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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
For fiscal year ended December 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

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes  þ   No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
Yes  o No þ

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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

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 June 30, 2021, the last business day of the registrant's most recently completed second fiscal quarter, the aggregate market value of the voting stock held by non-affiliates of the registrant, in U.S. dollars, was $51,279,545,149, based on the closing sales price per share as reported by the New York Stock Exchange on such date.

As of the close of business on February 22, 2022, there were 929,712,071 shares of the registrant's common shares outstanding.

DOCUMENTS INCORPORATED BY REFERENCE
Not applicable.

EXPLANATORY NOTE

Canadian Pacific Railway Limited ("CPRL" or the "Company"), a corporation incorporated under the Canada Business Corporations Act, qualifies as a foreign private issuer in the U.S. for purposes of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Although as a foreign private issuer the Company is no longer required to do so, the Company currently continues to file annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K with the Securities and Exchange Commission (“SEC”) instead of filing reports on forms available to foreign private issuers.

CPRL prepares and files a management information circular and related material under Canadian requirements. As the Company’s management information circular is not filed pursuant to Regulation 14A, the Company may not incorporate by reference information required by Part III of this Form 10-K from its management information circular. Accordingly, in reliance upon and as permitted by Instruction G(3) to Form 10-K, the Company will be filing an amendment to this Form 10-K containing the Part III information no later than 120 days after the end of the fiscal year covered by this Form 10-K. All references to our websites contained herein do not constitute incorporation by reference of information contained on such websites and such information should not be considered part of this document.




1 CP 2021 ANNUAL REPORT


CANADIAN PACIFIC RAILWAY LIMITED
FORM 10-K TABLE OF CONTENTS
PART I
Page
Item 1.Business
Item 1A. Risk Factors
Item 1B.Unresolved Staff Comments
Item 2.Properties
Item 3.Legal Proceedings
Item 4.Mine Safety Disclosures
Information about our Executive Officers
PART II
Item 5.Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
Item 6.[Reserved]
Item 7.Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.Quantitative and Qualitative Disclosures About Market Risk
Item 8.Financial Statements and Supplementary Data
Item 9.Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9A.Controls and Procedures
Item 9B.Other Information
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART III
Item 10.Directors, Executive Officers and Corporate Governance
Item 11.Executive Compensation
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13.Certain Relationships and Related Transactions, and Director Independence
Item 14.Principal Accounting Fees and Services
PART IV
Item 15.Exhibits, Financial Statement Schedule
Item 16.Form 10-K Summary
Signatures




CP 2021 ANNUAL REPORT 2
PART I




3 CP 2021 ANNUAL REPORT


ITEM 1. BUSINESS

Company Overview
Canadian Pacific Railway Limited (“CPRL”), together with its subsidiaries (“CP” or the “Company”), owns and operates a transcontinental freight railway in Canada and the United States (“U.S.”). CP provides rail and intermodal transportation services over a network of approximately 13,000 miles, directly serving the principal business centres of Canada from Montréal, Québec, to Vancouver, British Columbia ("B.C."), and the U.S. Northeast and Midwest regions. CP’s railway network feeds directly into the U.S. heartland from the East and West coasts. Agreements with other carriers extend the Company's market reach in Canada, through the U.S. and into Mexico. CP transports bulk commodities, merchandise freight and intermodal traffic. For additional information regarding CP's network and geographical locations, refer to Item 2. Properties.

CPRL was incorporated on June 22, 2001, under the Canada Business Corporations Act and controls and owns all of the Common Shares of Canadian Pacific Railway Company (“CPRC”), which was incorporated in 1881 by Letters Patent pursuant to an Act of the Parliament of Canada. CPRL's registered, executive and corporate head office is located at 7550 Ogden Dale Road S.E., Calgary, Alberta T2C 4X9. CPRL's Common Shares (the "Common Shares") are listed on the Toronto Stock Exchange (“TSX”) and the New York Stock Exchange (“NYSE”) under the symbol “CP”.

For purposes of this annual 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. All references to currency amounts included in this annual report, including the Consolidated Financial Statements, are in Canadian dollars unless specifically noted otherwise.

Strategy
Starting in 2012, CP transformed its operations by investing in the network and executing a precision scheduled railroading model that lowers costs, optimizes assets, and provides better, more competitive service.

