect the five-for-one share split approved on April 21, 2021).

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 Months Ended March 31, 2021 and 2020
	Interim Consolidated Statements of Comprehensive Income	3
	For the Three Months Ended March 31, 2021 and 2020
	Interim Consolidated Balance Sheets	4
	As at March 31, 2021 and December 31, 2020
	Interim Consolidated Statements of Cash Flows	5
	For the Three Months Ended March 31, 2021 and 2020
	Interim Consolidated Statements of Changes in Shareholders' Equity	6
	For the Three Months Ended March 31, 2021 and 2020
	Notes to Interim Consolidated Financial Statements	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	16
	Executive Summary	16
	Performance Indicators	18
	Financial Highlights	21
	Results of Operations	22
	Liquidity and Capital Resources	31
	Share Capital	35
	Non-GAAP Measures	35
	Off-Balance Sheet Arrangements	42
	Contractual Commitments	42
	Critical Accounting Estimates	43
	Forward-Looking Statements	43
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	45
Item 4.	Controls and Procedures	46
	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	47
Item 1A.	Risk Factors	47
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	48
Item 3.	Defaults Upon Senior Securities	48
Item 4.	Mine Safety Disclosures	48
Item 5.	Other Information	48
Item 6.	Exhibits	49
	Signature	50

PART I

ITEM 1. FINANCIAL STATEMENTS

INTERIM CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

	For the three months ended March 31
(in millions of Canadian dollars, except share and per share data)	2021		2020
Revenues (Note 3)
Freight	$	1,918	$	2,000
Non-freight	41		43
Total revenues	1,959		2,043
Operating expenses
Compensation and benefits	405		398
Fuel	206		212
Materials	59		59
Equipment rents	33		36
Depreciation and amortization	202		192
Purchased services and other (Note 9, 10)	274		312
Total operating expenses	1,179		1,209
Operating income	780		834
Less:
Other (income) expense (Note 4, 10)	(28)		211
Other components of net periodic benefit recovery (Note 14)	(95)		(85)
Net interest expense	110		114
Income before income tax expense	793		594
Income tax expense (Note 5)	191		185
Net income	$	602	$	409
Earnings per share (Note 6)
Basic earnings per share	$	4.52	$	2.99
Diluted earnings per share	$	4.50	$	2.98
Weighted-average number of shares (millions) (Note 6)
Basic	133.3		136.7
Diluted	133.9		137.2
Dividends declared per share	$	0.95	$	0.83
Earnings per share - Pro forma post-split basis (Note 17)
Basic earnings per share	$	0.90	$	0.60
Diluted earnings per share	$	0.90	$	0.60

See Notes to Interim Consolidated Financial Statements.

2

INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

	For the three months ended March 31
(in millions of Canadian dollars)	2021		2020
Net income	$	602	$	409
Net gain (loss) in foreign currency translation adjustments, net of hedging activities	10		(65)
Change in derivatives designated as cash flow hedges	25		2
Change in pension and post-retirement defined benefit plans	53		45
Other comprehensive income (loss) before income taxes	88		(18)
Income tax (expense) recovery on above items	(30)		60
Other comprehensive income (Note 7)	58		42
Comprehensive income	$	660	$	451

See Notes to Interim Consolidated Financial Statements.

3

INTERIM CONSOLIDATED BALANCE SHEETS AS AT

(unaudited)

	March 31		December 31
(in millions of Canadian dollars)	2021		2020
Assets
Current assets
Cash and cash equivalents	$	360	$	147
Accounts receivable, net (Note 8)	840		825
Materials and supplies	213		208
Other current assets	211		141
	1,624		1,321
Investments	199		199
Properties	20,503		20,422
Goodwill and intangible assets	371		366
Pension asset	1,007		894
Other assets	417		438
Total assets	$	24,121	$	23,640
Liabilities and shareholders’ equity
Current liabilities
Accounts payable and accrued liabilities	$	1,418	$	1,467
Long-term debt maturing within one year (Note 11, 12)	1,782		1,186
	3,200		2,653
Pension and other benefit liabilities	829		832
Other long-term liabilities	537		585
Long-term debt (Note 11, 12)	7,958		8,585
Deferred income taxes	3,731		3,666
Total liabilities	16,255		16,321
Shareholders’ equity
Share capital	1,993		1,983
Additional paid-in capital	58		55
Accumulated other comprehensive loss (Note 7)	(2,756)		(2,814)
Retained earnings	8,571		8,095
	7,866		7,319
Total liabilities and shareholders’ equity	$	24,121	$	23,640

See Contingencies (Note 10, 16).

See Notes to Interim Consolidated Financial Statements.

4

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	For the three months ended March 31
(in millions of Canadian dollars)	2021		2020
Operating activities
Net income	$	602	$	409
Reconciliation of net income to cash provided by operating activities:
Depreciation and amortization	202		192
Deferred income tax expense (Note 5)	51		39
Pension recovery and funding (Note 14)	(61)		(65)
Foreign exchange (gain) loss on debt and lease liabilities (Note 4)	(33)		215
Other operating activities, net	(88)		(72)
Change in non-cash working capital balances related to operations	(91)		(229)
Cash provided by operating activities	582		489
Investing activities
Additions to properties	(323)		(355)
Proceeds from sale of properties and other assets	37		2
Other	—		(9)
Cash used in investing activities	(286)		(362)
Financing activities
Dividends paid	(127)		(114)
Issuance of CP Common Shares	8		24
Purchase of CP Common Shares (Note 13)	—		(501)
Issuance of long-term debt, excluding commercial paper	—		959
Repayment of long-term debt, excluding commercial paper	(21)		(15)
Net issuance (repayment) of commercial paper (Note 11)	93		(553)
Net increase in short-term borrowings	—		145
Acquisition-related financing fees (Note 10)	(33)		—
Other	—		11
Cash used in financing activities	(80)		(44)
Effect of foreign currency fluctuations on U.S. dollar-denominated cash and cash equivalents	(3)		31
Cash position
Increase in cash and cash equivalents	213		114
Cash and cash equivalents at beginning of period	147		133
Cash and cash equivalents at end of period	$	360	$	247
Supplemental disclosures of cash flow information:
Income taxes paid	$	133	$	139
Interest paid	$	155	$	157

See Notes to Interim Consolidated Financial Statements.

5

INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(unaudited)

	For the three months ended March 31
(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 January 1, 2021		133.3	$	1,983	$	55	$	(2,814)	$	8,095	$	7,319
Net income		—	—		—		—		602		602
Other comprehensive income (Note 7)		—	—		—		58		—		58
Dividends declared ($0.95 per share)		—	—		—		—		(126)		(126)
Effect of stock-based compensation expense		—	—		5		—		—		5
Shares issued under stock option plan		—	10		(2)		—		—		8
Balance at March 31, 2021		133.3	$	1,993	$	58	$	(2,756)	$	8,571	$	7,866
Balance at January 1, 2020		137.0	$	1,993	$	48	$	(2,522)	$	7,549	$	7,068
Net income		—	—		—		—		409		409
Other comprehensive income (Note 7)		—	—		—		42		—		42
Dividends declared ($0.83 per share)		—	—		—		—		(112)		(112)
Effect of stock-based compensation expense		—	—		5		—		—		5
CP Common Shares repurchased (Note 13)		(1.6)	(21)		—		—		(447)		(468)
Shares issued under stock option plan		0.2	13		(2)		—		—		11
Balance at March 31, 2020		135.6	$	1,985	$	51	$	(2,480)	$	7,399	$	6,955

See Notes to Interim Consolidated Financial Statements.

6

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021

(unaudited)

1    Basis of presentation

These unaudited Interim Consolidated Financial Statements ("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 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.

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 March 31, 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.

3    Revenues

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

	For the three months ended March 31
(in millions of Canadian dollars)	2021		2020
Freight
Grain	$	448	$	418
Coal	163		150
Potash	101		112
Fertilizers and sulphur	77		70
Forest products	80		78
Energy, chemicals and plastics	388		491
Metals, minerals and consumer products	159		189
Automotive	108		87
Intermodal	394		405
Total freight revenues	1,918		2,000
Non-freight excluding leasing revenues	24		29
Revenues from contracts with customers	1,942		2,029
Leasing revenues	17		14
Total revenues	$	1,959	$	2,043

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.

7

The following table summarizes the changes in contract liabilities:

	For the three months ended March 31
(in millions of Canadian dollars)	2021		2020
Opening balance	$	61	$	146
Revenue recognized that was included in the contract liability balance at the beginning of the period	(11)		(37)
Increase due to consideration received, net of revenue recognized during the period	64		3
Closing balance	$	114	$	112

4    Other (income) expense

	For the three months ended March 31
(in millions of Canadian dollars)	2021		2020
Foreign exchange (gain) loss on debt and lease liabilities(1)	$	(33)	$	215
Other foreign exchange losses (gains)	1		(5)
Acquisition-related costs (Note 10)	3		—
Other	1		1
Other (income) expense	$	(28)	$	211

(1)Includes unrealized net loss on foreign exchange ("FX") forward contracts. Refer to Note 12 Financial instruments.

5    Income taxes

	For the three months ended March 31
(in millions of Canadian dollars)	2021		2020
Current income tax expense	$	140	$	146
Deferred income tax expense	51		39
Income tax expense	$	191	$	185

The effective tax rates including discrete items for the three months ended March 31, 2021 was 24.05%, compared to 31.10% for the same period of 2020.

For the three months ended March 31, 2021, the effective tax rate was 24.60%, excluding the discrete items of the acquisition-related costs of $36 million and the FX gain of $33 million on debt and lease liabilities.

For the three months ended March 31, 2020, the effective tax rate was 25.00%, excluding the discrete item of the FX loss of $215 million on debt and lease liabilities.

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 March 31
(in millions)	2021	2020
Weighted-average basic shares outstanding	133.3	136.7
Dilutive effect of stock options	0.6	0.5
Weighted-average diluted shares outstanding	133.9	137.2

For the three months ended March 31, 2021, there were no options excluded from the computation of diluted earnings per share (three months ended March 31, 2020 - 0.1 million).

8

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

	For the three months ended March 31
(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, 2021	$	112	$	(48)	$	(2,878)	$	(2,814)
Other comprehensive income before reclassifications	—		17		—		17
Amounts reclassified from accumulated other comprehensive loss	—		2		39		41
Net other comprehensive income	—		19		39		58
Closing balance, March 31, 2021	$	112	$	(29)	$	(2,839)	$	(2,756)
Opening balance, January 1, 2020	$	112	$	(54)	$	(2,580)	$	(2,522)
Other comprehensive income before reclassifications	7		—		—		7
Amounts reclassified from accumulated other comprehensive loss	—		2		33		35
Net other comprehensive income	7		2		33		42
Closing balance, March 31, 2020	$	119	$	(52)	$	(2,547)	$	(2,480)

(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 March 31
(in millions of Canadian dollars)	2021		2020
Recognition of net actuarial loss(1)	$	53	$	45
Income tax recovery	(14)		(12)
Total net of income tax	$	39	$	33

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

8    Accounts receivable, net

	As at March 31, 2021						As at March 31, 2020
(in millions of Canadian dollars)	Freight		Non-freight		Total		Freight		Non-freight		Total
Total accounts receivable	$	681	$	198	$	879	$	724	$	202	$	926
Allowance for credit losses	(24)		(15)		(39)		(27)		(14)		(41)
Total accounts receivable, net	$	657	$	183	$	840	$	697	$	188	$	885

	For the three months ended March 31, 2021						For the three months ended March 31, 2020
(in millions of Canadian dollars)	Freight		Non-freight		Total		Freight		Non-freight		Total
Allowance for credit losses, opening balance	$	(25)	$	(15)	$	(40)	$	(27)	$	(16)	$	(43)
Current period credit loss provision, net	1		—		1		—		2		2
Allowance for credit losses, closing balance	$	(24)	$	(15)	$	(39)	$	(27)	$	(14)	$	(41)

9

9    Property sale

Gain on exchange of property and easements in Chicago

During the first quarter of 2021, the Company exchanged property and property easements in Chicago with a government agency for proceeds of $103 million including cash of $61 million and property assets at a fair value of $42 million. Fair value was determined based on comparable market transactions. The Company recorded a gain in the first quarter within "Purchased services and other" of $50 million ($38 million after tax) from the transaction, and a deferred gain of $53 million which will be recognized in income over the period of use of certain easements.

10    Business acquisition

Pending Kansas City Southern Transaction

On March 21, 2021, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with Kansas City Southern ("KCS").

Upon the approval of the transaction by the shareholders of both the Company and KCS, and satisfaction or waiver of customary closing conditions, the shares of KCS will be deposited into a voting trust subject to a voting trust agreement, pending final approval of the transaction by the Surface Transportation Board ("STB"). This step is expected to be completed in the second half of 2021.

Under the Merger Agreement, common shareholders of KCS will receive 0.489 (exchange ratio) of a common share of the Company and U.S. $90 in cash for each KCS common share held. Preferred shareholders will receive U.S. $37.50 in cash for each KCS preferred share held. The share split (see Note 17) will change the exchange ratio as defined in the Merger Agreement to 2.445 CP shares for every KCS common share.

As of the signing of the Merger Agreement, the transaction represented an enterprise value of approximately U.S. $29 billion, which includes the assumption of U.S. $3.8 billion of outstanding KCS debt. The actual value of the transaction may fluctuate based upon changes in the price of the Company's common shares and the number of shares of KCS common shares, preferred shares and equity awards units outstanding on the closing date. Subject to final approval of the transaction by the STB and other applicable regulatory authorities, the transaction is expected to be completed by the middle of 2022.

In the first quarter of 2021, the Company incurred $36 million in acquisition-related expenses, of which $33 million was recorded within "Purchased services and other" and $3 million was recorded within "Other (income) expense" including the amortization of financing fees associated with new credit facilities (see Note 11). Certain additional acquisition-related costs will become payable only upon closing of the transaction into the voting trust. Total financing fees paid during the first quarter of 2021 for the anticipated debt issuance were $33 million, presented under Cash flow from financing activities in the Company's Interim Consolidated Statements of Cash Flows.

The Merger Agreement includes termination fees for both the Company and KCS. The Company or KCS will be required to pay a termination fee equal to U.S. $700 million if the Merger Agreement is terminated in certain circumstances, including if the Merger Agreement is terminated either because the Company’s or KCS’ boards of directors have changed their recommendation, respectively. The Company will be required to pay a termination fee equal to U.S. $1 billion if the Merger Agreement is terminated in certain circumstances, including (i) failure to obtain required approval from the STB to close into voting trust or (ii) a final non-appealable injunction or similar order that is issued under applicable railroad laws or Section 721 of the United States Defense Production Act of 1950 prohibiting the transaction.

11    Debt

Credit facility

Effective March 21, 2021, the Company obtained commitments for a new U.S. $8.5 billion 364-day senior unsecured facility to bridge financing requirements for the pending KCS transaction.

Effective April 9, 2021, the Company amended the financial covenant within its existing revolving credit facility to provide flexibility upon close of the pending KCS transaction.

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 March 31, 2021, the Company had total commercial paper borrowings of U.S. $715 million (December 31, 2020 - U.S. $644 million). The weighted-average interest rate on these borrowings was 0.21% (December

10

31, 2020 - 0.27%). 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.

12    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. 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.

For non-exchange traded derivatives classified as Level 2, the Company uses standard valuation techniques to calculate fair value. Primary inputs to these techniques include observable market prices (interest, FX, and commodity) and volatility, depending on the type of derivative and nature of the underlying risk. The Company uses inputs and data used by willing market participants when valuing derivatives and considers its own credit default swap spread as well as those of its counterparties in its determination of fair value. All derivatives are classified as Level 2.

The Company’s short-term financial instruments include cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, and short-term borrowings including commercial paper. The carrying value of short-term financial instruments all approximate their fair values.

The carrying value of the Company’s debt and finance lease liabilities do not approximate their fair value. Their estimated fair value 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. All measurements are classified as Level 2. The Company’s debt and finance lease liabilities, including current maturities, with a carrying value of $8,841 million at March 31, 2021 (December 31, 2020 - $8,951 million), had a fair value of $10,609 million (December 31, 2020 - $11,597 million).

B. Financial risk management

FX management

Net investment hedge

The effect of the Company's net investment hedge for the three months ended March 31, 2021 was an unrealized FX gain of $76 million (three months ended March 31, 2020 - an unrealized FX loss of $555 million) recognized in “Other comprehensive income”.

FX forward contracts

During the first quarter of 2021, the Company entered into various FX forward contracts totalling a notional U.S. $800 million to fix the FX rate and lock-in a portion of the amount of Canadian dollars it may borrow to finance the U.S. dollar-denominated cash purchase consideration of the pending KCS transaction. The changes in fair value on the FX forward contracts were recorded in "Other (income) expense" on the Company's Interim Consolidated Statements of Income, with the offsetting unrealized gains and losses included in "Other current assets" and "Accounts payable and accrued liabilities" on the Company's Interim Consolidated Balance Sheets. For the three months ended March 31, 2021, the change in fair value on the FX forward contracts was negligible.

During April 2021, the Company entered into additional FX forward contracts totalling a notional U.S. $200 million to fix the FX rate and lock-in a portion of the amount of Canadian dollars it may use to finance the pending U.S. dollar-denominated KCS transaction.

Interest rate management

Forward starting swaps

During the first quarter of 2021, the Company entered into forward starting floating-to-fixed interest rate swap agreements ("forward starting swaps") with terms of up to 30 years, totalling a notional U.S. $1.8 billion to fix the benchmark rate on cash flows associated with highly probable forecasted issuances of long-term notes. The changes in fair value on the forward starting swaps is recorded in “Accumulated other comprehensive loss”, net of tax, as cash flow hedges until the notes are issued. Subsequent to the notes issuance, amounts in “Accumulated other comprehensive loss” will be reclassified to “Net interest expense”. As at March 31, 2021, the unrealized fair value gain derived from the forward starting swaps of $20 million was included in "Other current assets" on the Company’s Interim Consolidated Balance Sheets, with the offset reflected in "Other comprehensive income" on the Company’s Interim Consolidated Statements of Comprehensive Income.

During April 2021, the Company entered into additional forward starting swaps with terms of up to 30 years, totalling a notional U.S. $600 million to fix the benchmark rate on cash flows associated with highly probable issuances of long-term notes.

11

Bond locks

During the first quarter of 2021, the Company entered into 7-year interest rate bond locks totalling a notional $600 million to fix the benchmark rate on cash flows associated with highly probable forecasted issuance of long-term notes. The changes in fair value on the bond locks is recorded in “Accumulated other comprehensive loss”, net of tax, as cash flow hedges until the notes are issued. Subsequent to the notes issuance, amounts in “Accumulated other comprehensive loss” will be reclassified to “Net interest expense”. As at March 31, 2021, the unrealized fair value gain derived from the bond locks of $2 million was included in "Other current assets" on the Company’s Interim Consolidated Balance Sheets, with the offset reflected in "Other comprehensive income" on the Company’s Interim Consolidated Statements of Comprehensive Income.

13    Shareholders' equity

On January 27, 2021, the Company announced a normal course issuer bid ("NCIB"), commencing January 29, 2021, to purchase up to 3.33 million Common Shares in the open market for cancellation on or before January 28, 2022. As at March 31, 2021, the Company had not purchased any Common Shares under this NCIB. As a result of the pending KCS transaction, the Company does not plan to purchase any Common Shares under this program.

On December 17, 2019, the Company announced a NCIB, commencing December 20, 2019, to purchase up to 4.80 million Common Shares for cancellation on or before December 19, 2020. Upon expiry of this NCIB, the Company had purchased 4.27 million Common Shares for $1,577 million.

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 ("TSX"), 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 March 31
	2021		2020
Number of Common Shares repurchased(1)	—		1,455,854
Weighted-average price per share(2)	$	—	$	321.71
Amount of repurchase (in millions of Canadian dollars)(2)	$	—	$	468

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

(2)Includes brokerage fees.

14    Pension and other benefits

In the three months ended March 31, 2021, the Company made contributions of $4 million (three months ended March 31, 2020 - $9 million) to its defined benefit pension plans.

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

	For the three months ended March 31
	Pensions				Other benefits
(in millions of Canadian dollars)	2021		2020		2021		2020
Current service cost (benefits earned by employees)	$	43	$	35	$	3	$	3
Other components of net periodic benefit (recovery) cost:
Interest cost on benefit obligation	88		102		4		5
Expected return on fund assets	(240)		(237)		—		—
Recognized net actuarial loss	52		44		1		1
Total other components of net periodic benefit (recovery) cost	(100)		(91)		5		6
Net periodic benefit (recovery) cost	$	(57)	$	(56)	$	8	$	9

15    Stock-based compensation

At March 31, 2021, the Company had several stock-based compensation plans including stock option plans, various cash-settled liability plans, and an employee share purchase plan. These plans resulted in an expense for the three months ended March 31, 2021 of $24 million (three months ended March 31, 2020 - expense of $11 million).

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Stock option plan

In the three months ended March 31, 2021, under CP’s stock option plans, the Company issued 266,698 options at the weighted-average price of $437.94 per share, based on the closing price on the grant date. Pursuant to the employee plan, these options may be exercised upon vesting, which is between 12 months and 48 months after the grant date, and will expire after seven years.

Under the fair value method, the fair value of the stock options at grant date was approximately $25 million. The weighted-average fair value assumptions were approximately:

	For the three months ended March 31, 2021
Expected option life (years)(1)	4.75
Risk-free interest rate(2)	0.53%
Expected share price volatility(3)	27.14%
Expected annual dividends per share(4)	$3.80
Expected forfeiture rate(5)	2.60%
Weighted-average grant date fair value per option granted during the period	$95.16

(1)Represents the period of time that awards are expected to be outstanding. Historical data on exercise behaviour or, when available, specific expectations regarding future exercise behaviour were used to estimate the expected life of the option.

(2)Based on the implied yield available on zero-coupon government issues with an equivalent term commensurate with the expected term of the option.

(3)Based on the historical volatility of the Company’s share price over a period commensurate with the expected term of the option.

(4)Determined by the current annual dividend at the time of grant. The Company does not employ different dividend yields throughout the contractual term of the option.

(5)The Company estimates forfeitures based on past experience. This rate is monitored on a periodic basis.

Performance share unit plans

During the three months ended March 31, 2021, the Company issued 84,672 Performance Share Units ("PSUs") with a grant date fair value of approximately $36 million and 2,539 Performance Deferred Share Units ("PDSUs") with a grant date fair value, including the value of expected future matching units, of approximately $1 million. PSUs and PDSUs attract dividend equivalents in the form of additional units based on dividends paid on the Company’s Common Shares, and vest approximately three years after the grant date, contingent upon CP’s performance ("performance factor"). The fair value of these PSUs and PDSUs is measured periodically until settlement. Vested PSUs are settled in cash. Vested PDSUs are settled in cash pursuant to the Deferred Share Unit ("DSU") Plan and are eligible for a 25% match if the holder has not exceeded their share ownership requirements, and are paid out only when the holder ceases their employment with CP.

The performance period for PSUs and PDSUs issued in the three months ended March 31, 2021 is January 1, 2021 to December 31, 2023 and the performance factors are Return on Invested Capital ("ROIC"), Total Shareholder Return ("TSR") compared to the S&P/TSX 60 Index, and TSR compared to Class I railways.

The performance period for PSUs issued in 2018 was January 1, 2018 to December 31, 2020. The performance factors for 125,280 PSUs were ROIC, TSR compared to the S&P/TSX Capped Industrial Index, and TSR compared to the S&P 1500 Road and Rail Index. The resulting payout was 200% of the outstanding units multiplied by the Company's average share price calculated using the last 30 trading days preceding December 31, 2020. In the first quarter of 2021, payouts occurred on 114,014 total outstanding awards, including dividends reinvested, totalling $98 million. The performance factors for the remaining 36,975 PSUs were annual revenue for the fiscal year 2020, diluted earnings per share for the fiscal year 2020, and share price appreciation.

Deferred share unit plan

During the three months ended March 31, 2021, the Company granted 9,170 DSUs with a grant date fair value of approximately $4 million. DSUs vest over various periods of up to 36 months and are only redeemable for a specified period after employment is terminated. The expense for DSUs is recognized over the vesting period for both the initial subscription price and the change in value between reporting periods.

16    Contingencies

In the normal course of its operations, the Company becomes involved in various legal actions, including claims relating to injuries and damage to property. The Company maintains provisions it considers to be adequate for such actions. While the final outcome with respect to actions outstanding or pending at March 31, 2021 cannot be predicted with certainty, it is the opinion of management that their resolution will not have a material adverse effect on the Company’s business, financial position or results of operations.

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Legal proceedings related to Lac-Mégantic rail accident

On July 6, 2013, a train carrying petroleum crude oil operated by Montréal Maine and Atlantic Railway (“MMAR”) or a subsidiary, Montréal Maine & Atlantic Canada Co. (“MMAC” and collectively the “MMA Group”), derailed in Lac-Mégantic, Québec. The derailment occurred on a section of railway owned and operated by the MMA Group and while the MMA Group exclusively controlled the train.

Following the derailment, MMAC sought court protection in Canada under the Companies’ Creditors Arrangement Act and MMAR filed for bankruptcy in the U.S. Plans of arrangement were approved in both Canada and the U.S. (the “Plans”), providing for the distribution of approximately $440 million amongst those claiming derailment damages.

A number of legal proceedings, set out below, were commenced in Canada and the U.S. against CP and others:

(1)Québec's Minister of Sustainable Development, Environment, Wildlife and Parks ordered various parties, including CP, to remediate the derailment site (the "Cleanup Order") and served CP with a Notice of Claim for $95 million for those 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 was responsible for the petroleum crude oil from its point of origin until its delivery to Irving Oil Ltd.; 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, property damage, and economic loss.

(4)Eight subrogated insurers sued CP in the Québec Superior Court claiming approximately $16 million in damages, which was amended and reduced to approximately $15 million (the “Promutuel Action”), and two 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. As such, the extent of any overlap between the damages claimed in these actions and under the Plans is unclear. The Royal Action is stayed pending determination of the consolidated proceedings described below.

On December 11, 2017, the AGQ Action, the Class Action and the Promutuel Action were consolidated. These consolidated claims are currently scheduled for a joint liability trial commencing on or around September 13, 2021, followed by a damages trial, if necessary.

(5)Forty-eight plaintiffs (all individual claims joined in one action) sued CP, MMAC, and Harding in the Québec Superior Court claiming approximately $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 majority of 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. bankruptcy 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 approximately U.S. $30 million in damages for MMAR’s loss in business value according to a recent report. 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 Federal District Court in Maine (the “Maine Actions”). The Maine Actions allege that CP negligently misclassified and improperly packaged the petroleum crude oil. On CP’s motion, the Maine Actions were dismissed. The plaintiffs are appealing the dismissal decision, which is pending.

(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). The Court issued an Order on August 6, 2020 granting and denying in parts the parties' summary judgment motions which has been reviewed and confirmed following motions by the parties for clarification and reconsideration. This action is scheduled for trial on September 21, 2021.

At this stage of the proceedings, any potential responsibility and the quantum of potential losses cannot be determined. Nevertheless, CP denies liability and is vigorously defending these proceedings.

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Environmental liabilities

Environmental remediation accruals, recorded on an undiscounted basis unless a reliable, determinable estimate as to an amount and timing of costs can be established, cover site-specific remediation programs.

The accruals for environmental remediation represent CP’s best estimate of its probable future obligation and include both asserted and unasserted claims, without reduction for anticipated recoveries from third parties. Although the recorded accruals include CP’s best estimate of all probable costs, CP’s total environmental remediation costs cannot be predicted with certainty. Accruals for environmental remediation may change from time to time as new information about previously untested sites becomes known, and as environmental laws and regulations evolve and advances are made in environmental remediation technology. The accruals may also vary as the courts decide legal proceedings against outside parties responsible for contamination. These potential charges, which cannot be quantified at this time, may materially affect income in the particular period in which a charge is recognized. Costs related to existing, but as yet unknown, or future contamination will be accrued in the period in which they become probable and reasonably estimable.

The expense included in “Purchased services and other” for the three months ended March 31, 2021 was $2 million (three months ended March 31, 2020 - $1 million). 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”. The total amount provided at March 31, 2021 was $81 million (December 31, 2020 - $80 million). Payments are expected to be made over 10 years through 2030.

17    Subsequent event

On April 21, 2021, the Company's shareholders approved a five-for-one share split of the Company's issued and outstanding Common Shares such that, as a result of the share split, each Common Share will become five Common Shares. The record date for the share split will be May 5, 2021 and the shareholders of record as of the record date will receive, on the payment date of May 13, 2021, four additional shares for every one Common Share held. Proportional adjustments will also be made to outstanding awards under the Company's stock-based compensation plans in order to reflect the share split. Pro forma earnings per share amounts are disclosed in the Company's Interim Consolidated Statements of Income to show the effect of the share split.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the Company's Interim Consolidated Financial Statements and the related notes for the three months ended March 31, 2021 in Item 1. Financial Statements, other information in this report, and Item 8. Financial Statements and Supplementary Data of the Company's 2020 Annual Report on Form 10-K. Except where otherwise indicated, all financial information reflected herein is expressed in Canadian dollars.

For purposes of this report, all references herein to “CP”, “the Company”, “we”, “our” and “us” refer to CPRL, CPRL and its subsidiaries, CPRL and one or more of its subsidiaries, or one or more of CPRL's subsidiaries, as the context may require.

Available Information

CP makes available on or through its website www.cpr.ca free of charge, its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such reports are filed with or furnished to the Securities and Exchange Commission (“SEC”). Our website also contains charters for our Board of Directors and each of its committees, our corporate governance guidelines and our Code of Business Ethics. SEC filings made by CP are also accessible through the SEC’s website at www.sec.gov. The information on our website is not part of this quarterly report on Form 10-Q.

The Company has included the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) certifications regarding the Company's public disclosure required by Section 302 of the Sarbanes-Oxley Act of 2002 as Exhibits to this report.

Executive Summary

First Quarter of 2021 Results

•Financial performance - In the first quarter of 2021, CP reported Diluted earnings per share ("EPS") of $4.50, an increase of 51% compared to the same period of 2020 and Net income of $602 million in the first quarter of 2021, an increase of 47% compared to the same period of 2020. These increases were primarily due to foreign exchange ("FX") translation gains on debt and lease liabilities in 2021 compared to FX losses during the same period of 2020, partially offset by lower Operating income.

Adjusted diluted EPS was $4.48 in the first quarter of 2021, an increase of 1% compared to the same period of 2020. This increase was primarily due to lower average number of outstanding Common Shares due to the Company's share repurchase program, partially offset by lower Adjusted operating income. Adjusted income was $600 million in the first quarter of 2021, a decrease of 1% compared to the same period of 2020. This decrease was primarily due to lower Adjusted operating income in the first quarter of 2021, partially offset by higher other components of net periodic benefit recovery. No adjustment was made to operating income in 2020.

CP reported an Operating ratio of 60.2% in the first quarter of 2021, a 100 basis point increase as compared to the same period of 2020. This increase was primarily due to the acquisition-related costs associated with the pending Kansas City Southern ("KCS") transaction, the unfavourable impact of higher fuel prices, and higher depreciation and amortization, partially offset by a gain on exchange of property and easements in Chicago. Adjusted operating ratio, which excludes the acquisition-related costs associated with the pending KCS transaction, was 58.5%, a 70 basis points improvement as compared to the same period of 2020. This improvement was primarily due to a gain on exchange of property and easements in Chicago, partially offset by the unfavourable impact of higher fuel prices, and higher depreciation and amortization. No adjustment was made to Operating ratio in 2020.

Adjusted diluted EPS, Adjusted income and Adjusted Operating ratio are defined and reconciled in Non-GAAP Measures and discussed further in Results of Operations of this Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

•Total revenues - Total revenues decreased by 4% in the first quarter of 2021 to $1,959 million compared to the same period of 2020. This decrease was primarily due to the unfavourable impact of the change in FX, and lower fuel surcharge revenue as a result of the timing of recoveries.

•Operating performance - CP's average train weight increased by 7% to 9,795 tons and average train length increased by 8% to 7,972 feet, compared to the same period in 2020. These increases were a result of improvements in operating plan efficiency and continued improvements in operational efficiency for Grain and Potash trains, in each case compared to the same period in 2020. These metrics are discussed further in Performance Indicators of this Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

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Recent Developments

•On April 21, 2021, the five-for-one Share Split of the issued and outstanding Common Shares was approved at the Annual and Special Meeting of Shareholders. The requirements of the Toronto Stock Exchange ("TSX") and New York Stock Exchange ("NYSE") in respect of the Share Split were also met. The Share Split is expected to be made effective on May 13, 2021 for holders of Common Shares on the record date of May 5, 2021. At the time the Share Split becomes effective, each Common Share will become five Common Shares.

•On March 31, 2021, CP completed the installation of the solar energy farm at its Calgary headquarters. This sustainability-driven project is one of the largest private solar farms in Alberta and is expected to generate more power than consumed annually by the main headquarters building.

•On March 30, 2021, CP and the Illinois State Toll Highway Authority closed their transaction regarding western access at O’Hare Airport and at Bensenville Yard, CP’s principal rail facility in Chicago. The transaction allows for the construction of a new tollway to the west side of O’Hare Airport while protecting CP’s ability to serve its customers moving freight through the critical Chicago gateway.

•On March 21, 2021, CP's Board of Directors and President and CEO Keith Creel agreed on certain contract amendments to Mr. Creel's incentive compensation that are intended to see him lead the Company until at least early 2026.

•On March 21, 2021, CP announced that it entered into an Agreement and Plan of Merger with Kansas City Southern ("KCS"), under which CP has agreed to acquire KCS in a stock and cash transaction representing an enterprise value of approximately U.S. $29 billion, which includes the assumption of U.S. $3.8 billion of outstanding KCS debt. The Merger Agreement was unanimously approved by the Board of Directors of each of CP and KCS.

The transaction will combine the two railroads to create the first rail network connecting the U.S., Mexico, and Canada and will deliver dramatically expanded market reach for customers served by CP and KCS, provide new competitive transportation service options, and support North American economic growth.

The transaction will be completed in two steps. First, upon the Company’s and KCS’ shareholders’ approval of the transaction, and satisfaction or waiver of customary closing conditions, the shares of KCS will be deposited into a voting trust subject to a voting trust agreement, pending final approval of the transaction by the Surface Transportation Board ("STB"). This step is currently expected to be completed in the second half of 2021. KCS' management and Board of Directors will continue to steward KCS while it is in trust, pursuing its independent business plan and growth strategies. Under the Merger Agreement, common shareholders of KCS will receive 0.489 (exchange ratio) of a common share of the Company and U.S. $90 in cash for each KCS common share held. Preferred shareholders will receive U.S. $37.50 in cash for each KCS preferred share held. The share split will change the exchange ratio as defined in the Merger Agreement to 2.445 CP shares for every KCS common share. Immediately after the KCS transaction closes into the voting trust, former KCS stockholders are expected to own approximately 25 percent of the Common Shares. The second step of the transaction is to obtain control approval from the STB and other applicable regulatory authorities. The STB review of the transaction is expected to be completed while KCS is in the voting trust by the middle of 2022.

Upon obtaining control approval by the STB and any other remaining approvals of regulatory authorities, if applicable, the two companies will be combined. Mr. Creel will serve as the Chief Executive Officer of the combined company. The combined entity will be named Canadian Pacific Kansas City ("CPKC"). Calgary will be the global headquarters of CPKC, and Kansas City, Missouri will be designated as the U.S. headquarters. The Mexico headquarters will remain in Mexico City and Monterrey. CP's current U.S. headquarters in Minneapolis-St. Paul, Minnesota will remain an important base of operations. Four KCS Directors will join CP's expanded Board at the appropriate time, bringing their experience and expertise in overseeing KCS' multinational operations.

Specific risk factors related to the pending KCS transaction are included in Item 1A. Risk Factors of this Quarterly Report on Form 10-Q.

•On March 9, 2021, CP announced that it will employ Ballard's hydrogen fuel cell modules in CP's pioneering Hydrogen Locomotive Program. Through its Hydrogen Locomotive Program, CP plans to develop North America’s first hydrogen-powered line-haul freight locomotive by retrofitting a diesel-powered locomotive with Ballard hydrogen fuel cells. This purchase from Ballard further demonstrates the Company's commitment to action on climate change and developing the next generation locomotive – one that produces zero emissions.

•In the first quarter of 2021, the Company maintained preventative measures that serve to minimize the risk of exposure to COVID-19, including working at home for certain office employees, physical distancing measures, restricting employee business travel, strengthening clean workplace and face covering practices, reinforcing socially responsible sick leave recommendations, limiting visitor and third-party access to Company facilities, and continuously reevaluating our efforts with safety as a top priority.

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Additional information concerning the impact COVID-19 may have to our future business and results of operations is provided in Part I, Item 1A. Risk Factors of the Company's 2020 Annual Report on Form 10-K.

2021 Outlook

With a 2021 plan that encompasses profitable sustainable growth, CP expects high single-digit RTM growth and double-digit Adjusted diluted EPS growth. CP’s expectations for Adjusted diluted EPS growth in 2021 are based on Adjusted diluted EPS of $17.67 in 2020. For the purposes of this outlook, CP assumes an effective tax rate of 24.6 percent. CP estimates other components of net periodic benefit recovery to increase by approximately $40 million versus 2020. As CP continues to invest in service, productivity and safety, the Company plans to invest approximately $1.55 billion in capital programs in 2021. CP's 2021 guidance does not include any potential impacts from the pending KCS transaction.

Although CP has provided a forward-looking Non-GAAP measure (Adjusted diluted EPS), management is unable to reconcile, without unreasonable efforts, the forward-looking Adjusted diluted EPS to the most comparable GAAP measure, due to unknown variables and uncertainty related to future results. These unknown variables may include unpredictable transactions of significant value. In recent years, CP has recognized acquisition-related costs, changes in income tax rates and a change to an uncertain tax item. These or other similar, large unforeseen transactions affect diluted EPS but may be excluded from CP’s Adjusted diluted EPS. Additionally, the U.S.-to-Canadian dollar exchange rate is unpredictable and can have a significant impact on CP’s reported results but may be excluded from CP’s Adjusted diluted EPS. In particular, CP excludes the FX impact of translating the Company’s debt and lease liabilities from Adjusted diluted EPS. Please see Forward-Looking Statements in this Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations for further discussion.

