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 September 30, 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 October 19, 2021, there were 666,964,525 of the registrant’s Common Shares issued and outstanding.




CANADIAN PACIFIC RAILWAY LIMITED
FORM 10-Q
TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

Page
Item 1.Financial Statements:
Interim Consolidated Statements of Income
For the Three and Nine Months Ended September 30, 2021 and 2020
Interim Consolidated Statements of Comprehensive Income
For the Three and Nine Months Ended September 30, 2021 and 2020
Interim Consolidated Balance Sheets
As at September 30, 2021 and December 31, 2020
Interim Consolidated Statements of Cash Flows
For the Three and Nine Months Ended September 30, 2021 and 2020
Interim Consolidated Statements of Changes in Shareholders' Equity
For the Three and Nine Months Ended September 30, 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 September 30For the nine months ended September 30
(in millions of Canadian dollars, except share and per share data)2021202020212020
Revenues (Note 3)
Freight$1,896 $1,821 $5,822 $5,573 
Non-freight46 42 133 125 
Total revenues1,942 1,863 5,955 5,698 
Operating expenses
Compensation and benefits381 382 1,165 1,127 
Fuel199 140 623 483 
Materials51 53 164 162 
Equipment rents31 39 92 108 
Depreciation and amortization203 195 605 582 
Purchased services and other (Note 9, 10)
303 275 932 853 
Total operating expenses1,168 1,084 3,581 3,315 
Operating income774 779 2,374 2,383 
Less:
Other expense (income) (Note 4, 10)124 (36)253 89 
Merger termination fee (Note 10)
  (845) 
Other components of net periodic benefit recovery (Note 14)(95)(86)(286)(257)
Net interest expense104 114 315 346 
Income before income tax expense641 787 2,937 2,205 
Income tax expense (Note 5)
169 189 617 563 
Net income$472 $598 $2,320 $1,642 
Earnings per share (Note 1, 6)
Basic earnings per share$0.71 $0.88 $3.48 $2.42 
Diluted earnings per share$0.70 $0.88 $3.46 $2.41 
Weighted-average number of shares (millions) (Note 1, 6)
Basic666.9 676.2 666.7 679.3 
Diluted669.8 679.0 669.8 681.8 
Dividends declared per share (Note 1)$0.190 $0.190 $0.570 $0.522 
See Notes to Interim Consolidated Financial Statements.
2


INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
For the three months ended September 30For the nine months ended September 30
(in millions of Canadian dollars)2021202020212020
Net income$472 $598 $2,320 $1,642 
Net (loss) gain in foreign currency translation adjustments, net of hedging activities(17)16 3 (18)
Change in derivatives designated as cash flow hedges141 3 69 6 
Change in pension and post-retirement defined benefit plans53 44 158 134 
Other comprehensive income before income taxes177 63 230 122 
Income tax expense on above items(29)(29)(59)(16)
Other comprehensive income (Note 7)148 34 171 106 
Comprehensive income$620 $632 $2,491 $1,748 
See Notes to Interim Consolidated Financial Statements.
3


INTERIM CONSOLIDATED BALANCE SHEETS AS AT
(unaudited)
September 30December 31
(in millions of Canadian dollars)20212020
Assets
Current assets
Cash and cash equivalents $210 $147 
Restricted cash and cash equivalents13  
Accounts receivable, net (Note 8)
811 825 
Materials and supplies227 208 
Other current assets190 141 
1,451 1,321 
Investments205 199 
Properties21,007 20,422 
Goodwill and intangible assets372 366 
Pension asset1,232 894 
Other assets405 438 
Payment to Kansas City Southern (Note 10)
1,773  
Total assets$26,445 $23,640 
Liabilities and shareholders’ equity
Current liabilities
Accounts payable and accrued liabilities$1,744 $1,467 
Long-term debt maturing within one year (Note 11, 12)
1,932 1,186 
3,676 2,653 
Pension and other benefit liabilities 825 832 
Other long-term liabilities522 585 
Long-term debt (Note 11, 12)
8,036 8,585 
Deferred income taxes3,918 3,666 
Total liabilities16,977 16,321 
Shareholders’ equity
Share capital 2,008 1,983 
Additional paid-in capital68 55 
Accumulated other comprehensive loss (Note 7)(2,643)(2,814)
Retained earnings10,035 8,095 
9,468 7,319 
Total liabilities and shareholders’ equity$26,445 $23,640 
See Contingencies (Note 16).
See Notes to Interim Consolidated Financial Statements.
4


INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the three months ended September 30For the nine months ended September 30
(in millions of Canadian dollars)2021202020212020
Operating activities
Net income$472 $598 $2,320 $1,642 
Reconciliation of net income to cash provided by operating activities:
Depreciation and amortization203 195 605 582 
Deferred income tax expense (Note 5)130 45 190 133 
Pension recovery and funding (Note 14)(62)(65)(188)(192)
Foreign exchange loss (gain) on debt and lease liabilities (Note 4)46 (40)(39)89 
Other operating activities, net(14)56 (50)11 
Change in non-cash working capital balances related to operations(227)(296)246 (448)
Cash provided by operating activities548 493 3,084 1,817 
Investing activities
Additions to properties(372)(484)(1,111)(1,341)
Investment in Central Maine & Québec Railway   19 
Payment to Kansas City Southern (Note 10)
(1,773) (1,773) 
Proceeds from sale of properties and other assets16 2 65 9 
Other (1)(1) 
Cash used in investing activities(2,129)(483)(2,820)(1,313)
Financing activities
Dividends paid(127)(113)(380)(339)
Issuance of CP Common Shares4 3 20 32 
Purchase of CP Common Shares (Note 13)
 (400) (945)
Issuance of long-term debt, excluding commercial paper
   958 
Repayment of long-term debt, excluding commercial paper (Note 11)
(318)(49)(349)(74)
Proceeds from term loan (Note 11)
633  633  
Net issuance (repayment) of commercial paper (Note 11)713 459 (66)(114)
Net increase in short-term borrowings   5 
Acquisition-related financing fees (Note 10)
  (45) 
Other(3) (7)11 
Cash provided by (used in) financing activities902 (100)(194)(466)
Effect of foreign currency fluctuations on U.S. dollar-denominated cash and cash equivalents10 (4)6 12 
Cash position
(Decrease) increase in cash, cash equivalents, and restricted cash(669)(94)76 50 
Cash, cash equivalents, and restricted cash at beginning of period892 277 147 133 
Cash, cash equivalents, and restricted cash at end of period$223 $183 $223 $183 
Supplemental disclosures of cash flow information:
Income taxes paid $129 $311 $401 $455 
Interest paid$153 $163 $365 $383 
See Notes to Interim Consolidated Financial Statements.
5


INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(unaudited)
For the three months ended September 30
(in millions of Canadian dollars except per share data)Common Shares (in millions)Share
capital
Additional
paid-in
capital
Accumulated
other
comprehensive
loss
Retained
earnings
Total
shareholders’
equity
Balance at July 1, 2021666.8 $2,003 $63 $(2,791)$9,690 $8,965 
Net income    472 472 
Other comprehensive income (Note 7)   148  148 
Dividends declared ($0.190 per share)    (127)(127)
Effect of stock-based compensation expense  6   6 
Shares issued under stock option plan0.1 5 (1)  4 
Balance at September 30, 2021666.9 $2,008 $68 $(2,643)$10,035 $9,468 
Balance at July 1, 2020677.6 $1,990 $53 $(2,450)$7,872 $7,465 
Net income—    598 598 
Other comprehensive income (Note 7)—   34  34 
Dividends declared ($0.190 per share) (Note 1)—    (128)(128)
Effect of stock-based compensation expense—  4   4 
CP Common Shares repurchased (Note 13)
(5.3)(15)  (381)(396)
Shares issued under stock option plan0.2 3 (1)  2 
Balance at September 30, 2020672.5 $1,978 $56 $(2,416)$7,961 $7,579 
For the nine months ended September 30
(in millions of Canadian dollars except per share data)Common shares (in millions)Share
capital
Additional
paid-in
capital
Accumulated
other
comprehensive
loss
Retained
earnings
Total
shareholders’
equity
Balance at January 1, 2021666.3 $1,983 $55 $(2,814)$8,095 $7,319 
Net income    2,320 2,320 
Other comprehensive income (Note 7)   171  171 
Dividends declared ($0.570 per share) (Note 1)    (380)(380)
Effect of stock-based compensation expense  18   18 
Shares issued under stock option plan0.6 25 (5)  20 
Balance at September 30, 2021666.9 $2,008 $68 $(2,643)$10,035 $9,468 
Balance at January 1, 2020685.0 $1,993 $48 $(2,522)$7,549 $7,068 
Net income—    1,642 1,642 
Other comprehensive income (Note 7)—   106  106 
Dividends declared ($0.522 per share) (Note 1)—    (353)(353)
Effect of stock-based compensation expense—  13   13 
CP Common Shares repurchased (Note 13)
(13.7)(39)  (877)(916)
Shares issued under stock option plan1.2 24 (5)  19 
Balance at September 30, 2020672.5 $1,978 $56 $(2,416)$7,961 $7,579 
See Notes to Interim Consolidated Financial Statements.
6


NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021
(unaudited)

1    Basis of presentation

These unaudited Interim Consolidated Financial Statements ("Interim Consolidated Financial Statements") of Canadian Pacific Railway Limited ("CPRL") and its subsidiaries (collectively, “CP”, or “the Company”), expressed in Canadian dollars, reflect management’s estimates and assumptions that are necessary for their fair presentation in conformity with generally accepted accounting principles in the United States of America (“GAAP”). They do not include all disclosures required under GAAP for annual financial statements and should be read in conjunction with the 2020 annual Consolidated Financial Statements and notes included in CP's 2020 Annual Report on Form 10-K. The accounting policies used are consistent with the accounting policies used in preparing the 2020 annual Consolidated Financial Statements.