CP is continuing the journey to become the best railway in North America, with a culture of responsibility and accountability focused on five key foundations:

Provide Service: Providing efficient and consistent transportation solutions for the Company’s customers. “Doing what we say we are going to do” is what drives CP in providing a reliable product with a lower cost operating model. Centralized planning aligned with local execution is bringing the Company closer to the customer and accelerating decision-making. 
Control Costs: Controlling and removing unnecessary costs from the organization, eliminating bureaucracy and continuing to identify productivity enhancements are the keys to success.
Optimize Assets: Through longer and heavier trains, and improved asset utilization, the Company is moving increased volumes with fewer locomotives and cars while unlocking capacity for future growth potential. 
Operate Safely: Each year, CP safely moves millions of carloads of freight across North America while ensuring the safety of our people and the communities through which we operate. Safety is never to be compromised. CP strives for continuous implementation of state-of-the-art safety technology, safety management systems, and safety culture with our employees to ensure safe, efficient operations across our network.
Develop People: CP recognizes that none of the other foundations can be achieved without its people. Every CP employee is a railroader and the Company has established a culture focused on our values of accountability, diversity and pride, in everything we do. Coaching and mentoring all employees into becoming leaders will continue to drive CP forward.
Today, we continue to apply our long-term strategy: leverage our lower cost base, network strengths and improved service to drive sustainable, profitable growth. While the accomplishments during the turnaround were tremendous, CP’s journey to become North America’s best-performing rail carrier is far from over. As a Company, we will remain focused on our next level of service, productivity, and innovation to continue to generate sustainable value for our customers and results for our shareholders.

Business Developments
KCS transaction
On March 21, 2021, CP announced that it entered into an Agreement and Plan of Merger (the "Original Merger Agreement") with Kansas City Southern ("KCS"), under which CP agreed to acquire KCS in a stock and cash transaction. KCS is a U.S. Class I railway with approximately 7,100 route miles extending from the midwest and southeast portions of the United States south into Mexico and connects with all Class I railways, and primarily moves



CP 2021 ANNUAL REPORT 4
Chemical and petroleum, Industrial and consumer products, Agriculture and minerals, Energy, Intermodal and Automotive. KCS is connected to the CP network at Kansas City.

On May 21, 2021, KCS terminated the Original Merger Agreement in order to enter into a merger agreement with Canadian National Railway ("CN") (the "CN Merger Agreement"). As a result, and under the terms of the Original Merger Agreement, KCS concurrently paid a merger termination fee of $845 million (U.S. $700 million) to the Company.

On August 10, 2021, CP submitted a proposal to acquire KCS in a stock and cash transaction representing an enterprise value of approximately U.S. $31 billion, based on the CP closing price on August 9, 2021, which included the assumption of U.S. $3.8 billion of outstanding KCS debt. The terms of the proposal were very similar in nearly every respect to those in the Original Merger Agreement, except for an increase in the share exchange ratio from 2.445 to 2.884. Following the United States Surface Transportation Board's ("STB") decision on August 31, 2021 to refuse CN and KCS's joint motion for voting trust approval in respect of the CN Merger Agreement, and after renewed negotiations with CP, KCS's Board of Directors deemed CP's proposal a "Company Superior Proposal", as defined in the CN Merger Agreement, and terminated the CN Merger Agreement.

On September 15, 2021, upon KCS's termination of the CN Merger Agreement, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with KCS. Pursuant to the terms of the CN Merger Agreement, KCS paid a merger termination fee of U.S. $700 million and refunded the CP merger termination fee of U.S. $700 million to CN (together, the "CN merger termination fees"). In connection with the Merger Agreement, the Company remitted $1,773 million (U.S. $1,400 million) to KCS on September 15, 2021 in connection with KCS's payment of the CN merger termination fees.

On December 14, 2021, following approval of the transaction by the shareholders of both the Company and KCS, receipt of Mexican regulatory approvals, and satisfaction or waiver of customary closing conditions and pursuant to the terms set forth in the Merger Agreement, the acquisition of KCS was consummated and all outstanding stock of KCS was deposited into a voting trust and held by a single trustee as trust stock. KCS's management and Board of Directors will continue to steward KCS while it is in trust, pursuing its independent business plan and growth strategies. The STB review of CP's proposed control of KCS while KCS is in the voting trust is expected to be completed in the fourth quarter of 2022. Under the terms of the Merger Agreement, the Company issued 262.6 million Common Shares to existing KCS common stockholders at the exchange ratio of 2.884 Common Shares per share of KCS common stock and paid cash consideration to existing KCS stockholders of U.S. $90 per share of KCS common stock held and U.S. $37.50 per share of KCS preferred stock held for a total of approximately $10.5 billion (U.S. $8.2 billion). Share consideration, cash consideration, and the above described payments to KCS totaled approximately $36 billion (U.S. $28 billion). For additional information regarding this acquisition, refer to Item 8. Financial Statements and Supplementary Data, Note 11 Business acquisitions.

Upon obtaining control approval from the STB and other remaining approvals of regulatory authorities, 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, Alberta 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 may join CP's expanded Board at the appropriate time, bringing their experience and expertise in overseeing KCS's multinational operations.

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.

Specific risk factors related to the KCS acquisition and pending KCS business combination are included in Part I, Item 1A. Risk Factors.

COVID-19 pandemic
In 2021, CP’s Pandemic Team continued to proactively monitor guidance and orders from governments, public health authorities, and regulatory agencies. Utilizing that guidance while implementing CP protocols and safety measures, the Company safely reintegrated its employees into the workplace where permissible. The Company maintained preventative measures that serve to minimize the risk of exposure to COVID-19, including 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 re-evaluating our efforts with safety as a top priority.