Performance Indicators

The following table lists key measures of the Company’s operating performance:

	For the three months ended March 31
	2021	2020	% Change
Operations Performance
Gross ton-miles (“GTMs”) (millions)	71,326	71,309	—
Train miles (thousands)	7,803	8,367	(7)
Average train weight - excluding local traffic (tons)	9,795	9,188	7
Average train length - excluding local traffic (feet)	7,972	7,409	8
Average terminal dwell (hours)	7.4	6.2	19
Average train speed (miles per hour, or "mph")	20.9	21.6	(3)
Locomotive productivity (GTMs / operating horsepower)	201	201	—
Fuel efficiency (U.S. gallons of locomotive fuel consumed / 1,000 GTMs)	0.958	0.971	(1)
Total Employees and Workforce
Total employees (average)	12,061	12,486	(3)
Total employees (end of period)	12,398	12,330	1
Workforce (end of period)	12,426	12,366	—
Safety Indicators(1)
FRA personal injuries per 200,000 employee-hours	1.20	1.13	6
FRA train accidents per million train-miles	1.28	0.87	47

(1)Federal Railroad Administration ("FRA") personal injuries per 200,000 employee-hours for the three months ended March 31, 2020, previously reported as 1.20, was restated to 1.13 in this Earnings Release. FRA train accidents per million train-miles for the three months ended March 31, 2020, previously reported as 0.99, was restated to 0.87 in this Earnings Release. These restatements reflect new information available within specified periods stipulated by the FRA but that exceed the Company's financial reporting timeline.

For key measures of the Company's revenue performance, refer to Operating Revenues of this Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Operations Performance

These key measures are used by management as comparisons to historical operating results and in the planning process to facilitate decisions that continue to drive further productivity improvements in the Company's operations. Results of these key measures reflect how effective CP’s management is at controlling costs and executing the Company’s operating plan and strategy. Continued monitoring of these key measures ensures that the Company can take appropriate actions to ensure the delivery of superior service and be able to grow its business at low incremental cost.

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Three months ended March 31, 2021 compared to the three months ended March 31, 2020

•A GTM is defined as the movement of one ton of train weight over one mile. GTMs are calculated by multiplying total train weight by the distance the train moved. Total train weight comprises the weight of the freight cars, their contents, and any inactive locomotives. An increase in GTMs indicates additional workload. GTMs increased by 17 million in the first quarter of 2021 compared to the same period of 2020. This increase was primarily driven by higher volumes of Grain and Coal. This increase was partially offset by lower volumes of crude and international intermodal.

•Train miles are defined as the sum of the distance moved by all trains operated on the network. Train miles provide a measure of the productive utilization of our network. A smaller increase in train miles relative to increases in volumes, as measured by RTMs, and/or workload, as measured by GTMs, indicate improved train productivity. Train miles decreased by 7% in the first quarter of 2021 compared to the same period of 2020. This decrease indicates the impact of a 7% increase in train weights partially offset by a slight increase in workload (GTMs).

•Average train weight is defined as the average gross weight of CP trains, both loaded and empty. This excludes trains in short-haul service, work trains used to move CP’s track equipment and materials, and the haulage of other railroads’ trains on CP’s network. An increase in average train weight indicates improved asset utilization and may also be the result of moving heavier commodities. Average train weight increased by 7% in the first quarter of 2021 compared to the same period of 2020. This increase was a result of improvements in operating plan efficiency and continued operational efficiency due to moving longer and heavier Grain and export potash trains, partially offset by moving lower amounts of heavier commodities such as crude. Improvements for Grain trains were driven by the High Efficiency Product ("HEP") train model, which is an 8,500-foot train model that features the new high-capacity grain hopper cars and increased grain carrying capacity.

•Average train length is defined as the average total length of CP trains, both loaded and empty. This includes all cars and locomotives on the train and is calculated as the sum of each car or locomotive's length multiplied by the distance travelled, divided by train miles. This excludes trains in short-haul service, work trains used to move CP’s track equipment and materials, and the haulage of other railroads’ trains on CP’s network. An increase in average train length indicates improved asset utilization. Average train length increased by 8% in the first quarter of 2021 compared to the same period of 2020. This increase was a result of improvements in operating plan efficiency and continued operational efficiency due to moving longer export potash and Grain trains. Improvements for Grain trains were driven by the 8,500-foot HEP train model.

•Average terminal dwell is defined as the average time a freight car resides within terminal boundaries expressed in hours. The timing starts with a train arriving at the terminal, a customer releasing the car to the Company, or a car arriving at interchange from another railroad. The timing ends when the train leaves, a customer receives the car from CP, or the freight car is transferred to another railroad. Freight cars are excluded if they are being stored at the terminal or used in track repairs. A decrease in average terminal dwell indicates improved terminal performance resulting in faster cycle times and improved railcar utilization. Average terminal dwell increased by 19% in the first quarter of 2021 compared to the same period of 2020. This increase was a result of aligning the operating plan to demand in order to maintain efficiencies in average train weight and average train length.

•Average train speed is defined as a measure of the line-haul movement from origin to destination including terminal dwell hours. It is calculated by dividing the total train miles travelled by the total train hours operated. This calculation does not include delay time related to customers or foreign railroads and excludes the time and distance travelled by: i) trains used in or around CP’s yards; ii) passenger trains; and iii) trains used for repairing track. An increase in average train speed indicates improved on-time performance resulting in improved asset utilization. Average train speed decreased by 3% in the first quarter of 2021 compared to the same period of 2020 primarily as a result of harsh winter operating conditions.

•Locomotive productivity is defined as the daily average GTMs divided by daily average operating horsepower. Operating horsepower excludes units offline, tied up or in storage, or in use on other railways, and includes foreign units online. An increase in locomotive productivity indicates more efficient locomotive utilization and may also be the result of moving heavier commodities. Locomotive productivity was flat in the first quarter of 2021 compared to the same period of 2020.

•Fuel efficiency is defined as U.S. gallons of locomotive fuel consumed per 1,000 GTMs. Fuel consumed includes gallons from freight, yard and commuter service but excludes fuel used in capital projects and other non-freight activities. An improvement in fuel efficiency indicates operational cost savings and CP's commitment to corporate sustainability through a reduction of greenhouse gas emissions intensity. Fuel efficiency improved by 1% in the first quarter of 2021 compared to the same period of 2020. This increase in efficiency was due to improvements in the operating plan resulting in running longer and heavier trains.

Total Employees and Workforce

An employee is defined as an individual currently engaged in full-time, part-time, or seasonal employment with CP while workforce is defined as total employees plus contractors and consultants. The Company monitors employment and workforce

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levels in order to efficiently meet service and strategic requirements. The number of employees is a key driver to total compensation and benefits costs.

The average number of total employees decreased by 3% for the three months ended March 31, 2021, compared to the same period of 2020. This decrease was due to more efficient resource planning. The total number of employees as at March 31, 2021 was 12,398, an increase of 68, or 1%, compared to 12,330 as at March 31, 2020. The total workforce as at March 31, 2021 was 12,426, an increase of 60, compared to 12,366 as at March 31, 2020. The increase in total employees and workforce is due to anticipated volume growth.

Safety Indicators

Safety is a key priority and core strategy for CP’s management, employees, and Board of Directors. Personal injuries and train accidents are indicators of the effectiveness of the Company's safety systems, and are used by management to evaluate and, as necessary, alter the Company's safety systems, procedures, and protocols. Each measure follows U.S. FRA reporting guidelines, which can result in restatement after initial publication to reflect new information available within specified periods stipulated by the FRA but that exceed the Company's financial reporting timeline.

The FRA personal injuries per 200,000 employee-hours frequency is the number of personal injuries, multiplied by 200,000 and divided by total employee hours. Personal injuries are defined as injuries that require employees to lose time away from work, modify their normal duties, or obtain medical treatment beyond minor first aid. FRA employee-hours are the total hours worked, excluding vacation and sick time, by all employees, excluding contractors. The FRA personal injuries per 200,000 employee-hours frequency for CP was 1.20 in the first quarter of 2021, an increase from 1.13 in the same period of 2020.

The FRA train accidents per million train-miles frequency is the number of train accidents, multiplied by 1,000,000 and divided by total train miles. Train accidents included in this metric meet or exceed the FRA reporting threshold of U.S. $11,200 in damage. The FRA train accidents per million train-miles was 1.28 in the first quarter of 2021, an increase from 0.87 in the same period of 2020.

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Financial Highlights

The following table presents selected financial data related to the Company’s financial results as of, and for the three months ended, March 31, 2021 and the comparative figures in 2020. The financial highlights should be read in conjunction with Item 1. Financial Statements and this Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

	For the three months ended March 31
(in millions, except per share data, percentages and ratios)	2021			2020
Financial Performance and Liquidity
Total revenues	$	1,959		$	2,043
Operating income	780			834
Adjusted operating income(1)	813			834
Net income	602			409
Adjusted income(1)	600			607
Basic EPS	4.52			2.99
Diluted EPS	4.50			2.98
Adjusted diluted EPS(1)	4.48			4.42
Dividends declared per share	0.95			0.83
Cash provided by operating activities	582			489
Cash used in investing activities	(286)			(362)
Cash used in financing activities	(80)			(44)
Free cash(1)	296			158
Financial Position	As at March 31, 2021			As at December 31, 2020
Total assets	$	24,121		$	23,640
Total long-term debt, including current portion	9,740			9,771
Total shareholders’ equity	7,866			7,319
	For the three months ended March 31
Financial Ratios	2021			2020
Operating ratio(2)	60.2		%	59.2		%
Adjusted operating ratio(1)	58.5		%	59.2		%
	For the twelve months ended March 31
	2021			2020
Return on average shareholders' equity(3)	35.6		%	35.1		%
Adjusted return on invested capital ("Adjusted ROIC")(1)	15.8		%	17.4		%
Long-term debt to Net income ratio(4)	3.7			4.2
Adjusted net debt to adjusted EBITDA ratio(1)	2.4			2.5

(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 of this Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(2)Operating ratio is defined as operating expenses divided by revenues, further discussed in Results of Operations of this Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

(3)Return on average shareholders' equity is defined as Net income divided by average shareholders' equity, averaged between the beginning and ending balance over a rolling 12-month period, further discussed in Results of Operations of this Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

(4)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, further discussed in Liquidity and Capital Resources of this Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

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Results of Operations

Three months ended March 31, 2021 compared to the three months ended March 31, 2020

Income

Operating income was $780 million in the first quarter of 2021, a decrease of $54 million, or 6%, from $834 million in the same period of 2020. This decrease was primarily due to:

•the unfavourable impact of $37 million from higher fuel prices;

•acquisition-related costs of $33 million associated with the pending KCS transaction;

•the unfavourable impact of the change in FX translation effects of $25 million;

•higher stock-based compensation of $13 million; and

•higher depreciation and amortization of $13 million (excluding FX translation effects).

This decrease was partially offset by a gain on exchange of property and easements in Chicago of $50 million and efficiencies generated from improved operating performance and asset utilization.

Adjusted operating income, defined and reconciled in Non-GAAP Measures of this Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, was $813 million in the first quarter of 2021, a decrease of $21 million, or 3%, from $834 million in the same period of 2020. This decrease reflects the same factors discussed above except that Adjusted operating income in 2021 excludes the acquisition-related costs of $33 million associated with the pending KCS transaction.

Net income was $602 million in the first quarter of 2021, an increase of $193 million, or 47%, from $409 million in the same period of 2020. This increase was primarily due to an FX translation gain on U.S. dollar-denominated debt and lease liabilities of $33 million, compared to an FX translation loss of $215 million in the same period of 2020, partially offset by lower Operating income.

Adjusted income, defined and reconciled in Non-GAAP Measures of this Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, was $600 million in the first quarter of 2021, a decrease of $7 million, or 1%, from $607 million in the same period of 2020. This decrease was primarily due to lower Adjusted operating income, partially offset by higher other components of net periodic benefit recovery.

Diluted Earnings per Share

Diluted EPS was $4.50 in the first quarter of 2021, an increase of $1.52, or 51%, from $2.98 in the same period of 2020. This increase was due to higher Net income and a lower average number of outstanding shares due to share repurchases under the Company's share repurchase program.

Adjusted diluted EPS, defined and reconciled in Non-GAAP Measures of this Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, was $4.48 in the first quarter of 2021, an increase of $0.06, or 1%, from $4.42 in the same period of 2020. This increase was due to lower average number of outstanding shares due to the Company’s share repurchase program, partially offset by lower Adjusted income.

Operating Ratio

The Operating ratio provides the percentage of revenues used to operate the railway. A lower percentage normally indicates higher efficiency in the operation of the railway. The Company’s Operating ratio was 60.2% in the first quarter of 2021, a 100 basis point increase from 59.2% in the same period of 2020. This increase was primarily due to:

•acquisition-related costs associated with the pending KCS transaction;

•the unfavourable impact from higher fuel prices;

•higher stock-based compensation;

•higher depreciation and amortization (excluding FX translation effects); and

•cost inflation.

This increase was partially offset by the gain on exchange of property and easements in Chicago and efficiencies generated from improved operating performance and asset utilization.

Adjusted operating ratio, defined and reconciled in Non-GAAP Measures of this Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, which excludes the acquisition-related costs associated with the pending KCS transaction, was 58.5% in the first quarter of 2021, a 70 basis points improvement from the same period of 2020. This improvement was primarily due to a gain on exchange of property and easements in Chicago and efficiencies generated from improved operating performance and asset utilization.

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This improvement was partially offset by:

•the unfavourable impact from higher fuel prices;

•higher stock based compensation;

•higher depreciation and amortization (excluding FX translation effects); and

•cost inflation.

Return on Average Shareholders' Equity and Adjusted Return on Invested Capital

Return on average shareholders' equity and Adjusted ROIC are measures used by management to determine how productively the Company uses its long-term capital investments, representing critical indicators of good operating and investment decisions. Adjusted ROIC is also an important performance criteria in determining certain elements of the Company's long-term incentive plan.

Return on average shareholders' equity was 35.6% for the twelve months ended March 31, 2021, a 50 basis point increase compared to 35.1% for the twelve months ended March 31, 2020, primarily due to higher Net income. This increase was partially offset by higher average shareholders' equity due to accumulated Net income, partially offset by the impact of the Company's share repurchase program.

Adjusted ROIC was 15.8% for the twelve months ended March 31, 2021, a 160 basis point decrease compared to 17.4% for the twelve months ended March 31, 2020, primarily due to lower Adjusted income, and the increase in adjusted average invested capital primarily due to higher average long-term debt, partially offset by the impact of the Company's share repurchase program. Adjusted ROIC is a Non-GAAP measure, which is defined and reconciled from Return on average shareholders' equity, the most comparable measure calculated in accordance with GAAP, in Non-GAAP Measures of this Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Impact of FX on Earnings

Fluctuations in FX affect the Company’s results because U.S. dollar-denominated revenues and expenses are translated into Canadian dollars. U.S. dollar-denominated revenues and expenses increase (decrease) when the Canadian dollar weakens (strengthens) in relation to the U.S. dollar.

On April 16, 2021, the noon buying rate certified for customs purposes by the U.S. Federal Reserve Bank of New York was U.S. $1.00 = $1.25 Canadian dollar.

The following tables set forth, for the periods indicated, the average exchange rate between the Canadian dollar and the U.S. dollar expressed in the Canadian dollar equivalent of one U.S. dollar, the high and low exchange rates and period end exchange rates for the periods indicated. Averages for year-end periods are calculated by using the exchange rates on the last day of each full month during the relevant period. These rates are based on the noon buying rate certified for customs purposes by the U.S. Federal Reserve Bank of New York set forth in the H.10 statistical release of the Federal Reserve Board.

Average exchange rates (Canadian/U.S. dollar)	2021		2020
For the three months ended - March 31	$	1.27	$	1.35

Ending exchange rates (Canadian/U.S. dollar)	2021		2020
Beginning of year - January 1	$	1.28	$	1.30
End of quarter - March 31	$	1.26	$	1.41

	For the three months ended March 31
High/Low exchange rates (Canadian/U.S. dollar)	2021		2020
High	$	1.28	$	1.45
Low	$	1.24	$	1.30

In the first quarter of 2021, the impact of a weaker U.S. dollar resulted in a decrease in total revenues of $52 million, a decrease in total operating expenses of $27 million, and a decrease in net interest expense of $6 million from the same period of 2020.

The impact of FX on earnings is discussed further in Item 3. Quantitative and Qualitative Disclosures About Market Risk, in the Foreign Exchange Risk section.

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Impact of Fuel Price on Earnings

Fluctuations in fuel prices affect the Company’s results because fuel expense constitutes a significant portion of CP's operating costs. As fuel prices fluctuate, there will be an impact on earnings due to the timing of recoveries from CP's fuel cost adjustment program. The following table indicates the average fuel price for the three months ended March 31, 2021 and the comparative periods of 2020.

Average Fuel Price (U.S. dollars per U.S. gallon)	2021		2020
For the three months ended - March 31	$	2.39	$	2.33

The impact of fuel prices on earnings includes the impacts of carbon taxes, levies, and obligations under cap-and-trade programs recovered and paid, on revenues and expenses, respectively.

In the first quarter of 2021, the unfavourable impact of fuel prices on Operating income was $37 million. The unfavourable timing of recoveries from CP's fuel cost adjustment program, partially offset by increased carbon surcharge recoveries, resulted in a decrease in total revenues of $30 million from the same period of 2020. Higher fuel prices resulted in an increase in total operating expenses of $7 million.

Impact of Share Price on Earnings

Fluctuations in the Common Share price affect the Company's operating expenses because share-based liabilities are measured at fair value. The Company's Common Shares are listed on the TSX and the New York Stock Exchange ("NYSE") with ticker symbol "CP". The following tables indicate the opening and closing Common Share price on the TSX and the NYSE for the three months ended March 31, 2021 and the comparative period in 2020.

TSX (in Canadian dollars)	2021		2020
Opening Common Share price, as at January 1	$	441.53	$	331.03
Ending Common Share price, as at March 31	$	480.00	$	310.55
Change in Common Share price for the three months ended March 31	$	38.47	$	(20.48)

NYSE (in U.S. dollars)	2021		2020
Opening Common Share price, as at January 1	$	346.69	$	254.95
Ending Common Share price, as at March 31	$	379.29	$	219.59
Change in Common Share price for the three months ended March 31	$	32.60	$	(35.36)

In the first quarter of 2021, the impact of the change in Common Share prices resulted in an increase in stock-based compensation expense of $17 million compared to a decrease of $17 million in the same period of 2020.

The impact of share price on stock-based compensation is discussed further in Item 3. Quantitative and Qualitative Disclosures About Market Risk, Share Price Impact on Stock-Based Compensation.

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Operating Revenues

The Company’s revenues are primarily derived from transporting freight. Changes in freight volumes generally contribute to corresponding changes in freight revenues and certain variable expenses, such as fuel, equipment rents, and crew costs. Non-freight revenue is generated from leasing of certain assets; other arrangements, including contracts with passenger service operators and logistical services; and switching fees.

For the three months ended March 31	2021		2020		Total Change		% Change	FX Adjusted % Change(2)
Freight revenues (in millions)(1)	$	1,918	$	2,000	$	(82)	(4)	(2)
Non-freight revenues (in millions)	41		43		(2)		(5)	(5)
Total revenues (in millions)	$	1,959	$	2,043	$	(84)	(4)	(2)
Carloads (in thousands)	691.4		690.6		0.8		—	N/A
Revenue ton-miles (in millions)	39,273		39,218		55		—	N/A
Freight revenue per carload (in dollars)	$	2,774	$	2,896	$	(122)	(4)	(2)
Freight revenue per revenue ton-mile (in cents)	4.88		5.10		(0.22)		(4)	(2)

(1)Freight revenues include fuel surcharge revenues of $85 million in 2021 and $119 million in 2020. Fuel surcharge revenues include recoveries of carbon taxes, levies, and obligations under cap-and-trade programs.

(2)FX Adjusted % Change does not have any standardized meaning prescribed by GAAP and, therefore, is unlikely to be comparable to similar measures presented by other companies. FX Adjusted % Change is defined and reconciled in Non-GAAP Measures of this Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Freight revenues were $1,918 million in the first quarter of 2021, a decrease of $82 million, or 4%, from $2,000 million in the same period of 2020. This decrease was primarily due to lower freight revenue per revenue ton-mile.

RTMs are defined as the movement of one revenue-producing ton of freight over a distance of one mile. RTMs measure the relative weight and distance of rail freight moved by the Company. RTMs for the first quarter of 2021 were 39,273 million, an increase of 55 million compared with 39,218 million in the same period of 2020. This increase was mainly attributable to higher volumes of Grain and Coal. This increase was partially offset by lower volumes of crude and international intermodal.

Freight revenue per revenue ton-mile is defined as freight revenue per revenue-producing ton of freight over a distance of one mile. This is an indicator of yield. Freight revenue per revenue ton-mile was 4.88 cents in the first quarter of 2021, a decrease of 0.22 cent, or 4%, from 5.10 cents in the same period of 2020. This decrease was primarily due to the unfavourable impact of the change in FX of $52 million and lower fuel surcharge revenue as a result of the timing of recoveries of $30 million.

Carloads are defined as revenue-generating shipments of containers and freight cars. Carloads were 691.4 thousand in the first quarter of 2021, an increase of 0.8 thousand from 690.6 thousand in the same period of 2020. This increase was primarily due to higher volumes of Grain, Coal, and Automotive. This decrease was partially offset by lower volumes of crude and international intermodal.

Freight revenue per carload is defined as freight revenue per revenue-generating shipment of containers or freight cars. This is an indicator of yield. Freight revenue per carload was $2,774 in the first quarter of 2021, a decrease of $122, or 4%, from $2,896 in the same period of 2020. This decrease was primarily due to the unfavourable impact of the change in FX of $52 million and lower fuel surcharge revenue as a result of the timing of recoveries of $30 million.

Non-freight revenues were $41 million in the first quarter of 2021, a decrease of $2 million, or 5%, from $43 million in the same period of 2020. This decrease was primarily due to lower logistical services revenue, switching fees, and revenue from passenger service operators. This decrease was partially offset by higher leasing revenue.

Fuel Cost Adjustment Program

Freight revenues include fuel surcharge revenues associated with CP's fuel cost adjustment program, which is designed to respond to fluctuations in fuel prices and help reduce exposure to changing fuel prices. The surcharge is applied to shippers through tariffs and by contract, within agreed-upon guidelines. This program includes recoveries of carbon taxes, levies, and obligations under cap-and-trade programs. Freight revenues include fuel surcharge revenues of $85 million in the first quarter of 2021, a decrease of $34 million, or 29%, from $119 million in the same period of 2020. This decrease was primarily due to lower fuel surcharge revenue as a result of the timing of recoveries from CP's fuel cost adjustment program. This decrease was partially offset by increased carbon tax recoveries.

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Lines of Business

Grain

For the three months ended March 31	2021		2020		Total Change		% Change	FX Adjusted % Change(1)
Freight revenues (in millions)	$	448	$	418	$	30	7	10
Carloads (in thousands)	116.4		100.6		15.8		16	N/A
Revenue ton-miles (in millions)	10,773		9,016		1,757		19	N/A
Freight revenue per carload (in dollars)	$	3,849	$	4,155	$	(306)	(7)	(5)
Freight revenue per revenue ton-mile (in cents)	4.16		4.64		(0.48)		(10)	(8)

(1)FX Adjusted % Change does not have any standardized meaning prescribed by GAAP and, therefore, is unlikely to be comparable to similar measures presented by other companies. FX Adjusted % Change is defined and reconciled in Non-GAAP Measures of this Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Grain revenue was $448 million in the first quarter of 2021, an increase of $30 million, or 7%, from $418 million in the same period of 2020. This increase was primarily due to moving higher volumes of Canadian grain to Vancouver and eastern Canada as well as higher volumes of U.S. corn and soybeans to the U.S. Pacific Northwest. This increase was partially offset by decreased freight revenue per revenue ton-mile. Freight revenue per revenue ton-mile decreased due to moving higher volumes of Canadian grain to Vancouver and eastern Canada, which has a longer length of haul, the unfavourable impact of the change in FX, and lower fuel surcharge revenue as a result of the timing of recoveries. RTMs increased more than carloads as a result of moving proportionately higher volumes of Canadian whole grains to eastern Canada and proportionately higher volumes of corn and soybeans to the U.S. Pacific Northwest, which have a longer length of haul.

Coal

For the three months ended March 31	2021		2020		Total Change		% Change	FX Adjusted % Change(1)
Freight revenues (in millions)	$	163	$	150	$	13	9	9
Carloads (in thousands)	72.0		63.8		8.2		13	N/A
Revenue ton-miles (in millions)	5,280		4,435		845		19	N/A
Freight revenue per carload (in dollars)	$	2,264	$	2,351	$	(87)	(4)	(3)
Freight revenue per revenue ton-mile (in cents)	3.09		3.38		(0.29)		(9)	(8)

(1)FX Adjusted % Change does not have any standardized meaning prescribed by GAAP and, therefore, is unlikely to be comparable to similar measures presented by other companies. FX Adjusted % Change is defined and reconciled in Non-GAAP Measures of this Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Coal revenue was $163 million in the first quarter of 2021, an increase of $13 million, or 9%, from $150 million in the same period of 2020. This increase was primarily due to moving higher volumes of Canadian coal to Vancouver. This increase was partially offset by decreased freight revenue per revenue ton-mile. Freight revenue per revenue ton-mile decreased due to moving proportionately higher volumes of Canadian coal to Vancouver, which has a longer length of haul, lower fuel surcharge revenue as a result of the timing of recoveries, and the unfavourable impact of the change in FX. RTMs increased more than carloads as a result of moving proportionately higher volumes of Canadian coal to Vancouver, which has a longer length of haul.

Potash

For the three months ended March 31	2021		2020		Total Change		% Change	FX Adjusted % Change(1)
Freight revenues (in millions)	$	101	$	112	$	(11)	(10)	(7)
Carloads (in thousands)	34.4		36.4		(2.0)		(5)	N/A
Revenue ton-miles (in millions)	3,786		4,138		(352)		(9)	N/A
Freight revenue per carload (in dollars)	$	2,936	$	3,077	$	(141)	(5)	(2)
Freight revenue per revenue ton-mile (in cents)	2.67		2.71		(0.04)		(1)	2

(1)FX Adjusted % Change does not have any standardized meaning prescribed by GAAP and, therefore, is unlikely to be comparable to similar measures presented by other companies. FX Adjusted % Change is defined and reconciled in Non-GAAP Measures of this Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Potash revenue was $101 million in the first quarter of 2021, a decrease of $11 million, or 10%, from $112 million in the same period of 2020. This decrease was primarily due to moving lower volumes of export potash to the U.S. Pacific Northwest as a

26

result of construction at the Port of Portland and decreased freight revenue per revenue ton-mile. Freight revenue per revenue ton-mile decreased due to lower fuel surcharge revenue as a result of the timing of recoveries and the unfavourable impact of the change in FX. RTMs decreased more than carloads as a result of moving lower volumes of export potash, which has a longer length of haul.

Fertilizers and Sulphur

For the three months ended March 31	2021		2020		Total Change		% Change	FX Adjusted % Change(1)
Freight revenues (in millions)	$	77	$	70	$	7	10	15
Carloads (in thousands)	16.3		15.1		1.2		8	N/A
Revenue ton-miles (in millions)	1,269		1,095		174		16	N/A
Freight revenue per carload (in dollars)	$	4,724	$	4,636	$	88	2	6
Freight revenue per revenue ton-mile (in cents)	6.07		6.39		(0.32)		(5)	(1)

(1)FX Adjusted % Change does not have any standardized meaning prescribed by GAAP and, therefore, is unlikely to be comparable to similar measures presented by other companies. FX Adjusted % Change is defined and reconciled in Non-GAAP Measures of this Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Fertilizers and sulphur revenue was $77 million in the first quarter of 2021, an increase of $7 million, or 10%, from $70 million in the same period of 2020. This increase was primarily due to moving higher volumes of both dry and wet fertilizers and higher freight rates. This increase was partially offset by decreased freight revenue per revenue ton-mile. Freight revenue per revenue ton-mile decreased due to the unfavourable impact of the change in FX and lower fuel surcharge revenue as a result of the timing of recoveries. RTMs increased more than carloads driven by moving higher volumes of wet fertilizers from western Canada to the U.S. Midwest, which has a longer length of haul.

Forest Products

For the three months ended March 31	2021		2020		Total Change		% Change	FX Adjusted % Change(1)
Freight revenues (in millions)	$	80	$	78	$	2	3	8
Carloads (in thousands)	17.5		18.1		(0.6)		(3)	N/A
Revenue ton-miles (in millions)	1,363		1,277		86		7	N/A
Freight revenue per carload (in dollars)	$	4,571	$	4,309	$	262	6	12
Freight revenue per revenue ton-mile (in cents)	5.87		6.11		(0.24)		(4)	1

(1)FX Adjusted % Change does not have any standardized meaning prescribed by GAAP and, therefore, is unlikely to be comparable to similar measures presented by other companies. FX Adjusted % Change is defined and reconciled in Non-GAAP Measures of this Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Forest products revenue was $80 million in the first quarter of 2021, an increase of $2 million, or 3%, from $78 million in the same period of 2020. This increase was primarily due to moving higher volumes of lumber and higher freight rates. This increase was partially offset by decreased freight revenue per revenue ton-mile. Freight revenue per revenue ton-mile decreased due to the unfavourable impact of the change in FX and lower fuel surcharge revenue as a result of the timing of recoveries. RTMs increased while carloads decreased due to moving higher volumes of lumber, which has a longer length of haul, and moving lower volumes of wood pulp within B.C., which has a shorter length of haul.

Energy, Chemicals and Plastics

For the three months ended March 31	2021		2020		Total Change		% Change	FX Adjusted % Change(1)
Freight revenues (in millions)	$	388	$	491	$	(103)	(21)	(19)
Carloads (in thousands)	87.2		101.8		(14.6)		(14)	N/A
Revenue ton-miles (in millions)	7,142		8,849		(1,707)		(19)	N/A
Freight revenue per carload (in dollars)	$	4,450	$	4,823	$	(373)	(8)	(5)
Freight revenue per revenue ton-mile (in cents)	5.43		5.55		(0.12)		(2)	1

(1)FX Adjusted % Change does not have any standardized meaning prescribed by GAAP and, therefore, is unlikely to be comparable to similar measures presented by other companies. FX Adjusted % Change is defined and reconciled in Non-GAAP Measures of this Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Energy, chemicals and plastics revenue was $388 million in the first quarter of 2021, a decrease of $103 million, or 21%, from $491 million in the same period of 2020. This decrease was primarily due to moving lower volumes of crude and decreased

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freight revenue per revenue ton-mile. This decrease was partially offset by moving higher volumes of liquefied petroleum gas and fuel oil. Freight revenue per revenue ton-mile decreased due to the unfavourable impact of the change in FX and lower fuel surcharge revenue as a result of the timing of recoveries. RTMs decreased more than carloads due to moving lower volumes of crude, which has a longer length of haul.

Metals, Minerals and Consumer Products

For the three months ended March 31	2021		2020		Total Change		% Change	FX Adjusted % Change(1)
Freight revenues (in millions)	$	159	$	189	$	(30)	(16)	(12)
Carloads (in thousands)	55.7		58.2		(2.5)		(4)	N/A
Revenue ton-miles (in millions)	2,499		2,771		(272)		(10)	N/A
Freight revenue per carload (in dollars)	$	2,855	$	3,247	$	(392)	(12)	(8)
Freight revenue per revenue ton-mile (in cents)	6.36		6.82		(0.46)		(7)	(3)

(1)FX Adjusted % Change does not have any standardized meaning prescribed by GAAP and, therefore, is unlikely to be comparable to similar measures presented by other companies. FX Adjusted % Change is defined and reconciled in Non-GAAP Measures of this Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Metals, minerals and consumer products revenue was $159 million in the first quarter of 2021, a decrease of $30 million, or 16%, from $189 million in the same period of 2020. This decrease was primarily due to moving lower volumes of frac sand and decreased freight revenue per revenue ton-mile. This decrease was partially offset by moving higher volumes of steel and aggregates. Freight revenue per revenue ton-mile decreased due to the unfavourable impact of the change in FX and lower fuel surcharge revenue as a result of the timing of recoveries. RTMs decreased more than carloads due to moving lower volumes of frac sand, which has a longer length of haul.

Automotive

For the three months ended March 31	2021		2020		Total Change		% Change	FX Adjusted % Change(1)
Freight revenues (in millions)	$	108	$	87	$	21	24	32
Carloads (in thousands)	33.4		28.2		5.2		18	N/A
Revenue ton-miles (in millions)	508		326		182		56	N/A
Freight revenue per carload (in dollars)	$	3,234	$	3,085	$	149	5	11
Freight revenue per revenue ton-mile (in cents)	21.26		26.69		(5.43)		(20)	(15)

(1)FX Adjusted % Change does not have any standardized meaning prescribed by GAAP and, therefore, is unlikely to be comparable to similar measures presented by other companies. FX Adjusted % Change is defined and reconciled in Non-GAAP Measures of this Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Automotive revenue was $108 million in the first quarter of 2021, an increase of $21 million, or 24%, from $87 million in the same period of 2020. This increase was primarily due to the onboarding of customers moving to and from Vancouver and higher freight rates. This increase was partially offset by decreased freight revenue per revenue ton-mile. Freight revenue per revenue ton-mile decreased due to the unfavourable impact of the change in FX and lower fuel surcharge revenue as a result of the timing of recoveries. RTMs increased more than carloads due to moving higher volumes from Vancouver to eastern Canada, which has a longer length of haul.

Intermodal

For the three months ended March 31	2021		2020		Total Change		% Change	FX Adjusted % Change(1)
Freight revenues (in millions)	$	394	$	405	$	(11)	(3)	(2)
Carloads (in thousands)	258.5		268.4		(9.9)		(4)	N/A
Revenue ton-miles (in millions)	6,653		7,311		(658)		(9)	N/A
Freight revenue per carload (in dollars)	$	1,524	$	1,509	$	15	1	2
Freight revenue per revenue ton-mile (in cents)	5.92		5.54		0.38		7	8

(1)FX Adjusted % Change does not have any standardized meaning prescribed by GAAP and, therefore, is unlikely to be comparable to similar measures presented by other companies. FX Adjusted % Change is defined and reconciled in Non-GAAP Measures of this Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Intermodal revenue was $394 million in the first quarter of 2021, a decrease of $11 million, or 3%, from $405 million in the same period of 2020. This decrease was primarily due to moving lower volumes of international intermodal driven by the completion of

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a customer contract, lower fuel surcharge revenue as a result of the timing of recoveries, and the unfavourable impact of the change in FX. This decrease was partially offset by increased freight revenue per revenue ton-mile. Freight revenue per revenue ton-mile increased due to higher freight rates. RTMs decreased more than carloads due to moving lower volumes of international intermodal to and from the Port of Vancouver, which have a longer length of haul.

Operating Expenses

For the three months ended March 31 (in millions of Canadian dollars)	2021		2020		Total Change		% Change	FX Adjusted % Change(1)
Compensation and benefits	$	405	$	398	$	7	2	3
Fuel	206		212		(6)		(3)	1
Materials	59		59		—		—	2
Equipment rents	33		36		(3)		(8)	(3)
Depreciation and amortization	202		192		10		5	7
Purchased services and other	274		312		(38)		(12)	(10)
Total operating expenses	$	1,179	$	1,209	$	(30)	(2)	—

(1)FX Adjusted % Change does not have any standardized meaning prescribed by GAAP and, therefore, is unlikely to be comparable to similar measures presented by other companies. FX Adjusted % Change is defined and reconciled in Non-GAAP Measures of this Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Operating expenses were $1,179 million in the first quarter of 2021, a decrease of $30 million, or 2%, from $1,209 million in the same period of 2020. This decrease was primarily due to:

•a gain on exchange of property and easements in Chicago of $50 million;

•the efficiencies generated from improved operating performance and asset utilization; and

•the favourable impact of the change in FX translation effects of $27 million.

This decrease was partially offset by:

•acquisition-related costs of $33 million associated with the pending KCS transaction;

•higher depreciation and amortization of $13 million (excluding FX translation effects); and

•higher stock-based compensation of $13 million.

Compensation and Benefits

Compensation and benefits expense includes employee wages, salaries, fringe benefits, and stock-based compensation. Compensation and benefits expense was $405 million in the first quarter of 2021, an increase of $7 million, or 2%, from $398 million in the same period of 2020. This increase was primarily due to:

•higher stock-based compensation of $13 million driven primarily by an increase in the share price;

•the impact of wage and benefit inflation; and

•higher defined benefit pension current service costs of $8 million.

This increase was partially offset by:

•labour efficiencies generated from improved operating performance and asset utilization;

•the favourable impact of the change in FX of $5 million; and

•lower incentive compensation.

Fuel

Fuel expense consists mainly of fuel used by locomotives and includes provincial, state, and federal fuel taxes. Fuel expense was $206 million in the first quarter of 2021, a decrease of $6 million, or 3%, from $212 million in the same period of 2020. This decrease was primarily due to the favourable impact of the change in FX of $8 million and an increase in fuel efficiency of 1% from improvements in the operating plan resulting in running longer and heavier trains. This decrease was partially offset by the unfavourable impact of $7 million from higher fuel prices.

Materials

Materials expense includes the cost of materials used for the maintenance of track, locomotives, freight cars, and buildings, as well as software sustainment. Materials expense was $59 million in the first quarter of 2021, unchanged from the same period in 2020.

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Equipment Rents

Equipment rents expense includes the cost associated with using other railways' freight cars, intermodal equipment, and locomotives, net of rental income received from other railroads for the use of CP’s equipment. Equipment rents expense was $33 million in the first quarter of 2021, a decrease of $3 million, or 8%, from $36 million in the same period of 2020. This decrease was primarily due to efficiencies in usage of pooled freight cars by CP and the favourable impact of the change in FX of $2 million. This decrease was partially offset by greater usage of pooled freight cars as a result of higher volumes mainly in Automotive.