On April 21, 2021, the Company's shareholders approved a five-for-one share split of the Company's issued and outstanding Common Shares. On May 13, 2021, the Company's shareholders of record as of May 5, 2021 received four additional shares for every Common Share held. Ex-distribution trading in the Company’s Common Shares on a split-adjusted basis commenced on May 14, 2021. Proportional adjustments were also made to outstanding awards under the Company's stock-based compensation plans in order to reflect the share split. All outstanding Common Shares, stock-based compensation awards, and per share amounts herein have been retrospectively adjusted to reflect the share split.

CP's operations can be affected by seasonal fluctuations such as changes in customer demand and weather-related issues. This seasonality could impact quarter-over-quarter comparisons.

In management’s opinion, the Interim Consolidated Financial Statements include all adjustments (consisting of normal and recurring adjustments) necessary to present fairly such information. Interim results are not necessarily indicative of the results expected for the fiscal year.

2    Accounting changes

Accounting pronouncements that became effective during the period covered by the Interim Consolidated Financial Statements did not have a material impact on the Company's Interim Consolidated Balance Sheets, Interim Consolidated Statements of Income, or Interim Consolidated Statements of Cash Flows. Likewise, accounting pronouncements issued, but not effective until after September 30, 2021, are not expected to have a material impact on the Company's Consolidated Balance Sheets, Consolidated Statements of Income, or Consolidated Statements of Cash Flows.

Future changes

Reference Rate Reform

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. From the end of 2021, banks will no longer be required to report information that is used to determine the London Interbank Offered Rate (“LIBOR”), which is a benchmark interest rate commonly referenced in a variety of contractual agreements. As a result, LIBOR or other reference rates used globally could be discontinued.

The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to transactions affected by reference rate reform if certain criteria are met. These transactions include contract modifications, hedging relationships, and sale or transfer of debt securities classified as held-to-maturity.

The guidance in the ASU was effective starting on March 12, 2020, and is available to be adopted on a prospective basis no later than December 31, 2022. The Company currently has a fully drawn U.S. $500 million non-revolving term credit facility referencing LIBOR that could be affected by the provisions of this ASU (See Note 11 - Debt). The Company also has a revolving credit facility that references LIBOR. The Company had no outstanding borrowings under the revolving credit facility as at September 30, 2021. The Company is evaluating the effects that the adoption of the ASU will have on its Consolidated Financial Statements and related disclosures, and whether it will elect to apply any of the optional expedients and exceptions provided in the ASU.
7


3    Revenues

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

For the three months ended September 30For the nine months ended September 30
(in millions of Canadian dollars)2021202020212020
Freight
Grain$352 $457 $1,244 $1,321 
Coal158 130 491 411 
Potash113 132 348 390 
Fertilizers and sulphur72 65 227 212 
Forest products89 85 259 244 
Energy, chemicals and plastics392 321 1,149 1,153 
Metals, minerals and consumer products196 152 535 474 
Automotive83 94 289 215 
Intermodal441 385 1,280 1,153 
Total freight revenues1,896 1,821 5,822 5,573 
Non-freight excluding leasing revenues25 27 75 80 
Revenues from contracts with customers1,921 1,848 5,897 5,653 
Leasing revenues21 15 58 45 
Total revenues$1,942 $1,863 $5,955 $5,698 

Contract liabilities       
                  
Contract liabilities represent payments received for performance obligations not yet satisfied and relate to deferred revenue, and are presented as components of "Accounts payable and accrued liabilities" and "Other long-term liabilities" on the Company's Interim Consolidated Balance Sheets.

The following table summarizes the changes in contract liabilities:
For the three months ended September 30For the nine months ended September 30
(in millions of Canadian dollars)2021202020212020
Opening balance$245 $79 $61 $146 
Revenue recognized that was included in the contract liability balance at the beginning of the period(93)(25)(36)(95)
Increase due to consideration received, net of revenue recognized during the period4 5 131 8 
Closing balance$156 $59 $156 $59 

4    Other expense (income)

For the three months ended September 30For the nine months ended September 30
(in millions of Canadian dollars)2021202020212020
Foreign exchange loss (gain) on debt and lease liabilities$46 $(40)$(39)$89 
Other foreign exchange (gains) losses(7)2 (9)(2)
Acquisition-related costs (Note 10)
83  295  
Other2 2 6 2 
Other expense (income)$124 $(36)$253 $89 

8


5    Income taxes

For the three months ended September 30For the nine months ended September 30
(in millions of Canadian dollars)2021202020212020
Current income tax expense$39 $144 $427 $430 
Deferred income tax expense 130 45 190 133 
Income tax expense$169 $189 $617 $563 

The effective tax rates including discrete items for the three and nine months ended September 30, 2021 were 26.36% and 21.00%, respectively, compared to 23.97% and 25.52%, respectively for the same periods of 2020.