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.

Change in Executive Officers
In August 2021, Mr. Michael Redeker retired from his position as Vice-President and Chief Information Officer. Effective July 19, 2021, CP's new Vice-President and Chief Information Officer is Ms. Pam Arpin.



5 CP 2021 ANNUAL REPORT


Other current business developments
On January 19, 2022, CP announced that, for the first time, it has been included on the Corporate Knights Global 100 Index, an annual ranking of the most sustainable corporations in the world. CP ranked 34th overall on the 2022 index and was the top performing freight transportation company evaluated globally. The Corporate Knights global ranking evaluated 6,914 companies with more than U.S. $1 billion in revenues worldwide on 23 quantitative key performance indicators, weighted to reflect each industry's impact to the overall economy. Performance indicators covered topics including percentage of "clean" revenue and "clean" investment, resource management, emissions, health and safety, diversity and workforce management.

In the fourth quarter of 2021, CP was named to the Dow Jones Sustainability North American Index ("DJSI North America") for 2021. This marked the second consecutive year CP has been listed on the DJSI North America. According to S&P, the DJSI North America comprises North American sustainability leaders as identified through the Corporate Sustainability Assessment. The index represents the top 20% of the largest 600 North American companies in the S&P Global Broad Market Index and measures corporate sustainability leaders' performance based on long-term economic, environmental and social criteria.

On July 26, 2021, CP published its first comprehensive Climate Strategy, outlining the Company's approach to drive innovative climate action and a measured response to emerging climate-related risks impacting the rail sector. The Climate Strategy outlines CP's objectives across strategic pillars, which include establishing a clear understanding of climate-related risks and opportunities; reducing greenhouse gas emissions, and adapting CP operations to the physical risks of climate change. To guide implementation of the Climate Strategy, CP has established two science-based emissions reduction targets that address 100% of CP's Scope 1 and Scope 2 emissions, and more than half of Scope 3 emissions:
CP seeks to reduce Scope 1, 2 and 3 greenhouse gas ("GHG") emissions intensity of its locomotives by in excess of 38% by 2030 from a 2019 base year. Locomotive operations represent CP's largest source of emissions.
To support decarbonization across all operations, CP also seeks to reduce absolute Scope 1 and Scope 2 GHG emissions from non-locomotive operations by in excess of 27% by 2030 from a 2019 base year.

Please see “Climate-Related Risks—The Company has established greenhouse gas (GHG) emission reduction targets to guide the implementation of CP's Climate Strategy. CP's inability to achieve GHG emissions reduction targets could negatively impact both our reputation and financial results” in Item 1A. Risk Factors for further discussion

Throughout 2021, CP made substantial progress implementing its Hydrogen Locomotive Program. First announced in late 2020, CP intends to develop North America’s first hydrogen-powered line-haul freight locomotive by retrofitting a diesel-powered locomotive with a combination of hydrogen fuel cells and battery technology to drive the locomotive's electric traction motors. This initiative builds on the Company's prior experience with testing low-emitting locomotive technologies and aligns with CP's Climate Strategy in seeking to develop a new generation of locomotives with the potential to produce zero GHG emissions. In the first quarter of 2021, CP announced that the Hydrogen Locomotive Program would employ Ballard's hydrogen fuel cell modules. In the fourth quarter of 2021, CP announced it will expand the scope of its Hydrogen Locomotive Program with a $15 million grant from Emissions Reduction Alberta. The grant enables CP to increase the number of hydrogen locomotive conversions in the project from one to three and add hydrogen production and fueling facilities. CP conducted a successful movement test on the first hydrogen locomotive in December 2021. As locomotives become fully operational, CP will conduct rail service trials and qualification testing to evaluate the technology's readiness for the freight-rail sector. We believe this program will create critical industry knowledge and support the growth of a global centre of excellence in hydrogen and freight rail systems in Alberta, Canada.

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. On May 13, 2021, the Company’s shareholders of record as of May 5, 2021 received four additional Common 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.

On April 21, 2021, at the Company's Annual and Special Meeting of Shareholders, conducted virtually, all 11 director nominees were elected.

In the first quarter of 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.

In the first quarter of 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, Illinois. 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.




CP 2021 ANNUAL REPORT 6
Prior Developments
On December 22, 2020, CP acquired full ownership of the Detroit River Tunnel Partnership ("DRTP"), which owns a 1.6-mile rail tunnel linking Windsor, Ontario, and Detroit, Michigan. The purchase price for the transaction was approximately $398 million, net of cash acquired. CP previously owned a 16.5% interest in the partnership and was its designated operator. For additional information regarding this acquisition, refer to Item 8. Financial Statements and Supplementary Data, Note 11 Business acquisitions.