Depreciation and Amortization

Depreciation and amortization expense represents the charge associated with the use of track and roadway, buildings, rolling stock, information systems, and other depreciable assets. Depreciation and amortization expense was $202 million in the first quarter of 2021, an increase of $10 million, or 5%, from $192 million in the same period of 2020. This increase was primarily due to a higher depreciable asset base, partially offset by the favourable impact of the change in FX of $3 million.

Purchased Services and Other

For the three months ended March 31 (in millions of Canadian dollars)	2021		2020		Total Change		% Change
Support and facilities	$	72	$	75	$	(3)	(4)
Track and operations	60		75		(15)		(20)
Intermodal	53		56		(3)		(5)
Equipment	29		30		(1)		(3)
Casualty	39		39		—		—
Property taxes	34		36		(2)		(6)
Other	41		5		36		720
Land sales	(54)		(4)		(50)		1,250
Total Purchased services and other	$	274	$	312	$	(38)	(12)

Purchased services and other expense encompasses a wide range of third-party costs, including expenses for joint facilities, personal injuries and damage claims, environmental remediation, property taxes, contractor and consulting fees, insurance, and gains on land sales. Purchased services and other expense was $274 million in the first quarter of 2021, a decrease of $38 million, or 12%, from $312 million in the same period of 2020. This decrease was primarily due to:

•a gain on exchange of property and easements in Chicago of $50 million;

•the favourable impact of the change in FX of $8 million;

•a $7 million arbitration settlement, reported in Track and operations;

•efficiencies generated from improved operating performance, reported in Intermodal and Track and operations; and

•reduced variable expenses from lower volumes, reported in Intermodal.

This decrease was partially offset by the acquisition-related expenses of $33 million associated with the pending KCS transaction, reported in Other.

Other Income Statement Items

Other (Income) Expense

Other (income) expense consists of gains and losses from the change in FX on debt and lease liabilities and working capital, costs related to financing, shareholder costs, equity income, and other non-operating expenditures. Other income was $28 million in the first quarter of 2021, a change of $239 million, or 113%, compared to an expense of $211 million in the same period of 2020. This change was primarily due to a FX translation gain on U.S. dollar-denominated debt and lease liabilities of $33 million, compared to a FX translation loss of $215 million in the same period of 2020.

FX translation gains and losses on debt and lease liabilities are discussed further in Non-GAAP Measures of this Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Other Components of Net Periodic Benefit Recovery

Other components of net periodic benefit recovery is related to the Company's pension and other post-retirement and post-employment benefit plans. It includes interest cost on benefit obligations, expected return on fund assets, recognized net actuarial losses, and amortization of prior service costs. Other components of net periodic benefit recovery was $95 million in the first quarter of 2021, an increase of $10 million, or 12% compared to $85 million in the same period of 2020. This increase was

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due to a decrease in the interest cost on benefit obligation of $15 million and an increase in expected return on fund assets of $3 million; partially offset by an increase in recognized net actuarial loss of $8 million.

Net Interest Expense

Net interest expense includes interest on long-term debt and finance leases. Net interest expense was $110 million in the first quarter of 2021, a decrease of $4 million, or 4%, from $114 million in the same period of 2020. This was primarily due to the favourable impact from the change in FX of $6 million and a reduction in interest related to long-term debt of $5 million as a result of the lower effective interest rate following the Company's debt refinancing in 2020. This was partially offset by the unfavourable impact of an increase in debt levels of $7 million.

Income Tax Expense

Income tax expense was $191 million in the first quarter of 2021, an increase of $6 million, or 3%, from $185 million in the same period of 2020. This increase was due to higher taxable earnings from FX gains in 2021 compared to FX losses in 2020 on debt and lease liabilities, partially offset by the higher acquisition-related costs as well as a lower effective tax rate.

The effective tax rate in the first quarter of 2021, including discrete items, was 24.05% compared to 31.10% in the same period of 2020. The effective tax rate in the first quarter of 2021, excluding discrete items, was 24.60%, compared to 25.00% in the same period of 2020. The decrease in the effective tax rate excluding discrete items was primarily due to the decrease in Alberta's corporate tax rate and a lower North Dakota tax rate.

The Company expects an annualized effective tax rate in 2021 of 24.60%. The Company’s 2021 outlook for its annualized effective income tax rate is based on certain assumptions about events and developments that may or may not materialize or that may be offset entirely or partially by new events and developments. This is discussed further in Item 1A. Risk Factors of CP's 2020 Annual Report on Form 10-K.

Liquidity and Capital Resources

The Company believes adequate amounts of Cash and cash equivalents are available in the normal course of business to provide for ongoing operations, including the obligations identified in the tables in Contractual Commitments of this Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Additionally, CP believes that its existing sources of liquidity, including the 364-day bridge facility described below, along with anticipated long-term financing will be sufficient to fund the pending KCS transaction. The Company is not aware of any trends or expected fluctuations in the Company's liquidity that would create any deficiencies. The Company's primary sources of liquidity include its cash and cash equivalents, its commercial paper program, its bilateral letter of credit facilities, and its revolving credit facility.

As at March 31, 2021, the Company had $360 million of Cash and cash equivalents compared to $147 million at December 31, 2020.

Effective March 21, 2021, the Company obtained commitments for a new 364-day senior unsecured facility in the amount of U.S. $8.5 billion to bridge financing requirements for the pending KCS transaction. As at March 31, 2021, the Company's existing revolving credit facility was undrawn, unchanged from December 31, 2020, from a total available amount of U.S. $1.3 billion. The agreement requires the Company to maintain a financial covenant in conjunction with the credit facility. As at March 31, 2021, the Company was in compliance with all terms and conditions of the credit facility arrangements and satisfied the financial covenant. Effective April 9, 2021, the Company amended the financial covenant within its existing revolving credit facility to provide flexibility upon close of the pending KCS transaction.

The Company has a commercial paper program that 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 revolving credit facility. As at March 31, 2021, total commercial paper borrowings were U.S. $715 million, compared to U.S. $644 million as at December 31, 2020.

As at March 31, 2021, under its bilateral letter of credit facilities, the Company had letters of credit drawn of $58 million, compared to $59 million as at December 31, 2020, from a total available amount of $300 million. Under the bilateral letter of credit facilities, the Company has the option to post collateral in the form of Cash or cash equivalents, equal at least to the face value of the letter of credit issued. As at March 31, 2021 and December 31, 2020, the Company did not have any collateral posted on its bilateral letter of credit facilities.

The Company plans to issue an aggregate of 44.5 million new Common Shares to fund the share consideration portion of the pending KCS transaction. This value will be adjusted to give effect to the share split once effective.

The following discussion of operating, investing, and financing activities describes the Company’s indicators of liquidity and capital resources.

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Operating Activities

Cash provided by operating activities was $582 million in the first quarter of 2021, an increase of $93 million, or 19%, compared to $489 million in the same period of 2020. This increase was primarily due to a favourable change in working capital during the first quarter of 2021 compared to the same period of 2020, including cash received from the Illinois State Toll Highway Authority for future property easements.

Investing Activities

Cash used in investing activities was $286 million in the first quarter of 2021, a decrease of $76 million, or 21%, compared to $362 million in the same period of 2020. This decrease was primarily due to higher proceeds from the sale of properties and lower capital additions during the first quarter of 2021 compared to the same period of 2020.

Free Cash

CP generated positive Free cash of $296 million in the first quarter of 2021, an increase of $138 million, or 87%, from $158 million in the same period of 2020. This increase was primarily due to an increase in cash provided by operating activities and lower cash used in investing activities.

Free cash is affected by seasonal fluctuations and by other factors including the size of the Company's capital programs. Free cash is defined and reconciled in Non-GAAP Measures of this Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Financing Activities

Cash used in financing activities was $80 million in the first quarter of 2021, an increase of $36 million, or 82%, compared to $44 million in the same period of 2020. This increase was primarily due to:

•the issuances of U.S. $500 million 2.050% notes due March 5, 2030, $300 million 3.050% notes due March 9, 2050, and short-term borrowings in Q1 2020;

•acquisition-related financing fees due to the pending KCS transaction; and

•lower issuances of CP Common Shares.

This is partially offset by the net issuance of commercial paper and absence of payments to buy back shares under the Company's share repurchase program during the first quarter of 2021, compared to net repayments of commercial paper and payments made to buy back shares in the first quarter of 2020.

Credit Measures

Credit ratings provide information relating to the Company’s operations and liquidity, and affect the Company’s ability to obtain short-term and long-term financing and/or the cost of such financing.

A strong investment grade credit rating is an important measure in assessing the Company’s ability to maintain access to public financing and to minimize the cost of capital. It also affects the ability of the Company to engage in certain collateralized business activities on a cost-effective basis.

Credit ratings and outlooks are based on the rating agencies’ methodologies and can change from time to time to reflect their views of CP. Their views are affected by numerous factors including, but not limited to, the Company’s financial position and liquidity along with external factors beyond the Company’s control.

As at March 31, 2021, CP's credit ratings from Standard & Poor's Rating Services ("Standard & Poor's") remain unchanged from December 31, 2020. During the first quarter of 2021, Moody's Investor Service ("Moody's") downgraded CP's credit rating to Baa2 from Baa1 due to the announcement of the pending KCS transaction.

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Credit ratings as at March 31, 2021(1)

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	Baa2	stable
Commercial paper program
Standard & Poor's		A-2	N/A
Moody's		P-2	N/A

(1)Credit ratings are not recommendations to purchase, hold or sell securities and do not address the market price or suitability of a specific security for a particular investor. Credit ratings are based on the rating agencies' methodologies and may be subject to revision or withdrawal at any time by the rating agencies.

Financial Ratios

The Long-term debt to Net income ratio for the twelve months ended March 31, 2021 and March 31, 2020 was 3.7 and 4.2, respectively. This decrease was primarily due to lower debt and higher Net income.

The Adjusted net debt to Adjusted earnings before interest, tax, depreciation and amortization (“EBITDA”) ratio for the twelve months ended March 31, 2021 and March 31, 2020 was 2.4 and 2.5, respectively. This decrease was primarily due to a decrease in Adjusted net debt as at March 31, 2021, partially offset by a decrease in Adjusted EBITDA. The Adjusted net debt to Adjusted EBITDA ratio is a Non-GAAP measure, which is defined and reconciled from the Long-term debt to Net income ratio, the most comparable measure calculated in accordance with GAAP, in Non-GAAP Measures of this Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Over the long term, CP targets an Adjusted net debt to Adjusted EBITDA ratio of 2.0 to 2.5. The pending KCS transaction and the anticipated issuance of debt securities in connection with the pending transaction is expected to temporarily increase the Adjusted net debt to Adjusted EBITDA ratio to approximately 4.0 in 2021. CP plans to repay a portion of the financing in connection with the pending KCS transaction and maturing long-term debt, and expects to return back to its target range within 36 months after the pending KCS transaction closes into the voting trust.

Although CP has provided a target Non-GAAP measure (Adjusted net debt to Adjusted EBITDA ratio), management is unable to reconcile, without unreasonable efforts, the target Adjusted net debt to Adjusted EBITDA ratio to the most comparable GAAP measure (Long-term debt to Net income ratio), due to unknown variables and uncertainty related to future results. These unknown variables may include unpredictable transactions of significant value. In recent years, CP has recognized acquisition-related costs, changes in income tax rates and a change to an uncertain tax item. These or other similar, large unforeseen transactions affect Net income but may be excluded from CP’s Adjusted EBITDA. Additionally, the U.S.-to-Canada dollar exchange rate is unpredictable and can have a significant impact on CP’s reported results but may be excluded from CP’s Adjusted EBITDA. In particular, CP excludes the FX impact of translating the Company’s debt and lease liabilities, interest and taxes from Adjusted EBITDA. Please see Forward-Looking Statements in this Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations for further discussion.

Supplemental Guarantor Financial Information

Canadian Pacific Railway Company (“CPRC”), a 100%-owned subsidiary of Canadian Pacific Railway Limited (“CPRL”), is the issuer of certain securities which are fully and unconditionally guaranteed by CPRL on an unsecured basis. The other subsidiaries of CPRC do not guarantee the securities and are referred to below as the “Non-Guarantor Subsidiaries”. The following is a description of the terms and conditions of the guarantees with respect to securities for which CPRC is the issuer and CPRL provides a full and unconditional guarantee.

As at March 31, 2021, CPRC had $7,356 million principal amount of debt securities outstanding due through 2115, and $44 million in perpetual 4% consolidated debenture stock, for all of which CPRL is the guarantor.

CPRL fully and unconditionally guarantees the payment of the principal (and premium, if any) and interest on the debt securities and consolidated debenture stock issued by CPRC, any sinking fund or analogous payments payable with respect to such securities, and any additional amounts payable when they become due, whether at maturity or otherwise. The guarantee is CPRL’s unsubordinated and unsecured obligation and ranks equally with all of CPRL’s other unsecured, unsubordinated obligations.

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CPRL will be released and relieved of its obligations under the guarantees after obligations to the holders are satisfied in accordance with the terms of the respective instruments.

Pursuant to Rule 13-01 of the SEC's Regulation S-X, the Company provides summarized financial and non-financial information of CPRC in lieu of providing separate financial statements of CPRC.

More information on the securities under this guarantee structure can be found in Exhibit 22.1 List of Issuers and Guarantor Subsidiaries of this quarterly report.

Summarized Financial Information

The following tables present summarized financial information for CPRC (Subsidiary Issuer) and CPRL (Parent Guarantor) on a combined basis after elimination of (i) intercompany transactions and balances among CPRC and CPRL; (ii) equity in earnings from and investments in the Non-Guarantor Subsidiaries; and (iii) intercompany dividend income.

Statements of Income

	CPRC (Subsidiary Issuer) and CPRL (Parent Guarantor)
(in millions of Canadian dollars)	For the three months ended March 31, 2021		For the year ended December 31, 2020
Total revenues	$	1,464	$	5,797
Total operating expenses	938		3,263
Operating income(1)	526		2,534
Less: Other(2)	(9)		127
Income before income tax expense	535		2,407
Net income	$	391	$	1,792

(1)Includes net lease costs incurred from non-guarantor subsidiaries for the three months ended March 31, 2021 and for the year ended December 31, 2020 of $109 million and $435 million, respectively.

(2)Includes Other (income) expense, Other components of net periodic benefit recovery, and Net interest expense.

Balance Sheets

	CPRC (Subsidiary Issuer) and CPRL (Parent Guarantor)
(in millions of Canadian dollars)	As at March 31, 2021		As at December 31, 2020
Assets
Current assets	$	1,030	$	907
Properties	10,988		10,865
Other non-current assets	1,259		1,151
Liabilities
Current liabilities	$	2,851	$	2,290
Long-term debt	7,955		8,585
Other non-current liabilities	2,998		2,981

Excluded from the Income Statements and Balance Sheets above are the following significant intercompany transactions and balances that CPRC and CPRL have with the Non-Guarantor Subsidiaries:

Cash Transactions with Non-Guarantor Subsidiaries

	CPRC (Subsidiary Issuer) and CPRL (Parent Guarantor)
(in millions of Canadian dollars)	For the three months ended March 31, 2021		For the year ended December 31, 2020
Dividend income from non-guarantor subsidiaries	$	7	$	163
Capital contributions to non-guarantor subsidiaries	—		—
Redemption of shares by non-guarantor subsidiaries	—		198

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Balances with Non-Guarantor Subsidiaries

	CPRC (Subsidiary Issuer) and CPRL (Parent Guarantor)
(in millions of Canadian dollars)	As at March 31, 2021		As at December 31, 2020
Assets
Accounts receivable, intercompany	$	268	$	327
Short-term advances to affiliates	48		20
Long-term advances to affiliates	9		9
Liabilities
Accounts payable, intercompany	$	153	$	179
Short-term advances from affiliates	3,661		3,658
Long-term advances from affiliates	81		82

Share Capital

At April 20, 2021, the latest practicable date, there were 133,321,717 Common Shares and no preferred shares issued and outstanding, which consists of 13,755 holders of record of the Common Shares. In addition, CP has a Management Stock Option Incentive Plan (“MSOIP”), under which key officers and employees are granted options to purchase the Common Shares. Each option granted can be exercised for one Common Share. At April 20, 2021, 1,600,592 options were outstanding under the MSOIP and stand-alone option agreements entered into with Mr. Keith Creel. There are 630,347 options available to be issued by the Company’s MSOIP in the 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. Additional information concerning share capital is included in Item 1. Financial Statements, Note 17 Subsequent event.

Non-GAAP Measures

The Company presents Non-GAAP measures to provide a basis for evaluating underlying earnings and liquidity trends in the Company’s business that can be compared with the results of operations in prior periods. In addition, these Non-GAAP measures facilitate a multi-period assessment of long-term profitability, allowing management and other external users of the Company’s consolidated financial information to compare profitability on a long-term basis, including assessing future profitability, with that of the Company’s peers.

These Non-GAAP measures have no standardized meaning and are not defined by GAAP and, therefore, may not be comparable to similar measures presented by other companies. The presentation of these Non-GAAP measures is not intended to be considered in isolation from, as a substitute for, or as superior to the financial information presented in accordance with GAAP.

Non-GAAP Performance Measures

The Company uses adjusted earnings results including Adjusted income, Adjusted diluted earnings per share, Adjusted operating income and Adjusted operating ratio to evaluate the Company’s operating performance and for planning and forecasting future business operations and future profitability. These Non-GAAP measures are presented in Financial Highlights and discussed further in other sections of this Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. These Non-GAAP measures provide meaningful supplemental information regarding operating results because they exclude certain significant items that are not considered indicative of future financial trends either by nature or amount. As a result, these items are excluded for management assessment of operational performance, allocation of resources and preparation of annual budgets. These significant items may include, but are not limited to, restructuring and asset impairment charges, individually significant gains and losses from sales of assets, acquisition-related costs, the FX impact of translating the Company’s debt and lease liabilities (including borrowings under the credit facility and foreign exchange forward contracts), discrete tax items, changes in income tax rates, changes to an uncertain tax item, and certain items outside the control of management. These items may not be non-recurring. However, excluding these significant items from GAAP results allows for a consistent understanding of the Company's consolidated financial performance when performing a multi-period assessment including assessing the likelihood of future results. Accordingly, these Non-GAAP financial measures may provide insight to investors and other external users of the Company's consolidated financial information.

In the first three months of 2021, there were two significant items included in Net income as follows:

•Acquisition-related costs of $36 million associated with the pending KCS transaction ($27 million after current and deferred taxes), including an expense of $33 million recognized in Purchased services and other and $3 million recognized in Other (income) expense, that unfavourably impacted Diluted EPS by 20 cents; and

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•a non-cash gain of $33 million ($29 million after deferred tax) due to FX translation of debt and lease liabilities that favourably impacted Diluted EPS by 22 cents.

In 2020, there were two significant items included in Net income as follows:

•in the fourth quarter, a deferred tax recovery of $29 million due to a change relating to a tax return filing election for the state of North Dakota that favourably impacted Diluted EPS by 22 cents; and

•during the course of the year, a net non-cash gain of $14 million ($12 million after deferred tax) due to FX translation of debt and lease liabilities that favourably impacted Diluted EPS by 9 cents as follows:

–in the fourth quarter, a $103 million gain ($90 million after deferred tax) that favourably impacted Diluted EPS by 67 cents;

–in the third quarter, a $40 million gain ($38 million after deferred tax) that favourably impacted Diluted EPS by 29 cents;

–in the second quarter, an $86 million gain ($82 million after deferred tax) that favourably impacted Diluted EPS by 59 cents; and

–in the first quarter, a $215 million loss ($198 million after deferred tax) that unfavourably impacted Diluted EPS by $1.44.

In the nine months ended December 31, 2019, there were three significant items included in Net income as follows:

•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

•a net non-cash gain of $49 million ($44 million after deferred tax) due to FX translation of debt and lease liabilities that favourably impacted Diluted EPS by 31 cents 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; and

–in the second quarter, a $37 million gain ($34 million after deferred tax) that favourably impacted Diluted EPS by 24 cents.

Reconciliation of GAAP Performance Measures to Non-GAAP Performance Measures

The following tables reconcile the most directly comparable measures presented in accordance with GAAP to the Non-GAAP measures presented in Financial Highlights and discussed further in other sections of this Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations:

Adjusted income is calculated as Net income reported on a GAAP basis adjusted for significant items.

	For the three months ended March 31				For the twelve months ended December 31
(in millions of Canadian dollars)	2021		2020		2020
Net income as reported	$	602	$	409	$	2,444
Less significant items (pre-tax):
Acquisition-related costs	(36)		—		—
Impact of FX translation gain (loss) on debt and lease liabilities	33		(215)		14
Add:
Tax effect of adjustments(1)	(5)		(17)		2
Income tax rate changes	—		—		(29)
Adjusted income	$	600	$	607	$	2,403

(1)The tax effect of adjustments was calculated as the pre-tax effect of the adjustments multiplied by the applicable tax rate for the above items of 223.54% for the three months ended March 31, 2021, 8.17% for the three months ended March 31, 2020, and 13.58% for the twelve months ended December 31, 2020, respectively. The applicable tax rates reflect the taxable jurisdictions and nature, being on account of capital or income, of the significant items.

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Adjusted diluted earnings per share is calculated using Adjusted income, as defined above, divided by the weighted-average diluted number of Common Shares outstanding during the period as determined in accordance with GAAP.

	For the three months ended March 31				For the twelve months ended December 31
	2021		2020		2020
Diluted earnings per share as reported	$	4.50	$	2.98	$	17.97
Less significant items (pre-tax):
Acquisition-related costs	(0.27)		—		—
Impact of FX translation gain (loss) on debt and lease liabilities	0.25		(1.57)		0.10
Add:
Tax effect of adjustments(1)	(0.04)		(0.13)		0.01
Income tax rate changes	—		—		(0.21)
Adjusted diluted earnings per share	$	4.48	$	4.42	$	17.67

(1)The tax effect of adjustments was calculated as the pre-tax effect of the adjustments multiplied by the applicable tax rate for the above items of 223.54% for the three months ended March 31, 2021, 8.17% for the three months ended March 31, 2020, and 13.58% for the twelve months ended December 31, 2020, respectively. The applicable tax rates reflect the taxable jurisdictions and nature, being on account of capital or income, of the significant items.

Adjusted operating income is calculated as Operating income reported on a GAAP basis less significant items.

	For the three months ended March 31
(in millions of Canadian dollars)	2021		2020
Operating income as reported	$	780	$	834
Less significant item:
Acquisition-related costs	(33)		—
Adjusted operating income	$	813	$	834

Adjusted operating ratio excludes those significant items that are reported within operating income.

	For the three months ended March 31
	2021		2020
Operating ratio as reported	60.2	%	59.2	%
Less significant item:
Acquisition-related costs	1.7	%	—	%
Adjusted operating ratio	58.5	%	59.2	%

Adjusted ROIC

Adjusted ROIC is calculated as Adjusted return divided by Adjusted average invested capital. Adjusted return is defined as Net income adjusted for interest expense, tax effected at the Company’s adjusted annualized effective tax rate, and significant items in the Company’s Consolidated Financial Statements, tax effected at the applicable tax rate. Adjusted average invested capital is defined as the sum of total Shareholders' equity, Long-term debt, and Long-term debt maturing within one year, as presented in the Company's Consolidated Financial Statements, each averaged between the beginning and ending balance over a rolling 12-month period, adjusted for the impact of significant items, tax effected at the applicable tax rate, on closing balances as part of this average. Adjusted ROIC excludes significant items reported in the Company's Consolidated Financial Statements, as these significant items are not considered indicative of future financial trends either by nature or amount, and excludes interest expense, net of tax, to incorporate returns on the Company’s overall capitalization. Adjusted ROIC is a performance measure that measures how productively the Company uses its long-term capital investments, representing critical indicators of good operating and investment decisions made by management, and is an important performance criteria in determining certain elements of the Company's long-term incentive plan. Adjusted ROIC, which is reconciled below from Return on average shareholders' equity, the most comparable measure calculated in accordance with GAAP, is also presented in Financial Highlights and discussed further in Results of Operations of this Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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Calculation of Return on average shareholders' equity

	For the twelve months ended March 31
(in millions of Canadian dollars, except for percentages)	2021			2020
Net income as reported	$	2,637		$	2,415
Average shareholders' equity	$	7,411		$	6,884
Return on average shareholders' equity	35.6		%	35.1		%

Reconciliation of Net income to Adjusted return

	For the twelve months ended March 31
(in millions of Canadian dollars)	2021		2020
Net income as reported	$	2,637	$	2,415
Add:
Net interest expense	454		448
Tax on interest(1)	(112)		(112)
Significant items (pre-tax):
Acquisition-related costs	36		—
Impact of FX translation (gain) loss on debt and lease liabilities	(262)		166
Tax on significant items(2)	14		(12)
Income tax rate changes	(29)		(88)
Provision for uncertain tax item	—		24
Adjusted return	$	2,738	$	2,841

(1)Tax was calculated at the adjusted annualized effective tax rate of 24.55% and 24.85% for the twelve months ended March 31, 2021 and 2020, respectively.

(2)Tax was calculated as the pre-tax effect of the adjustments multiplied by the applicable tax rate for the above items of 5.92% and 7.61% for the twelve months ended March 31, 2021 and 2020, respectively. The applicable tax rates reflect the taxable jurisdictions and nature, being on account of capital or income, of the significant items.

Reconciliation of Average shareholders' equity to Adjusted average invested capital

	For the twelve months ended March 31
(in millions of Canadian dollars)	2021		2020
Average shareholders' equity	$	7,411	$	6,884
Average Long-term debt, including long-term debt maturing within one year	9,905		9,497
	$	17,316	$	16,381
Less:
Significant item (pre-tax):
Acquisition-related costs	(18)		—
Tax on significant item(1)	4		—
Income tax rate changes	15		44
Provision for uncertain tax item	—		(12)
Adjusted average invested capital	$	17,315	$	16,349

(1)Tax was calculated at the pre-tax effect of the adjustment multiplied by the applicable tax rate of 26.13% for the twelve months ended March 31, 2021. The applicable tax rate reflects the taxable jurisdiction and nature, being on account of capital or income, of the significant item.

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Calculation of Adjusted ROIC

	For the twelve months ended March 31
(in millions of Canadian dollars, except for percentages)	2021			2020
Adjusted return	$	2,738		$	2,841
Adjusted average invested capital	$	17,315		$	16,349
Adjusted ROIC	15.8		%	17.4		%

Free Cash

Free cash is calculated as Cash provided by operating activities, less Cash used in investing activities, adjusted for changes in cash and cash equivalents balances resulting from FX fluctuations and the acquisition-related transaction costs paid in cash related to the pending KCS transaction. Free cash is a measure that management considers to be a valuable indicator of liquidity. Free cash is useful to investors and other external users of the Company's Consolidated Financial Statements as it assists with the evaluation of the Company's ability to generate cash to satisfy debt obligations and discretionary activities such as dividends, share repurchase programs, and other strategic opportunities. The acquisition-related transaction costs paid in cash related to the pending KCS transaction are not indicative of investment trends and have also been excluded from Free cash. Free cash should be considered in addition to, rather than as a substitute for, Cash provided by operating activities. Free cash is presented in Financial Highlights and discussed further in Liquidity and Capital Resources of this Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Reconciliation of Cash Provided by Operating Activities to Free Cash

	For the three months ended March 31
(in millions of Canadian dollars)	2021		2020
Cash provided by operating activities	$	582	$	489
Cash used in investing activities	(286)		(362)
Effect of foreign currency fluctuations on U.S. dollar-denominated cash and cash equivalents	(3)		31
Less:
Acquisition-related costs	(3)		—
Free cash	$	296	$	158

Foreign Exchange Adjusted % Change

FX adjusted % change allows certain financial results to be viewed without the impact of fluctuations in foreign currency exchange rates, thereby facilitating period-to-period comparisons in the analysis of trends in business performance. Financial result variances at constant currency are obtained by translating the comparable period of the prior year results denominated in U.S. dollars at the foreign exchange rates of the current period.

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FX adjusted % changes in revenues are further used in calculating FX adjusted % change in freight revenue per carload and RTM. These items are presented in Operating Revenues of this Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

	For the three months ended March 31
(in millions of Canadian dollars)	Reported 2021		Reported 2020		Variance due to FX		FX Adjusted 2020		FX Adjusted % Change
Freight revenues by line of business
Grain	$	448	$	418	$	(10)	$	408	10
Coal	163		150		(1)		149		9
Potash	101		112		(3)		109		(7)
Fertilizers and sulphur	77		70		(3)		67		15
Forest products	80		78		(4)		74		8
Energy, chemicals and plastics	388		491		(13)		478		(19)
Metals, minerals and consumer products	159		189		(8)		181		(12)
Automotive	108		87		(5)		82		32
Intermodal	394		405		(5)		400		(2)
Freight revenues	1,918		2,000		(52)		1,948		(2)
Non-freight revenues	41		43		—		43		(5)
Total revenues	$	1,959	$	2,043	$	(52)	$	1,991	(2)

FX adjusted % changes in operating expenses are presented in Operating Expenses of this Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

	For the three months ended March 31
(in millions of Canadian dollars)	Reported 2021		Reported 2020		Variance due to FX		FX Adjusted 2020		FX Adjusted % Change
Compensation and benefits	$	405	$	398	$	(5)	$	393	3
Fuel	206		212		(8)		204		1
Materials	59		59		(1)		58		2
Equipment rents	33		36		(2)		34		(3)
Depreciation and amortization	202		192		(3)		189		7
Purchased services and other	274		312		(8)		304		(10)
Total operating expenses	$	1,179	$	1,209	$	(27)	$	1,182	—

Adjusted Net Debt to Adjusted EBITDA Ratio

Adjusted net debt to Adjusted earnings before interest, tax, depreciation and amortization ("EBITDA") ratio is calculated as Adjusted net debt divided by Adjusted EBITDA. The Adjusted net debt to Adjusted EBITDA ratio is a key credit measure used to assess the Company’s financial capacity. The ratio provides information on the Company’s ability to service its debt and other long-term obligations. The Adjusted net debt to Adjusted EBITDA ratio, which is reconciled below from the Long-term debt to Net income ratio, the most comparable measure calculated in accordance with GAAP, is also presented in Financial Highlights and discussed further in Results of Operations of this Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Calculation of Long-term Debt to Net Income Ratio

(in millions of Canadian dollars, except for ratios)	2021		2020
Long-term debt including long-term debt maturing within one year as at March 31	$	9,740	$	10,070
Net income for the twelve months ended March 31	2,637		2,415
Long-term debt to Net income ratio	3.7		4.2

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Reconciliation of Long-term Debt to Adjusted Net Debt

Adjusted net debt is defined as Long-term debt, Long-term debt maturing within one year and Short-term borrowing as reported on the Company’s Consolidated Balance Sheets adjusted for pension plans deficit, operating lease liabilities recognized on the Company's Consolidated Balance Sheets, and Cash and cash equivalents.

(in millions of Canadian dollars)	2021		2020
Long-term debt including long-term debt maturing within one year as at March 31	$	9,740	$	10,070
Add:
Pension plans deficit(1)	327		300
Operating lease liabilities	284		365
Less:
Cash and cash equivalents	360		247
Adjusted net debt as at March 31	$	9,991	$	10,488

(1)Pension plans deficit is the total funded status of the Pension plans in deficit only.

Reconciliation of Net Income to EBIT, Adjusted EBIT and Adjusted EBITDA

Earnings before interest and tax ("EBIT") is calculated as Net income before Net interest expense and Income tax expense. Adjusted EBIT excludes significant items reported in both Operating income and Other (income) expense. Adjusted EBITDA is calculated as Adjusted EBIT plus operating lease expense and Depreciation and amortization, less Other components of net periodic benefit recovery.

	For the twelve months ended March 31
(in millions of Canadian dollars)	2021		2020
Net income as reported	$	2,637	$	2,415
Add:
Net interest expense	454		448
Income tax expense	764		752
EBIT	3,855		3,615
Less significant items (pre-tax):
Acquisition-related costs	(36)		—
Impact of FX translation gain (loss) on debt and lease liabilities	262		(166)
Adjusted EBIT	3,629		3,781
Add:
Operating lease expense	76		83
Depreciation and amortization	789		738
Less:
Other components of net periodic benefit recovery	352		369
Adjusted EBITDA	$	4,142	$	4,233

Calculation of Adjusted Net Debt to Adjusted EBITDA Ratio

(in millions of Canadian dollars, except for ratios)	2021		2020
Adjusted net debt as at March 31	$	9,991	$	10,488
Adjusted EBITDA for the twelve months ended March 31	4,142		4,233
Adjusted net debt to Adjusted EBITDA ratio	2.4		2.5

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Off-Balance Sheet Arrangements

Guarantees

As at March 31, 2021, the Company had residual value guarantees on operating lease commitments of $1 million. The maximum amount that could be payable under these and all of the Company’s other guarantees cannot be reasonably estimated due to the nature of certain of these guarantees. All or a portion of amounts paid under certain guarantees could be recoverable from other parties or through insurance. The Company accrues for all guarantees that it expects to pay. As at March 31, 2021, these accruals amounted to $12 million, reduced from $18 million at December 31, 2020, as a result of settlements.

Contractual Commitments

The following table indicates the Company’s obligations and commitments to make future payments for contracts such as debt, leases, and commercial arrangements as at March 31, 2021.

Payments due by period (in millions of Canadian dollars)	Total		2021		2022 & 2023		2024 & 2025		Thereafter
Contractual commitments
Interest on long-term debt and finance leases	$	10,602	$	279	$	754	$	685	$	8,884
Long-term debt	9,684		1,235		936		962		6,551
Finance leases	143		5		110		15		13
Operating leases(1)	320		66		109		75		70
Supplier purchases	1,818		463		1,074		95		186
Other long-term liabilities(2)	482		42		102		98		240
Total contractual commitments	$	23,049	$	2,090	$	3,085	$	1,930	$	15,944

(1)Residual value guarantees on certain leased equipment with a maximum exposure of $1 million are not included in the minimum payments shown above.

(2)Includes expected cash payments for environmental remediation, post-retirement benefits, workers’ compensation benefits, long-term disability benefits, pension benefit payments for the Company’s non-registered supplemental pension plan, and certain other long-term liabilities. Projected payments for post-retirement benefits, workers’ compensation benefits, and long-term disability benefits include the anticipated payments for years 2021 to 2030. Pension contributions for the Company’s registered pension plans are not included due to the volatility in calculating them. Pension payments are discussed further in Critical Accounting Estimates of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Company's 2020 Annual Report on Form 10-K.

Certain Other Financial Commitments

In addition to the financial commitments mentioned previously in Off-Balance Sheet Arrangements and those mentioned above, the Company is party to certain other financial commitments discussed below.

Letters of Credit

Letters of credit are obtained mainly to provide security to third parties under the terms of various agreements. CP is liable for these contractual amounts in the case of non-performance under these agreements. Letters of credit are accommodated through a revolving credit facility and the Company’s bilateral letter of credit facilities.

Capital Commitments

The Company remains committed to maintaining the current high level of quality of our capital assets in pursuing sustainable growth. As part of this commitment, CP has entered into contracts with suppliers to make various capital purchases related to track and rolling stock programs. Payments for these commitments are due in 2021 through 2032. These expenditures are expected to be financed by cash generated from operations or by issuing new debt.

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The following table outlines the Company’s commitments to make future payments for letters of credit and capital expenditures as at March 31, 2021:

Payments due by period (in millions of Canadian dollars)	Total		2021		2022 & 2023		2024 & 2025		Thereafter
Certain other financial commitments
Letters of credit	$	58	$	58	$	—	$	—	$	—
Capital commitments	473		289		85		41		58
Total certain other financial commitments	$	531	$	347	$	85	$	41	$	58

Critical Accounting Estimates

To prepare Consolidated Financial Statements that conform with GAAP, the Company is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements, and the reported amounts of revenues and expenses during the reported periods. Using the most current information available, the Company reviews estimates on an ongoing basis, including those related to environmental liabilities, pensions and other benefits, property, plant and equipment, deferred income taxes, and personal injury and other claims liabilities. Additional information concerning critical accounting estimates is supplemented in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company's 2020 Annual Report on Form 10-K.

The development, selection and disclosure of these estimates, and this MD&A, have been reviewed by the Board of Directors’ Audit and Finance Committee, which is composed entirely of independent directors.

Forward-Looking Statements

This Management's Discussion and Analysis of Financial Condition and Results of Operations and Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995 and forward-looking information within the meaning of other relevant securities legislation, including applicable securities laws in Canada (collectively referred to herein as "forward-looking statements"). Forward-looking statements typically include words such as “financial expectations”, “key assumptions”, “anticipate”, “believe”, “expect”, “plan”, “will”, “outlook”, “should” or similar words suggesting future outcomes. To the extent that CP has provided forecasts or targets using Non-GAAP financial measures, the Company may not be able to provide a reconciliation to a GAAP measure without unreasonable efforts, due to unknown variables and uncertainty related to future results. This Management's Discussion and Analysis of Financial Condition and Results of Operations and Quarterly Report on Form 10-Q includes forward-looking statements relating, but not limited to, statements concerning 2021 volume as measured in revenue ton-miles, Adjusted diluted EPS, capital program investments, the U.S.-to-Canadian dollar exchange rate and expected impacts resulting from changes therein, annualized effective tax rate, other components of net periodic benefit recovery, and the expected outcome of litigation against the Company, the purpose of which is to assist readers in understanding our expected and targeted financial results, and this information may not be appropriate for other purposes.

