CANADIAN PACIFIC RAILWAY 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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. 
CalgaryABT2C 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 CompanyCP/40New York Stock Exchange
BC87London 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
For the Three Months Ended March 31, 2021 and 2020
Interim Consolidated Statements of Comprehensive Income
For the Three Months Ended March 31, 2021 and 2020
Interim Consolidated Balance Sheets
As at March 31, 2021 and December 31, 2020
Interim Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2021 and 2020
Interim Consolidated Statements of Changes in Shareholders' Equity
For the Three Months Ended March 31, 2021 and 2020
Notes to Interim Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Executive Summary
Performance Indicators
Financial Highlights
Results of Operations
Liquidity and Capital Resources
Share Capital
Non-GAAP Measures
Off-Balance Sheet Arrangements
Contractual Commitments
Critical Accounting Estimates
Forward-Looking Statements
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Item 4.Controls and Procedures
PART II - OTHER INFORMATION
Item 1.Legal Proceedings
Item 1A.Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4.Mine Safety Disclosures
Item 5. Other Information
Item 6.Exhibits
Signature




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)20212020
Revenues (Note 3)
Freight$1,918 $2,000 
Non-freight41 43 
Total revenues1,959 2,043 
Operating expenses
Compensation and benefits405 398 
Fuel206 212 
Materials59 59 
Equipment rents33 36 
Depreciation and amortization202 192 
Purchased services and other (Note 9, 10)274 312 
Total operating expenses1,179 1,209 
Operating income780 834 
Less:
Other (income) expense (Note 4, 10)(28)211 
Other components of net periodic benefit recovery (Note 14)(95)(85)
Net interest expense110 114 
Income before income tax expense793 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)
Basic133.3 136.7 
Diluted133.9 137.2 
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)20212020
Net income$602 $409 
Net gain (loss) in foreign currency translation adjustments, net of hedging activities10 (65)
Change in derivatives designated as cash flow hedges25 2 
Change in pension and post-retirement defined benefit plans53 45 
Other comprehensive income (loss) before income taxes88 (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 31December 31
(in millions of Canadian dollars)20212020
Assets
Current assets
Cash and cash equivalents $360 $147 
Accounts receivable, net (Note 8)
840 825 
Materials and supplies213 208 
Other current assets211 141 
1,624 1,321 
Investments199 199 
Properties20,503 20,422 
Goodwill and intangible assets371 366 
Pension asset1,007 894 
Other assets417 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 liabilities537 585 
Long-term debt (Note 11, 12)
7,958 8,585 
Deferred income taxes3,731 3,666 
Total liabilities16,255 16,321 
Shareholders’ equity
Share capital 1,993 1,983 
Additional paid-in capital58 55 
Accumulated other comprehensive loss (Note 7)(2,756)(2,814)
Retained earnings8,571 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)20212020
Operating activities
Net income$602 $409 
Reconciliation of net income to cash provided by operating activities:
Depreciation and amortization202 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 activities582 489 
Investing activities
Additions to properties(323)(355)
Proceeds from sale of properties and other assets37 2 
Other (9)
Cash used in investing activities(286)(362)
Financing activities
Dividends paid(127)(114)
Issuance of CP Common Shares8 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 equivalents213 114 
Cash and cash equivalents at beginning of period147 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, 2021133.3 $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, 2021133.3 $1,993 $58 $(2,756)$8,571 $7,866 
Balance at January 1, 2020137.0 $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 plan0.2 13 (2)  11 
Balance at March 31, 2020135.6 $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)20212020
Freight
Grain$448 $418 
Coal163 150 
Potash101 112 
Fertilizers and sulphur77 70 
Forest products80 78 
Energy, chemicals and plastics388 491 
Metals, minerals and consumer products159 189 
Automotive108 87 
Intermodal394 405 
Total freight revenues1,918 2,000 
Non-freight excluding leasing revenues24 29 
Revenues from contracts with customers1,942 2,029 
Leasing revenues17 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)20212020
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 period64 3 
Closing balance$114 $112 

4    Other (income) expense
For the three months ended March 31
(in millions of Canadian dollars)20212020
Foreign exchange (gain) loss on debt and lease liabilities(1)
$(33)$215 
Other foreign exchange losses (gains)1 (5)
Acquisition-related costs (Note 10)3  
Other1 1 
Other (income) expense$(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)20212020
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)20212020
Weighted-average basic shares outstanding133.3 136.7 
Dilutive effect of stock options0.6 0.5 
Weighted-average diluted shares outstanding133.9 137.2 

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 reclassifications7   7 
Amounts reclassified from accumulated other comprehensive loss 2 33 35 
Net other comprehensive income7 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)20212020
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, 2021As at March 31, 2020
(in millions of Canadian dollars)FreightNon-freightTotalFreightNon-freightTotal
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, 2021For the three months ended March 31, 2020
(in millions of Canadian dollars)FreightNon-freightTotalFreightNon-freightTotal
Allowance for credit losses, opening balance$(25)$(15)$(40)$(27)$(16)$(43)
Current period credit loss provision, net1  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
20212020
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
PensionsOther benefits
(in millions of Canadian dollars)2021202020212020
Current service cost (benefits earned by employees)$43 $35 $3 $3 
Other components of net periodic benefit (recovery) cost:
Interest cost on benefit obligation88 102 4 5 
Expected return on fund assets(240)(237)  
Recognized net actuarial loss52 44 1 1 
Total other components of net periodic benefit (recovery) cost(100)(91)5 6 
Net periodic benefit (recovery) cost$(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.
14


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.
15


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.




16


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.

17


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
20212020% 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 
Average train length - excluding local traffic (feet)7,972 7,409 
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)201201— 
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 
Workforce (end of period)12,426 12,366 — 
Safety Indicators(1)
FRA personal injuries per 200,000 employee-hours1.20 1.13 
FRA train accidents per million train-miles1.28 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)20212020
Financial Performance and Liquidity
Total revenues$1,959 $2,043 
Operating income780 834 
Adjusted operating income(1)
813 834 
Net income602 409 
Adjusted income(1)
600 607 
Basic EPS4.52 2.99 
Diluted EPS4.50 2.98 
Adjusted diluted EPS(1)
4.48 4.42 
Dividends declared per share0.95 0.83 
Cash provided by operating activities582 489 
Cash used in investing activities (286)(362)
Cash used in financing activities(80)(44)
Free cash(1)
296 158 
Financial PositionAs at March 31, 2021As at December 31, 2020
Total assets
$24,121 $23,640 
Total long-term debt, including current portion9,740 9,771 
Total shareholders’ equity7,866 7,319 
For the three months ended March 31
Financial Ratios20212020
Operating ratio(2)
60.2 %59.2 %
Adjusted operating ratio(1)
58.5 %59.2 %
For the twelve months ended March 31
20212020
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)
3.74.2
Adjusted net debt to adjusted EBITDA ratio(1)
2.42.5
(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.








21


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)20212020
For the three months ended - March 31$1.27 $1.35 

Ending exchange rates (Canadian/U.S. dollar)20212020
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)20212020
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)20212020
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)20212020
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)20212020
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 3120212020Total 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.


25


Lines of Business

Grain
For the three months ended March 3120212020Total Change% Change
FX Adjusted
% Change
(1)
Freight revenues (in millions)$448 $418 $30 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 3120212020Total Change% Change
FX Adjusted
% Change
(1)
Freight revenues (in millions)$163 $150 $13 
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 3120212020Total Change% Change
FX Adjusted
% Change
(1)
Freight revenues (in millions)$101 $112