In the second quarter of 2020, CP completed its previously announced acquisition of Central Maine & Quebec Railway U.S. Inc. ("CMQ U.S."). Together with the December 30, 2019 completion of the acquisition of Central Maine & Québec Railway Canada Inc. ("CMQ Canada"), the acquisition of CMQ U.S. completed CP's purchase of the entire Central Maine & Québec Railway ("CMQ") network originally announced on November 20, 2019, for approximately $174 million (U.S. $133 million). For additional information regarding this acquisition, refer to Item 8. Financial Statements and Supplementary Data, Note 11 Business acquisitions.




7 CP 2021 ANNUAL REPORT


Operations
The Company operates in only one operating segment: rail transportation. Although the Company provides a breakdown of revenue by business line, the overall financial and operational performance of the Company is analyzed as one segment due to the integrated nature of the rail network. Additional information regarding the Company's business and operations, including revenue and financial information, and information by geographic location is presented in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Item 8. Financial Statements and Supplementary Data, Note 29 Segmented and geographic information.

Lines of Business
The Company transports freight, consisting of bulk commodities, merchandise, and intermodal traffic. Bulk commodities, which typically move in large volumes across long distances, include Grain, Coal, Potash, and Fertilizers and sulphur. Merchandise freight consists of industrial and consumer products, such as Energy, chemicals and plastics, Metals, minerals and consumer products, Automotive, and Forest products. Intermodal traffic consists largely of retail goods in overseas containers that can be transported by train, ship and truck, and in domestic containers that can be moved by train and truck.

The Company’s revenues are primarily derived from transporting freight. The following chart shows the Company's Freight revenue by each line of business in 2021, 2020 and 2019:                                
cp-20211231_g1.jpg
2021 Freight Revenues

cp-20211231_g2.jpgcp-20211231_g3.jpg
2020 Freight Revenues2019 Freight Revenues




CP 2021 ANNUAL REPORT 8
In 2021, the Company generated Freight revenues totalling $7,816 million ($7,541 million in 2020 and $7,613 million in 2019). The following charts compare the percentage of the Company’s total Freight revenues derived from each of the three major business lines in 2021, 2020 and 2019:

cp-20211231_g4.jpgcp-20211231_g5.jpgcp-20211231_g6.jpg
2021 Freight Revenues2020 Freight Revenues2019 Freight Revenues

BULK
The Company’s Bulk business represented approximately 40% of total Freight revenues in 2021.

The following charts compare the percentage of the Company's Bulk freight revenues by commodity business in 2021, 2020 and 2019:



cp-20211231_g7.jpgcp-20211231_g8.jpgcp-20211231_g9.jpg
2021 Bulk Revenues2020 Bulk Revenues2019 Bulk Revenues
(40% of Freight Revenues)(43% of Freight Revenues)(40% of Freight Revenues)




9 CP 2021 ANNUAL REPORT


Grain
The Company’s Grain business represented approximately 55% of Bulk revenues, and was 22% of total Freight revenues in 2021.

The following charts compare the percentage of the Company's Grain freight revenues generated from Canadian and U.S. shipments in 2021, 2020 and 2019:

cp-20211231_g10.jpgcp-20211231_g11.jpgcp-20211231_g12.jpg
2021 Grain Revenues2020 Grain Revenues2019 Grain Revenues
(55% of Bulk Revenues; 22% of Freight Revenues)(58% of Bulk Revenues; 24% of Freight Revenues)(55% of Bulk Revenues; 22% of Freight Revenues)

CP's Grain network is unique among railways in North America as it is strategically positioned in the heart of grain-producing regions of western Canada and the Northern Plains of the U.S. Canadian grain transported by CP consists of both whole grains, such as wheat, durum, canola, pulses, and barley, and processed products such as oils, meals, and malt. This business is centred in the Canadian Prairies (Saskatchewan, Alberta, and Manitoba), with grain shipped primarily west to the Port of Vancouver and east to the Port of Thunder Bay for export. Grain is also shipped to the U.S., eastern Canada, and Mexico for domestic consumption.

Canadian grain includes a division of business that is regulated by the Canadian government through the Canada Transportation Act (“CTA”). This regulated business is subject to a maximum revenue entitlement (“MRE”). Under the CTA, railways can set their own rates for individual movements. However, the MRE governs aggregate revenue earned by the railway based on a formula that factors in the total volumes, length of haul, average revenue per ton, and inflationary adjustments. The regulation applies to western Canadian export grain shipments to the ports of Vancouver and Thunder Bay.

U.S. grain transported by CP consists of both whole grains, such as wheat, corn, soybeans, and durum, and processed products such as feed, meals, oils, and flour. This business is centred in the states of Minnesota, North Dakota, and Iowa. Grain destined for domestic consumption is interchanged with other carriers to the U.S. Midwest, the U.S Northeast via Chicago, and the U.S. Pacific Northwest. CP also delivers direct shipments of U.S. grain to western Canada primarily for animal feed. In partnership with other railways, CP moves U.S. grain to export terminals in the U.S. Pacific Northwest and the Gulf of Mexico. Export U.S. grain traffic is also shipped to the Port of Vancouver and the ports at Superior, Wisconsin and Duluth, Minnesota.