The forward-looking statements contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations and Quarterly Report on Form 10-Q are based on current expectations, estimates, projections and assumptions, having regard to the Company's experience and its perception of historical trends, and includes, but is not limited to, expectations, estimates, projections and assumptions relating to: North American and global economic growth; commodity demand growth; sustainable industrial and agricultural production; commodity prices and interest rates; foreign exchange rates (as specified herein); effective tax rates (as specified herein); performance of our assets and equipment; sufficiency of our budgeted capital expenditures in carrying out our business plan; geopolitical conditions; applicable laws, regulations and government policies; the availability and cost of labour, services and infrastructure; the satisfaction by third parties of their obligations to the Company; and the anticipated impacts of the COVID-19 pandemic on the Company’s business, operating results, cash flows and/or financial condition. Although the Company believes the expectations, estimates, projections and assumptions reflected in the forward-looking statements presented herein are reasonable as of the date hereof, there can be no assurance that they will prove to be correct. Current conditions, economic and otherwise, render assumptions, although reasonable when made, subject to greater uncertainty.

Undue reliance should not be placed on forward-looking statements as actual results may differ materially from those expressed or implied by forward-looking statements. By their nature, forward-looking statements involve numerous inherent risks and uncertainties that could cause actual results to differ materially from the forward-looking statements, including but not limited to the following factors: changes in business strategies; general Canadian, U.S., Mexican and global social, economic, political, credit and business conditions; risks associated with agricultural production such as weather conditions and insect populations; the availability and price of energy commodities; the effects of competition and pricing pressures, including competition from other rail carriers, trucking companies and maritime shippers in Canada, the U.S. and Mexico; industry capacity; shifts in market demand; changes in commodity prices; uncertainty surrounding timing and volumes of commodities being shipped via CP; inflation; geopolitical instability; changes in laws, regulations and government policies, including regulation of rates; changes in

43

taxes and tax rates; potential increases in maintenance and operating costs; changes in fuel prices; disruption in fuel supplies; uncertainties of investigations, proceedings or other types of claims and litigation; compliance with environmental regulations; labour disputes; changes in labour costs and labour difficulties; risks and liabilities arising from derailments; transportation of dangerous goods; timing of completion of capital and maintenance projects; currency and interest rate fluctuations; exchange rates; effects of changes in market conditions and discount rates on the financial position of pension plans and investments; trade restrictions or other changes to international trade arrangements; the effects of current and future multinational trade agreements on the level of trade among Canada, the U.S. and Mexico; climate change and the market and regulatory responses to climate change; anticipated in-service dates; success of hedging activities; operational performance and reliability; customer, shareholder, regulatory and other stakeholder approvals and support; regulatory and legislative decisions and actions; the adverse impact of any termination or revocation by the Mexican government of Kansas City Southern de México, S.A. de C.V.'s Concession; public opinion; various events that could disrupt operations, including severe weather, such as droughts, floods, avalanches and earthquakes, and cybersecurity attacks, as well as security threats and governmental response to them, and technological changes; acts of terrorism, war or other acts of violence or crime or risk of such activities; insurance coverage limitations; material adverse changes in economic and industry conditions, including the availability of short and long-term financing; the pandemic created by the outbreak of COVID-19 and resulting effects on economic conditions, the demand environment for logistics requirements and energy prices, restrictions imposed by public health authorities or governments, fiscal and monetary policy responses by governments and financial institutions, and disruptions to global supply chains; the timing and completion of the pending KCS transaction, including receipt of regulatory and shareholder approvals and the satisfaction of other conditions precedent; interloper risk to the pending KCS transaction; the realization of anticipated benefits and synergies of the transaction and the timing thereof; the success of integration plans for KCS; the focus of management time and attention on the pending KCS transaction and other disruptions arising from the transaction; estimated future dividends; financial strength and flexibility; debt and equity market conditions, including the ability to access capital markets on favourable terms or at all; cost of debt and equity capital; the previously announced proposed share split of the Company’s issued and outstanding common shares and whether it will receive the requisite regulatory approvals; potential changes in the Company’s share price which may negatively impact the value of consideration offered to KCS shareholders; and the ability of the management of the Company, its subsidiaries and affiliates to execute key priorities, including those in connection with the pending KCS transaction. The foregoing list of factors is not exhaustive. There are more specific factors that could cause actual results to differ materially from those described in the forward-looking statements contained in this Management's Discussion and Analysis of Financial Condition and Results of Operations and Quarterly Report on Form 10-Q. These more specific factors are identified and discussed in Item 1A. Risk Factors of CP's 2020 Annual Report on Form 10-K. Additionally, specific risk factors related to pending KCS transaction are included in Item 1A. Risk Factors of this Quarterly Report on Form 10-Q. Other risks are detailed from time to time in reports filed by CP with securities regulators in Canada and the United States.

The forward-looking statements contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations and Quarterly Report on Form 10-Q are made as of the date hereof. Except as required by law, CP undertakes no obligation to update publicly or otherwise revise any forward-looking statements, or the foregoing assumptions and risks affecting such forward-looking statements, whether as a result of new information, future events or otherwise.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Exchange Risk

Although CP conducts business primarily in Canada, a significant portion of its revenues, expenses, assets, and liabilities including debt are denominated in U.S. dollars. The value of the Canadian dollar is affected by a number of domestic and international factors, including, without limitation, economic performance, and Canadian, U.S. and international monetary policies. Consequently, the Company’s results are affected by fluctuations in the exchange rate between these currencies. On an annualized basis, a $0.01 weakening (or strengthening) of the Canadian dollar relative to the U.S. dollar positively (or negatively) impacts Total revenues by approximately $27 million (2020 - approximately $27 million), negatively (or positively) impacts Operating expenses by approximately $14 million (2020 - approximately $14 million), and negatively (or positively) impacts Net interest expense by approximately $3 million (2020 - approximately $3 million).

CP uses U.S. dollar-denominated debt to hedge its net investment in U.S. operations. As at March 31, 2021, the net investment in U.S. operations is less than the total U.S. denominated debt. Consequently, FX translation on the Company’s undesignated debt and lease liabilities causes additional impacts on earnings in Other (income) expense. For further information on the net investment hedge, please refer to Financial Statements, Note 17 Financial instruments of CP's 2020 Annual Report on Form 10-K.

To manage this exposure to fluctuations in exchange rates between Canadian and U.S. dollars, CP may sell or purchase U.S. dollar forwards at fixed rates in future periods. In addition, changes in the exchange rate between the Canadian dollar and other currencies (including the U.S. dollar) make the goods transported by the Company more or less competitive in the world marketplace and may in turn positively or negatively affect revenues.

As at March 31, 2021, the Company had various FX forward contracts totalling a notional U.S. $800 million to fix the FX rate and lock-in a portion of the amount of Canadian dollars it may use to finance the pending U.S. dollar-denominated KCS transaction (2020 - $nil). A hypothetical $0.01 change in the FX rate as of March 31, 2021 would result in a change in unrealized gains or losses of approximately $8 million. For further information on FX forward contracts, refer to Item 1. Financial Statements, Note 12 Financial instruments.

Share Price Impact on Stock-Based Compensation

Based on information available at March 31, 2021, for every $1.00 change in share price, stock-based compensation expense has a corresponding change of approximately $0.4 million to $0.5 million (2020 - approximately $0.4 million to $0.6 million). This excludes the impact of changes in share price relative to the S&P/TSX 60 Index and to Class I railways which may trigger different performance share unit payouts. Stock-based compensation may also be impacted by non-market performance conditions.

Additional information concerning stock-based compensation is included in Item 1. Financial Statements, Note 15 Stock-based compensation.

Interest Rate Risk

Debt financing forms part of the Company's capital structure. The debt agreements entered into expose CP to increased interest costs on future fixed debt instruments and existing variable rate debt instruments, should market rates increase. As at March 31, 2021, CP did not have any floating rate debt obligations outstanding. In addition, the present value of the Company’s assets and liabilities will also vary with interest rate changes. To manage interest rate exposure, CP may enter into forward rate agreements such as treasury rate locks or bond locks that lock in rates for a future date, thereby protecting against interest rate increases. CP may also enter into swap agreements whereby one party agrees to pay a fixed rate of interest while the other party pays a floating rate. Contingent on the direction of interest rates, the Company may incur higher costs depending on the contracted rate.

The fair value of the Company’s fixed rate debt may fluctuate with changes in market interest rates. A hypothetical one percent decrease in interest rates as of March 31, 2021 would result in an increase of approximately $1.2 billion to the fair value of our debt as at March 31, 2021 (2020 - approximately $1.5 billion). Fair values of CP’s fixed rate debt are estimated by considering the impact of the hypothetical interest rates on quoted market prices and current borrowing rates, but do not consider other factors that could impact actual results.

As at March 31, 2021, the Company had forward starting swap and bond lock agreements totalling a notional U.S. $1.8 billion and $600 million, respectively, to fix the benchmark rate on cash flows associated with highly probable forecasted issuances of long-term notes (2020 - $nil). A hypothetical one basis point change in interest rates as of March 31, 2021 would result in a change in unrealized gains or losses of approximately $4 million.

Information concerning market risks is supplemented in Item 1. Financial Statements, Note 12 Financial instruments.

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ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of March 31, 2021, an evaluation was carried out under the supervision of and with the participation of CP's management, including its CEO and CFO, of the effectiveness of the design and operation of the Company's disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based on that evaluation, the CEO and CFO concluded that these disclosure controls and procedures were effective as of March 31, 2021, to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified by the SEC rules and forms and (ii) accumulated and communicated to the Company’s management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

During the first quarter of 2021, the Company has not identified any changes in internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II

ITEM 1. LEGAL PROCEEDINGS

For further details refer to Item 1. Financial Statements, Note 16 Contingencies.

SEC regulations require the disclosure of any proceeding under environmental laws to which a government authority is a party unless the registrant reasonably believes it will not result in sanctions over a certain threshold. The Company uses a threshold of U.S. $1 million for the purposes of determining proceedings requiring disclosure.

ITEM 1A. RISK FACTORS

There have been no material changes to the risk factors from the information provided in Item 1A. Risk Factors of CP's 2020 Annual Report on Form 10-K, with the exception of those discussed below.

Risks Related to the Pending Kansas City Southern Transaction

There is no assurance when or if the transaction will be completed. Completion of the transaction is subject to the satisfaction or waiver of a number of conditions as set forth in the Merger Agreement, including certain regulatory approvals and other customary closing conditions. There can be no assurance that the conditions to completion of the transaction will be satisfied or waived or that other events will not intervene to delay or result in the failure to close the transaction such as interloper risk to the pending KCS transaction. In addition, each of the Company and KCS may unilaterally terminate the Merger Agreement under certain circumstances set forth in the Merger Agreement, and the Company and KCS may agree at any time to terminate the Merger Agreement. If the Company were to terminate the Merger Agreement under certain circumstances, we could incur significant costs (including, without limitation, the payment of a U.S. $1 billion regulatory termination fee).

The announcement and pendency of the transaction could have an adverse effect on the Company’s businesses, results of operations, financial condition, cash flows or the market value of the Company’s common stock and debt securities. The announcement and pendency of the transaction could disrupt the Company’s businesses, and uncertainty about the effect of the transaction may have an adverse effect on the Company or the combined company following the transaction. The attention of the Company’s management may be directed towards the completion of the transaction including obtaining regulatory approvals and other transaction-related considerations and may be diverted from the day-to-day business operations of the Company and matters related to the transaction may require commitments of time and resources that could otherwise have been devoted to other opportunities that might have been beneficial to the Company. Additionally, the Merger Agreement requires the Company to obtain KCS’s consent prior to taking certain specified actions while the transaction is pending. These restrictions may prevent the Company and KCS from pursuing otherwise attractive business opportunities prior to the consummation of the transaction. Further, the transaction may give rise to potential liabilities, including as a result of pending and future shareholder lawsuits relating to the transaction. In addition, the Company has incurred, and expects to incur additional, material non-recurring expenses in connection with the transaction and consummation of the transactions contemplated by the Merger Agreement. Any of these matters could adversely affect the businesses of, or harm the results of operations, financial condition or cash flows of the Company and the market value of CP common stock.

The Company may be unable to integrate KCS successfully, and the Company may not experience the growth being sought from the transaction. The Company and KCS have operated and, until the receipt of final approval from the STB, will continue to operate, independently. Coordinating certain aspects of the operations and personnel of the Company with KCS after the consummation of the transaction will involve complex operational, technological and personnel-related challenges, which may be made more difficult in light of the COVID-19 pandemic. This process will be time-consuming and expensive, may disrupt the businesses of either or both of the companies and may reduce the growth opportunities sought from the transaction.

Consummation of the transaction will result in the Company incurring substantial indebtedness, which may pose risks and/or intensify existing risks. In connection with funding the cash portion of the Merger Consideration, the Company intends to incur approximately U.S. $8.5 billion of additional indebtedness. Also, in connection with the transaction, the existing indebtedness of KCS is expected to remain outstanding to the extent the transaction closes into the voting trust.

The foregoing indebtedness, as well as any additional indebtedness we may incur, could have the effect, among other things, of reducing our liquidity and may limit our flexibility in responding to other business opportunities and increasing our vulnerability to adverse economic and industry conditions.

Our ability to make payments of principal and interest on our indebtedness depends upon our future performance, which will be subject to general economic, financial and business conditions, sufficient cash flow from KCS during the period in which it is in the voting trust (if closing of the transaction occurs), the implementation of the integration with KCS (if closing of the transaction occurs and the STB approves our assuming control of KCS) and other factors affecting our operations, many of which are beyond our control.

47

Our increased indebtedness could also reduce funds available for working capital, capital expenditures, acquisitions and other general corporate purposes and may create competitive disadvantages relative to other companies with lower debt levels. If we complete the transaction of KCS and obtain control of KCS but we do not achieve the expected benefits and cost savings from the transaction, or if the financial performance of the combined company does not meet current expectations, then our ability to service our indebtedness may be adversely impacted.

The agreements that will govern the indebtedness that would be incurred in connection with the transaction, if it occurs, may contain various affirmative and negative covenants that may, subject to certain customary exceptions, restrict our ability to, among other things, create liens over our property, change our line of business and/or merge or consolidate with any other person or sell or convey certain of our assets to another person. In addition, some of the agreements that will govern our new debt financings may contain financial covenants that will require us to maintain certain financial ratios. Various risks, uncertainties and events beyond our control could affect our ability to comply with these covenants and failure to comply with them could result in an event of default, which, if not cured or waived, could accelerate our repayment obligations. Under these circumstances, we may not have sufficient funds or other resources to satisfy all of our obligations.

Moreover, we may be required to raise substantial additional financing to fund working capital, capital expenditures, acquisitions or other general corporate requirements. Our ability to arrange additional financing or refinancing will depend on, among other factors, our financial position and performance, as well as prevailing market conditions and other factors beyond our control. There can be no assurance that we will be able to obtain additional financing or refinancing on terms acceptable to us or at all.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchase of Equity Securities

CP established a share repurchase program which is further described in Item 1. Financial Statements, Note 13 Shareholders' equity. As at March 31, 2021, the Company had not purchased any Common Shares under this program.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

48

ITEM 6. EXHIBITS

Exhibit	Description
2.1	Agreement and Plan of Merger, dated as of March 21, 2021, by and among Canadian Pacific Railway Limited, Cygnus Merger Sub 1 Corporation, Cygnus Merger Sub 2 Corporation and Kansas City Southern (incorporated by reference to Exhibit 2.1 to Canadian Pacific Railway Limited’s Form 8-K filed with the Securities and Exchange Commission on March 21, 2021, File No. 001-01342).
10.1	Stock Option Agreement and Amendment to the Executive Employment Agreement, dated as of March 21, 2021, by and between Canadian Pacific Railway Limited and Keith Creel (incorporated by reference to Exhibit 10.1 to Canadian Pacific Railway Limited’s Form 8-K filed with the Securities and Exchange Commission on March 21, 2021, File No. 001-01342).
10.2*	First Amending Agreement, dated as of April 9, 2021 among Canadian Pacific Railway Company, as Borrower, Canadian Pacific Railway Limited, as Covenantor, Royal Bank of Canada, a Canadian chartered bank, as administrative agent of the Lenders, and the Consenting Lenders.
10.3*	Commitment Letter, dated March 21, 2021, by and among Goldman Sachs Lending Partners LLC, Bank of Montreal, Canadian Pacific Railway Limited and Canadian Pacific Railway Company.
22.1*	List of Issuers and Guarantor Subsidiaries
31.1*	CEO Rule 13a-14(a) Certifications
31.2*	CFO Rule 13a-14(a) Certifications
32.1*	CEO Section 1350 Certifications
32.2*	CFO Section 1350 Certifications
101.INS*	Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL 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
	The following financial information from Canadian Pacific Railway Limited's Quarterly Report on Form 10-Q for the first quarter ended March 31, 2021, formatted in Extensible Business Reporting Language (XBRL) includes: (i) the Interim Consolidated Statements of Income for the first three months ended March 31, 2021 and 2020; (ii) the Interim Consolidated Statements of Comprehensive Income for the first three months ended March 31, 2021 and 2020; (iii) the Interim Consolidated Balance Sheets at March 31, 2021, and December 31, 2020; (iv) the Interim Consolidated Statements of Cash Flows for the first three months ended March 31, 2021 and 2020; (v) the Interim Consolidated Statements of Changes in Shareholders’ Equity for the first three months ended March 31, 2021 and 2020; and (vi) the Notes to Interim Consolidated Financial Statements.
104*	Cover Page Interactive Data File (embedded within the Inline XBRL document)

*Filed with this Quarterly Report on Form 10-Q

49

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

CANADIAN PACIFIC RAILWAY LIMITED
(Registrant)
By:	/s/ NADEEM VELANI
	Nadeem Velani
	Executive Vice-President and Chief Financial Officer (Principal Financial Officer)

Dated: April 21, 2021

50

EX-10.2

Exhibit 10.2

FIRST AMENDING AGREEMENT

THIS AGREEMENT dated as of April 9, 2021.

AMONG:

CANADIAN PACIFIC RAILWAY COMPANY (the "Borrower") as

Borrower,

and

CANADIAN PACIFIC RAILWAY LIMITED (the "Covenantor"), as

Covenantor

OF THE FIRST PART

and

ROYAL BANK OF CANADA, a Canadian chartered bank, as

administrative agent of the Lenders (hereinafter referred to as the

"Agent"),

OF THE SECOND PART

and

EACH PERSON NAMED ON THE SIGNATURE PAGES HEREOF

in their capacity as a Lender (hereinafter collectively referred to as the

"ConsentingLenders" and individually, a "Consenting Lender"),

OF THE THIRD PART

WHEREAS the Borrower, the Covenantor, the Agent and the Lenders have entered into the Credit

Agreement;

WHEREAS the Covenantor has advised the Agent and the Consenting Lenders, which constitute

the Majority Lenders under the Credit Agreement, that it intends to consummate the Acquisition as more fully set out herein;

AND WHEREAS, in furtherance of the foregoing, the parties hereto have agreed to amend and supplement certain provisions of the Credit Agreement as set out herein;

NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby conclusively acknowledged by each of the parties hereto, the parties hereto covenant and agree as follows:

2

1.INTERPRETATION

1.1In this Agreement and the recitals hereto, unless something in the subject matter or context is inconsistent therewith:

"Agreement" means this first amending agreement, as amended, modified, supplemented or restated from time to time;

"Amended Credit Agreement" means the Credit Agreement as amended and supplemented by this Agreement, and as the same may be further amended, modified, supplemented or restated from time to time;

"Credit Agreement" means the amended and restated credit agreement dated as of September 27, 2019, among the Borrower, the Covenantor, the Agent and the Lenders; and

"Effective Date" means the date on which all of the conditions precedent in Section 5.1 of this Agreement have been satisfied or waived by the Consenting Lenders.

1.2Capitalized terms used herein without express definition shall have the same meanings herein as are ascribed thereto in the Amended Credit Agreement.

1.3 The division of this Agreement into Sections and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Agreement. The terms "this Agreement", "hereof", "hereunder" and similar expressions refer to this Agreement and not to any particular Section or other portion hereof and include any agreements supplemental hereto. Unless expressly indicated otherwise, all references to "Section" or "Sections" are intended to refer to a Section or Sections of the Credit Agreement.

2.AMENDMENTS TO CREDIT AGREEMENT

    Effective as of the Effective Date, each of the Agent and the Consenting Lenders agrees the Credit Agreement is amended by:

(a)amending Section 1.1 to add the following new definitions in appropriate alphabetical order:

""Acquired Business" means the Acquired Company together with its subsidiaries.

"Acquired Company" means Kansas City Southern, a Delaware corporation.

"Acquired Company EBITDA" has the meaning specified in the definition of EBITDA.

"Acquisition" means the direct or indirect acquisition, including pursuant to a Trust

Closing, by the Covenantor of all the issued and outstanding equity interests in the

Acquired Company pursuant to and as contemplated by the Acquisition Agreement.

"Acquisition Agreement" means the Agreement and Plan of Merger (together with the

exhibits and schedules thereto), dated as of March 21, 2021, among the Covenantor, the

Acquired Company, Cygnus Merger Sub 1 Corporation and Cygnus Merger Sub 2

Corporation, without giving effect to any amendment, modification, waiver or consent

3

thereunder that is materially adverse to the Lenders or the Acquisition Arrangers without the Acquisition Arrangers’ prior written consent.

"AcquisitionArrangers" means each of Bank of Montreal, on behalf of itself and on behalf of BMO Capital Markets Corp., and Goldman Sachs Lending Partners LLC.

"Acquisition Closing Date" has the meaning specified in Section 8.3.

"Calculation Date" has the meaning specified in the definition of EBITDA.

"Calculation Period" has the meaning specified in the definition of EBITDA.

"Erroneous Payment" has the meaning specified in Section 10.15(a).

"Erroneous Payment Deficiency Assignment" has the meaning specified in Section 10.15(d).

"Erroneous Payment Impacted Facilities" has the meaning specified in Section 10.15(d).

"Erroneous Payment Return Deficiency" has the meaning specified in Section 10.15(d).

"Erroneous Payment Subrogation Rights" has the meaning specified in Section 10.15(d).

"Excluding Event" has the meaning specified in Section 8.3.

"Funded Net Debt" means, at any time, the Funded Debt of the Covenantor net ofaggregate unrestrictedcash and Cash Equivalents of the Covenantor determined on a consolidated basis in accordance with GAAP, including for all periods ending during the Calculation Period, unrestricted cash and Cash Equivalents attributable to the Acquired Company and its Subsidiaries that are held in the Voting Trust, notwithstanding that the Acquired Company is not consolidated with the Covenantor under GAAP.

"Payment Recipient" has the meaning specified in Section 10.15(a).

"STB" means the Surface Transportation Board.

"Termination Date" means the earlier of the date on which (a) the STB approves the Acquisition, the Voting Trust Agreement is terminated and the Acquired Company becomes subject to the control of the Covenantor and its Subsidiaries or (b) the Covenantor directly or indirectly disposes of the Acquired Company following receipt of a final order of the STB that disallows the control of the Acquired Company by the Covenantor.

"Trust Closing" means the consummation of the Acquisition by the Voting Trust pursuant to the Voting Trust Agreement, under which the equity of the Acquired Business is placed into the Voting Trust, pursuant to and as contemplated by the Acquisition Agreement.

"Voting Trust" means the independent and irrevocable voting trust established pursuant to the Voting Trust Agreement.

4

"Voting Trust Agreement" means a voting trust agreement in substantially the form

attached as Exhibit A of the Acquisition Agreement, without giving effect to any

amendment or modification thereunder that is materially adverse to the Lenders or the

Acquisition Arrangers without the Acquisition Arrangers’ prior written consent, other than

any such amendments or modifications which are requested by the STB or mandated by

applicable law.";

(b)amending the definition of "EBITDA" to add the following sentence to the end of such definition:

"Subject to the occurrence of any Excluding Event, (i) for all periods ending after the Trust

Closing and on or prior to the earliest of (A) the date of termination of the Voting Trust

and the release of the shares of the Acquired Company from the Voting Trust to the

Covenantor or the Borrower or any of their subsidiaries following receipt of a final order

by the STB approving or exempting the control of the Acquired Company by the

Covenantor, (B) the date of receipt of a final order by the STB which disallows the control

of the Acquired Company by the Covenantor or (C) March 21, 2024 (such earliest date

referred to as the "Calculation Date" and the period between the Trust Closing and the

Calculation Date, the "Calculation Period"), EBITDA for all Financial Quarters included

in any period shall be calculated to include the consolidated EBITDA attributable to the

Acquired Company and its Subsidiaries (the "Acquired Company EBITDA") (as if such

shares were acquired at the beginning of the relevant period), notwithstanding that the

Acquired Company is not consolidated with the Covenantor under GAAP (assuming for

this purpose that references in the definition of EBITDA and the component definitions

thereof to the Covenantor are to the Acquired Company and its Subsidiaries), (ii) for all

periods ending prior to the Calculation Date, EBITDA of the Covenantor shall not include

consolidated net income received by the Covenantor or any of its Subsidiaries from the

Acquired Company during such period that is accounted for by the equity method of

accounting, and (iii) for all periods ending after the Calculation Date, except to the extent

the Acquired Company is a Subsidiary of the Covenantor, EBITDA shall include the

Acquired Company EBITDA only to the extent of cash actually received by the

Covenantor, the Borrower or any Designated Subsidiary Guarantor during such period.";

(c)amending the definition of "Funded Debt" to add the following sentence to the end of such definition:

"During the Calculation Period (and subject to the occurrence of any Excluding Event),

Funded Debt shall be calculated to include the Funded Debt attributable to the Acquired

Company, notwithstanding that the Acquired Company is not consolidated with the

Covenantor under GAAP (assuming for this purpose that references in the definition of

Funded Debt and the component definitions thereof to the Covenantor are to the Acquired

Company and its Subsidiaries). For the avoidance of doubt, after the Calculation Period,

Funded Debt of the Covenantor shall be calculated to exclude the Funded Debt attributable

to the Acquired Company and its Subsidiaries for so long as the Acquired Company

remains in the Voting Trust, unless and until the Acquired Company and its Subsidiaries

become Subsidiaries of the Covenantor upon termination of the Voting Trust.";

5

(d)amending Section 2.3 to delete the same in its entirety and replace it with the following:

" 2.3Use of Proceeds

The Borrowers shall use the proceeds of Accommodations for general corporate purposes

(including, for certainty, to partially finance the Acquisition and associated fees and

expenses).";

(e)amending Section 8.2(g) to add the following proviso to the end of such section:

    "; provided that at all times prior to the Termination Date, the asset value associated with

the Acquired Business (and for certainty, the debt of the Acquired Business) shall be

disregarded for purposes of determining compliance with this Section 8.2(g).";

(f)amending Section 8.3 to delete the same in its entirety and replace it with the following:

"8.3 Financial Covenant

    So long as any amount owing by any Borrower under this Agreement remains unpaid or

any Lender has any obligation under this Agreement, unless consent is given under Section

12.1, the ratio of Funded Net Debt to EBITDA of the Covenantor shall not exceed 4.00:1.00

on the last day of any period of four consecutive Financial Quarters; provided, however,

that on and after the date of consummation of the Acquisition (the "Acquisition Closing

Date"), so long as any amount owing by any Borrower under this Agreement remains

unpaid or any Lender has any obligation under this Agreement, unless consent is given

under Section 12.1, the ratio of Funded Net Debt to EBITDA of the Covenantor shall not

exceed 4.75:1.00 on the last day of any period of four consecutive Financial Quarters

ending on or before the date which is 24 months after the Acquisition Closing Date.

    For purposes of determining compliance with this Section 8.3 during the Calculation

Period, if there has been (i) a material adverse change in the business, financial condition,

operations, performance or properties of the Acquired Company and its Subsidiaries, taken

as a whole, or (ii) the occurrence of an insolvency event of the type contemplated by

Section 9.1(h) with respect to the Acquired Company (each of (i) or (ii), an "Excluding

Event"), then (x) EBITDA shall include the Acquired Company and its Subsidiaries only

to the extent of cash actually received by the Covenantor, the Borrower or any Designated

Subsidiary Guarantor and (y) Funded Debt shall be calculated to exclude the Funded Debt

attributable to the Acquired Company and its subsidiaries that is non-recourse to the

Covenantor and its Subsidiaries (excluding, for the avoidance of doubt, the Acquired

Company and its subsidiaries)";

(g)amending Article 10 to add the following as Section 10.15:

"10.15     Erroneous Payments

(a)     If the Administrative Agent notifies a Lender, or any Person who has received

funds on behalf of a Lender (any such Lender or other recipient, a "Payment

Recipient") that the Administrative Agent has determined in its sole discretion

(whether or not after receipt of any notice under the immediately succeeding clause

(b)) that any funds received by such Payment Recipient from the Administrative

6

Agent or any of its Affiliates were erroneously or mistakenly transmitted or paid

to, or otherwise erroneously or mistakenly received by, such Payment Recipient

(whether or not known to such Lender or other Payment Recipient on its behalf)

(any such funds, whether received as a payment, prepayment or repayment of

principal, interest, fees, distribution or otherwise, individually and collectively, an

"Erroneous Payment") and demands the return of such Erroneous Payment (or a

portion thereof), such Erroneous Payment shall at all times remain the property of

the Administrative Agent and shall be segregated by the Payment Recipient and

held in trust for the benefit of the Administrative Agent, and such Lender shall (or,

with respect to any Payment Recipient who received such funds on its behalf, shall

cause such Payment Recipient to) promptly, but in no event later than two Business

Days thereafter, return to the Administrative Agent the amount of any such

Erroneous Payment (or portion thereof) as to which such a demand was made, in

same day funds (in the currency so received), together with interest thereon in

respect of each day from and including the date such Erroneous Payment (or

portion thereof) was received by such Payment Recipient to the date such amount

is repaid to the Administrative Agent in same day funds at the greater of (i) in

respect of an Erroneous Payment in U.S. Dollars, the Federal Funds Rate and, in

respect of an Erroneous Payment in Canadian Dollars at a fluctuating rate per

annum equal to the overnight rate at which Canadian Dollars may be borrowed by

the Administrative Agent in the interbank market in an amount comparable to such

Erroneous Payment (as determined by the Administrative Agent) and (ii) a rate

determined by the Administrative Agent in accordance with banking industry rules

or prevailing market practice for interbank compensation from time to time in

effect. A notice of the Administrative Agent to any Payment Recipient under this

Section 10.15(a) shall be conclusive, absent manifest error.

(b) Without limiting the immediately preceding Section 10.15(a), each Lender, or any

Person who has received funds on behalf of a Lender, hereby further agrees that if

it receives a payment, prepayment or repayment (whether received as a payment,

prepayment or repayment of principal, interest, fees, distribution or otherwise)

from the Administrative Agent (or any of its Affiliates) (x) that is in a different

amount than, or on a different date from, that specified in a notice of payment,

prepayment or repayment sent by the Administrative Agent (or any of its

Affiliates) with respect to such payment, prepayment or repayment, (y) that was

not preceded or accompanied by a notice of payment, prepayment or repayment

sent by the Administrative Agent (or any of its Affiliates), or (z) that such Lender,

or other such recipient, otherwise becomes aware was transmitted, paid, or

received, in error or by mistake (in whole or in part) in each case:

(i)     (A) in the case of immediately preceding clauses (x) or (y), an error shall

be presumed to have been made (absent express written confirmation from

the Administrative Agent to the contrary) or (B) an error has been made

(in the case of immediately preceding clause (z)), in each case, with

respect to such payment, prepayment or repayment; and

(ii)     such Lender shall (and shall cause any other recipient that receives funds

on its respective behalf to) promptly (and, in all events, within one

Business Day of its knowledge of such error) notify the Administrative

Agent of its receipt of such payment, prepayment or repayment, the details

7

thereof (in reasonable detail) and that it is so notifying the Administrative

Agent pursuant to this Section 10.15(b).

(c) Each Lender hereby authorizes the Administrative Agent to set off, net and apply

any and all amounts at any time owing to such Lender under any Credit Document,

or otherwise payable or distributable by the Administrative Agent to such Lender

from any source, against any amount due to the Administrative Agent under the

immediately preceding Section 10.15(a) or under the indemnification provisions

of this Agreement.

(d)     In the event that an Erroneous Payment (or portion thereof) is not recovered by the

Administrative Agent for any reason, after demand therefor by the Administrative

Agent in accordance with the immediately preceding Section 10.15(a), from any

Lender that has received such Erroneous Payment (or portion thereof) (and/or from

any Payment Recipient who received such Erroneous Payment (or portion thereof)

on its behalf) (such unrecovered amount, an "Erroneous Payment Return

Deficiency"), upon the Administrative Agent's notice to such Lender at any time,

(i) such Lender shall be deemed to have assigned its Accommodations Outstanding

(but not its Commitments) under the applicable Credit Facilities with respect to

which such Erroneous Payment was made (the "Erroneous Payment Impacted

Facilities") in an amount equal to the Erroneous Payment Return Deficiency (or

such lesser amount as the Administrative Agent may specify) (such assignment of

the Accommodations Outstanding (but not Commitments) of the Erroneous

Payment Impacted Facilities, the "Erroneous Payment Deficiency Assignment")

at par plus any accrued and unpaid interest (with the assignment fee to be waived

by the Administrative Agent in such instance), and is hereby (together with the

Borrowers) deemed to execute and deliver an assignment and assumption

agreement in the form of Schedule 8 with respect to such Erroneous Payment

Deficiency Assignment, (ii) the Administrative Agent as the assignee Lender shall

be deemed to acquire the Erroneous Payment Deficiency Assignment, (iii) upon

such deemed acquisition, the Administrative Agent as the assignee Lender shall

become a Lender hereunder with respect to such Erroneous Payment Deficiency

Assignment and the assigning Lender shall cease to be a Lender hereunder with

respect to such Erroneous Payment Deficiency Assignment, excluding, for the

avoidance of doubt, its obligations under the indemnification provisions of this

Agreement and its applicable Commitments which shall survive as to such

assigning Lender and (iv) the Administrative Agent may reflect in its records its

ownership interest in the Accommodations Outstanding subject to the Erroneous

Payment Deficiency Assignment. The Administrative Agent may, in its discretion,

sell any Accommodations Outstanding acquired pursuant to an Erroneous Payment

Deficiency Assignment and, upon receipt of the proceeds of such sale, the

Erroneous Payment Return Deficiency owing by the applicable Lender shall be

reduced by the net proceeds of the sale of such Accommodations Outstanding (or

portion thereof), and the Administrative Agent shall retain all other rights,

remedies and claims against such Lender (and/or against any recipient that receives

funds on its respective behalf). For the avoidance of doubt, no Erroneous Payment

Deficiency Assignment will reduce the Commitments of any Lender and such

Commitments shall remain available in accordance with the terms of this

Agreement. In addition, each party hereto agrees that, except to the extent that the

Administrative Agent has sold an Accommodations Outstanding (or portion

8

thereof) acquired pursuant to an Erroneous Payment Deficiency Assignment, and

irrespective of whether the Administrative Agent may be equitably subrogated, the

Administrative Agent shall be contractually subrogated to all the rights and

interests of the applicable Lender under the Credit Documents with respect to each

Erroneous Payment Return Deficiency (the "Erroneous Payment Subrogation

Rights").

(e) The parties hereto agree that an Erroneous Payment shall not pay, prepay, repay,

discharge or otherwise satisfy any indebtedness and liabilities (whether matured or

unmatured) of the Borrowers outstanding to the Lenders and owed by the

Borrowers pursuant to the Credit Documents, except, in each case, to the extent

such Erroneous Payment is, and solely with respect to the amount of such

Erroneous Payment that is, comprised of funds received by the Administrative

Agent from (i) the Borrowers or (ii) the proceeds of realization from the

enforcement of one or more of the Credit Documents against or in respect of one

or more of the Borrowers, in each case for the purpose of making such Erroneous

Payment.

(f) To the extent permitted by applicable law, no Payment Recipient shall assert any

right or claim to an Erroneous Payment, and hereby waives, and is deemed to

waive, any claim, counterclaim, defense or right of set-off or recoupment with

respect to any demand, claim or counterclaim by the Administrative Agent for the

return of any Erroneous Payment received, including waiver of any defense based

on "discharge for value", "good consideration" for the Erroneous Payment or

change of position by such Payment Recipient, any defense that the intent of the

Administrative Agent was that such Payment Recipient retain the Erroneous

Payment in all events, or any doctrine or defense similar to any of the foregoing.

(g) Each party's obligations, agreements and waivers under this Section 10.15 shall

survive the resignation or replacement of the Administrative Agent, or any

assignment or transfer of rights or obligations by, or the replacement of, a Lender,

the termination of the Commitments and/or the repayment, satisfaction or

discharge of all indebtedness and liabilities (or any portion thereof) of the

Borrowers outstanding to the Lenders and owed by the Borrowers pursuant to the

Credit Documents.

(h) For purposes of this Section 10.15, each Lender:

(i)     agrees it is executing and delivering this Agreement with respect to this

Section 10.15 both on its own behalf and as agent for and on behalf of any

Person receiving funds under the Credit Documents on behalf of such

Lender;

(ii)     represents, warrants, covenants and agrees that any Person receiving funds

under the Credit Documents on behalf of such Lender is bound by the

provisions of this Section 10.15; and

(iii)     agrees that any matter or thing done or omitted to be done by such Lender

or any Person receiving funds under the Credit Documents on behalf of

such Lender which are the subject of this Section 10.15 will be binding

9

upon such Lender and each Lender hereby indemnifies and saves the

Administrative Agent and its Affiliates harmless from any and all losses,

expenses, claims, demands or other liabilities of the Administrative Agent

and its Affiliates resulting from the failure of such Lender or such Persons

to comply with their obligations under and in respect of this Section 10.15,

in accordance with and subject to the limitations in this Section 10.15."

3.APPROVAL IN RESPECT OF THE ACQUISITION

3.1Subject to the terms and conditions set forth herein, the Agent and the Consenting Lenders hereby approve the consummation of the Acquisition and the transactions contemplated thereby, including the Voting Trust, the financing associated therewith, and, in the event the STB does not approve the Acquisition, the disposal of the Acquired Business on the terms set forth in the Acquisition Agreement and the Voting Trust Agreement.

4.REPRESENTATIONS AND WARRANTIES

4.1The Covenantor hereby represents and warrants to and in favour of the Agent and the Consenting Lenders that as of the Effective Date:

(a)there exists no Default or Event of Default; and

(b)the representations and warranties contained in Section 7.1 of the Credit Agreement (other than any

representations and warranties which expressly speak of an earlier date, and with this Agreement

being a Credit Document and references to the Credit Agreement being deemed to be references to

the Amended Credit Agreement) are true and correct.