For the three months ended September 30, 2021, the effective tax rate was 24.60%, excluding the discrete items of the Kansas City Southern ("KCS") acquisition-related costs of $98 million, and foreign exchange ("FX") loss of $46 million on debt and lease liabilities.

For the three months ended September 30, 2020, the effective tax rate was 25.00%, excluding the discrete item of the FX gain of $40 million on debt and lease liabilities.

For the nine months ended September 30, 2021, the effective tax rate was 24.60%, excluding the discrete items of the KCS acquisition-related costs of $442 million, the $845 million (U.S. $700 million) merger termination payment received in connection with KCS's termination of the Agreement and Plan of Merger (the "Original Merger Agreement"), and FX gain of $39 million on debt and lease liabilities.

For the nine months ended September 30, 2020, the effective tax rate was 25.00%, excluding the discrete item of the FX loss of $89 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 September 30For the nine months ended September 30
(in millions)2021202020212020
Weighted-average basic shares outstanding666.9 676.2 666.7 679.3 
Dilutive effect of stock options2.9 2.8 3.1 2.5 
Weighted-average diluted shares outstanding669.8 679.0 669.8 681.8 

For the three and nine months ended September 30, 2021, there were 0.2 million and 0.1 million options, respectively, excluded from the computation of diluted earnings per share because their effects were not dilutive (three and nine months ended September 30, 2020 - nil and 0.6 million, respectively).

9


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

For the three months ended September 30
(in millions of Canadian dollars)
Foreign currency net of hedging activities(1)
Derivatives and
other
(1)
Pension and post-
retirement defined
benefit plans
(1)
Total(1)
Opening balance, July 1, 2021$110 $(101)$(2,800)$(2,791)
Other comprehensive income before reclassifications6 101  107 
Amounts reclassified from accumulated other comprehensive loss 2 39 41 
Net other comprehensive income6 103 39 148 
Closing balance, September 30, 2021$116 $2 $(2,761)$(2,643)
Opening balance, July 1, 2020$116 $(52)$(2,514)$(2,450)
Other comprehensive loss before reclassifications(1)  (1)
Amounts reclassified from accumulated other comprehensive loss 2 33 35 
Net other comprehensive (loss) income(1)2 33 34 
Closing balance, September 30, 2020$115 $(50)$(2,481)$(2,416)
(1)Amounts are presented net of tax.

For the nine months ended September 30
(in millions of Canadian dollars)
Foreign currency net of hedging activities(1)
Derivatives and
other
(1)
Pension and post-
retirement defined
benefit plans
(1)
Total(1)
Opening balance, January 1, 2021$112 $(48)$(2,878)$(2,814)
Other comprehensive income before reclassifications4 44  48 
Amounts reclassified from accumulated other comprehensive loss 6 117 123 
Net other comprehensive income4 50 117 171 
Closing balance, September 30, 2021$116 $2 $(2,761)$(2,643)
Opening balance, January 1, 2020$112 $(54)$(2,580)$(2,522)
Other comprehensive income (loss) before reclassifications3 (2) 1 
Amounts reclassified from accumulated other comprehensive loss 6 99 105 
Net other comprehensive income3 4 99 106 
Closing balance, September 30, 2020$115 $(50)$(2,481)$(2,416)
(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 September 30For the nine months ended September 30
(in millions of Canadian dollars)2021202020212020
Amortization of prior service costs(1)
$ $(1)$ $(1)
Recognition of net actuarial loss(1)
53 45 158 135 
Total before income tax53 44 158 134 
Income tax recovery(14)(11)(41)(35)
Total net of income tax$39 $33 $117 $99 
(1)Impacts "Other components of net periodic benefit recovery" on the Interim Consolidated Statements of Income.

10


8    Accounts receivable, net

As at September 30, 2021As at December 31, 2020
(in millions of Canadian dollars)FreightNon-freightTotalFreightNon-freightTotal
Total accounts receivable$655 $194 $849 $662 $203 $865 
Allowance for credit losses(22)(16)(38)(25)(15)(40)
Total accounts receivable, net$633 $178 $811 $637 $188 $825 

For the three months ended September 30, 2021For the three months ended September 30, 2020
(in millions of Canadian dollars)Freight