CP 2021 ANNUAL REPORT 10
Coal
The Company’s Coal business represented approximately 20% of Bulk revenues, and was 8% of total Freight revenues in 2021.

The following charts compare the percentage of the Company's Coal freight revenues generated from Canadian and U.S. shipments in 2021, 2020 and 2019:

cp-20211231_g13.jpgcp-20211231_g14.jpgcp-20211231_g15.jpg
2021 Coal Revenues2020 Coal Revenues2019 Coal Revenues
(20% of Bulk Revenues; 8% of Freight Revenues)(18% of Bulk Revenues; 8% of Freight Revenues)(22% of Bulk Revenues; 9% of Freight Revenues)

In Canada, CP handles mostly metallurgical coal destined for export for use in the steelmaking process. CP’s Canadian coal traffic originates mainly from Teck Resources Limited’s mines in southeastern B.C. CP moves coal west from these mines to port terminals for export to world markets (Pacific Rim, Europe and South America), and east for the U.S. Midwest markets.

In the U.S., CP moves primarily thermal coal from connecting railways, serving the thermal coal fields in the Powder River Basin in Montana and Wyoming, which is delivered to power-generating facilities in the U.S. Midwest.

Potash
The Company's Potash business represented approximately 15% of Bulk revenues, and was 6% of total Freight revenues in 2021.

The following charts compare the percentage of the Company's Potash freight revenues generated from export and domestic potash shipments in 2021, 2020 and 2019:

cp-20211231_g16.jpgcp-20211231_g17.jpgcp-20211231_g18.jpg
2021 Potash Revenues2020 Potash Revenues2019 Potash Revenues
(15% of Bulk Revenues; 6% of Freight Revenues)(15% of Bulk Revenues; 7% of Freight Revenues)(15% of Bulk Revenues; 6% of Freight Revenues)

The Company’s Potash traffic moves mainly from Saskatchewan to offshore markets through the ports of Vancouver, Portland, and Thunder Bay, and to markets in the U.S. All potash shipments for export beyond Canada and the U.S. are marketed by Canpotex Limited or K+S Potash Canada. Canpotex is an



11 CP 2021 ANNUAL REPORT


export company owned in equal shares by Nutrien Ltd. and The Mosaic Company. Independently, The Mosaic Company, Nutrien Ltd., and K+S Potash Canada move domestic potash with CP primarily to the U.S. Midwest for local application.

Fertilizers and Sulphur
The Company's Fertilizers and sulphur business represented approximately 10% of Bulk revenues, and was 4% of total Freight revenues in 2021.

The following charts compare the percentage of the Company's Fertilizers and sulphur freight revenues generated from dry fertilizers, wet fertilizers, and sulphur transportation in 2021, 2020 and 2019:
cp-20211231_g19.jpgcp-20211231_g20.jpgcp-20211231_g21.jpg
2021 Fertilizers & Sulphur Revenues2020 Fertilizers & Sulphur Revenues2019 Fertilizers & Sulphur Revenues
(10% of Bulk Revenues; 4% of Freight Revenues)(9% of Bulk Revenues; 4% of Freight Revenues)(8% of Bulk Revenues; 3% of Freight Revenues)

Dry fertilizers include: phosphate, nitrate, urea, and ammonium sulphate. Wet fertilizers are primarily anhydrous ammonia. More than half of CP's fertilizer shipments originate from production facilities in Alberta, where abundant sources of natural gas and other chemicals provide feedstock for fertilizer production.

Most sulphur is produced in Alberta as a byproduct of processing sour natural gas, refining crude oil, and upgrading bitumen produced in the Alberta oil sands. Sulphur is a raw material used primarily in the manufacturing of sulphuric acid, which is used most extensively in the production of phosphate fertilizers.

MERCHANDISE
The Company’s Merchandise business represented approximately 38% of total Freight revenues in 2021.

The following charts compare the percentage of the Company's Merchandise freight revenue by commodity business in 2021, 2020 and 2019:

cp-20211231_g22.jpgcp-20211231_g23.jpgcp-20211231_g24.jpg
2021 Merchandise Revenues2020 Merchandise Revenues2019 Merchandise Revenues
(38% of Freight Revenues)(36% of Freight Revenues)(39% of Freight Revenues)




CP 2021 ANNUAL REPORT 12
Merchandise products move in both mixed freight and unit trains, in a variety of car types. Service involves delivering products to many different customers and destinations. In addition to traditional rail service, CP moves merchandise traffic through a network of truck-rail transload facilities, expanding the reach of CP's network to non-rail served facilities.

Forest Products
The Company’s Forest products business represented approximately 12% of Merchandise revenues, and was 4% of total Freight revenues in 2021.