5.CONDITIONS PRECEDENT TO EFFECTIVENESS

5.1This Agreement shall be effective on the date as of which the Borrower shall deliver or cause to be delivered to the Agent an executed copy of this Agreement for each Lender.

6.CONFIRMATION OF CREDIT AGREEMENT AND OTHER DOCUMENTS

The Credit Agreement and the other Credit Documents to which the Covenantor and the Borrower

are party and all covenants, terms and provisions thereof, except as expressly amended and supplemented by this Agreement, shall be and continue to be in full force and effect. The Credit Agreement as amended hereby is hereby ratified and confirmed and shall from and after the date hereof continue in full force and effect. This Agreement shall, for all purposes, be considered to be a Credit Document. The execution, delivery and effectiveness of this Agreement shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Lender or the Agent under any of the Credit Documents, nor constitute a waiver of any provision of any of the Credit Documents.

7.FURTHER ASSURANCES

The parties hereto shall from time to time do all such further acts and things and execute and deliver

all such documents as are required in order to effect the full intent of and fully perform and carry out the terms of this Agreement.

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8.COUNTERPARTS

This Agreement may be executed in any number of counterparts (and by different parties hereto in

different counterparts), each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page of this Agreement by telecopier or other electronic means shall be effective as delivery of a manually executed counterpart of this Agreement.

9.GOVERNING LAW

The parties agree that this Agreement shall be governed by and construed in accordance with the

laws of the Province of Alberta and the laws of Canada applicable therein, without prejudice to or limitation of any other rights or remedies available under the laws of any jurisdiction where property or assets of the Borrower or the Covenantor may be found.

IN WITNESS WHEREOF the parties hereto have executed this Agreement.

CANADIAN PACIFIC RAILWAY COMPANY,
as Borrower
Per:	/s/ Nadeem Velani
Name:	Nadeem Velani
Title:	Executive Vice-President and Chief Financial Officer

CANADIAN PACIFIC RAILWAY LIMITED,
as Covenantor
Per:	/s/ Nadeem Velani
Name:	Nadeem Velani
Title:	Executive Vice-President and Chief Financial Officer

[Signature page to Amending Agreement]

THE ADMINISTRATIVE AGENT
ROYAL BANK OF CANADA
Per:	/s/ Susan Khokher
	Authorized Signatory

[Signature page to Amending Agreement]

THE CONSENTING LENDERS
ROYAL BANK OF CANADA
Per:	/s/ Tim VandeGriend
	Tim VandeGriend Authorized Signatory

[Signature page to Amending Agreement]

BANK OF MONTREAL
Per:	/s/ Martin Stevenson
	Authorized Signing Officer

[Signature page to Amending Agreement]

BANK OF AMERICA, N.A., CANADA BRANCH
Per:	/s/ Marc Ahlers
	Marc Ahlers, Director

[Signature page to Amending Agreement]

BARCLAYS BANK PLC
Per:	/s/ Craig Malloy
	Authorized Signing Officer

[Signature page to Amending Agreement]

CANADIAN IMPERIAL BANK OF COMMERCE
Per:	/s/ Sophia Soofi
	Authorized Signing Officer
Per:	/s/ Stephen Redding
	Authorized Signing Officer

[Signature page to Amending Agreement]

HSBC BANK CANADA
Per:	/s/ Dieter Stefely
	Authorized Signing Officer
Per:	/s/ Sudip Mukherjee
	Authorized Signing Officer

[Signature page to Amending Agreement]

MORGAN STANLEY BANK, N.A.
Per:	/s/ Jack Kuhns
Name:	Jack Kuhns
Title:	Vice President

[Signature page to Amending Agreement]

MUFG BANK, LTD., CANADA BRANCH
Per:	/s/ Beau Filkowski
	Beau Filkowski, Director

[Signature page to Amending Agreement]

THE BANK OF NOVA SCOTIA
Per:	/s/ Michael Linder
	Michael Linder
	Director
Per:	/s/ Jonathan Leach
	Jonathan Leach
	Associate Director

[Signature page to Amending Agreement]

WELLS FARGO BANK N.A., CANADIAN BRANCH
Per:	/s/ Sean Buchan
	Authorized Signing Officer
	Sean Buchan, Director

[Signature page to Amending Agreement]

ATB FINANCIAL
Per:	/s/ Maximiliano Herrera
	Authorized Signing Officer
Per:	/s/ Chris Hamel
	Authorized Signing Officer

[Signature page to Amending Agreement]

FÉDÉRATION DES CAISSES DESJARDINS DU QUÉBEC
Per:	/s/ Oliver Sumugod
	Authorized Signing Officer
Per:	/s/ Matt van Remmen
	Authorized Signing Officer

[Signature page to Amending Agreement]

SUMITOMO MITSUI BANKING CORPORATION, CANADA BRANCH
Per:	/s/ Steve Nishimura
	Authorized Signing Officer

[Signature page to Amending Agreement]

EX-10.3

BANK OF MONTREAL

First Canadian Place

100 King Street West, 4th Floor

Toronto, M5X 1H3

Exhibit 10.3

GOLDMAN SACHS LENDING PARTNERS LLC

200 West Street

New York, New York 10282-2198

PERSONAL AND CONFIDENTIAL

March 21, 2021

Canadian Pacific Railway Limited, as Covenantor

7550 Ogden Dale Road S.E.

Calgary, Alberta, Canada, T2C 4X9

Canadian Pacific Railway Company, as Borrower

7550 Ogden Dale Road S.E.

Calgary, Alberta, Canada, T2C 4X9

Attention:     Chris De Bruyn

Managing Director, Investor Relations & Treasury

PROJECT CYGNUS

Commitment Letter

Ladies and Gentlemen:

Canadian Pacific Railway Limited (the “Covenantor”) and Canadian Pacific Railway Company (the “Borrower” and, together with the Covenantor, “you”) have informed Bank of Montreal (“BMO”) and Goldman Sachs Lending Partners LLC (“Goldman Sachs”) that the Covenantor intends to acquire directly or indirectly (the “Acquisition”) all the issued and outstanding equity interests in an entity previously identified to us and codenamed “Cygnus” (the “Acquired Company” and, together with its subsidiaries, the “Acquired Business”), or to cause a voting trust to consummate the Acquisition (a “Trust Closing”) pursuant to a voting trust agreement (the “Voting Trust Agreement”) under which the equity of the Acquired Business is placed into such voting trust (the “Voting Trust”), in each case, pursuant to and as contemplated by an Agreement and Plan of Merger dated as of the date hereof among Covenantor and the Acquired Company (together with the exhibits and schedules thereto, the “Acquisition Agreement”) for the consideration set forth in the Acquisition Agreement (the “Acquisition Consideration”). Capitalized terms used and not defined in this letter (together with Annexes A and B hereto, this “Commitment Letter”) have the meanings assigned to them in Annexes A and B hereto as the context may require. BMO, Goldman Sachs and any other Lenders that become parties to this Commitment Letter as additional “Commitment Parties” as provided in Section 3 hereof are referred to herein, collectively, as the “Commitment Parties”, “we” or “us”. The obligations of the Covenantor and the Borrower under this Commitment Letter are joint and several.

You have also informed us that the Acquisition, Acquisition Consideration and transaction expenses related to the Acquisition and related transactions (the “Transaction Expenses”) are expected to be financed from the following sources:

•available cash of the Covenantor; and

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•the issuance by the Borrower of approximately $8,500 million in aggregate principal amount of

its senior unsecured notes (the “Notes”) pursuant to a registered public offering or Rule 144A or

other private placement;

or, in the event the entire principal amount of the Notes has not been issued, the borrowings of term loans under a senior unsecured bridge facility having the terms set forth on Annex A hereto (the “Facility”) in an aggregate principal amount of up to $8,500 million (as such amount is reduced as described herein). The transactions described in this paragraph are collectively referred to as the “Transactions”.

All amounts denominated in “$” herein are in United States Dollars, save for amounts denominated in “Cdn. $” or Canadian Dollars that refer to the lawful money of Canada.

1.Commitments; Titles and Roles.

(a) Each of BMO, for itself and on behalf of BMO Capital Markets (“BMOCM”), and Goldman Sachs is pleased to confirm its agreement to act, and you hereby appoint each of BMOCM and Goldman Sachs to act, as exclusive joint lead arranger and joint bookrunner in connection with the Facility (each in such capacities, the “Arrangers”); (b) BMO is pleased to confirm its agreement to act, and you hereby appoint BMO to act, as administrative agent (the “Administrative Agent”) for the Facility; and (c) each of BMO and Goldman Sachs (each in such capacity, an “Initial Lender”) is pleased to commit to provide the Borrower $4,250 million and $4,250 million, respectively, of the aggregate principal amount of the Facility, in each case on the terms and subject to the conditions contained in this Commitment Letter and the Fee Letter referred to below; provided that the amount of the Facility shall be automatically reduced as provided under “Mandatory Prepayments and Commitment Reductions” and “Voluntary Prepayments and Reductions in Commitments” in Annex A hereto. The commitments of BMO and Goldman Sachs pursuant to clause (c) of the preceding sentence are several and not joint. Our fees for our commitment and for services related to the Facility are set forth in a separate fee letter (the “Fee Letter”) entered into by the Covenantor, the Borrower, BMO and Goldman Sachs on the date hereof. It is agreed that no other agents, co-agents, arrangers, co-arrangers or bookrunners will be appointed, and no other titles will be awarded in connection with the Facility, and no compensation will be paid in connection with the Facility, unless the Arrangers and you shall so agree; provided that you and the Arrangers agree to the appointment of titles and the allocation of compensation set forth in the syndication plan agreed among you and the Arrangers prior to the date hereof (the “Syndication Plan”).

2.Conditions Precedent.

Notwithstanding anything to the contrary in this Commitment Letter, the Fee Letter or any other agreement or other undertaking concerning the financing of the Transactions, the Commitment Parties’ commitments and agreements hereunder are subject solely to the satisfaction or waiver of the conditions expressly set forth in Annex B hereto, it being understood that there are no conditions (implied or otherwise) to the commitments hereunder (including compliance with the terms of the Commitment Letter, the Fee Letter and the Bridge Facility Documentation, as defined in Annex A hereto) other than those that are expressly set forth in Annex B hereto to be conditions to the funding under the Facility on the Closing Date (as defined in Annex A hereto) (and upon satisfaction or waiver of such conditions, the initial funding under the Facility shall occur).

Notwithstanding anything in this Commitment Letter to the contrary, (a) the only representations and warranties the accuracy of which will be a condition to the availability of the Facility on the Closing Date will be (i) the representations and warranties made by the Acquired Company with respect to the Acquired Business in the Acquisition Agreement as are material to the interests of the Lenders (in their capacities as such) (but only to the extent that you or your applicable affiliate(s) have the right not to

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consummate the Acquisition, or to terminate your or their obligations (or otherwise do not have an obligation to close),under the Acquisition Agreement as a result of a breach of such representations and warranties in the Acquisition Agreement) (the “Acquisition Agreement Representations”) and (ii) the Specified Representations (as defined below), and (b) the terms of the Bridge Facility Documentation and the Closing Deliverables (as defined in Annex B hereto) will be such that they do not impair the availability of the Facility on the Closing Date if the conditions expressly set forth in Annex B hereto are satisfied. As used herein, “Specified Representations” means the representations and warranties of the Covenantor and the Borrower in the Bridge Facility Documentation relating to the Covenantor’s and the Borrower’s corporate existence and power, corporate authorization, due execution and delivery, no contravention of the Bridge Facility Documentation with (or consents required under) the organizational documents of the Covenantor or the Borrower, material applicable law or debt instruments with an aggregate principal or committed amount in excess of the Threshold Amount (as defined in Annex A hereto) (on a pro forma basis giving effect to the Transactions but without giving effect to any “material adverse effect” qualification with respect to the no conflicts representation set forth in the Bridge Facility Documentation), enforceability of the Bridge Facility Documentation against the Covenantor and the Borrower, absence of payment or bankruptcy events of default, margin regulations, Investment Company Act, solvency as of the Closing Date (after giving effect to the Transactions) of the Covenantor and its subsidiaries on a consolidated basis (such representation and warranty to be consistent with the solvency certificate in the form set forth in Annex B-I hereto), compliance with the Patriot Act (as defined below) and use of proceeds of the loans under the Facility not in contravention of laws applicable to sanctioned persons and anti-corruption laws. This paragraph, and the provisions herein, shall be referred to as the “Limited Conditionality Provision”.

3.     Syndication.

The Arrangers intend to commence syndication of the Facility promptly after your acceptance of this Commitment Letter and the Fee Letter and the public announcement by you of the planned Acquisition. Such syndication shall be managed by the Arrangers and shall be to a group of banks, financial institutions and other institutional lenders identified by the Arrangers in consultation with you, including any relationship lenders designated by you in consultation with the Arrangers (together with the Initial Lenders, but in any event excluding Disqualified Lenders (as defined below), the “Lenders”). Notwithstanding the foregoing, (a) until the date that is 45 days after the date hereof (the “Initial Syndication Period”), the selection of Lenders, any roles awarded and allocations by the Arrangers shall be in accordance with the Syndication Plan or otherwise subject to your approval; and (b) following the Initial Syndication Period, if and for so long as a Successful Syndication (as defined in the Fee Letter referred to above) has not been achieved, the selection of Lenders by the Arrangers shall be in consultation with you; provided, further, that Lenders selected by the Arrangers pursuant to clause (b) above shall only be (i) those Lenders set forth in the Syndication Plan or (ii) banks, financial institutions and other institutional lenders, in each case of this clause (ii), whose senior, unsecured, long-term indebtedness has an “investment grade” rating by S&P and Moody’s (each as defined below) (an “Investment Grade Lender”), and shall not include any Disqualified Lender; and (c) following the achievement of a Successful Syndication of the Facility, further assignments and commitments shall be in accordance with the section captioned “Assignments and Participations” in the Term Sheet attached hereto as Annex A. Notwithstanding anything to the contrary in this Commitment Letter, the Fee Letter or any other agreement or other undertaking concerning the financing of the Transactions, no syndication may be made to any Disqualified Lender without the consent of the Borrower. For purposes hereof, “Disqualified Lenders” means, collectively, banks, financial institutions and other institutional lenders and bona fide competitors of the Covenantor, the Acquired Company and their respective subsidiaries separately identified in writing by you to us prior to the date hereof, or with respect to competitors of the Covenantor, the Acquired Company and their respective subsidiaries, separately identified in writing by you to us after the date hereof, in each case inclusive of any affiliates thereof that are reasonably

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identifiable solely on the basis of their names; provided that any such designation shall not apply retroactively to any prior assignment, participation or sharing of information to any Lender that was otherwise permitted hereunder at the time of such assignment, participation or sharing of information.

The aggregate commitments of the Commitment Parties with respect to the Facility shall be reduced dollar-for-dollar on a pro rata basis by the amount of each commitment for the Facility received from additional Lenders to the extent each such Lender becomes (i) party to this Commitment Letter as an additional “Commitment Party” pursuant to a customary joinder agreement or other documentation reasonably satisfactory to the Arrangers and you (each, a “Joinder Agreement”) or (ii) party to the Bridge Facility Documentation as a Lender; provided, however, that to the extent that any portion of the respective commitments of the Initial Lenders hereunder with respect to the Facility is syndicated to a Lender that, upon first becoming party to this Commitment Letter or the applicable Bridge Facility Documentation as described above, is not approved by the Borrower (including in the Syndication Plan) or otherwise is not an Investment Grade Lender, then the Initial Lender shall not be relieved, released or novated from its obligations hereunder to fund such portion of such commitment on the Closing Date to the extent that such other Lender fails to fund such commitment on the Closing Date in accordance with the terms of the Facility.

To facilitate an orderly and successful syndication of the Facility, you agree that, until the earlier of (a) the achievement of a Successful Syndication (as defined in the Fee Letter) and (b) 60 days following the Closing Date (the “Syndication Date”), you will not syndicate or issue, attempt to syndicate or issue or announce the syndication or issuance of any debt facility or any debt security of the Covenantor or any of its subsidiaries (excluding, for the avoidance of doubt, in the event of a Trust Closing, the Acquired Company and its subsidiaries or affiliates) that would reasonably be expected to materially impair the primary syndication of the Facility,in each case, without the prior written consent of the Arrangers (such consent not to be unreasonably withheld, delayed or conditioned), other than (i) the Facility, (ii) the Notes, (iii) intercompany indebtedness, (iv) Excluded Debt (as defined in Annex A hereto), (v) any other indebtedness of the Acquired Business permitted by the Acquisition Agreement or the Voting Trust Agreement to be incurred or refinanced and (vi) the senior unsecured bridge facilities in respect of the backstop of certain waivers and amendments under (A) the Borrower’s Amended and Restated Credit Agreement, dated as of September 27, 2019, among the Borrower, the lenders and other parties from time to time party thereto and Royal Bank of Canada, as administrative agent (as amended from time to time prior to the date hereof, the “Borrower’s Existing Credit Agreement”) and (B) that certain Credit Agreement, dated as of March 8, 2019, among the Acquired Company, the lenders and other parties from time to time party thereto and Bank of America, N.A., as administrative agent (as amended from time to time prior to the date hereof, the “Acquired Company’s Existing Credit Agreement” and, together with the Borrower’s Existing Credit Agreement, the “Existing Credit Agreements”), in each case having the respective terms set forth in the applicable commitment letter executed as of the date hereof and delivered herewith (the “Revolver Backstop Bridge Facilities”).

Until the Syndication Date, you agree to use your commercially reasonable efforts to actively assist the Arrangers in achieving a syndication satisfactory to you and us. Such assistance shall include (a) your use of commercially reasonable efforts to ensure that the Arrangers’ syndication efforts benefit from your and your subsidiaries’ existing lending relationships, (b) your cooperation, and your using commercially reasonable efforts (subject to your rights and limitations under the Acquisition Agreement and the Voting Trust Agreement) to cause the Acquired Business to cooperate, in connection with the preparation of one or more information packages for the Facility in form and substance customary for transactions of this type regarding the business, operations, financial projections and prospects of the Covenantor, the Borrower, the Voting Trust and the Acquired Business (after giving effect to the Transactions) (collectively, the “Confidential Information Memorandum”), (c) your using commercially reasonable efforts to obtain a confirmation or update to your corporate family rating from each of Moody’s Investor

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Services, Inc. (“Moody’s”) and Standard & Poor’s Financial Services LLC (“S&P”), in each case giving effect to the Transactions, (d) your using commercially reasonable efforts to execute and deliver one or more Joinder Agreements delivered to you in respect of prospective Lenders which are selected in accordance with the provisions of this Section 3, as soon as reasonably practicable following commencement of syndication of the Facility and (e) your using commercially reasonable efforts to present one or more customary information packages for the Facility reasonably acceptable in format and content to the Arrangers (collectively, the “Lender Presentation”) in a reasonable number of meetings and other communications with prospective Lenders or agents in connection with the syndication of the Facility (including, without limitation, direct contact between senior management and representatives, with appropriate seniority and expertise, of the Covenantor, the Borrower and, in the event of a Trust Closing to the extent permitted by applicable law and the Trust Agreement, the Acquired Business with prospective Lenders and participation of such persons in a reasonable number of meetings at reasonable times mutually agreed upon); provided at your option any such meeting or communication may be conducted virtually by videoconference or other media. Notwithstanding anything to the contrary contained in this Commitment Letter or the Fee Letter or any other letter agreement or undertaking concerning the financing of the Transactions to the contrary, your obligations to assist in syndication efforts as provided herein (including the obtaining of the ratings and the compliance with any of the provisions set forth in clauses (a) through (e) above), shall not constitute a condition to the commitments hereunder or the funding of the Facility on the Closing Date. In connection with the Arrangers’ syndication efforts, you shall not be required to provide information the disclosure of which would violate any (i) attorney-client privilege (and the beneficiary of such privilege shall not be required to waive any such privilege), (ii) law, rule or regulation applicable to the Covenantor, the Borrower, the Trust, the Acquired Business or you and their respective affiliates or (iii) obligation of confidentiality from a third party binding on you, the Acquired Business or your or their respective affiliates (provided that (x) such confidentiality obligation was not entered into in contemplation of the Transactions (other than the confidentiality obligations entered into with the Acquired Company in connection with the Transactions), (y) you provide such information that does not violate such confidentiality obligations and (z) you provide the Commitment Parties with notice that information is being withheld due to the existence of such confidentiality obligation or attorney-client privilege).

The Covenantor will be solely responsible for the contents of any such Confidential Information Memorandum and Lender Presentation (other than, in each case, any information contained therein that has been provided for inclusion by the Commitment Parties about the Commitment Parties) and all other written information, documentation or materials delivered to the Arrangers in connection therewith (collectively, the “Information”) and acknowledges that the Arrangers will be using and relying upon the Information without independent verification thereof. The Covenantor agrees that Information regarding the Facility and Information provided by it, the Borrower, the Acquired Business or their respective representatives to the Arrangers in connection with the Facility (including, without limitation, draft and execution versions of the Bridge Facility Documentation, the Confidential Information Memorandum, the Lender Presentation and publicly filed financial statements) may be disseminated to potential Lenders and other persons through one or more internet sites (including an IntraLinks, SyndTrak or other electronic workspace (the “Platform”)) created for purposes of syndicating the Facility or otherwise, in accordance with the Arrangers’ standard syndication practices, and you acknowledge that none of the Arrangers, the Lenders, their respective affiliates nor any of their respective officers, directors, employees, agents, advisors or other representatives (each, an “Arranger-Related Party”) will be responsible or liable to you or any other person or entity for damages arising from the use by others of any Information or other materials obtained on the Platform, except to the extent such damages have resulted from the gross negligence, willful misconduct or bad faith of such Arranger, Arranger-Related Party, Lenders or their respective affiliates (as determined by a court of competent jurisdiction in a final and non-appealable judgment).

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The Covenantor acknowledges that certain of the Lenders may be “public side” Lenders (i.e., Lenders that do not wish to receive Private-Side Information (as defined below)) (each, a “Public Lender”; and Lenders who are not Public Lenders being referred to herein as “Private Lenders”). At the request of the Arrangers, the Covenantor agrees to prepare an additional version of the Confidential Information Memorandum and the Lender Presentation to be used by Public Lenders containing a representation that such Confidential Information Memorandum does not contain Private-Side Information. “Private-Side Information” means material non-public information (for purposes of Canadian and United States federal, provincial, state or other applicable securities laws) concerning the Covenantor, the Borrower, the Acquired Business or their respective subsidiaries or any of their respective securities; and “Public-Side Information” means any information that is not Private-Side Information. It is understood that in connection with your assistance described above, the Covenantor and the Borrower will provide customary authorization letters to the Arrangers authorizing (a) the distribution of the Private-Side Information to prospective Private Lenders and (b) the distribution of the Public-Side Information to prospective Public Lenders. In addition, the Covenantor will clearly designate as such all Information provided to the Arrangers by or on behalf of it or the Acquired Business which contains exclusively Public-Side Information. The Covenantor acknowledges and agrees that the following documents may be distributed to all Lenders (including Public Lenders) (unless the Covenantor promptly notifies the Arranger in writing (including by email) within a reasonable time prior to their intended distribution (after you have been given a reasonable opportunity to review such documents) that any such document should only be distributed to prospective Private Lenders): (a) drafts and final versions of the Bridge Facility Documentation; (b) term sheets and notification of changes in the terms of the Facility and (c) administrative materials prepared by the Arrangers for prospective Lenders (such as a lender meeting invitation, allocations and funding and closing memoranda). If you advise us that any of the foregoing items should be distributed only to Private Lenders, then we will not distribute such materials to Public Lenders without further discussions with you.

Notwithstanding anything to the contrary set forth in this Commitment Letter, the Fee Letter or any other agreement, neither the obligations under this Section 3 nor completion of syndication of the Facility shall constitute a condition precedent to the Commitment Parties’ commitments hereunder or the availability or the funding in full of the Facility on the Closing Date.

4.     Information.

The Covenantor represents and covenants that (i) all written Information (other than projections, estimates and other forward-looking materials and information of a general economic or industry specific nature) provided by or on behalf of the Covenantor to the Commitment Parties or the Lenders in connection with the Transactions is and will be when furnished, when taken as a whole, complete and correct in all material respects and does not and will not contain when furnished, when taken as a whole, any untrue statement of a material fact or omit to state a material fact necessary to make the statements contained therein not materially misleading in light of the circumstances under which such statements are made (giving effect to all supplements and updates thereto); provided that such representation and covenant with respect to the Acquired Business and its representatives are made to the Covenantor’s knowledge and (ii) the written projections, estimates and other forward-looking information (collectively, the “Projections”) that have been or will be made available to the Commitment Parties or the Lenders by or on behalf of the Covenantor or the Borrower in connection with the Transactions have been and will be prepared in good faith based upon assumptions that are believed by the Covenantor to be reasonable at the time such Projections are furnished to the Commitment Parties or the Lenders, it being understood and agreed that Projections and other forward-looking information are as to future events and are not to be viewed as facts and are subject to significant uncertainties and contingencies, many of which are out of the Covenantor’s, the Borrower’s or the Acquired Business’ control, that no assurance can be given that

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any particular Projections will be realized and that actual results during the period or periods covered by such Projections may differ significantly from the projected results and such differences may be material.

You agree that if at any time prior to the later of (i) the Closing Date and (ii) the Syndication Date, you become aware that any of the representations in the preceding sentence would be incorrect in any material respect (to your knowledge insofar as it applies to the information concerning the Acquired Business) if the Information and Projections were being furnished, and such representations were being made, at such time, then you will promptly supplement, or cause to be supplemented (and with respect to Information relating to the Acquired Business prior to the Closing Date or after the Closing Date in the event of a Trust Closing, you will use commercially reasonably efforts to the extent practical and reasonable and consistent with the Acquisition Agreement and the Trust Agreement to cause the Acquired Business to supplement), the Information and Projections so that such representations will be correct in all material respects in light of the circumstances under which such statements are made (to your knowledge insofar as it applies to information regarding the Acquired Business). In arranging and syndicating the Facility, we will be entitled to use and rely on the Information and the Projections without responsibility for independent verification thereof. We have no obligation to conduct any independent evaluation or appraisal of the assets or liabilities of you, the Acquired Business or any other party or to advise or opine on any related solvency issues. Notwithstanding the foregoing, it is understood that each Commitment Party’s commitments hereunder are not subject to or conditioned upon the accuracy of the representations set forth in this Section 4, whether or not supplemented, or any obligation to supplement the Information and Projections and notwithstanding anything to the contrary contained in this Commitment Letter, the Fee Letter or any other agreement, neither the accuracy of such representations nor any obligation to supplement the Information or Projections shall constitute a condition to the availability of the Facility on the Closing Date or at any time thereafter.

5.     Indemnification and Limitation on Liability.

Indemnity

In connection with arrangements such as this, it is the policy of the Commitment Parties to receive indemnification. In the event that any Commitment Party becomes involved in any capacity in any action, proceeding or investigation brought by or against any person, including shareholders, partners, members or other equity holders of the Covenantor or the Acquired Business in connection with or as a result of either this arrangement or any matter referred to in the Letters (as defined below), the Covenantor agrees to periodically reimburse such Commitment Party upon written demand for its reasonable and documented out-of-pocket legal and other out-of-pocket expenses incurred in connection therewith (provided that any legal expenses shall be limited to one U.S. and one Canadian counsel for all Commitment Parties taken as a whole and if reasonably necessary, a single local counsel for all Commitment Parties taken as a whole in each other relevant jurisdiction (which may be a single local counsel acting in multiple jurisdictions) and, solely in the case of an actual or perceived conflict of interest between Commitment Parties where the Commitment Parties affected by such conflict inform you of such conflict, one additional counsel in each relevant jurisdiction to each group of affected Commitment Parties similarly situated taken as a whole), except to the extent that any loss, claim, damage or liability arising in connection with any such action, proceeding or investigation (a) has been found by a final, non-appealable judgment of a court of competent jurisdiction to have resulted from (x) the gross negligence, willful misconduct or bad faith of such Commitment Party or its Related Commitment Party (as defined below), or (y) a material breach of the obligations of such Commitment Party or its Related Commitment Party under this Commitment Letter, Fee Letter or the Bridge Facility Documentation or (b) arises from any dispute among Commitment Parties or any Related Commitment Parties of the foregoing other than any claims against each Commitment Party in its capacity or in fulfilling its role as

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an agent or arranger with respect to the Facility (other than any claims arising out of any act or omission on the part of the Covenantor or its affiliates).

The Covenantor agrees to indemnify and hold each Commitment Party harmless against any and all losses, claims, damages or liabilities to any such person in connection with or as a result of either this arrangement or any matter referred to in this Commitment Letter or the Fee Letter (together, the “Letters”) (whether or not such investigation, litigation, claim or proceeding is brought by you, your equity holders or creditors or an indemnified person and whether or not any such indemnified person is otherwise a party thereto), except to the extent that such loss, claim, damage or liability (a) has been found by a final, non-appealable judgment of a court of competent jurisdiction to have resulted from (x) the gross negligence, willful misconduct or bad faith of such Commitment Party or its Related Commitment Party (as defined below) or (y) a material breach of the obligations of such Commitment Party or its Related Commitment Party under this Commitment Letter, Fee Letter or the Bridge Facility Documentation; or (b) arises from any dispute among Commitment Parties or any Related Commitment Parties of the foregoing other than any claims against each Commitment Party in its capacity or in fulfilling its role as an agent or arranger role with respect to the Facility and other than any claims arising out of any act or omission on the part of the Covenantor or its affiliates. If for any reason the foregoing indemnification is unavailable to a Commitment Party or insufficient to hold it harmless, then the Covenantor will contribute to the amount paid or payable by such Commitment Party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect the relative economic interests of (i) the Covenantor and the Acquired Business and their respective affiliates, shareholders, partners, members or otherequity holders on the one hand and (ii) such Commitment Party on the other hand in the matters contemplated by the Letters as well as the relative fault of (i) the Covenantor and the Acquired Business and their respective affiliates, shareholders, partners, members or otherequity holders on the one hand and (ii) such Commitment Party with respect to such loss, claim, damage or liability and any other relevant equitable considerations on the other hand. The reimbursement, indemnity and contribution obligations of the Covenantor under this paragraph will be in addition to any liability which the Covenantor may otherwise have, will extend upon the same terms and conditions to any affiliate of such Commitment Party and the partners, members, directors, agents, employees and controlling persons (if any), as the case may be, of such Commitment Party and any such affiliate, and will be binding upon and inure to the benefit of any successors, assigns, heirs and personal representatives of the Covenantor, such Commitment Party, any such affiliate and any such person.

You shall not be liable for any settlement of any claim or proceeding effected without your written consent (which consent shall not be unreasonably withheld, conditioned or delayed), but if settled with your written consent or if there is a final judgment in any such proceeding, you agree to indemnify and hold harmless each Commitment Party from and against any and all losses, claims, damages, liabilities and related expenses by reason of such settlement or judgment in accordance with and to the extent provided in this Section 5. You shall not, without the prior written consent of a Commitment Party (which consent shall not be unreasonably withheld, delayed or conditioned), effect any settlement of any pending or threatened claims or proceedings in respect of which indemnity could have been sought hereunder by such Commitment Party unless such settlement (a) includes an unconditional release of such Commitment Party in form and substance reasonably satisfactory to such Commitment Party from all liability on claims that are the subject matter of such proceeding and (b) does not include any statement as to, or any admission of, fault, culpability or a failure to act by or on behalf of any Commitment Party or any injunctive relief or other non-monetary remedy binding on any Commitment Party.

For purposes hereof, a “Related Commitment Party” of a Commitment Party means (a) any controlling person or controlled affiliate of such Commitment Party, (b) the respective directors, officers, or employees of such Commitment Party or any of its controlling persons or controlled affiliates and (c) the respective agents of such Commitment Party or any of its controlling persons or controlled affiliates, in

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the case of this clause (c), acting at the instructions of such Commitment Party, controlling person or such controlled affiliate; provided that each reference to a controlled affiliate or controlling person in this sentence pertains to a controlled affiliate or controlling person involved in the negotiation of this Commitment Letter or the Bridge Facility Documentation and the syndication of the Facility.

Limitation on Liability

The Covenantor also agrees that no Arranger-Related Party will have any liability to the Covenantor or any person asserting claims on behalf of or in right of the Covenantor or any other person in connection with or as a result of either this arrangement or any matter referred to in the Letters, except in the case of the Covenantor and the Borrower to the extent that any losses, claims, damages, liabilities or expenses incurred by the Covenantor, the Borrower or their affiliates, shareholders, partners or other equity holders have been found by a final, non-appealable judgment of a court of competent jurisdiction to have resulted from the gross negligence, willful misconduct or bad faith of such Arranger-Related Party in performing the services that are the subject of the Letters.

Notwithstanding any other provision of this Commitment Letter, no party hereto nor any affiliate of the Covenantor or the Borrower, Arranger-Related Party or Related Commitment Party shall have any liability for any indirect, consequential, special or punitive damages in connection with or as a result of its activities related to the Facility or the Letters; provided, that this sentence shall not limit the Covenantor’s indemnification or reimbursement obligations set forth herein to the extent such indirect, consequential, special or punitive damages are included in any third-party claim in connection with which such indemnified person is entitled to indemnification hereunder. The provisions of this Section 5 will survive any termination or completion of the arrangement provided by the Letters.

6. Assignments.

This Commitment Letter may not be assigned by you without the prior written consent of the Commitment Parties (and any purported assignment without such consent will be null and void), is intended to be solely for the benefit of the Commitment Parties and the other parties hereto and, except as set forth in Section 5 hereof, is not intended to confer any benefits upon, or create any rights in favor of, any person other than the parties hereto. Any Commitment Party may, in consultation with the Covenantor, assign its commitments and agreements hereunder, in whole or in part, to any of its affiliates, additional arrangers or other Lenders; provided that (i) any such assignment by a Commitment Party to any affiliate, additional arranger or Lender shall not relieve such Commitment Party of its obligations set forth herein to fund that portion of the commitments so assigned except to the extent such assignment is evidenced by a Joinder Agreement or the Bridge Facility Documentation, as applicable, as set forth in Section 3 above and (ii) notwithstanding the foregoing, any assignment from Goldman Sachs to Goldman Sachs Bank USA shall relieve, release and novate Goldman Sachs from its obligations hereunder to fund the portion of its commitment so assigned. Neither this Commitment Letter nor the Fee Letter may be amended or any term or provision hereof or thereof waived or otherwise modified except by an instrument in writing signed by each of the parties hereto or thereto, as applicable, and any term or provision hereof or thereof may be amended or waived only by a written agreement executed and delivered by all parties hereto or thereto.

7. Confidentiality.

This Commitment Letter, the Fee Letter and the information contained herein and therein are confidential and may not be disclosed by you to any other person (other than a Commitment Party) without our prior written consent (such consent not to be unreasonably withheld, conditioned or delayed) except pursuant to a subpoena or order issued by a court of competent jurisdiction or by a judicial, administrative or

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legislative body or committee (in which case you agree to inform us promptly thereof to the extent not prohibited by applicable law, rule or regulation); provided that we hereby consent to your disclosure of (i) this Commitment Letter and the Fee Letter to the Covenantor’s and the Borrower’s officers, directors, agents, employees, legal counsel, auditors and other experts and advisors who are directly involved in the consideration of the Transactions and the Facility and who have been informed by you of the confidential nature of such advice and this Commitment Letter and the Fee Letter and who have agreed to treat such information confidentially; (ii) this Commitment Letter or the information contained herein (but not the Fee Letter or the information contained therein) to the Acquired Business to the extent you notify such persons of their obligations to keep such material confidential, and to the Acquired Business’ officers, directors, agents, employees, legal counsel, auditors and other experts and advisors who are directly involved in the consideration of the Transactions and the Facility to the extent such persons agree to hold the same in confidence (provided that any disclosure of the Fee Letter or its terms or substance to the Acquired Business or its officers, directors, agents, employees, legal counsel, auditors and other experts and advisors shall be redacted in a manner reasonably satisfactory to the Commitment Parties); (iii) this Commitment Letter and the Fee Letter as required by applicable law or compulsory legal process or, to the extent requested or required by governmental and/or regulatory authorities (in which case you agree to inform us promptly thereof to the extent not prohibited by applicable law, rule or regulation); (iv) following your acceptance of the provisions hereof and return of an executed counterpart of this Commitment Letter to the Commitment Parties as provided below, you may file a copy of any portion of this Commitment Letter (but not the Fee Letter other than the existence thereof) in any public record in which you are required by law or regulation to file it or with the Securities and Exchange Commission (“SEC”) or on the System for Electronic Document Analysis and Retrieval (“SEDAR”) for the provincial and territorial securities regulatory authorities of Canada and other applicable regulatory authorities and stock exchanges to the extent required to be in compliance therewith; (v) you may disclose the aggregate fee amounts contained in the Fee Letter in financial statements or as part of projections, pro forma information or a generic disclosure of aggregate sources and uses related to aggregate compensation amounts related to the Transactions to the extent customary or required in offering and marketing materials for the Notes or the Facility or in any public filing relating to the Transactions, in each case in a manner which does not disclose the fees payable pursuant to the Fee Letter (except in the aggregate); (vi) this Commitment Letter and the information contained herein and the Fee Letter in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Commitment Letter, Fee Letter or the transactions contemplated thereby or enforcement thereof or hereof; (vii) to the extent that such information becomes publicly available other than by reason of disclosure in violation of this agreement by you or your affiliates, or your or their respective officers, directors, employees or advisors; (viii) the information contained in Annex A hereto in any prospectus or other offering memorandum relating to the Notes or the Facility; and (ix) the information contained in Annex A hereto to Moody’s and S&P; provided that such information is supplied to Moody’s and S&P only on a confidential basis after consultation with the Commitment Parties. The obligations under this paragraph with respect to this Commitment Letter (but not the Fee Letter) shall terminate automatically after the earlier of the date (x) of any public filing of this Commitment Letter permitted hereunder and (y) the applicable Bridge Facility Documentation shall have been executed and delivered by the parties thereto. To the extent not earlier terminated, the provisions of this paragraph with respect to this Commitment Letter (but not the Fee Letter) shall automatically terminate on the first anniversary hereof.

