Investment in KCS

12 Months Ended

Dec. 31, 2021

Equity Method Investments and Joint Ventures [Abstract]

On December 14, 2021, the Company acquired KCS and deposited 100% of the outstanding KCS common stock into a voting trust. The Company recorded its investment in KCS at its acquisition cost under the equity method of accounting while the STB considers the Company's application to control KCS.

The investment carrying cost of $42,309 million reported on the Company's Consolidated Balance Sheets as at December 31, 2021 reflects the total of the consideration paid to acquire KCS, the offsetting asset recorded on recognition of a deferred tax liability computed on an outside basis (see Note 6), the subsequent recognition of equity loss, and foreign currency translation based on the year-end exchange rate.

The approximate $30 billion difference in value between the consideration paid to acquire KCS and the underlying carrying value of the net assets of KCS as at December 14, 2021, immediately prior to the acquisition by the Company, is the basis difference. The Company has estimated the fair value of KCS and its underlying net assets for the purposes of amortizing the basis difference, as required by the equity method of accounting. The fair value of KCS' underlying net assets, including property, plant and equipment, identifiable intangible assets, and other assets and liabilities, have been estimated on a preliminary basis and may be subject to change as additional information becomes available.

The basis difference related to depreciable property, plant and equipment, intangible assets with definite lives, and long-term debt is amortized over the related assets' remaining useful lives, and the remaining terms to maturity of the debt instruments. The remainder of the basis difference, relating to non-depreciable property, plant and equipment, intangible assets with indefinite life, and equity method goodwill, is not amortized and is carried at cost subject to an assessment for impairment.

Subject to final approval by the STB, the Company would obtain control of KCS and would account for its acquisition of KCS as a business combination using the acquisition method of accounting. As a result, the Company would be required to remeasure the carrying value of its equity method investment in KCS to fair value. Any resultant change in the value of the investment in KCS would be recognized as a gain or loss in the Company’s income

statement, including the write down of that portion of the carrying value of the investment in KCS recorded as an offsetting asset to the outside basis deferred tax liability (see Note 6).

The following tables present summarized financial information for KCS, on its historical cost basis, for the period December 14 to December 31, 2021 and as at December 31, 2021:

Statement of Income


(in millions of Canadian dollars)(1)	For the period December 14 to December 31, 2021
Total revenues	$	178
Total operating expenses	287
Operating loss	(109)
Less: Other(2)	12
Loss before income taxes	(121)
Net loss	$	(106)

(1) Amounts translated at the average FX rate from December 14-31, 2021 of $1.0000 USD = $1.2836 CAD.

(2) Includes Equity in net earnings of KCS' affiliates, Interest expense, FX loss, and Other income, net.

Balance Sheet


(in millions of Canadian dollars)(1)	As at December 31, 2021
Assets
Current assets	$	1,120
Properties	11,676
Other non-current assets	425

Liabilities
Current liabilities	$	619
Long-term debt	4,778
Other non-current liabilities	1,823
Non-controlling interest	416

(1) Amounts translated at the December 31, 2021 year-end FX rate of $1.0000 USD = $1.2678 CAD.