The following charts compare the percentage of the Company's Forest products freight revenues generated from pulp and paper (wood pulp, paperboard, newsprint, and paper), lumber and panel, and other shipments in 2021, 2020 and 2019:

cp-20211231_g25.jpgcp-20211231_g26.jpgcp-20211231_g27.jpg
2021 Forest Products Revenues2020 Forest Products Revenues2019 Forest Products Revenues
(12% of Merchandise Revenues;
4% of Freight Revenues)
(12% of Merchandise Revenues;
4% of Freight Revenues)
(10% of Merchandise Revenues;
4% of Freight Revenues)

Forest products traffic includes pulp and paper, and lumber and panel shipped from key producing areas in B.C., Ontario, Alberta, Québec, the U.S. Northeast, and New Brunswick, to destinations throughout North America, including the U.S. Midwest, the U.S. Northeast, and to export markets via Vancouver.

Energy, Chemicals and Plastics
The Company’s Energy, chemicals and plastics business represented approximately 52% of Merchandise revenues, and was 20% of total Freight revenues in 2021.

The following charts compare the percentage of the Company's Energy, chemicals and plastics freight revenues generated from petroleum products, crude, chemicals, biofuels, and plastics shipments in 2021, 2020 and 2019:
cp-20211231_g28.jpgcp-20211231_g29.jpgcp-20211231_g30.jpg
2021 Energy, Chemicals & Plastics Revenues2020 Energy, Chemicals & Plastics Revenues2019 Energy, Chemicals & Plastics Revenues
(52% of Merchandise Revenues;
20% of Freight Revenues)
(54% of Merchandise Revenues;
20% of Freight Revenues)
(52% of Merchandise Revenues;
20% of Freight Revenues)




13 CP 2021 ANNUAL REPORT


Petroleum products consist of commodities such as liquefied petroleum gas ("LPG"), fuel oil, asphalt, gasoline, condensate (diluent), and lubricant oils. The majority of the Company’s western Canadian energy traffic originates in the Alberta Industrial Heartland, Canada's largest hydrocarbon processing region, and Saskatchewan. The Bakken formation region in Saskatchewan and North Dakota is another source of LPG, asphalt, gasoline, and other refined petroleum. Either directly or via connection with rail interline partners, CP accesses key destinations and export markets in the U.S. Midwest, the U.S. West Coast, the U.S. Northeast, Vancouver, and Mexico, as well as the Texas and Louisiana petrochemical corridor and port connections.

Crude moves from production facilities throughout Alberta, North Dakota, and Saskatchewan. CP provides efficient routes to refining markets in the Gulf Coast, the U.S. Northeast, and the U.S. Pacific Northwest through connections with our railway partners. Within crude, CP also moves DRUbitTM, a sustainable heavy crude oil specifically designed for rail transportation and produced using a new and innovative plant known as a Diluent Recovery Unit ("DRU"). This technology enables the safe and economical transportation of crude oil and is cost competitive with pipeline transportation. CP transports DRUbitTM from the Hardisty Rail Terminal in Alberta to the Gulf Coast via interchange in Kansas City.

The Company’s chemical traffic includes products such as ethylene glycol, caustic soda, sulphuric acid, methanol, styrene, and soda ash. These shipments originate from western Canada, the Gulf Coast, eastern Canada, and the U.S. Midwest, and move to end markets in the U.S., Canada, and overseas.

CP's biofuels traffic originates mainly from facilities in the U.S. Midwest, shipping primarily to destinations in the U.S. Northeast.

The most commonly shipped plastics products are polyethylene and polypropylene. Approximately half of the Company’s plastics traffic originates in central and northern Alberta and moves to various North American destinations.

Metals, Minerals and Consumer Products
The Company’s Metals, minerals and consumer products business represented approximately 24% of Merchandise revenues, and was 9% of total Freight revenues in 2021.

The following charts compare the percentage of the Company's Metals, minerals and consumer products freight revenues generated from steel, aggregates (excluding frac sand), food and consumer products, frac sand, and non-ferrous metals transportation in 2021, 2020 and 2019:

cp-20211231_g31.jpgcp-20211231_g32.jpgcp-20211231_g33.jpg
2021 Metals, Minerals & Consumer Products Revenues2020 Metals, Minerals & Consumer Products Revenues2019 Metals, Minerals & Consumer Products Revenues
(24% of Merchandise Revenues;
9% of Freight Revenues)
(22% of Merchandise Revenues;
8% of Freight Revenues)
(26% of Merchandise Revenues;
10% of Freight Revenues)

Aggregate products include coarse particulate and composite materials such as cement, limestone, clay, nepheline syenite, and gypsum. Cement is the leading commodity within aggregates, and is shipped directly from production facilities in Alberta, the U.S. Midwest, Ontario, and Québec to energy and construction projects in western Canada, the U.S. Midwest, and the U.S. Pacific Northwest.

The majority of frac sand originates at mines located along the Company’s network in Wisconsin and moves to the Bakken, Marcellus Shale, Permian Basin, and other shale formations across North America.