Each Commitment Party will use all confidential information provided to it by or on behalf of you, the Acquired Business or any of your or their respective subsidiaries or affiliates solely for the purpose of providing the services which are the subject of this Commitment Letter and otherwise in connection with the Transactions, and will treat confidentially all such information and shall not disclose such information to any third party or circulate or refer publicly to such information; provided, however, that nothing herein will prevent any Commitment Party from disclosing any such information (a) pursuant to the order of any court or administrative agency or in any pending legal or administrative proceeding, or otherwise as

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required by applicable law or compulsory legal process (in which case such person agrees to inform you promptly thereof to the extent not prohibited by law); (b) upon the request or demand of any regulatory authority purporting to have jurisdiction over such person or any of its affiliates (in which case such person agrees (except with respect to any audit or examination conducted by bank examiners or any governmental bank regulatory authority exercising examination or regulatory authority) to inform you promptly thereof to the extent practicable and not prohibited by applicable law, rule or regulation); (c) to the extent that such information is publicly available or becomes publicly available other than by reason of improper disclosure by such person; (d) to such person’s affiliates and to such person’s and such person’s affiliates their respective officers, directors, partners, members, employees, legal counsel, independent auditors and other experts or agents who need to know such information in connection with the Transactions and who have been informed of the confidential nature of such information and are instructed to keep such information confidential in accordance with the provisions of this Section 7, it being understood that the disclosing Commitment Party shall be responsible for any violation of the provisions of this Section 7 by any such person; (e) to potential and prospective Lenders, participants and any direct or indirect contractual counterparties to any swap or derivative transaction relating to the Covenantor, the Borrower or their respective obligations under the Facility, in each case, who have agreed to keep such information confidential on terms substantially similar to the provisions hereof or otherwise agreed by you, in accordance with the standard syndication processes of the Arrangers or customary market standards for the dissemination of such type of information (provided that in no event shall any disclosure of such information be made to any person that is a Disqualified Lender as of the relevant time); (f) to Moody’s and S&P and other rating agencies; provided that such information is limited to Annex A and is supplied only on a confidential basis after consultation with the Covenantor; (g) to market data collectors, similar services providers to the lending industry, and service providers to the Commitment Parties and the Lenders in connection with the administration and management of the Facility; provided that such information is limited to the existence of this Commitment Letter and information of a type routinely provided regarding the closing date, size, type, purpose of, and parties to, the Facility; (h) received by such person on a non-confidential basis from a source (other than you, the Acquired Business or any of your or their affiliates, advisors, members, directors, employees, agents or other representatives) not known by such person to be prohibited from disclosing such information to such person by a legal, contractual or fiduciary obligation; (i) to the extent that such information was already in such Commitment Party’s possession or is independently developed by such Commitment Party; (j) for purposes of establishing a “due diligence” defense; and (k) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Commitment Letter, Fee Letter or the transactions contemplated hereby or thereby or enforcement thereof or hereof. The Commitment Parties’ obligation under this provision shall remain in effect until the earlier of (i) one year from the date hereof and (ii) the execution and delivery of the Bridge Facility Documentation by the parties thereto, at which time any confidentiality undertaking in the Bridge Facility Documentation shall supersede the provisions in this section.

8. Absence of Fiduciary Relationship; Affiliates; Etc.

As you know, each Commitment Party (together with its affiliates, the “Commitment Entities”) is a full- service financial institution engaged, either directly or through its affiliates, in a broad array of activities, including commercial and investment banking, financial advisory, market making and trading, investment management (both public and private investing), investment research, principal investment, financial planning, benefits counseling, risk management, hedging, financing, brokerage and other financial and non-financial activities and services globally. In the ordinary course of their various business activities, the Commitment Entities and funds or other entities in which the Commitment Entities invest or with which they co-invest, may at any time purchase, sell, hold or vote long or short positions and investments in securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments for their own account and for the accounts of their customers. In addition, the Commitment

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Entities may at any time communicate independent recommendations and/or publish or express independent research views in respect of such assets, securities or instruments. Any of the aforementioned activities may involve or relate to assets, securities and/or instruments of the Covenantor, the Borrower, the Acquired Business and/or other entities and persons which may (i) be involved in transactions arising from or relating to the arrangement contemplated by this Commitment Letter or (ii) have other relationships with the Covenantor or its affiliates. In addition, the Commitment Entities may provide investment banking, commercial banking, underwriting and financial advisory services to such other entities and persons. The arrangement contemplated by this Commitment Letter may have a direct or indirect impact on the investments, securities or instruments referred to in this paragraph, and employees working on the financing contemplated hereby may have been involved in originating certain of such investments and those employees may receive credit internally therefor. Although the Commitment Entities in the course of such other activities and relationships may acquire information about the transaction contemplated by this Commitment Letter or other entities and persons which may be the subject of the financing contemplated by this Commitment Letter, the Commitment Entities shall have no obligation to disclose such information, or the fact that the Commitment Entities are in possession of such information, to the Covenantor or to use such information on the Covenantor’s behalf.

Consistent with the Commitment Entities’ policies to hold in confidence the affairs of their customers, the Commitment Entities will not furnish confidential information obtained from you by virtue of the transactions contemplated by this Commitment Letter to any of its other customers. Furthermore, you acknowledge that neither the Commitment Entities nor any of their respective affiliates has an obligation to use in connection with the transactions contemplated by this Commitment Letter, or to furnish to you, confidential information obtained or that may be obtained by them from any other person.

Each of the Commitment Entities may have economic interests that conflict with those of the Covenantor, its equity holders and/or its affiliates. You agree that the Commitment Entities will act under this Commitment Letter as independent contractors and that nothing in this Commitment Letter or the Fee Letter or otherwise will be deemed to create an advisory, fiduciary or agency relationship or fiduciary or other implied duty between the Commitment Entities and the Covenantor, its equity holders or its affiliates. You acknowledge and agree that the transactions contemplated by this Commitment Letter and the Fee Letter (including the exercise of rights and remedies hereunder and thereunder) are arm’s-length commercial transactions between the Commitment Entities, on the one hand, and the Covenantor, on the other, and in connection therewith and with the process leading thereto, (i) the Commitment Entities have not assumed (A) an advisory responsibility in favor of the Covenantor, its equity holders or its affiliates with respect to the financing transactions contemplated hereby or (B) a fiduciary responsibility in favor of the Covenantor, its equity holders or its affiliates with respect to the transactions contemplated hereby, or in each case, the exercise of rights or remedies with respect thereto or the process leading thereto (irrespective of whether the Commitment Entities have advised, are currently advising or will advise the Covenantor, its equity holders or its affiliates on other matters) or any other obligation to the Covenantor except the obligations expressly set forth in this Commitment Letter and the Fee Letter and (ii) the Commitment Entities are acting solely as principals and not as the agents or fiduciaries of the Covenantor, its management, equity holders, affiliates, creditors or any other person. The Covenantor acknowledges and agrees that it has consulted its own legal and financial advisors to the extent it deemed appropriate and that it is responsible for making its own independent judgment with respect to such transactions and the process leading thereto. The Covenantor agrees that it will not claim that the Commitment Entities have rendered advisory services of any nature or respect with respect to the financing transactions contemplated hereby, or owes a fiduciary or similar duty to the Covenantor, in connection with such financing transactions or the process leading thereto. In addition, each Commitment Party may employ the services of its affiliates in providing services and/or performing its or their obligations hereunder and may exchange with such affiliates information concerning the Covenantor, the Borrower, the Acquired Business and other companies that may be the subject of this arrangement, and such affiliates will be

12

entitled to the benefits afforded to such Commitment Party hereunder (it being understood that the persons to whom such disclosure is made will be informed of the confidential nature of such information and instructed to keep such information confidential). Notwithstanding the foregoing, nothing herein shall affect the Covenantor’s rights in respect of any separate engagement of any Commitment Party, including as financial advisor, in connection with the Transactions or any other matter.

The Commitment Entities are, or may at any time be, lenders under one or more existing credit facilities of the Covenantor (and/or of its subsidiaries) (in such capacity, an “Existing Lender”). The Covenantor further acknowledges and agrees for itself and its subsidiaries that any such Existing Lender (a) will be acting for its own account as principal in connection with such existing credit facilities, (b) will be under no obligation or duty as a result of the applicable Commitment Entity’s role hereunder to take any action or refrain from taking any action or exercising any rights or remedies, that each Existing Lender may be entitled to take or exercise in respect of such existing credit facilities, and (c) may manage its exposure to such existing credit facilities without regard to the applicable Commitment Entity’s role hereunder.

As you know, BMO and Goldman Sachs & Co. (“GS&Co.”) have each been retained by the Covenantor (or one of its affiliates) as financial advisor (in such capacity, the “Financial Advisors”) in connection with the Acquisition. You agree to such retention, and further agree not to assert any claim you might allege based on any actual or potential conflicts of interest that might be asserted to arise or result from the engagement of the Financial Advisors, on the one hand, and our and our affiliates’ relationships with you as described and referred to herein, on the other. Each of the Commitment Parties hereto acknowledges (i) the retention of BMO and GS&Co. as the Financial Advisors and (ii) that such relationship does not create any fiduciary duties or fiduciary responsibilities to such Commitment Party on the part of BMO or GS&Co. or their respective affiliates.

In addition, please note that the Commitment Entities do not provide accounting, tax or legal advice. Notwithstanding anything herein to the contrary, the Covenantor (and each employee, representative or other agent of the Covenantor) may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of the Facility and all materials of any kind (including opinions or other tax analyses) that are provided to the Covenantor relating to such tax treatment and tax structure. However, any information relating to the tax treatment or tax structure will remain subject to the confidentiality provisions hereof (and the foregoing sentence will not apply) to the extent reasonably necessary to enable the parties hereto, their respective affiliates, and their respective affiliates’ directors and employees to comply with applicable securities laws. For this purpose, “tax treatment” means any U.S. or Canadian federal, state or provincial income tax treatment or any other applicable foreign tax treatment, and “tax structure” is limited to any facts relevant to such tax treatment of the transactions contemplated by this Commitment Letter but does not include information relating to the identity of the parties hereto or any of their respective affiliates.

9. Miscellaneous.

The Commitment Parties’ commitments and agreements hereunder will terminate upon the first to occur of (i) the execution and delivery of the Bridge Facility Documentation by each of the parties thereto, (ii) the consummation of the Acquisition without using the loans under the Facility, (iii) the termination of the Covenantor’s obligation to consummate the Acquisition pursuant to the Acquisition Agreement, and (iv) the End Date (as defined in the Acquisition Agreement as of the date hereof) (the earliest date in clauses (ii) through (iv) being the “Commitment Termination Date”).

Each of the parties hereto agrees that this Commitment Letter is a binding and enforceable agreement with respect to the subject matter contained herein, including an agreement to negotiate in good faith the Bridge Facility Documentation by the parties hereto in a manner consistent with this Commitment Letter,

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it being acknowledged and agreed that the commitments provided hereunder by the Commitment Parties are subject only to the conditions expressly set forth in Annex B hereto.

The provisions set forth under Sections 3, 4, 5, 7 and 8 hereof (other than any provision therein that expressly terminates upon execution of the Bridge Facility Documentation) and this Section 9 and the provisions of the Fee Letter will remain in full force and effect regardless of whether the Bridge Facility Documentation is executed and delivered, except that the provisions of Sections 3 and 4 shall not survive if the commitments and undertakings of the Commitment Parties are terminated prior to the effectiveness of the Facility; provided that (x) the foregoing provisions in this paragraph (other than with respect to the provisions set forth in the Fee Letter and under Sections 5, 7 and 8 hereof and this Section 9, which will remain in full force and effect notwithstanding the expiration or termination of this Commitment Letter or the Commitment Parties’ respective commitments and agreements hereunder) shall be superseded in each case, to the extent covered thereby, by the applicable provisions contained in the Bridge Facility Documentation upon execution thereof and thereafter shall have no further force and effect and (y) the provisions of Section 3 and the obligation to update information pursuant to Section 4 shall terminate on the Syndication Date.

Each of the parties hereto (for itself and its affiliates) agrees that any suit or proceeding arising in respect of this Commitment Letter or the Commitment Parties’ commitments or agreements hereunder or the Fee Letter will be tried exclusively in any Federal court of the United States of America sitting in the Borough of Manhattan or, if that court does not have subject matter jurisdiction, in any state court located in the City and County of New York, and each party hereto hereby submits to the exclusive jurisdiction of, and to venue in, such court. Any right to trial by jury with respect to any action or proceeding arising in connection with or as a result of either the Commitment Parties’ commitments or agreements or any matter referred to in this Commitment Letter or the Fee Letter is hereby waived by the parties hereto. Each of the parties hereto (for itself and its affiliates) agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Service of any process, summons, notice or document by registered mail or overnight courier addressed to any of the parties hereto at the addresses above shall be effective service of process against such party for any suit, action or proceeding brought in any such court. This Commitment Letter and the Fee Letter will be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflicts of laws; provided that (a) the interpretation of the definition of “Company Material Adverse Effect” and whether there shall have occurred a Company Material Adverse Effect, (b) whether the Acquisition has been consummated as contemplated by the Acquisition Agreement and (c) whether the representations and warranties made by or with respect to the Acquired Business in the Acquisition Agreement are true and correct and whether as a result of any failure thereof to be true and correct the Covenantor (or its affiliates) has the right to terminate its (or their) obligations under the Acquisition Agreement or not to consummate the Acquisition, shall be determined in accordance with the laws of the State of Delaware without regard to principles of conflicts of laws that would result in the application of the laws of another jurisdiction.

The Commitment Parties hereby notify the Covenantor and the Acquired Business that pursuant to the requirements of the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Patriot Act”) and the requirements of 31 C.F.R. § 1010.230 (the “Beneficial Ownership Regulation”) the Commitment Parties and each Lender may be required to obtain, verify and record information that identifies the Covenantor, the Borrower and each Guarantor, which information includes the name and address of the Covenantor, the Borrower and each Guarantor and other information that will allow the Commitment Parties and each Lender to identify the Covenantor, the Borrower and each Guarantor in accordance with the Patriot Act and the Beneficial Ownership Regulation. This notice is

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given in accordance with the requirements of the Patriot Act and is effective for the Commitment Parties and each Lender.

This Commitment Letter may be executed in any number of counterparts, each of which when executed will be an original, and all of which, when taken together, will constitute one agreement. Delivery of an executed counterpart of a signature page of this Commitment Letter by facsimile transmission or electronic transmission (in pdf format) will be effective as delivery of a manually executed counterpart hereof. Furthermore, each of this Commitment Letter and the Fee Letter may be in the form of an Electronic Record (as defined below) and may be executed using Electronic Signatures (as defined below) (including, without limitation, facsimile and .pdf) and each shall be considered an original, and shall have the same legal effect, validity and enforceability as a paper record. For the avoidance of doubt, the authorization under this paragraph may include, without limitation, use or acceptance by the Commitment Parties of a manually signed paper communication which has been converted into electronic form (such as scanned into PDF format), or an electronically signed communication converted into another format, for transmission, delivery and/or retention. “Electronic Record” and “Electronic Signature” shall have the meanings assigned to them, respectively, by 15 U.S.C. § 7006, as it may be amended from time to time. This Commitment Letter and the Fee Letter are the only agreements that have been entered into among the parties hereto with respect to the Facility and set forth the entire understanding of the parties with respect thereto and supersede any prior written or oral agreements among the parties hereto with respect to the Facility.

[Remainder of page intentionally left blank]

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Please confirm that the foregoing is in accordance with your understanding by signing and returning to the Commitment Parties the enclosed copy of this Commitment Letter, together, if not previously executed and delivered, with the Fee Letter, on or before 11:59 p.m., New York City time, on March 21, 2021, whereupon this Commitment Letter and the Fee Letter will become binding agreements between us. This offer will terminate (a) on such date if this Commitment Letter and the Fee Letter have not been signed and returned as described in the preceding sentence by such date and (b) if this Commitment Letter and the Fee Letter have not been signed and returned as described in the preceding sentence, immediately upon a public announcement that a third party unaffiliated with the Covenantor has agreed to acquire the Acquired Company. We look forward to working with you on this transaction.

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Very truly yours,
GOLDMAN SACHS LENDING PARTNERS LLC
By:	/s/ Robert Ehudin
Name:	Robert Ehudin
Title:	Authorized Signatory

[Signature Page to Project Cygnus Commitment Letter]

BANK OF MONTREAL
By:	/s/ Martin Stevenson
Name:	Martin Stevenson
Title:	Managing Director

[Signature Page to Project Cygnus Commitment Letter]

ACCEPTED AND AGREED AS OF
THE DATE FIRST WRITTEN ABOVE:
CANADIAN PACIFIC RAILWAY LIMITED
By:	/s/ Nadeem Velani
Name:	Nadeem Velani
Title:	Executive Vice President and Chief Financial Officer
CANADIAN PACIFIC RAILWAY COMPANY
By:	/s/ Nadeem Velani
Name:	Nadeem Velani
Title:	Executive Vice President and Chief Financial Officer

[Signature Page to Project Cygnus Commitment Letter]

A-1

PROJECT CYGNUS

$8,500 Million Senior Unsecured Bridge Term Loan Credit Facility

Summary of Principal Terms1

Borrower:	Canadian Pacific Railway Company (the “Borrower”).
Guarantors:	All obligations of the Borrower under the Facility will be unconditionally guaranteed by Canadian Pacific Railway Limited (the “Covenantor”) and any subsidiary of the Covenantor that has provided or is required to provide a guarantee in respect of, or is a borrower or issuer in respect of, the Borrower’s Existing Credit Agreement, the Notes or any other senior debt for borrowed money of the Borrower or its domestic subsidiaries (collectively, the “Guarantors”).
Administrative Agent:	Bank of Montreal (“Bank of Montreal”) will act as sole administrative agent (in such capacity, the “Administrative Agent”) for a syndicate of banks, financial institutions and other institutional lenders approved in accordance with the Commitment Letter (together with Bank of Montreal and Goldman Sachs Lending Partners LLC (“Goldman Sachs”), the “Lenders”), and will perform the duties customarily associated with such role.
Syndication Agent:	Goldman Sachs will act as sole syndication agent for the Facility and will perform the duties customarily associated with such role.
Joint Bookrunners and Joint Lead Arrangers:	BMO Capital Markets (“BMOCM”) and Goldman Sachs will act as exclusive joint bookrunners and joint lead arrangers for the Facility described below (BMOCM and Goldman Sachs, collectively in such capacities, the “Arrangers”), and will perform the duties customarily associated with such roles.

1 All capitalized terms used but not defined herein have the meanings given to them in the Commitment Letter to which this Annex A is attached, including Annex B thereto.

1

A-2

Facility:	A senior unsecured bridge term loan credit facility in an aggregate principal amount of up to $8,500 million (as automatically reduced from time to time in accordance with this Annex A and as may be voluntarily reduced by the Borrower in accordance with this Annex A) (the “Facility”).
Purpose:	The proceeds of the Facility will be used by the Borrower (a) to pay a portion of the Acquisition Consideration and (b) to pay the Transaction Expenses.
Availability:	The Facility may be drawn in a single drawing on the closing date of the Acquisition upon satisfaction of the conditions precedent to funding described in Annex B to this Commitment Letter (the “Closing Date”). Amounts borrowed under the Facility that are repaid or prepaid may not be reborrowed.
Interest Rates and Fees:	As set forth on Annex A-I hereto.
Final Maturity and Amortization:	The Facility will mature on the day that is 364 days after the Closing Date (the “Maturity Date”). There will be no scheduled amortization payments.
Mandatory Prepayments and Commitment Reductions:	Unless otherwise agreed to by the Lenders, on or prior to the Closing Date, the aggregate commitments in respect of the Facility under the Commitment Letter or under the Bridge Facility Documentation (as applicable) shall be automatically and permanently reduced, and after the Closing Date, the aggregate loans under the Facility shall be prepaid, without penalty or premium, in each case, dollar for dollar, by the following amounts (in each case subject to exceptions to be agreed):
	(a) 100% of the net cash proceeds of all asset sales or other dispositions of property by the Covenantor and its subsidiaries (excluding (q) the sale or other disposition of assets in the ordinary course of business including dispositions of property or assets no longer useful or obsolete (as reasonably determined by the Covenantor), (r) the sale or other disposition of assets held by joint ventures, (s) the unwinding of hedge arrangements, (t) factoring and similar arrangements, including dispositions of receivables, in the ordinary course of business, (u) any equipment financing or leasing transactions, (v) sale-leaseback transactions in the ordinary course of business, (w) transactions identified to the Arrangers prior to the signing of the

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Commitment Letter as “Arbutus” and “Chicago Tollway”, (x) the sale by the Acquired Business of its ownership interests in or the assets and operations of TFCM, S. de R.L. de C.V. and/or TranServe, Inc. (d/b/a Superior Tie & Timber), (y) dispositions by the Covenantor’s non-U.S. and non-Canadian subsidiaries to the extent the repatriation of the proceeds of such dispositions would result in adverse tax consequences other than immaterial adverse tax consequences (as reasonably determined by the Covenantor) and (z) any insurance and condemnation proceeds), subject to exceptions to be agreed, including exceptions for (i) intercompany sales or other dispositions of assets, (ii) sales of assets in the ordinary course of business not exceeding $150,000,000, (iii) any sale or other disposition of assets pursuant to a contract or arrangement in effect as of, and disclosed in writing to the Arrangers prior to, the date of the Commitment Letter and (iv) sales of assets to the extent the net cash proceeds from such sale are reinvested in other assets used or useful in the business of the Covenantor or any of its subsidiaries (or used to replace damaged or destroyed assets) within nine (9) months after receipt of such proceeds (or in the case of any casualty or condemnation event, such period as may be reasonably required to replace or repair the affected asset);

(b) 100% of the net cash proceeds received from any issuance of debt securities (including the Notes), equity securities and equity-linked securities, in each case, in a public offering or private placement by the Covenantor or any of its subsidiaries (other than Excluded Debt and Excluded Equity Offerings (each as defined below)); and

(c) without duplication of any reduction provided pursuant to clause (d) below, 100% of the net cash proceeds from any bank financing (other than Excluded Debt); and

(d) 100% of the committed amount under any Qualifying Bank Financing (as defined below) (such reduction under this clause (d) to occur automatically upon the effectiveness of definitive documentation for such bank financing and receipt by the Arrangers of a notice from the Borrower that such bank financing constitutes a Qualifying Bank Financing).

Any mandatory prepayment of the Facility resulting from any of the foregoing after the Closing Date shall

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be made on or prior to the fifth business day after the applicable net cash proceeds are received.

“Excluded Equity Offerings” shall mean

(i) issuances pursuant to employee compensation plans, employee benefit plans, employee-based incentive plans or arrangements, employee stock purchase plans, dividend reinvestment plans and retirement plans or issued as compensation to officers and/or non-employee directors or upon conversion or exercise of outstanding options or other equity awards, (ii) issuances to or by a subsidiary of the Covenantor to the Covenantor or any other subsidiary of the Covenantor (including in connection with existing joint venture arrangements), (iii) prior to the Closing Date or, in the event of a Trust Closing, from the Closing Date and until the end of the Trust Period (as defined below), issuances to or by a subsidiary of the Acquired Company to the Acquired Company or any other subsidiary of the Acquired Company (including, in each case, in connection with existing joint venture arrangements), (iv) issuances of directors’ qualifying shares and/or other nominal amounts required to be held by persons other than the Covenantor or its subsidiaries and, after the Closing Date in the event of a Trust Closing, the Acquired Company or its subsidiaries, in each case under applicable law, (v) issuances by the Covenantor’s non-Canadian subsidiaries or the Acquired Company’s non-U.S. subsidiaries to the extent the repatriation of the proceeds of such issuances would result in adverse tax consequences other than immaterial adverse tax consequences (as reasonably determined by the Covenantor), (vi) any equity issued as consideration in an acquisition (including the Acquisition Consideration), (vii) issuances with aggregate net proceeds not to exceed $500,000,000 and (viii) additional customary exceptions to be mutually agreed.

“Qualifying Bank Financing” shall mean a committed but unfunded bank facility for the incurrence of debt for borrowed money that has become effective for the purposes of financing the Transactions and that is subject to conditions precedent to funding that are no less favorable to the Covenantor or its applicable subsidiary than the conditions set forth herein to the funding of the Facility.

In addition, on or prior to the Closing Date, the

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aggregate commitments in respect of the Facility under the Commitment Letter or under the Bridge Facility Documentation (as applicable) shall be permanently reduced to zero immediately upon the Commitment Termination Date.

Notwithstanding the foregoing, in the event of a Trust Closing, the Facility shall be prepaid by an amount equal to (a) 100% of the net cash proceeds received by the Covenantor or any of its subsidiaries (other than any subsidiaries held through the Voting Trust) from the sale of all or substantially all of the property, or major assets or capital stock, of the Acquired Business and (b) 100% of the net cash proceeds received by way of distributions to the Covenantor or any of its subsidiaries (other than any subsidiaries held through the Voting Trust) from the Voting Trust to the extent constituting net cash proceeds from any other sale or other disposition of assets of, or debt incurrence by, the Acquired Business or its subsidiaries to the extent such asset sale or disposition or debt incurrence would otherwise result in a mandatory prepayment hereunder if consummated by the Covenantor or any of its subsidiaries (other than any subsidiaries held through the Voting Trust).

“Excluded Debt” shall mean (i) any indebtedness incurred to refinance any indebtedness existing on the date of the Commitment Letter, which is scheduled to mature within twelve (12) months of the date of incurrence of such refinancing indebtedness; (ii) intercompany indebtedness of the Covenantor and its subsidiaries or the Acquired Company and its subsidiaries; (iii) ordinary-course purchase money indebtedness, equipment financing or capital lease obligations; (iv) indebtedness issued in connection with leases (including sale-leasebacks), financial leases or capital lease obligations and similar obligations; (v) ordinary-course borrowings under the Existing Credit Agreements; (vi) the Revolver Backstop Bridge Facilities; (vii) issuances of commercial paper, (viii) indebtedness arising under hedging and cash management arrangements; (ix) indebtedness under letter of credit facilities, surety or other similar bonds, working capital facilities, overdraft facilities, local facilities (including, in each case, the renewal, roll-over, replacement or refinancing thereof), in each case in the ordinary course of business; (x) any non-recourse indebtedness incurred by any of the Covenantor’s subsidiaries or the Acquired Company’s subsidiaries

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	or joint ventures (including, for the avoidance of doubt, any such indebtedness for which a pledge of ownership interests in such joint ventures is required) after the date hereof to finance projects initiated before or after the date hereof; (xi) the outstanding programs of the Covenantor, the Borrower and the Designated Subsidiaries (as defined in the Borrower’s Existing Credit Agreement) for the securitization of accounts receivable not in excess of Cdn. $500,000,000; (xii) any “Securitization Transactions” (as defined in the Acquired Company’s Existing Credit Agreement) of the Acquired Business; and (xiii) any other indebtedness in an aggregate principal amount not to exceed $100,000,000. The Borrower shall provide the Administrative Agent with prompt written notice of any mandatory prepayment or commitment reduction hereunder.
Voluntary Prepayments and Reductions in Commitments:	Voluntary prepayments of borrowings under the Facility will be permitted at any time, in minimum principal amounts to be agreed upon, without premium or penalty, subject to reimbursement of the Lenders’ redeployment costs in the case of a prepayment of Adjusted LIBOR (as defined below) borrowings other than on the last day of the relevant interest period. The Borrower may voluntarily reduce unutilized portions of the commitments under the Facility at any time without penalty.
Documentation:	The making of the loans under the Facility will be governed by definitive loan and related agreements and documentation (collectively, the “Bridge Facility Documentation” and the principles set forth in this paragraph, the “Documentation Principles”) to be negotiated in good faith based on, and substantially the same as, the Borrower’s Existing Credit Agreement, with only those modifications set forth in this Annex A. For the purposes hereof, the words “based on” and “substantially consistent with” the Borrower’s Existing Credit Agreement and words of similar import shall mean substantially the same as the Borrower’s Existing Credit Agreement with modifications (a) as are necessary to reflect the terms specifically set forth in the Commitment Letter (including the exhibits thereto) (including the nature of the Facility as a bridge facility) and the Fee Letter, (b) to reflect any changes in law or accounting standards since the date of the Borrower’s Existing Credit Agreement, (c) to reflect the operational or administrative requirements of the Administrative

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Agent as reasonably agreed by the Covenantor and the Borrower, including as to erroneous payments, (d) to accommodate the structure of the Acquisition and the business plan of the Covenantor and the Borrower and (e) to incorporate customary updates agreed by the Covenantor, the Borrower and the Administrative Agent. The Bridge Facility Documentation will contain only those conditions to borrowing, mandatory prepayments, representations, warranties, affirmative and negative covenants and events of default expressly set forth in this Annex A and in Annex B, with such modifications to the terms thereof as shall be made in accordance with the flex provisions of the Fee Letter. The Bridge Facility Documentation will contain (i) customary European Union and UK “bail-in” provisions and (ii) customary LIBOR successor provisions based on the ARRC “hardwired” approach. It is understood and agreed that, in the event of a Trust Closing, from the Closing Date until the date on which either (x) the Surface Transportation Board (“STB”) approves the Acquisition, the Voting Trust Agreement is terminated and the Acquired Company becomes subject to the control of the Covenantor and its subsidiaries or (y) the date on which the Covenantor directly or indirectly disposes of the Acquired Business following receipt of a final order by the STB that disallows the control of the Acquired Company by the Covenantor (such period, the “Trust Period”), the Acquired Business and its subsidiaries shall not constitute “subsidiaries” for the purpose of the Bridge Facility Documentation and shall not be subject to the provisions of the Bridge Facility Documentation, except as expressly set forth herein.

Representations and Warranties:

The Bridge Facility Documentation will include only the following representations and warranties, which shall be made by the Covenantor and the Borrower on the Effective Date (as defined below) and on the Closing Date, and be substantially consistent with those in the Borrower’s Existing Credit Agreement (and subject to the Documentation Principles and the Limited Conditionality Provision): incorporation and qualification; corporate power; no conflict with other instruments; corporate actions and governmental approvals; execution and binding obligation; authorizations; ownership of property; no litigation; environmental matters; financial condition; no material adverse effect; ranking; contractual

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	restrictions; and anti-corruption laws and sanctions. In addition, the Bridge Facility Documentation shall contain customary representations as to solvency (after giving effect to the Transactions, with “solvency” to be defined consistent with the solvency certificate attached hereto as Annex B-I), absence of payment and bankruptcy events of default and the Patriot Act.
Conditions Precedent to Borrowing on the Closing Date:	The borrowing under the Facility on the Closing Date will be subject solely to the conditions precedent set forth in Annex B to the Commitment Letter (the “Funding Conditions”).
Affirmative Covenants:	The Bridge Facility Documentation will include only the following affirmative covenants, which shall be applicable to the Covenantor and the Borrower and become effective on the Effective Date, and be substantially consistent with those in the Borrower’s Existing Credit Agreement (and subject to the Documentation Principles and the Limited Conditionality Provision): financial statements and other information; notices of material events; corporate existence; compliance with laws; maintenance of properties and insurance; books and records; payment of taxes; ownership of subsidiaries; anti-corruption laws and sanctions; and, in the event of a Trust Closing, delivery of the financial statements of the Acquired Business (to the extent received therefrom) and other information regarding the Voting Trust and associated STB matters.
Negative Covenants:	The Bridge Facility Documentation will include only the following negative covenants, which shall be applicable to the Covenantor and the Borrower and become effective on the Effective Date, and be substantially consistent with those in the Borrower’s Existing Credit Agreement (and subject to the Documentation Principles and the Limited Conditionality Provision): limitations on liens; mergers, etc.; use of proceeds; disposal of assets; change in business; receivables programs; and Covenantor, Borrower and Designated Subsidiary property (provided that, in the event of a Trust Closing and for so long as the Acquired Business is subject to the Voting Trust, the asset value of the Acquired Business shall be disregarded for purposes of this ring-fencing covenant); and in the event of a Trust Closing, prohibition on modifications of the Voting Trust Agreement or the granting of consents

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thereunder, in each case, that would be materially adverse to the interests of the Lenders, other than any such modifications or consents which are requested by the STB or mandated by applicable law.

Financial Covenant:

Effective as of the Closing Date and tested commencing with the first fiscal quarter ending after the Closing Date, maintenance of a maximum ratio of Funded Net Debt to EBITDA of the Covenantor of not more than 4.75 to 1.0 on the last day of any period of four consecutive Financial Quarters, calculated in accordance with (and capitalized terms to have the meanings set forth in) the Borrower’s Existing Credit Agreement; provided that the term “Funded Net Debt” shall mean the Funded Debt less unrestricted cash and cash equivalents of the Covenantor and its subsidiaries on a consolidated basis from time to time, including, in the event of a Trust Closing, the unrestricted cash and cash equivalents of the Acquired Company and its subsidiaries on a consolidated basis during the Calculation Period (as defined below) (the “Financial Covenant”). For the purposes of testing compliance with the Financial Covenant for all periods ending on or prior to the earlier of (i) the date of termination of the Voting Trust and the release of the shares of the Acquired Company from the Voting Trust to the Covenantor or the Borrower following receipt of a final order by the STB approving or exempting the control of the Acquired Company by the Covenantor or (ii) the date of receipt of a final order by the STB which disallows the control of the Acquired Company by the Covenantor (such earlier date, the “Calculation Date” and the period between the Trust Closing and the Calculation Date, the “Calculation Period”), (x) EBITDA of the Covenantor shall be calculated to include the EBITDA of the Acquired Business and its subsidiaries (collectively, the “Acquired Company EBITDA”) to the same extent as if the Acquisition had been consummated without the Trust Closing and (y) EBITDA shall not include consolidated net income received by the Covenantor or any of its subsidiaries from the Acquired Company during such period that is accounted for by the equity method of accounting; provided that, if at any time prior to the Calculation Date, there has occurred (i) a material adverse change in the business, financial condition, operations, performance or properties of the Acquired Company and its subsidiaries, taken as a whole, or (ii) an insolvency event with respect to the

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Acquired Company of the type contemplated by section 9.1(h) of the Borrower’s Existing Credit Agreement (each of clause (i) or (ii), an “Excluding Event”), then (x) EBITDA shall include the Acquired Company EBITDA only to the extent of cash actually received by the Covenantor, the Borrower or any Designated Subsidiary Guarantor and (y) Funded Debt shall be calculated to exclude the Funded Debt attributable to the Acquired Company and its subsidiaries that is non-recourse to the Covenantor and its subsidiaries (excluding, for the avoidance of doubt, the Acquired Company and its subsidiaries). For all periods ending after the Calculation Date, except to the extent the Acquired Company is a subsidiary of the Covenantor, EBITDA shall include the Acquired Company EBITDA only to the extent of cash actually received by the Covenantor, the Borrower or any Designated Subsidiary Guarantor during such period. During the Calculation Period (and subject to the occurrence of any Excluding Event), Funded Debt shall be calculated to include the Funded Debt attributable to the Acquired Company, notwithstanding that the Acquired Company is not consolidated with the Covenantor under U.S. GAAP. For the avoidance of doubt, after the Calculation Period, Funded Debt of the Covenantor shall be calculated to exclude the Funded Debt attributable to the Acquired Company for so long as the Acquired Company remains in the Voting Trust, unless and until the Acquired Company and its subsidiaries become subsidiaries of the Covenantor upon termination of the Voting Trust.

Events of Default:

The Bridge Facility Documentation will include only the following events of default, which shall be substantially consistent with those in the Borrower’s Existing Credit Agreement (including grace periods, where applicable) (and subject to the Documentation Principles and the Limited Conditionality Provision): non-payment of principal, interest, fees or other amounts; failure of any representation or warranty to be true and correct in any material respect when made or deemed made; non-observance or non-performance of covenants; cross-payment default and cross-acceleration to indebtedness of Covenantor, the Borrower or any Designated Subsidiary in excess of the greater of Cdn. $150,000,000 and 2.0% of Consolidated Equity (as defined in the Borrower’s

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Existing Credit Agreement) (the “Threshold Amount”); bankruptcy or insolvency of Covenantor, the Borrower or any Designated Subsidiary; judgments in excess of the Threshold Amount; Covenantor ceasing to own directly or indirectly 100% of the Borrower (or, during the Trust Period, 100% of the trust certificates issued by, and any other equity interest in, the Voting Trust); or invalidity or unenforceability of the guarantee.

Actions between the Effective Date and the Closing Date:

During the period from and including the effectiveness of the Bridge Facility Documentation (the “Effective Date”) to and including the earlier of the Commitment Termination Date and the funding of the loans under the Facility on the Closing Date, and notwithstanding (i) that any representation given as a condition to the Effective Date (excluding the Specified Representations and Acquisition Agreement Representations constituting Funding Conditions) was incorrect, (ii) any failure by the Covenantor or the Borrower to comply with the affirmative covenants and negative covenants (excluding compliance on the Closing Date with certain negative covenants constituting Funding Conditions), (iii) any provision to the contrary in the Bridge Facility Documentation or (iv) that any condition to the Effective Date may subsequently be determined not to have been satisfied, neither the Administrative Agent nor any Lender shall be entitled to (unless an event of default under the Bridge Facility Documentation shall have occurred and is continuing with respect to bankruptcy of the Covenantor or the Borrower) (a) cancel any of its commitments in respect of the Facility (except as set forth in “Mandatory Prepayments and Commitment Reductions” above), (b) rescind, terminate or cancel the Bridge Facility Documentation or any of its commitments thereunder or exercise any right or remedy under the Bridge Facility Documentation, to the extent to do so would prevent, limit or delay the making of its loan under the Facility, (c) refuse to participate in making its loan under the Facility or (d) exercise any right of set-off or counterclaim in respect of its loan under the Facility to the extent to do so would prevent, limit or delay the making of its loan under the Facility; provided that from the Closing Date after giving effect to the funding of the loans under the Facility on such date, all of the rights, remedies and entitlements of the Administrative Agent and the Lenders shall be available notwithstanding that such rights were not available prior to such time as a result of the

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	foregoing.
Voting:	Substantially consistent with the Borrower’s Existing Credit Agreement.
Cost and Yield Protection:	Usual and customary for facilities and transactions of this type, including customary tax gross-up provisions, consistent with the Borrower’s Existing Credit Agreement (including but not limited to provisions relating to Dodd-Frank and Basel III).
Assignments and Participations:	Subject to the Documentation Principles and substantially consistent with, and no less favorable to the Borrower than, the Borrower’s Existing Credit Agreement as follows: Prior to the Closing Date, the Lenders will not be permitted to assign commitments under the Facility to any person except in accordance with the terms of the syndication provisions of the Commitment Letter.
	From and after the Closing Date, the Lenders will be permitted to assign loans under the Facility to eligible assignees subject to the consent of the Borrower (not to be unreasonably withheld or delayed); provided that no such consent shall be required with respect to any assignment (x) to a Lender, an affiliate of a Lender or an approved fund or (y) if an event of default shall have occurred and be continuing; provided, further, that such consent shall be deemed to have been given if the Borrower shall not have responded to a written request for consent within 10 business days. All assignments shall require the consent of the Administrative Agent (not to be unreasonably withheld or delayed). Each assignment shall be accompanied by the payment of a $3,500 assignment processing fee to Administrative Agent (which fee may be waived by the Administrative Agent in its sole discretion).
	Lenders may sell participations without the consent of any person, provided that any such participation does not create rights in participants to approve amendments or waivers, except in respect of certain customary matters consistent with the Borrower’s Existing Credit Agreement.
Defaulting Lenders:	The Bridge Facility Documentation will contain customary “defaulting Lender” provisions consistent with those found in the Borrower’s Existing Credit Agreement, including the suspension of voting rights and rights to receive certain fees, and the termination

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or assignment of commitments or loans of defaulting Lenders.

Expenses and Indemnification:

Subject to the limitations set forth in Section 5 of the Commitment Letter, the Borrower will indemnify the Arrangers, the Administrative Agent, the Lenders and their respective partners, members, directors, agents, employees and controlling persons (each, an “Indemnified Person”) and hold them harmless from and against all losses, claims, damages or liabilities of such Indemnified Person arising out of or relating to any action, proceeding or investigation (whether or not such investigation, litigation, claim or proceeding is brought by the Borrower, its equity holders or creditors or an Indemnified Person and whether or not any such Indemnified Person is a party thereto) that relates to the Transactions, including the financing contemplated hereby, the Acquisition or any transactions in connection therewith; provided that no Indemnified Person will be indemnified for any losses, claims, damages or liabilities to the extent arising from (x) the gross negligence, willful misconduct or bad faith of the indemnified party or any of its affiliates or (y) such indemnified party’s or any of its affiliates’ material breach of the Bridge Facility Documentation or (z) disputes among Lenders not arising from the Covenantor’s breach of its obligations under the Bridge Facility Documentation (other than a dispute involving a claim against an indemnified party for its acts or omissions in its capacity as an arranger, bookrunner, agent or similar role in respect of the Facility and other than any claims arising out of any act or omission on the part of the Covenantor or its affiliates). Subject to the limitations set forth in Section 5 of the Commitment Letter, the Borrower shall pay (a) all reasonable, documented and invoiced out-of-pocket expenses of the Arrangers and the Administrative Agent in connection with the syndication of the Facility and the preparation, execution, delivery and administration of the Bridge Facility Documentation and any amendment or waiver with respect thereto (provided that any legal expenses shall be limited to one U.S. and one Canadian counsel for the Arrangers and the Administrative Agent and, if reasonably necessary, a single local counsel in each other relevant jurisdiction (which may be a single local counsel acting in multiple jurisdictions)) and (b) all reasonable, documented and invoiced out-of-pocket

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	expenses of the Administrative Agent and the Lenders (provided that any legal expenses shall be limited to one U.S. and one Canadian counsel for the Arrangers and the Administrative Agent and if reasonably necessary, a single local counsel in each other relevant jurisdiction (which may be a single local counsel acting in multiple jurisdictions) and additional counsel to the extent reasonably determined by any Lender to avoid any actual or potential conflicts of interest or the availability of different claims or defenses) in connection with the enforcement of the Bridge Facility Documentation.
Governing Law and Forum:	New York; provided that (a) the interpretation of the definition of “Company Material Adverse Effect” and whether there shall have occurred a Company Material Adverse Effect, (b) whether the Acquisition has been consummated as contemplated by the Acquisition Agreement and (c) whether the representations and warranties made by or with respect to the Acquired Business in the Acquisition Agreement are true and correct and whether as a result of any failure thereof to be true and correct the Borrower (or its affiliates) has the right to terminate its (or their) obligations under the Acquisition Agreement or not to consummate the Acquisition, shall be determined in accordance with the laws of the State of Delaware without regard to principles of conflicts of laws that would result in the application of the laws of another jurisdiction.
Arrangers’ and Administrative Agent’s Counsel:	Davis Polk & Wardwell LLP.

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ANNEX A-I

Interest Rates:			The interest rates under the Facility will be, at the option of the Borrower, (a) Adjusted LIBOR plus the Applicable Adjusted LIBOR Margin (each as defined below) or (b) ABR (as defined below) plus the Applicable Adjusted LIBOR Margin minus 1.00%. The Borrower may elect interest periods of one, three or six months for Adjusted LIBOR borrowings. Calculation of interest shall be on the basis of the actual number of days elapsed in a year of 360 days (or 365 or 366 days, as the case may be, in the case of ABR loans based on the prime rate) and interest shall be paid in arrears (i) at the end of each interest period and no less frequently than quarterly, in the case of Adjusted LIBOR advances, and (ii) quarterly, in the case of ABR advances. “ABR” is the Alternate Base Rate, which is the highest of (a) the Administrative Agent’s prime rate, (b) the Federal Funds Rate (to be defined in the Bridge Facility Documentation) plus one-half of 1.0%, and (c) Adjusted LIBOR for a one-month interest period, plus 1.0%. “Adjusted LIBOR” is the London interbank offered rate for dollars and will at all times include statutory reserves. Adjusted LIBOR shall not be less than 0.00%.
Applicable Adjusted LIBOR Margin:
Borrower’s Senior Unsecured Debt Rating as Assigned by S&P or Moody’s, respectively2	Closing Date until 89 days following the Closing Date	90th day following the Closing Date until 179th day following the Closing Date		180th day following the Closing Date until 269th day following the Closing Date	From the 270th day following the Closing Date
A2/A or higher	87.5 bps	112.5 bps		137.5 bps	162.5 bps
A-/A3	100 bps	125 bps		150 bps	175 bps
BBB+/Baa1	112.5 bps	137.5 bps		162.5 bps	187.5 bps
BBB/Baa2	125 bps	150 bps		175 bps	200 bps
BBB-/Baa3	150 bps	175 bps		200 bps	225 bps
BB+/Ba1 or lower	175 bps	200 bps		225 bps	250 bps
Default Rate:			At any time when the Borrower is in default in the payment of any amount of principal due under the Facility, the overdue amount shall bear interest at 2% above the rate otherwise applicable thereto. Overdue interest, fees and other amounts shall bear interest at 2% above the rate applicable to ABR loans.

2 Split ratings to be handled consistently with the Borrower’s Existing Credit Agreement.

A-I-2

Default Rate:			At any time when the Borrower is in default in the payment of any amount of principal due under the Facility, the overdue amount shall bear interest at 2% above the rate otherwise applicable thereto. Overdue interest, fees and other amounts shall bear interest at 2% above the rate applicable to ABR loans.
Ticking Fee:			The Borrower will pay a fee (the “Ticking Fee”), to the Administrative Agent for the account of each Lender, which will accrue from and including the date that is the later of the Effective Date and the date this is 90 days after the date of the Commitment Letter until and including the earlier of (a) the Closing Date and (b) the termination of the commitments in respect of the Facility, equal to the rate per annum specified in the grid below (computed on the basis of the actual number of days elapsed in a year of 360 days) of the daily undrawn amount of such Lender’s commitment with respect to the Facility, which fee will be due and payable on such earlier date.
Borrower’s Senior Unsecured Debt Rating as Assigned by S&P or Moody’s, respectively3
≥ A2/A	A-/A3	BBB+/Baa1	BBB/Baa2	BBB-/Baa3	≤ BB+/Ba1
7 bps	9 bps	10 bps	12.5 bps	20 bps	25 bps

Duration Fee: The Borrower will pay a fee (the “Duration Fee”), for the ratable benefit of the Lenders, in an amount equal to (i) 0.50% of the aggregate principal amount of the loans under the Facility outstanding on the date which is 90 days after the Closing Date, due and payable in cash on such 90th day (or if such day is not a business day, the next business day); (ii) 0.75% of the aggregate principal amount of the loans under the Facility outstanding on the date which is 180 days after the Closing Date, due and payable in cash on such 180th day (or if such day is not a business day, the next business day); and (iii) 1.00% of the aggregate principal amount of the loans under the Facility outstanding on the date which is 270 days after the Closing Date, due and payable in cash on such 270th day (or if such day is not a business day, the next business day).

3 Split ratings to be handled consistently with the Borrower’s Existing Credit Agreement.

2

ANNEX B

PROJECT CYGNUS

$8,500 Million Senior Unsecured Bridge Term Loan Credit Facility

Conditions4

The borrowing under the Facility shall be subject solely to the satisfaction or waiver by each of (a) BMO, (b) Goldman Sachs and (c) the Commitment Parties holding a majority of the commitments held by the Commitment Parties in respect of the Facility of the following conditions (subject to the Limited Conditionality Provision in all respects):

1.The Acquisition shall have been consummated substantially concurrently with the borrowing under the Facility in accordance with the Acquisition Agreement on or prior to the Commitment Termination Date, and the Acquisition Agreement shall not have been amended or modified, and no condition shall have been waived or consent granted, in any respect that is materially adverse to the Lenders or the Arrangers without the Arrangers’ prior written consent; provided that (a) increases to the purchase price in the form of (i) increased share consideration or (ii) increased cash consideration that either is financed with the proceeds of additional equity issuances or does not exceed 10.0% in the aggregate, in each case, shall not be deemed to be materially adverse to the interests of the Lenders or the Arrangers and shall not require the consent of the Arrangers and (b) decreases to the purchase price shall not be deemed to be materially adverse to the interests of the Lenders or the Arrangers and shall not require the consent of the Arrangers if such purchase price decrease does not exceed 10.0% in the aggregate and, in the case of any cash portion of such reduction, also reduces on a pro rata basis the Arrangers’ respective commitments in respect of the Facility. The Voting Trust Agreement in the form attached to the Acquisition Agreement as of the date hereof shall not have been amended or modified in any respect that is materially adverse to the Lenders or the Arrangers without the Arrangers’ prior written consent, other than any such amendments or modifications which are requested by the STB or mandated by applicable law.

2.The Arrangers shall have received (a)(x) U.S. GAAP audited consolidated balance sheets and related consolidated statements of income, consolidated statements of changes in shareholders’ equity and consolidated statements of cash flows of the Covenantor and its subsidiaries and (y) U.S. GAAP audited consolidated balance sheets and related consolidated statements of income, consolidated statements of changes in equity and consolidated statements of cash flows of the Acquired Company and its subsidiaries, in each case of sub-clauses (x) and (y), for the three most recent fiscal years ended at least 60 days prior to the Closing Date; and (b)(x) U.S. GAAP unaudited interim consolidated balance sheets and related interim consolidated statements of income, interim consolidated statements of changes in shareholders’ equity and interim consolidated statements of cash flows of the Covenantor and its subsidiaries and (y) U.S. GAAP-unaudited consolidated balance sheets and related consolidated statements of income, consolidated statements of changes in equity and consolidated statements of cash flows of the Acquired Company and its subsidiaries, in each case of sub-clauses (x) and (y), for each subsequent fiscal quarter (other than the fourth fiscal quarter) ended at least 40 days before the Closing Date; and (c) customary pro forma financial statements for the most recently completed four-fiscal-quarter period ended at least 40 days before the Closing Date (or 60 days before the Closing Date in the case of the four-fiscal-quarter period ending at the end of a fiscal year), giving effect to the Transactions as if such Transactions had occurred at the beginning of such period; provided that in each case the financial statements required to be delivered by this paragraph 2 shall meet the requirements of Regulation S-X under the Securities Act of 1933, as amended (the “Act”). The Arrangers hereby

4 All capitalized terms used but not defined herein have the meanings given to them in the Commitment Letter to which this Annex B is attached, including Annex A thereto.

1

B-2

acknowledge receipt of the financial statements of the Covenantor and the Acquired Company in the foregoing clause (a) for the fiscal years ended December 31, 2020, December 31, 2019 and December 31, 2018 and in the foregoing clause (b) for the fiscal quarters ended September 30, 2020, June 30, 2020 and March 31, 2020. The Covenantor’s or the Acquired Company’s filing with the Securities and Exchange Commission pursuant to the Act, the Securities Exchange Act of 1934 and the rules and regulations of the SEC promulgated thereunder of any required audited financial statements with respect to it that is publicly available on Form 10-K or required unaudited financial statements with respect to it that is publicly available on Form 10-Q, in each case, will satisfy the requirements under clause (a) or (b), as applicable, of this paragraph.

3.Since the date of the Acquisition Agreement, there not having occurred any circumstance, change or effect that, individually or in the aggregate, has had or would reasonably be expected to have, a “Company Material Adverse Effect” (as defined in the Acquisition Agreement as in effect on the date hereof) on the Acquired Company.

4.Each of the Acquisition Agreement Representations and the Specified Representations shall be true and correct in all material respects (to the extent required by the Limited Conditionality Provision) after giving effect to the making of the loans under the Facility on the Closing Date.

5.The execution and delivery by the Borrower and the Covenantor of the Bridge Facility Documentation consistent with the terms set forth or referred to in this Commitment Letter (modified as provided in the “Market Flex” provisions of the Fee Letter, if applicable) shall have occurred.

6.The Administrative Agent shall have received customary legal opinions of counsel to the Covenantor and the Borrower, corporate organizational documents of the Covenantor and the Borrower, good standing certificates of the Covenantor and the Borrower, resolutions and other customary closing certificates of the Covenantor and the Borrower, and a customary borrowing notice, in each case as are customary for transactions of this type (collectively, the “Closing Deliverables”).

7.The Administrative Agent shall have received a solvency certificate substantially in the form of Annex B-I hereto. The Arrangers and the Lenders shall have received all fees and, to the extent invoiced at least three business days prior to the Closing Date, expenses required to be paid on or prior to the Closing Date pursuant to the Fee Letter or the Bridge Facility Documentation.

8.The Arrangers shall have received at least three business days prior to the Closing Date, to the extent requested at least 10 business days prior to the Closing Date, all documentation and other information required by regulatory authorities under applicable “know your customer” and anti-money-laundering rules and regulations, including, without limitation, the Patriot Act. To the extent the Covenantor or the Borrower qualifies as a “legal entity customer” under the Beneficial Ownership Regulation, the Covenantor or the Borrower, as applicable, shall have delivered, at least five business days prior to the Closing Date, a certification regarding beneficial ownership required by the Beneficial Ownership Regulation.

2

ANNEX B-I

Form of Solvency Certificate

[DATE]

This Solvency Certificate (“Certificate”) of Canadian Pacific Railway Limited (the “Covenantor”), and its Subsidiaries is delivered pursuant to Section [__] of the $8,500 Million Senior Unsecured Bridge Term Loan Credit Agreement, dated as of [_________] (the “Credit Agreement”), by and among the Covenantor, Canadian Pacific Railway Company (the “Borrower”), the Lenders from time to time party thereto and Bank of Montreal, as administrative agent. Unless otherwise defined herein, capitalized terms used in this Certificate shall have the meanings set forth in the Credit Agreement.

I, [_____], the duly elected, qualified and acting [Chief Financial Officer] of the Covenantor and its Subsidiaries, DO HEREBY CERTIFY, in my capacity as [Chief Financial Officer] and not my individual capacity, as follows:

1.    I have reviewed the Credit Agreement and the other Loan Documents referred to therein (collectively, the “Transaction Documents”) and have made such investigation as I have deemed necessary to enable me to express a reasonably informed opinion as to the matters referred to herein.

2.    As of the date hereof, after giving effect to the Transactions, the fair value and the present fair saleable value of any and all property of the Covenantor and its Subsidiaries, on a consolidated basis, is greater than the probable liability on existing debts of the Covenantor and its Subsidiaries, on a consolidated basis, as they become absolute and matured in the ordinary course of business (it being understood that the amount of contingent liabilities at any time shall be computed as the amount that, in the light of all the facts and circumstances existing as of the date hereof, represents the amount that can reasonably be expected to become an actual or matured liability).

3.    As of the date hereof, after giving effect to the Transactions, the Covenantor and its Subsidiaries, on a consolidated basis are able to pay their debts (including, without limitation, contingent and subordinated liabilities) as they become absolute and mature in the ordinary course of business (it being understood that the amount of contingent liabilities at any time shall be computed as the amount that, in the light of all the facts and circumstances existing as of the date hereof, represents the amount that can reasonably be expected to become an actual or matured liability).

4.    As of the date hereof, before and after giving effect to the Transactions, the Covenantor and its Subsidiaries are not engaged in businesses, nor about to engage in businesses, for which any property remaining would, on a consolidated basis, constitute unreasonably small capital after giving due consideration to the prevailing practice in the industry in which they are engaged.

5.    For the purpose of the foregoing, I have assumed there is no default under the Credit Agreement on the date hereof and will be no default under the Credit Agreement after giving effect to the funding under the Credit Agreement.

[Remainder of page intentionally left blank]

EX-22.1

Exhibit 22.1

List of Issuers and Guarantor Subsidiaries

As of the date of the filing of the Form 10-Q of which this exhibit is a part, Canadian Pacific Railway Limited, a corporation incorporated under the laws of Canada (the “Registrant”) has guaranteed each of the following securities issued by Canadian Pacific Railway Company, a corporation incorporated under the laws of Canada and a direct, wholly owned subsidiary of the Registrant (the “Issuer”) subject to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), as amended:

-    The Issuer’s 9.450% debentures due August 2021;

-    The Issuer’s 4.500% notes due January 2022;

-    The Issuer’s 4.450% notes due March 2023;

-    The Issuer’s 2.900% notes due February 2025;

-    The Issuer’s 3.700% notes due February 2026;

-    The Issuer’s 4.000% notes due June 2028;

-    The Issuer’s 2.050% notes due March 2030;

-    The Issuer’s 7.125% notes due October 2031;

-    The Issuer’s 5.750% notes due March 2033;

-    The Issuer’s 4.800% notes due September 2035;

-    The Issuer’s 5.950% notes due May 2037;

-    The Issuer’s 5.750% notes due January 2042;

-    The Issuer’s 4.800% notes due August 2045;

-    The Issuer’s 6.125% notes due September 2115;

-    The Issuer’s Perpetual 4% Consolidated Debenture Stock denominated in U.S. dollars; and

-    The Issuer’s Perpetual 4% Consolidated Debenture Stock denominated in British Pounds Sterling.    

The above list does not include the following guaranteed securities issued under Canadian securities laws, as the following guaranteed securities are not subject to Section 13(a) or 15(d) of the Exchange Act:

- The Issuer’s 5.100% notes due January 2022;

- The Issuer’s 3.150% notes due March 2029;

- The Issuer’s 6.450% notes due November 2039; and

- The Issuer’s 3.050% notes due March 2050.

EX-31.1

Exhibit 31.1

Certification by the Chief Executive Officer of the Registrants filed pursuant to Rule 13a-14(a) of the Exchange Act.

Canadian Pacific Railway Limited

I, Keith Creel, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Canadian Pacific Railway Limited;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: April 21, 2021	/s/ KEITH CREEL
	Keith Creel
	President and Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification by the Chief Financial Officer of the Registrants filed pursuant to Rule 13a-14(a) of the Exchange Act.

Canadian Pacific Railway Limited

I, Nadeem Velani, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Canadian Pacific Railway Limited;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: April 21, 2021	/s/ NADEEM VELANI
	Nadeem Velani
	Executive Vice-President and Chief Financial Officer

EX-32.1

Exhibit 32.1

Certifications Furnished Pursuant to 18 U.S.C. Section 1350,

As Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

Canadian Pacific Railway Limited

In connection with the Quarterly Report of Canadian Pacific Railway Limited (the “Company”) on Form 10-Q for the period ended March 31, 2021 (the “Report”) to which this certificate is an exhibit, I, Keith Creel, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: April 21, 2021	/s/ KEITH CREEL
	Keith Creel
	President and Chief Executive Officer

EX-32.2

Exhibit 32.2

Certifications Furnished Pursuant to 18 U.S.C. Section 1350,

As Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

Canadian Pacific Railway Limited

In connection with the Quarterly Report of Canadian Pacific Railway Limited (the “Company”) on Form 10-Q for the period ended March 31, 2021 (the “Report”) to which this certificate is an exhibit, I, Nadeem Velani, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: April 21, 2021	/s/ NADEEM VELANI
	Nadeem Velani
	Executive Vice-President and Chief Financial Officer

XML

Document and Entity Information Document - shares	3 Months Ended
	Mar. 31, 2021	Apr. 20, 2021
Entity Information [Line Items]
Document Type	10-Q
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2021
Document Period End Date	Mar. 31, 2021
Current Fiscal Year End Date	--12-31
Amendment Flag	false
Document Quarterly Report	true
Document Transition Report	false
Entity File Number	001-01342
Entity Registrant Name	CANADIAN PACIFIC RAILWAY LTD/CN
Entity Central Index Key	0000016875
Entity Incorporation, State or Country Code	Z4
Entity Tax Identification Number	98-0355078
Entity Address, Address Line One	7550 Ogden Dale Road S.E.
Entity Address, City or Town	Calgary
Entity Address, State or Province	AB
Entity Address, Postal Zip Code	T2C 4X9
City Area Code	(403)
Local Phone Number	319-7000
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		133,321,717
Common Shares, without par value, of Canadian Pacific Railway Limited
Entity Information [Line Items]
Title of 12(b) Security	Common Shares, without par value, of Canadian Pacific Railway Limited
Trading Symbol	CP
Security Exchange Name	NYSE
Perpetual 4% Consolidated Debenture Stock of Canadian Pacific Railway Company
Entity Information [Line Items]
Title of 12(b) Security	Perpetual 4% Consolidated Debenture Stock of Canadian Pacific Railway Company
Trading Symbol	CP/40
Security Exchange Name	NYSE

XML

INTERIM CONSOLIDATED STATEMENTS OF INCOME (unaudited) - CAD ($) shares in Millions, $ in Millions	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Revenues
Total revenues	$ 1,959	$ 2,043
Operating expenses
Compensation and benefits	405	398
Fuel	206	212
Materials	59	59
Equipment rents	33	36
Depreciation and amortization	202	192
Purchased services and other	274	312
Total operating expenses	1,179	1,209
Operating income	780	834
Less:
Other (income) expense	(28)	211
Other components of net periodic benefit recovery	(95)	(85)
Net interest expense	110	114
Income before income tax expense	793	594
Income tax expense	191	185
Net income	$ 602	$ 409
Earnings per share
Basic earnings per share	$ 4.52	$ 2.99
Diluted earnings per share	4.50	2.98
Basic earnings per share, Pro forma post-split basis	0.90	0.60
Diluted earnings per share, Pro forma post-split basis	$ 0.90	$ 0.60
Weighted-average number of shares (millions)
Basic	133.3	136.7
Diluted	133.9	137.2
Dividends declared per share	$ 0.95	$ 0.83
Freight
Revenues
Total revenues	$ 1,918	$ 2,000
Non-freight
Revenues
Total revenues	$ 41	$ 43

XML

INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited) - CAD ($) $ in Millions	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Statement of Comprehensive Income [Abstract]
Net income	$ 602	$ 409
Net gain (loss) in foreign currency translation adjustments, net of hedging activities	10	(65)
Change in derivatives designated as cash flow hedges	25	2
Change in pension and post-retirement defined benefit plans	53	45
Other comprehensive income (loss) before income taxes	88	(18)
Income tax (expense) recovery on above items	(30)	60
Other comprehensive income	58	42
Comprehensive income	$ 660	$ 451

XML

INTERIM CONSOLIDATED BALANCE SHEETS AS AT (unaudited) - CAD ($) $ in Millions	Mar. 31, 2021	Dec. 31, 2020
Current assets
Cash and cash equivalents	$ 360	$ 147
Accounts receivable, net	840	825
Materials and supplies	213	208
Other current assets	211	141
Total current assets	1,624	1,321
Investments	199	199
Properties	20,503	20,422
Goodwill and intangible assets	371	366
Pension asset	1,007	894
Other assets	417	438
Total assets	24,121	23,640
Current liabilities
Accounts payable and accrued liabilities	1,418	1,467
Long-term debt maturing within one year	1,782	1,186
Total current liabilities	3,200	2,653
Pension and other benefit liabilities	829	832
Other long-term liabilities	537	585
Long-term debt	7,958	8,585
Deferred income taxes	3,731	3,666
Total liabilities	16,255	16,321
Shareholders’ equity
Share capital	1,993	1,983
Additional paid-in capital	58	55
Accumulated other comprehensive loss	(2,756)	(2,814)
Retained earnings	8,571	8,095
Total shareholders' equity	7,866	7,319
Total liabilities and shareholders’ equity	$ 24,121	$ 23,640

XML

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) - CAD ($) $ in Millions	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Operating activities
Net income	$ 602	$ 409
Reconciliation of net income to cash provided by operating activities:
Depreciation and amortization	202	192
Deferred income tax expense	51	39
Pension recovery and funding	(61)	(65)
Foreign exchange (gain) loss on debt and lease liabilities	(33)	215
Other operating activities, net	(88)	(72)
Change in non-cash working capital balances related to operations	(91)	(229)
Cash provided by operating activities	582	489
Investing activities
Additions to properties	(323)	(355)
Proceeds from sale of properties and other assets	37	2
Other investing activities	0	(9)
Cash used in investing activities	(286)	(362)
Financing activities
Dividends paid	(127)	(114)
Issuance of CP Common Shares	8	24
Purchase of CP Common Shares	0	(501)
Issuance of long-term debt, excluding commercial paper	0	959
Repayment of long-term debt, excluding commercial paper	(21)	(15)
Net issuance (repayment) of commercial paper	93	(553)
Net increase in short-term borrowings	0	145
Acquisition-related costs, Financing activities	(33)	0
Other financing activities	0	11
Cash used in financing activities	(80)	(44)
Effect of foreign currency fluctuations on U.S. dollar-denominated cash and cash equivalents	(3)	31
Cash position
Increase in cash and cash equivalents	213	114
Cash and cash equivalents at beginning of period	147	133
Cash and cash equivalents at end of period	360	247
Supplemental disclosures of cash flow information:
Income taxes paid	133	139
Interest paid	$ 155	$ 157

XML

INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited) - CAD ($) shares in Millions, $ in Millions	Total	Share capital	Additional paid-in capital	Accumulated other comprehensive loss	Retained earnings
Beginning balance (shares) at Dec. 31, 2019	137.0
Beginning balance at Dec. 31, 2019	$ 7,068	$ 1,993	$ 48	$ (2,522)	$ 7,549
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	409	0	0	0	409
Other comprehensive income	42	0	0	42	0
Dividends declared	(112)	0	0	0	(112)
Effect of stock-based compensation expense	$ 5	0	5	0	0
CP Common Shares repurchased (shares)	(1.6)
CP Common Shares repurchased	$ (468)	(21)	0	0	(447)
Shares issued under stock option plan (shares)	0.2
Shares issued under stock option plan	$ 11	13	(2)	0	0
Ending balance (shares) at Mar. 31, 2020	135.6
Ending balance at Mar. 31, 2020	$ 6,955	1,985	51	(2,480)	7,399
Beginning balance (shares) at Dec. 31, 2020	133.3
Beginning balance at Dec. 31, 2020	$ 7,319	1,983	55	(2,814)	8,095
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	602	0	0	0	602
Other comprehensive income	58	0	0	58	0
Dividends declared	(126)	0	0	0	(126)
Effect of stock-based compensation expense	$ 5	0	5	0	0
Shares issued under stock option plan (shares)	0.0
Shares issued under stock option plan	$ 8	10	(2)	0	0
Ending balance (shares) at Mar. 31, 2021	133.3
Ending balance at Mar. 31, 2021	$ 7,866	$ 1,993	$ 58	$ (2,756)	$ 8,571

XML

Basis of Presentation

3 Months Ended

Mar. 31, 2021

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation

Basis of presentation

These unaudited Interim Consolidated Financial Statements ("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 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.

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.

XML

Accounting Changes	3 Months Ended
	Mar. 31, 2021
Accounting Standards Update and Change in Accounting Principle [Abstract]
Accounting Changes	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 March 31, 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.

XML

Revenues

3 Months Ended

Mar. 31, 2021

Revenue from Contract with Customer [Abstract]

Revenues

Revenues

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

	For the three months ended March 31
(in millions of Canadian dollars)	2021		2020
Freight
Grain	$	448	$	418
Coal	163		150
Potash	101		112
Fertilizers and sulphur	77		70
Forest products	80		78
Energy, chemicals and plastics	388		491
Metals, minerals and consumer products	159		189
Automotive	108		87
Intermodal	394		405
Total freight revenues	1,918		2,000
Non-freight excluding leasing revenues	24		29
Revenues from contracts with customers	1,942		2,029
Leasing revenues	17		14
Total revenues	$	1,959	$	2,043

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 March 31
(in millions of Canadian dollars)	2021		2020
Opening balance	$	61	$	146
Revenue recognized that was included in the contract liability balance at the beginning of the period	(11)		(37)
Increase due to consideration received, net of revenue recognized during the period	64		3
Closing balance	$	114	$	112

XML

Other (Income) Expense

3 Months Ended

Mar. 31, 2021

Other Income and Expenses [Abstract]

Other Income and Expenses

Other (income) expense

	For the three months ended March 31
(in millions of Canadian dollars)	2021		2020
Foreign exchange (gain) loss on debt and lease liabilities(1)	$	(33)	$	215
Other foreign exchange losses (gains)	1		(5)
Acquisition-related costs (Note 10)	3		—
Other	1		1
Other (income) expense	$	(28)	$	211

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Income Taxes

3 Months Ended

Mar. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income taxes

	For the three months ended March 31
(in millions of Canadian dollars)	2021		2020
Current income tax expense	$	140	$	146
Deferred income tax expense	51		39
Income tax expense	$	191	$	185

The effective tax rates including discrete items for the three months ended March 31, 2021 was 24.05%, compared to 31.10% for the same period of 2020.

For the three months ended March 31, 2021, the effective tax rate was 24.60%, excluding the discrete items of the acquisition-related costs of $36 million and the FX gain of $33 million on debt and lease liabilities.

For the three months ended March 31, 2020, the effective tax rate was 25.00%, excluding the discrete item of the FX loss of $215 million on debt and lease liabilities.

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Earnings Per Share

3 Months Ended

Mar. 31, 2021

Earnings Per Share [Abstract]

Earnings Per Share

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 March 31
(in millions)	2021	2020
Weighted-average basic shares outstanding	133.3	136.7
Dilutive effect of stock options	0.6	0.5
Weighted-average diluted shares outstanding	133.9	137.2

For the three months ended March 31, 2021, there were no options excluded from the computation of diluted earnings per share (three months ended March 31, 2020 - 0.1 million).

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Changes in Accumulated Other Comprehensive Loss ("AOCL") by Component

3 Months Ended

Mar. 31, 2021

Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract]

Changes in Accumulated Other Comprehensive Loss (AOCL) by Component

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

	For the three months ended March 31
(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, 2021	$	112	$	(48)	$	(2,878)	$	(2,814)
Other comprehensive income before reclassifications	—		17		—		17
Amounts reclassified from accumulated other comprehensive loss	—		2		39		41
Net other comprehensive income	—		19		39		58
Closing balance, March 31, 2021	$	112	$	(29)	$	(2,839)	$	(2,756)
Opening balance, January 1, 2020	$	112	$	(54)	$	(2,580)	$	(2,522)
Other comprehensive income before reclassifications	7		—		—		7
Amounts reclassified from accumulated other comprehensive loss	—		2		33		35
Net other comprehensive income	7		2		33		42
Closing balance, March 31, 2020	$	119	$	(52)	$	(2,547)	$	(2,480)

(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 March 31
(in millions of Canadian dollars)	2021		2020
Recognition of net actuarial loss(1)	$	53	$	45
Income tax recovery	(14)		(12)
Total net of income tax	$	39	$	33

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

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Accounts Receivable, Net

3 Months Ended

Mar. 31, 2021

Accounts Receivable, after Allowance for Credit Loss [Abstract]

Accounts and Nontrade Receivable

Accounts receivable, net

	As at March 31, 2021						As at March 31, 2020
(in millions of Canadian dollars)	Freight		Non-freight		Total		Freight		Non-freight		Total
Total accounts receivable	$	681	$	198	$	879	$	724	$	202	$	926
Allowance for credit losses	(24)		(15)		(39)		(27)		(14)		(41)
Total accounts receivable, net	$	657	$	183	$	840	$	697	$	188	$	885

	For the three months ended March 31, 2021						For the three months ended March 31, 2020
(in millions of Canadian dollars)	Freight		Non-freight		Total		Freight		Non-freight		Total
Allowance for credit losses, opening balance	$	(25)	$	(15)	$	(40)	$	(27)	$	(16)	$	(43)
Current period credit loss provision, net	1		—		1		—		2		2
Allowance for credit losses, closing balance	$	(24)	$	(15)	$	(39)	$	(27)	$	(14)	$	(41)

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Property Sale

3 Months Ended

Mar. 31, 2021

Discontinued Operations and Disposal Groups [Abstract]

Property sale

Property sale

Gain on exchange of property and easements in Chicago

During the first quarter of 2021, the Company exchanged property and property easements in Chicago with a government agency for proceeds of $103 million including cash of $61 million and property assets at a fair value of $42 million. Fair value was determined based on comparable market transactions. The Company recorded a gain in the first quarter within "Purchased services and other" of $50 million ($38 million after tax) from the transaction, and a deferred gain of $53 million which will be recognized in income over the period of use of certain easements.

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Business Acquisition

3 Months Ended

Mar. 31, 2021

Business Combinations [Abstract]

Business Combination

Business acquisition

Pending Kansas City Southern Transaction

On March 21, 2021, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with Kansas City Southern ("KCS").

Upon the approval of the transaction by the shareholders of both the Company and KCS, and satisfaction or waiver of customary closing conditions, the shares of KCS will be deposited into a voting trust subject to a voting trust agreement, pending final approval of the transaction by the Surface Transportation Board ("STB"). This step is expected to be completed in the second half of 2021.

Under the Merger Agreement, common shareholders of KCS will receive 0.489 (exchange ratio) of a common share of the Company and U.S. $90 in cash for each KCS common share held. Preferred shareholders will receive U.S. $37.50 in cash for each KCS preferred share held. The share split (see Note 17) will change the exchange ratio as defined in the Merger Agreement to 2.445 CP shares for every KCS common share.

As of the signing of the Merger Agreement, the transaction represented an enterprise value of approximately U.S. $29 billion, which includes the assumption of U.S. $3.8 billion of outstanding KCS debt. The actual value of the transaction may fluctuate based upon changes in the price of the Company's common shares and the number of shares of KCS common shares, preferred shares and equity awards units outstanding on the closing date. Subject to final approval of the transaction by the STB and other applicable regulatory authorities, the transaction is expected to be completed by the middle of 2022.

In the first quarter of 2021, the Company incurred $36 million in acquisition-related expenses, of which $33 million was recorded within "Purchased services and other" and $3 million was recorded within "Other (income) expense" including the amortization of financing fees associated with new credit facilities (see Note 11). Certain additional acquisition-related costs will become payable only upon closing of the transaction into the voting trust. Total financing fees paid during the first quarter of 2021 for the anticipated debt issuance were $33 million, presented under Cash flow from financing activities in the Company's Interim Consolidated Statements of Cash Flows.

The Merger Agreement includes termination fees for both the Company and KCS. The Company or KCS will be required to pay a termination fee equal to U.S. $700 million if the Merger Agreement is terminated in certain circumstances, including if the Merger Agreement is terminated either because the Company’s or KCS’ boards of directors have changed their recommendation, respectively. The Company will be required to pay a termination fee equal to U.S. $1 billion if the Merger Agreement is terminated in certain circumstances, including (i) failure to obtain required approval from the STB to close into voting trust or (ii) a final non-appealable injunction or similar order that is issued under applicable railroad laws or Section 721 of the United States Defense Production Act of 1950 prohibiting the transaction.

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Debt

3 Months Ended

Mar. 31, 2021

Debt Disclosure [Abstract]

Debt

Debt

Credit facility

Effective March 21, 2021, the Company obtained commitments for a new U.S. $8.5 billion 364-day senior unsecured facility to bridge financing requirements for the pending KCS transaction.

Effective April 9, 2021, the Company amended the financial covenant within its existing revolving credit facility to provide flexibility upon close of the pending KCS transaction.

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 March 31, 2021, the Company had total commercial paper borrowings of U.S. $715 million (December 31, 2020 - U.S. $644 million). The weighted-average interest rate on these borrowings was 0.21% (December

31, 2020 - 0.27%). 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.

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Financial Instruments

3 Months Ended

Mar. 31, 2021

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Financial Instruments

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. 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.

For non-exchange traded derivatives classified as Level 2, the Company uses standard valuation techniques to calculate fair value. Primary inputs to these techniques include observable market prices (interest, FX, and commodity) and volatility, depending on the type of derivative and nature of the underlying risk. The Company uses inputs and data used by willing market participants when valuing derivatives and considers its own credit default swap spread as well as those of its counterparties in its determination of fair value. All derivatives are classified as Level 2.