CP transports steel in various forms from mills in the U.S. Midwest, the Canadian Prairies, and Ontario to a variety of industrial users. The Company carries base metals such as aluminum, zinc, and lead. CP also moves ores from mines to smelters and refineries for processing, and the processed metal to automobile and consumer products manufacturers.




CP 2021 ANNUAL REPORT 14
Food, consumer, and other products traffic consists of a diverse mix of goods, including food products, railway equipment, building materials, and waste products.

Automotive
The Company’s Automotive business represented approximately 12% of Merchandise revenues, and was 5% of total Freight revenues in 2021.

The following charts compare the percentage of the Company's Automotive freight revenues generated by movements of finished vehicles from Canadian, U.S., overseas, and Mexican origins, parts and other, and machinery in 2021, 2020 and 2019:

cp-20211231_g34.jpgcp-20211231_g35.jpgcp-20211231_g36.jpg
2021 Automotive Revenues2020 Automotive Revenues2019 Automotive Revenues
(12% of Merchandise Revenues;
5% of Freight Revenues)
(12% of Merchandise Revenues;
4% of Freight Revenues)
(12% of Merchandise Revenues;
5% of Freight Revenues)

CP’s Automotive portfolio consists of four finished vehicle traffic components: Canadian-produced vehicles that ship to the U.S. from Ontario production facilities; U.S.-produced vehicles that ship within the U.S. as well as cross border shipments to Canadian markets; vehicles from overseas that move through the Port of Vancouver to eastern Canadian markets; and Mexican-produced vehicles that ship to the U.S. and Canada. In addition to finished vehicles, CP ships pre-owned vehicles, machinery, and automotive parts. A comprehensive network of automotive compounds is utilized to facilitate final delivery of vehicles to dealers throughout Canada and in the U.S.

INTERMODAL
The Company’s Intermodal business represented approximately 22% of total Freight revenues in 2021.

The following charts compare the percentage of the Company's Intermodal freight revenues generated from Canada, ports, cross border transportation, other international, and U.S. in 2021, 2020 and 2019:

cp-20211231_g37.jpgcp-20211231_g38.jpgcp-20211231_g39.jpg
2021 Intermodal Revenues2020 Intermodal Revenues2019 Intermodal Revenues
(22% of Freight Revenues)(21% of Freight Revenues)(21% of Freight Revenues)



15 CP 2021 ANNUAL REPORT


Domestic intermodal freight consists primarily of manufactured consumer products that are predominantly moved in 53-foot containers within North America. International intermodal freight moves in marine containers to and from ports and North American inland markets.

CP’s domestic intermodal business moves goods from a broad spectrum of industries including wholesale, retail, food, and various other commodities. Key service factors in domestic intermodal include consistent on-time delivery, the ability to provide door-to-door service, and the availability of value-added services. The majority of the Company’s domestic intermodal business originates in Canada, where CP markets its services directly to retailers and manufacturers, providing complete door-to-door service and maintaining direct relationships with its customers. In the U.S., the Company’s service is delivered mainly through intermodal marketing companies.

CP’s international intermodal business consists primarily of containerized traffic moving between the ports of Vancouver, Montréal, Saint John, and inland points across Canada and the U.S. Import traffic from the Port of Vancouver is mainly long-haul business destined for eastern Canada and the U.S. Midwest. CP works closely with the Port of Montréal, a major year-round East Coast gateway to Europe, to serve markets primarily in Canada and the U.S. Midwest. CP's access to the Port of Saint John provides the fastest rail service from the east coast to the Canadian and U.S. Midwest markets for import and export cargo from Europe, South America, and Asia.

Fuel Cost Adjustment Program
The short-term volatility in fuel prices may adversely or positively impact revenues. CP employs a fuel cost adjustment program designed to respond to fluctuations in fuel prices and help reduce volatility to changing fuel prices. Fuel surcharge revenues are earned on individual shipments and are based primarily on the price of On-Highway Diesel. As such, fuel surcharge revenues are a function of freight volumes and fuel prices. Fuel surcharge revenues accounted for approximately 7% of the Company's Freight revenues in 2021. The Company is also subject to carbon taxation systems and levies in some jurisdictions in which it operates, the costs of which are passed on to the shipper. As such, fuel surcharge revenue includes carbon taxes and levy recoveries.

Freight revenues included fuel surcharge revenues of $535 million in 2021, an increase of $238 million, or 80%, from $297 million in the same period of 2020. This increase was primarily due to higher fuel prices and increased carbon tax recoveries. This increase was partially offset by the timing of recoveries from CP's fuel cost adjustment program.

Non-freight Revenues
Non-freight revenues accounted for approximately 2% of the Company’s Total revenues in 2021. Non-freight revenues are generated from leasing certain assets; other arrangements, including contracts with passenger service operators and logistical services; and switching fees.

Significant Customers
For each of the years ended December 31, 2021, 2020 and 2019, the company's revenues and operations were not dependent on any major customers.