The Company’s short-term financial instruments include cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, and short-term borrowings including commercial paper. The carrying value of short-term financial instruments all approximate their fair values.

The carrying value of the Company’s debt and finance lease liabilities do not approximate their fair value. Their estimated fair value 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. All measurements are classified as Level 2. The Company’s debt and finance lease liabilities, including current maturities, with a carrying value of $8,841 million at March 31, 2021 (December 31, 2020 - $8,951 million), had a fair value of $10,609 million (December 31, 2020 - $11,597 million).

B. Financial risk management

FX management

Net investment hedge

The effect of the Company's net investment hedge for the three months ended March 31, 2021 was an unrealized FX gain of $76 million (three months ended March 31, 2020 - an unrealized FX loss of $555 million) recognized in “Other comprehensive income”.

FX forward contracts

During the first quarter of 2021, the Company entered into various FX forward contracts totalling a notional U.S. $800 million to fix the FX rate and lock-in a portion of the amount of Canadian dollars it may borrow to finance the U.S. dollar-denominated cash purchase consideration of the pending KCS transaction. The changes in fair value on the FX forward contracts were recorded in "Other (income) expense" on the Company's Interim Consolidated Statements of Income, with the offsetting unrealized gains and losses included in "Other current assets" and "Accounts payable and accrued liabilities" on the Company's Interim Consolidated Balance Sheets. For the three months ended March 31, 2021, the change in fair value on the FX forward contracts was negligible.

During April 2021, the Company entered into additional FX forward contracts totalling a notional U.S. $200 million to fix the FX rate and lock-in a portion of the amount of Canadian dollars it may use to finance the pending U.S. dollar-denominated KCS transaction.

Interest rate management

Forward starting swaps

During the first quarter of 2021, the Company entered into forward starting floating-to-fixed interest rate swap agreements ("forward starting swaps") with terms of up to 30 years, totalling a notional U.S. $1.8 billion to fix the benchmark rate on cash flows associated with highly probable forecasted issuances of long-term notes. The changes in fair value on the forward starting swaps is recorded in “Accumulated other comprehensive loss”, net of tax, as cash flow hedges until the notes are issued. Subsequent to the notes issuance, amounts in “Accumulated other comprehensive loss” will be reclassified to “Net interest expense”. As at March 31, 2021, the unrealized fair value gain derived from the forward starting swaps of $20 million was included in "Other current assets" on the Company’s Interim Consolidated Balance Sheets, with the offset reflected in "Other comprehensive income" on the Company’s Interim Consolidated Statements of Comprehensive Income.

During April 2021, the Company entered into additional forward starting swaps with terms of up to 30 years, totalling a notional U.S. $600 million to fix the benchmark rate on cash flows associated with highly probable issuances of long-term notes.

Bond locks

During the first quarter of 2021, the Company entered into 7-year interest rate bond locks totalling a notional $600 million to fix the benchmark rate on cash flows associated with highly probable forecasted issuance of long-term notes. The changes in fair value on the bond locks is recorded in “Accumulated other comprehensive loss”, net of tax, as cash flow hedges until the notes are issued. Subsequent to the notes issuance, amounts in “Accumulated other comprehensive loss” will be reclassified to “Net interest expense”. As at March 31, 2021, the unrealized fair value gain derived from the bond locks of $2 million was included in "Other current assets" on the Company’s Interim Consolidated Balance Sheets, with the offset reflected in "Other comprehensive income" on the Company’s Interim Consolidated Statements of Comprehensive Income.

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Shareholders' Equity

3 Months Ended

Mar. 31, 2021

Stockholders' Equity Note [Abstract]

Shareholders' Equity

Shareholders' equity

On January 27, 2021, the Company announced a normal course issuer bid ("NCIB"), commencing January 29, 2021, to purchase up to 3.33 million Common Shares in the open market for cancellation on or before January 28, 2022. As at March 31, 2021, the Company had not purchased any Common Shares under this NCIB. As a result of the pending KCS transaction, the Company does not plan to purchase any Common Shares under this program.

On December 17, 2019, the Company announced a NCIB, commencing December 20, 2019, to purchase up to 4.80 million Common Shares for cancellation on or before December 19, 2020. Upon expiry of this NCIB, the Company had purchased 4.27 million Common Shares for $1,577 million.

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 ("TSX"), 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 March 31
	2021		2020
Number of Common Shares repurchased(1)	—		1,455,854
Weighted-average price per share(2)	$	—	$	321.71
Amount of repurchase (in millions of Canadian dollars)(2)	$	—	$	468

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

(2)Includes brokerage fees.

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Pension and Other Benefits

3 Months Ended

Mar. 31, 2021

Retirement Benefits [Abstract]

Pensions and Other Benefits

Pension and other benefits

In the three months ended March 31, 2021, the Company made contributions of $4 million (three months ended March 31, 2020 - $9 million) to its defined benefit pension plans.

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

	For the three months ended March 31
	Pensions				Other benefits
(in millions of Canadian dollars)	2021		2020		2021		2020
Current service cost (benefits earned by employees)	$	43	$	35	$	3	$	3
Other components of net periodic benefit (recovery) cost:
Interest cost on benefit obligation	88		102		4		5
Expected return on fund assets	(240)		(237)		—		—
Recognized net actuarial loss	52		44		1		1
Total other components of net periodic benefit (recovery) cost	(100)		(91)		5		6
Net periodic benefit (recovery) cost	$	(57)	$	(56)	$	8	$	9

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Stock-Based Compensation

3 Months Ended

Mar. 31, 2021

Share-based Payment Arrangement [Abstract]

Stock-Based Compensation

Stock-based compensation At March 31, 2021, the Company had several stock-based compensation plans including stock option plans, various cash-settled liability plans, and an employee share purchase plan. These plans resulted in an expense for the three months ended March 31, 2021 of $24 million (three months ended March 31, 2020 - expense of $11 million).

Stock option plan

In the three months ended March 31, 2021, under CP’s stock option plans, the Company issued 266,698 options at the weighted-average price of $437.94 per share, based on the closing price on the grant date. Pursuant to the employee plan, these options may be exercised upon vesting, which is between 12 months and 48 months after the grant date, and will expire after seven years.

Under the fair value method, the fair value of the stock options at grant date was approximately $25 million. The weighted-average fair value assumptions were approximately:

	For the three months ended March 31, 2021
Expected option life (years)(1)	4.75
Risk-free interest rate(2)	0.53%
Expected share price volatility(3)	27.14%
Expected annual dividends per share(4)	$3.80
Expected forfeiture rate(5)	2.60%
Weighted-average grant date fair value per option granted during the period	$95.16

(1)Represents the period of time that awards are expected to be outstanding. Historical data on exercise behaviour or, when available, specific expectations regarding future exercise behaviour were used to estimate the expected life of the option.

(2)Based on the implied yield available on zero-coupon government issues with an equivalent term commensurate with the expected term of the option.

(3)Based on the historical volatility of the Company’s share price over a period commensurate with the expected term of the option.

(4)Determined by the current annual dividend at the time of grant. The Company does not employ different dividend yields throughout the contractual term of the option.

(5)The Company estimates forfeitures based on past experience. This rate is monitored on a periodic basis.

Performance share unit plans

During the three months ended March 31, 2021, the Company issued 84,672 Performance Share Units ("PSUs") with a grant date fair value of approximately $36 million and 2,539 Performance Deferred Share Units ("PDSUs") with a grant date fair value, including the value of expected future matching units, of approximately $1 million. PSUs and PDSUs attract dividend equivalents in the form of additional units based on dividends paid on the Company’s Common Shares, and vest approximately three years after the grant date, contingent upon CP’s performance ("performance factor"). The fair value of these PSUs and PDSUs is measured periodically until settlement. Vested PSUs are settled in cash. Vested PDSUs are settled in cash pursuant to the Deferred Share Unit ("DSU") Plan and are eligible for a 25% match if the holder has not exceeded their share ownership requirements, and are paid out only when the holder ceases their employment with CP.

The performance period for PSUs and PDSUs issued in the three months ended March 31, 2021 is January 1, 2021 to December 31, 2023 and the performance factors are Return on Invested Capital ("ROIC"), Total Shareholder Return ("TSR") compared to the S&P/TSX 60 Index, and TSR compared to Class I railways.

The performance period for PSUs issued in 2018 was January 1, 2018 to December 31, 2020. The performance factors for 125,280 PSUs were ROIC, TSR compared to the S&P/TSX Capped Industrial Index, and TSR compared to the S&P 1500 Road and Rail Index. The resulting payout was 200% of the outstanding units multiplied by the Company's average share price calculated using the last 30 trading days preceding December 31, 2020. In the first quarter of 2021, payouts occurred on 114,014 total outstanding awards, including dividends reinvested, totalling $98 million. The performance factors for the remaining 36,975 PSUs were annual revenue for the fiscal year 2020, diluted earnings per share for the fiscal year 2020, and share price appreciation.

Deferred share unit plan

During the three months ended March 31, 2021, the Company granted 9,170 DSUs with a grant date fair value of approximately $4 million. DSUs vest over various periods of up to 36 months and are only redeemable for a specified period after employment is terminated. The expense for DSUs is recognized over the vesting period for both the initial subscription price and the change in value between reporting periods.

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Contingencies

3 Months Ended

Mar. 31, 2021

Commitments and Contingencies Disclosure [Abstract]

Contingencies

Contingencies In the normal course of its operations, the Company becomes involved in various legal actions, including claims relating to injuries and damage to property. The Company maintains provisions it considers to be adequate for such actions. While the final outcome with respect to actions outstanding or pending at March 31, 2021 cannot be predicted with certainty, it is the opinion of management that their resolution will not have a material adverse effect on the Company’s business, financial position or results of operations.

Legal proceedings related to Lac-Mégantic rail accident

On July 6, 2013, a train carrying petroleum crude oil operated by Montréal Maine and Atlantic Railway (“MMAR”) or a subsidiary, Montréal Maine & Atlantic Canada Co. (“MMAC” and collectively the “MMA Group”), derailed in Lac-Mégantic, Québec. The derailment occurred on a section of railway owned and operated by the MMA Group and while the MMA Group exclusively controlled the train.

Following the derailment, MMAC sought court protection in Canada under the Companies’ Creditors Arrangement Act and MMAR filed for bankruptcy in the U.S. Plans of arrangement were approved in both Canada and the U.S. (the “Plans”), providing for the distribution of approximately $440 million amongst those claiming derailment damages.

A number of legal proceedings, set out below, were commenced in Canada and the U.S. against CP and others:

(1)Québec's Minister of Sustainable Development, Environment, Wildlife and Parks ordered various parties, including CP, to remediate the derailment site (the "Cleanup Order") and served CP with a Notice of Claim for $95 million for those 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 was responsible for the petroleum crude oil from its point of origin until its delivery to Irving Oil Ltd.; 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, property damage, and economic loss.

(4)Eight subrogated insurers sued CP in the Québec Superior Court claiming approximately $16 million in damages, which was amended and reduced to approximately $15 million (the “Promutuel Action”), and two 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. As such, the extent of any overlap between the damages claimed in these actions and under the Plans is unclear. The Royal Action is stayed pending determination of the consolidated proceedings described below.

On December 11, 2017, the AGQ Action, the Class Action and the Promutuel Action were consolidated. These consolidated claims are currently scheduled for a joint liability trial commencing on or around September 13, 2021, followed by a damages trial, if necessary.

(5)Forty-eight plaintiffs (all individual claims joined in one action) sued CP, MMAC, and Harding in the Québec Superior Court claiming approximately $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 majority of 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. bankruptcy 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 approximately U.S. $30 million in damages for MMAR’s loss in business value according to a recent report. 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 Federal District Court in Maine (the “Maine Actions”). The Maine Actions allege that CP negligently misclassified and improperly packaged the petroleum crude oil. On CP’s motion, the Maine Actions were dismissed. The plaintiffs are appealing the dismissal decision, which is pending.

(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). The Court issued an Order on August 6, 2020 granting and denying in parts the parties' summary judgment motions which has been reviewed and confirmed following motions by the parties for clarification and reconsideration. This action is scheduled for trial on September 21, 2021.

At this stage of the proceedings, any potential responsibility and the quantum of potential losses cannot be determined. Nevertheless, CP denies liability and is vigorously defending these proceedings.

Environmental liabilities

Environmental remediation accruals, recorded on an undiscounted basis unless a reliable, determinable estimate as to an amount and timing of costs can be established, cover site-specific remediation programs.

The accruals for environmental remediation represent CP’s best estimate of its probable future obligation and include both asserted and unasserted claims, without reduction for anticipated recoveries from third parties. Although the recorded accruals include CP’s best estimate of all probable costs, CP’s total environmental remediation costs cannot be predicted with certainty. Accruals for environmental remediation may change from time to time as new information about previously untested sites becomes known, and as environmental laws and regulations evolve and advances are made in environmental remediation technology. The accruals may also vary as the courts decide legal proceedings against outside parties responsible for contamination. These potential charges, which cannot be quantified at this time, may materially affect income in the particular period in which a charge is recognized. Costs related to existing, but as yet unknown, or future contamination will be accrued in the period in which they become probable and reasonably estimable.

The expense included in “Purchased services and other” for the three months ended March 31, 2021 was $2 million (three months ended March 31, 2020 - $1 million). 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”. The total amount provided at March 31, 2021 was $81 million (December 31, 2020 - $80 million). Payments are expected to be made over 10 years through 2030.

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Subsequent Event

3 Months Ended

Mar. 31, 2021

Subsequent Events [Abstract]

Subsequent Event

Subsequent event

On April 21, 2021, the Company's shareholders approved a five-for-one share split of the Company's issued and outstanding Common Shares such that, as a result of the share split, each Common Share will become five Common Shares. The record date for the share split will be May 5, 2021 and the shareholders of record as of the record date will receive, on the payment date of May 13, 2021, four additional shares for every one Common Share held. Proportional adjustments will also be made to outstanding awards under the Company's stock-based compensation plans in order to reflect the share split. Pro forma earnings per share amounts are disclosed in the Company's Interim Consolidated Statements of Income to show the effect of the share split.

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Basis of Presentation (Policies)

3 Months Ended

Mar. 31, 2021

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of presentation

These unaudited Interim Consolidated Financial Statements ("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 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.

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.

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Accounting Changes (Policies)	3 Months Ended
	Mar. 31, 2021
Accounting Standards Update and Change in Accounting Principle [Abstract]
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 March 31, 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.

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Revenues (Tables)

3 Months Ended

Mar. 31, 2021

Revenue from Contract with Customer [Abstract]

Disaggregation of Revenue

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

	For the three months ended March 31
(in millions of Canadian dollars)	2021		2020
Freight
Grain	$	448	$	418
Coal	163		150
Potash	101		112
Fertilizers and sulphur	77		70
Forest products	80		78
Energy, chemicals and plastics	388		491
Metals, minerals and consumer products	159		189
Automotive	108		87
Intermodal	394		405
Total freight revenues	1,918		2,000
Non-freight excluding leasing revenues	24		29
Revenues from contracts with customers	1,942		2,029
Leasing revenues	17		14
Total revenues	$	1,959	$	2,043

Changes in Contract Liabilities

The following table summarizes the changes in contract liabilities:

	For the three months ended March 31
(in millions of Canadian dollars)	2021		2020
Opening balance	$	61	$	146
Revenue recognized that was included in the contract liability balance at the beginning of the period	(11)		(37)
Increase due to consideration received, net of revenue recognized during the period	64		3
Closing balance	$	114	$	112

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Other (Income) Expense (Tables)

3 Months Ended

Mar. 31, 2021

Other Income and Expenses [Abstract]

Other Income and Expenses

	For the three months ended March 31
(in millions of Canadian dollars)	2021		2020
Foreign exchange (gain) loss on debt and lease liabilities(1)	$	(33)	$	215
Other foreign exchange losses (gains)	1		(5)
Acquisition-related costs (Note 10)	3		—
Other	1		1
Other (income) expense	$	(28)	$	211

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Income Taxes (Tables)

3 Months Ended

Mar. 31, 2021

Income Tax Disclosure [Abstract]

Summary of Income Tax Expense

	For the three months ended March 31
(in millions of Canadian dollars)	2021		2020
Current income tax expense	$	140	$	146
Deferred income tax expense	51		39
Income tax expense	$	191	$	185

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Earnings Per Share (Tables)

3 Months Ended

Mar. 31, 2021

Earnings Per Share [Abstract]

Shares Used in the Earnings Per Share Calculation

The number of shares used in the earnings per share calculations are reconciled as follows:

	For the three months ended March 31
(in millions)	2021	2020
Weighted-average basic shares outstanding	133.3	136.7
Dilutive effect of stock options	0.6	0.5
Weighted-average diluted shares outstanding	133.9	137.2

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Changes in Accumulated Other Comprehensive Loss ("AOCL") by Component (Tables)

3 Months Ended

Mar. 31, 2021

Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract]

Changes in Accumulated Other Comprehensive Income Loss by Component

	For the three months ended March 31
(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, 2021	$	112	$	(48)	$	(2,878)	$	(2,814)
Other comprehensive income before reclassifications	—		17		—		17
Amounts reclassified from accumulated other comprehensive loss	—		2		39		41
Net other comprehensive income	—		19		39		58
Closing balance, March 31, 2021	$	112	$	(29)	$	(2,839)	$	(2,756)
Opening balance, January 1, 2020	$	112	$	(54)	$	(2,580)	$	(2,522)
Other comprehensive income before reclassifications	7		—		—		7
Amounts reclassified from accumulated other comprehensive loss	—		2		33		35
Net other comprehensive income	7		2		33		42
Closing balance, March 31, 2020	$	119	$	(52)	$	(2,547)	$	(2,480)

(1)Amounts are presented net of tax.

Amounts in Pension and Post-retirement Defined Benefit Plans Reclassified from AOCL

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

	For the three months ended March 31
(in millions of Canadian dollars)	2021		2020
Recognition of net actuarial loss(1)	$	53	$	45
Income tax recovery	(14)		(12)
Total net of income tax	$	39	$	33

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

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Accounts Receivable, Net (Tables)

3 Months Ended

Mar. 31, 2021

Accounts Receivable, after Allowance for Credit Loss [Abstract]

Schedule of Accounts Receivable, Net

	As at March 31, 2021						As at March 31, 2020
(in millions of Canadian dollars)	Freight		Non-freight		Total		Freight		Non-freight		Total
Total accounts receivable	$	681	$	198	$	879	$	724	$	202	$	926
Allowance for credit losses	(24)		(15)		(39)		(27)		(14)		(41)
Total accounts receivable, net	$	657	$	183	$	840	$	697	$	188	$	885

Accounts Receivable, Allowance for Credit Loss

	For the three months ended March 31, 2021						For the three months ended March 31, 2020
(in millions of Canadian dollars)	Freight		Non-freight		Total		Freight		Non-freight		Total
Allowance for credit losses, opening balance	$	(25)	$	(15)	$	(40)	$	(27)	$	(16)	$	(43)
Current period credit loss provision, net	1		—		1		—		2		2
Allowance for credit losses, closing balance	$	(24)	$	(15)	$	(39)	$	(27)	$	(14)	$	(41)

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Shareholders' Equity (Tables)

3 Months Ended

Mar. 31, 2021

Stockholders' Equity Note [Abstract]

Activities Under Share Repurchase Program

The following table provides activities under the share repurchase programs:

	For the three months ended March 31
	2021		2020
Number of Common Shares repurchased(1)	—		1,455,854
Weighted-average price per share(2)	$	—	$	321.71
Amount of repurchase (in millions of Canadian dollars)(2)	$	—	$	468

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

(2)Includes brokerage fees.

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Pension and Other Benefits (Tables)

3 Months Ended

Mar. 31, 2021

Retirement Benefits [Abstract]

Net Periodic Benefit Cost for Defined Benefit Pension Plans and Other Benefits

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

	For the three months ended March 31
	Pensions				Other benefits
(in millions of Canadian dollars)	2021		2020		2021		2020
Current service cost (benefits earned by employees)	$	43	$	35	$	3	$	3
Other components of net periodic benefit (recovery) cost:
Interest cost on benefit obligation	88		102		4		5
Expected return on fund assets	(240)		(237)		—		—
Recognized net actuarial loss	52		44		1		1
Total other components of net periodic benefit (recovery) cost	(100)		(91)		5		6
Net periodic benefit (recovery) cost	$	(57)	$	(56)	$	8	$	9

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Stock-Based Compensation (Tables)

3 Months Ended

Mar. 31, 2021

Share-based Payment Arrangement [Abstract]

Weighted-Average Fair Value Assumptions

The weighted-average fair value assumptions were approximately:

	For the three months ended March 31, 2021
Expected option life (years)(1)	4.75
Risk-free interest rate(2)	0.53%
Expected share price volatility(3)	27.14%
Expected annual dividends per share(4)	$3.80
Expected forfeiture rate(5)	2.60%
Weighted-average grant date fair value per option granted during the period	$95.16

(1)Represents the period of time that awards are expected to be outstanding. Historical data on exercise behaviour or, when available, specific expectations regarding future exercise behaviour were used to estimate the expected life of the option.

(2)Based on the implied yield available on zero-coupon government issues with an equivalent term commensurate with the expected term of the option.

(3)Based on the historical volatility of the Company’s share price over a period commensurate with the expected term of the option.

(4)Determined by the current annual dividend at the time of grant. The Company does not employ different dividend yields throughout the contractual term of the option.

(5)The Company estimates forfeitures based on past experience. This rate is monitored on a periodic basis.

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Revenues - Disaggregation of Revenue (Details) - CAD ($) $ in Millions	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Disaggregation of Revenue [Line Items]
Revenue from contracts with customers	$ 1,942	$ 2,029
Leasing revenues	17	14
Total revenues	1,959	2,043
Freight
Disaggregation of Revenue [Line Items]
Revenue from contracts with customers	1,918	2,000
Total revenues	1,918	2,000
Grain
Disaggregation of Revenue [Line Items]
Revenue from contracts with customers	448	418
Coal
Disaggregation of Revenue [Line Items]
Revenue from contracts with customers	163	150
Potash
Disaggregation of Revenue [Line Items]
Revenue from contracts with customers	101	112
Fertilizers and sulphur
Disaggregation of Revenue [Line Items]
Revenue from contracts with customers	77	70
Forest products
Disaggregation of Revenue [Line Items]
Revenue from contracts with customers	80	78
Energy, chemicals and plastics
Disaggregation of Revenue [Line Items]
Revenue from contracts with customers	388	491
Metals, minerals and consumer products
Disaggregation of Revenue [Line Items]
Revenue from contracts with customers	159	189
Automotive
Disaggregation of Revenue [Line Items]
Revenue from contracts with customers	108	87
Intermodal
Disaggregation of Revenue [Line Items]
Revenue from contracts with customers	394	405
Non-freight excluding leasing revenues
Disaggregation of Revenue [Line Items]
Revenue from contracts with customers	$ 24	$ 29

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Revenues - Contract Liabilities (Details) - CAD ($) $ in Millions	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Contract with Customer, Liability [Abstract]
Opening balance	$ 61	$ 146
Revenue recognized that was included in the contract liability balance at the beginning of the period	(11)	(37)
Increase due to consideration received, net of revenue recognized during the period	64	3
Closing balance	$ 114	$ 112

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Other (Income) Expense - Other Income and Expense (Details) - CAD ($) $ in Millions	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Other Income and Expenses [Abstract]
Foreign exchange (gain) loss on debt and lease liabilities	$ (33)	$ 215
Other foreign exchange losses (gains)	1	(5)
Acquisition-related costs, Other (income) expense	3	0
Other	1	1
Other (income) expense	$ (28)	$ 211

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Income Taxes - Summary of Income Tax Expense (Details) - CAD ($) $ in Millions	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Income Tax Disclosure [Abstract]
Current income tax expense	$ 140	$ 146
Deferred income tax expense	51	39
Income tax expense	$ 191	$ 185

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Income Taxes - Narrative (Details) - CAD ($) $ in Millions	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Income Tax Disclosure [Abstract]
Effective tax rate	24.05%	31.10%
Effective tax rate, excluding discrete items	24.60%	25.00%
Foreign exchange (gain) loss on debt and lease liabilities	$ (33)	$ 215
Acquisition-related costs	$ (36)

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Earnings Per Share - Number of Shares Used in the Earnings Per Share Calculations (Details) - shares shares in Millions	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Earnings Per Share [Abstract]
Weighted-average basic shares outstanding	133.3	136.7
Dilutive effect of stock options	0.6	0.5
Weighted-average diluted shares outstanding	133.9	137.2

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Earnings Per Share - Narrative (Details) - shares shares in Millions	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Stock Options
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Number of options excluded from the computation of diluted earnings per share	0.0	0.1

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Changes in Accumulated Other Comprehensive Loss ("AOCL") by Component - Changes in Accumulated Other Comprehensive Loss (AOCL) by Component (Details) - CAD ($) $ in Millions	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
AOCI Including Portion Attributable to Noncontrolling Interest, Net of Tax [Roll Forward]
AOC Income (Loss), Opening balance	$ (2,814)	$ (2,522)
Other comprehensive income before reclassifications	17	7
Amounts reclassified from accumulated other comprehensive loss	41	35
Net other comprehensive income	58	42
AOC Income (Loss), Closing balance	(2,756)	(2,480)
Foreign currency net of hedging activities
AOCI Including Portion Attributable to Noncontrolling Interest, Net of Tax [Roll Forward]
AOC Income (Loss), Opening balance	112	112
Other comprehensive income before reclassifications	0	7
Amounts reclassified from accumulated other comprehensive loss	0	0
Net other comprehensive income	0	7
AOC Income (Loss), Closing balance	112	119
Derivatives and other
AOCI Including Portion Attributable to Noncontrolling Interest, Net of Tax [Roll Forward]
AOC Income (Loss), Opening balance	(48)	(54)
Other comprehensive income before reclassifications	17	0
Amounts reclassified from accumulated other comprehensive loss	2	2
Net other comprehensive income	19	2
AOC Income (Loss), Closing balance	(29)	(52)
Pension and post-retirement defined benefit plans
AOCI Including Portion Attributable to Noncontrolling Interest, Net of Tax [Roll Forward]
AOC Income (Loss), Opening balance	(2,878)	(2,580)
Other comprehensive income before reclassifications	0	0
Amounts reclassified from accumulated other comprehensive loss	39	33
Net other comprehensive income	39	33
AOC Income (Loss), Closing balance	$ (2,839)	$ (2,547)

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Changes in Accumulated Other Comprehensive Loss ("AOCL") by Component - Amounts in Pension and Post-retirement Defined Benefit Plans Reclassified from AOCL (Details) - Reclassification out of Accumulated Other Comprehensive Income - CAD ($) $ in Millions	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Accumulated Other Comprehensive Income (Loss) [Line Items]
Recognition of net actuarial loss	$ 53	$ 45
Income tax recovery	(14)	(12)
Total net of income tax	$ 39	$ 33

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Accounts Receivable, Net - Schedule of Accounts Receivable (Details) - CAD ($) $ in Millions	Mar. 31, 2021	Dec. 31, 2020	Mar. 31, 2020	Dec. 31, 2019
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total accounts receivable	$ 879		$ 926
Allowance for credit losses	(39)	$ (40)	(41)	$ (43)
Total accounts receivable, net	840		885
Freight
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total accounts receivable	681		724
Allowance for credit losses	(24)	(25)	(27)	(27)
Total accounts receivable, net	657		697
Non-freight
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total accounts receivable	198		202
Allowance for credit losses	(15)	$ (15)	(14)	$ (16)
Total accounts receivable, net	$ 183		$ 188

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Accounts Receivable, Net - Allowance for Credit Loss (Details) - CAD ($) $ in Millions	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Allowance for Credit Loss [Roll Forward]
Allowance for credit losses, opening balance	$ (40)	$ (43)
Current period credit loss provision, net	1	2
Allowance for credit losses, closing balance	(39)	(41)
Freight
Allowance for Credit Loss [Roll Forward]
Allowance for credit losses, opening balance	(25)	(27)
Current period credit loss provision, net	1	0
Allowance for credit losses, closing balance	(24)	(27)
Non-freight
Allowance for Credit Loss [Roll Forward]
Allowance for credit losses, opening balance	(15)	(16)
Current period credit loss provision, net	0	2
Allowance for credit losses, closing balance	$ (15)	$ (14)

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Property Sale (Details) - Chicago property and easements $ in Millions	3 Months Ended
	Mar. 31, 2021 CAD ($)
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Proceeds from exchanged property and property easements	$ 103
Cash proceeds from properties and easements	61
Property assets, Fair value acquired	42
Gain on exchange of properties and easements	50
Gain on exchange of property and easements, after tax	38
Deferred gain on exchange of property and easements	$ 53

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Business Acquisition (Details) $ / shares in Units, $ in Millions, $ in Millions	3 Months Ended
	Mar. 31, 2021 CAD ($)	Mar. 31, 2020 CAD ($)	Mar. 21, 2021 $ / shares	Mar. 21, 2021 USD ($) shares
Business Acquisition [Line Items]
Acquisition-related costs	$ 36
Acquisition-related costs, Financing fees	33	$ 0
KCS [Member]
Business Acquisition [Line Items]
Exchange ratio of CP common share to KCS common share | shares				0.489
Exchange ratio of CP common share to KCS common share, Post share split | shares				2.445
KCS transaction enterprise value				$ 29,000
Outstanding KCS debt				3,800
Acquisition-related costs	36
Acquisition-related costs, Financing fees	33
Termination Fee, Change in Board Recommendation				700
Termination Fee, Required Regulatory Approval				$ 1,000
KCS [Member] | Purchased services and other
Business Acquisition [Line Items]
Acquisition-related costs	33
KCS [Member] | Other (Income) Expense
Business Acquisition [Line Items]
Acquisition-related costs	$ 3
KCS [Member] | Common stock
Business Acquisition [Line Items]
Cash for KCS share held | $ / shares			$ 90
KCS [Member] | Preferred Stock
Business Acquisition [Line Items]
Cash for KCS share held | $ / shares			$ 37.50

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Debt - Narrative (Details) - USD ($)	Mar. 31, 2021	Dec. 31, 2020
Commercial Paper
Debt Instrument [Line Items]
Maximum borrowing capacity	$ 1,000,000,000.0
Commercial paper borrowings	$ 715,000,000	$ 644,000,000
Weighted-average interest rate	0.21%	0.27%
U.S. $8.5 Billion Bridge Facility
Debt Instrument [Line Items]
Maximum borrowing capacity	$ 8,500,000,000
Revolving Credit Facility
Debt Instrument [Line Items]
Maximum borrowing capacity	$ 1,300,000,000

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Financial Instruments - Narrative (Details) $ in Millions, $ in Millions	3 Months Ended
	Mar. 31, 2021 CAD ($)	Mar. 31, 2020 CAD ($)	Jun. 30, 2021 USD ($)	Mar. 31, 2021 USD ($)	Dec. 31, 2020 CAD ($)
Schedule of Investments [Line Items]
Debt and finance lease liabilities, Carrying value	$ 8,841				$ 8,951
Debt and finance lease liabilities, Fair value	10,609				$ 11,597
FX Forward Contracts
Schedule of Investments [Line Items]
Derivative, Notional amount				$ 800
FX Forward Contracts | Subsequent Event
Schedule of Investments [Line Items]
Derivative, Notional amount			$ 200
Forward Starting Swaps
Schedule of Investments [Line Items]
Derivative, Notional amount				$ 1,800
Unrealized gain (loss) on cash flow hedges	20
Forward Starting Swaps | Subsequent Event
Schedule of Investments [Line Items]
Derivative, Notional amount			$ 600
Bond Locks
Schedule of Investments [Line Items]
Derivative, Notional amount	600
Unrealized gain (loss) on cash flow hedges	2
Net Investment Hedge
Schedule of Investments [Line Items]
Gain (loss) on net investment hedge	$ 76	$ (555)

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Shareholders' Equity - Narrative (Details) - CAD ($) $ in Millions	3 Months Ended		12 Months Ended
	Mar. 31, 2021	Mar. 31, 2020	Dec. 19, 2020	Jan. 29, 2021	Dec. 20, 2019
Common Shares repurchased		1,600,000
Common Shares repurchased (value)		$ 468
2021 Normal Course Issuer Bid (NCIB)
Common Shares authorized to be repurchased				3,330,000
Common Shares repurchased	0
Common Shares repurchased (value)	$ 0
2019 Normal Course Issuer Bid (NCIB)
Common Shares authorized to be repurchased					4,800,000
Common Shares repurchased		1,455,854	4,270,000
Common Shares repurchased (value)		$ 468	$ 1,577

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Shareholders' Equity - Activities Under Share Repurchase Program (Detail) - CAD ($) $ / shares in Units, $ in Millions	3 Months Ended		12 Months Ended
	Mar. 31, 2021	Mar. 31, 2020	Dec. 19, 2020
Number of Common Shares repurchased		1,600,000
Amount of repurchase (in millions of Canadian dollars)		$ 468
2021 Normal Course Issuer Bid (NCIB)
Number of Common Shares repurchased	0
Weighted-average price per share	$ 0
Amount of repurchase (in millions of Canadian dollars)	$ 0
2019 Normal Course Issuer Bid (NCIB)
Number of Common Shares repurchased		1,455,854	4,270,000
Weighted-average price per share		$ 321.71
Amount of repurchase (in millions of Canadian dollars)		$ 468	$ 1,577

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Pension and Other Benefits - Narrative (Details) - CAD ($) $ in Millions	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Defined Benefit Pension Plan
Defined Benefit Plan Disclosure [Line Items]
Contributions made by the Company	$ 4	$ 9

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Pension and Other Benefits - Net Periodic Benefit Cost for DB Pension Plans and Other Benefits (Details) - CAD ($) $ in Millions	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Defined Benefit Plan and Other Postretirement Benefit Plans
Total other components of net periodic benefit (recovery) cost	$ (95)	$ (85)
Defined Benefit Pension Plan
Defined Benefit Plan and Other Postretirement Benefit Plans
Current service cost (benefits earned by employees)	43	35
Interest cost on benefit obligation	88	102
Expected return on fund assets	(240)	(237)
Recognized net actuarial loss	52	44
Total other components of net periodic benefit (recovery) cost	(100)	(91)
Net periodic benefit (recovery) cost	(57)	(56)
Other Post-retirement Benefit Plans
Defined Benefit Plan and Other Postretirement Benefit Plans
Current service cost (benefits earned by employees)	3	3
Interest cost on benefit obligation	4	5
Expected return on fund assets	0	0
Recognized net actuarial loss	1	1
Total other components of net periodic benefit (recovery) cost	5	6
Net periodic benefit (recovery) cost	$ 8	$ 9

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Stock-Based Compensation - Narrative (Details) - CAD ($) $ / shares in Units, $ in Millions	3 Months Ended		12 Months Ended
	Mar. 31, 2021	Mar. 31, 2020	Dec. 31, 2020
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	$ 24	$ 11
Stock Options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of options issued	266,698
Weighted-average grant price	$ 437.94
Expiration period	7 years
Stock options grant date fair value	$ 25
Stock Options | Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	12 months
Stock Options | Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	48 months
Performance Share Units (PSUs)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Units issued	84,672		125,280
Grant date fair value	$ 36
PSU payout percentage			200.00%
Number of trading days			30 days
Units paid in period	114,014
Cash payout	$ 98
Performance Share Units (PSUs) | Retention Grant
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Units issued			36,975
Performance Deferred Share Units (PDSUs)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Units issued	2,539
Grant date fair value	$ 1
Number of additional PDSUs that can be granted as a percentage of original units granted	25.00%
PSUs and PDSUs
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	3 years
Deferred Share Units (DSUs)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	36 months
Units issued	9,170
Grant date fair value	$ 4

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Stock-Based Compensation - Weighted-Average Fair Value Assumptions (Details) - Stock Options	3 Months Ended
	Mar. 31, 2021 CAD ($) $ / shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected option life (years)	4 years 9 months
Risk-free interest rate	0.53%
Expected stock price volatility	27.14%
Expected annual dividends per share | $	$ 3.80
Expected forfeiture rate	2.60%
Weighted-average grant date fair value per option granted during the period | $ / shares	$ 95.16

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Contingencies - Legal Proceedings (Details) - 3 months ended Mar. 31, 2021 - Lac-Megantic Rail Accident $ in Millions, $ in Millions	CAD ($) claim	USD ($) claim
Claimed derailment damages
Other Commitments [Line Items]
Amount of fund to be distributed	$ 440
Quebec Minister of Sustainable Development, Environment, Wildlife and Parks
Other Commitments [Line Items]
Value of damages sought	95
Attorney General of Quebec
Other Commitments [Line Items]
Value of damages sought	315
Initial value of damages sought	409
Initial Subrogated Insurers | Subrogated insurance claim
Other Commitments [Line Items]
Value of damages sought	15
Initial value of damages sought	$ 16
Number of subrogated insurer claims | claim	8	8
Additional Subrogated Insurers | Subrogated insurance claim
Other Commitments [Line Items]
Value of damages sought	$ 3
Number of subrogated insurer claims | claim	2	2
Class Action Plaintiffs
Other Commitments [Line Items]
Value of damages sought	$ 5
Number of plaintiffs | claim	48	48
MMAR Estate Representative | Damages for loss in business value
Other Commitments [Line Items]
Value of damages sought		$ 30
WD Trustee | Damaged rail cars and lost crude recovery
Other Commitments [Line Items]
Value of damages sought		6
WD Trustee | Reimbursement for settlement paid by consignor
Other Commitments [Line Items]
Value of damages sought		110
WD Trustee | Reimbursement for settlement paid by consignee
Other Commitments [Line Items]
Value of damages sought		$ 60

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Contingencies - Environmental Liabilities (Details) - CAD ($) $ in Millions	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020	Dec. 31, 2020
Site Contingency [Line Items]
Total amount provided for provisions for environmental remediation costs	$ 81		$ 80
Term for expected payments to be made	10 years
Purchased services and other
Site Contingency [Line Items]
Environmental remediation expense	$ 2	$ 1

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Subsequent Event (Details)	3 Months Ended
	Mar. 31, 2021
Subsequent Events [Abstract]
Share split ratio	five-for-one