Competition
The Company is in the ground transportation and logistics business. The Company sees competition in this segment from other railways, motor carriers, ship and barge operators, and pipelines. Depending on the specific market, competing railways, motor carriers, and other competitors may exert pressure on price and service levels. The Company continually evaluates the market needs and the competition. The Company responds as it deems appropriate to provide competitive services to the market. This includes developing new offerings such as transload facilities, new train services, and other logistics services.

Seasonality
Volumes and revenues from certain goods are stronger during different periods of the year. First-quarter revenues are typically lower mainly due to winter weather conditions, closure of the Port of Thunder Bay, and reduced transportation of retail goods. Second and third quarter revenues generally improve compared to the first quarter, as fertilizer volumes are typically highest during the second quarter and demand for construction-related goods is generally highest in the third quarter. Revenues are typically strongest in the fourth quarter, primarily as a result of the transportation of grain after the harvest, fall fertilizer programs, and increased demand for retail goods moved by rail. Operating income is also affected by seasonal fluctuations. Operating income is typically lowest in the first quarter, due to lower freight revenue and higher operating costs associated with winter conditions.




CP 2021 ANNUAL REPORT 16
Government Regulation
The Company’s railway operations are subject to extensive federal laws, regulations, and rules in both Canada and the U.S., which directly affect how operations and business activities are managed.

Economic Regulation - Canada
The Company’s rail operations in Canada are subject to economic regulation by the Canadian Transportation Agency (the "Agency”) as delegated by the CTA. The CTA indirectly regulates rates by providing remedies for freight rates, including ancillary charges, remedies for level of service, long-haul interswitching rates, and regulated interswitching rates in Canada. The Agency administers the MRE program for the movement of export grain and makes determinations in relation to the construction and abandonment of railways, commuter and passenger access, and noise and vibration-related disputes.

In 2018, the Transportation Modernization Act became law. The legislation amended the Canada Transportation Act and the Railway Safety Act ("RSA"), among other Acts, to (1) replace the previous 160 kilometre extended interswitching limit and the competitive line rate provisions with a new long-haul interswitching regime; (2) modify the existing Level of Service remedy for shippers by instructing the Agency to determine, upon receipt of a complaint, if a railway company is fulfilling its common carrier obligation to the “highest level of service that is reasonable in the circumstances”; (3) allow the existing Service Level Agreement arbitration remedy to include the consideration of reciprocal financial penalties; (4) increase the threshold for summary Final Offer Arbitration from $750,000 to $2 million; (5) bifurcate the Volume-Related Composite Price Index component of the annual MRE determination for transportation of regulated grain, to encourage hopper car investment by CP and Canadian National Railway ("CN"); (6) mandate the installation of locomotive voice and video recorders ("LVVRs"), with statutory permission for random access by railway companies and Transport Canada ("TC") to the LVVR data in order to proactively strengthen railway safety in Canada; and (7) compel railways to provide additional data to the federal government.

Economic Regulation - U.S.
The Company’s U.S. rail operations are subject to economic regulation by the STB. The STB provides economic regulatory oversight and administers Title 49 of the United States Code and related Code of Federal Regulations. The STB has jurisdiction over railroad rate and service issues and proposed railroad mergers and other transactions.

The STB Reauthorization Act of 2015 resulted in numerous changes to the structure and composition of the STB, removing it from under the Department of Transport and establishing the STB as an independent U.S. agency, as well as increasing STB Board membership from three to five members. Notably, the law vests in the STB certain limited enforcement powers, by authorizing it to investigate rail carrier violations on the STB Board’s own initiative. The law also requires the STB to establish a voluntary binding arbitration process to resolve rail rate and practice disputes.

Safety Regulation - Canada
The Company’s operations in Canada are subject to safety regulatory oversight by TC pursuant to the RSA. The RSA regulates safety-related aspects of railway operations in Canada, including the delegation of inspection, investigation and enforcement powers to TC. TC is also responsible for overseeing the transportation of dangerous goods as set out under the Transportation of Dangerous Goods Act ("TDGA").

In 2015, An Act to amend the Canada Transportation Act and the Railway Safety Act became law. The legislation sets out minimum insurance requirements for federally regulated railways based on amounts of crude and toxic inhalation hazards ("TIH") or poisonous inhalation hazards moved. It also imposes strict liability; limits railway liability to the minimum insurance level; mandates the creation of a fund paid for by levies on crude shipments, to be utilized for damages beyond a railway's liability; allows railways and insurers to maintain rights to pursue other parties (subrogation); and prevents shifting liability to shippers from railways except through written agreement.

The Company is continuing to allocate resources, including working with public and private rail crossing owners, to meet the Grade Crossings Regulations, under the Railway Safety Act ("RSA"), which came into force in 2014. The regulations require existing crossings to meet specified safety standards by November 2021. Based on stakeholder input, including public and private rail crossing owners, TC has proposed changes to the regulations that will revise the scope and compliance deadlines using a risk-based approach. For crossings considered to be high priority, the deadline would be extended by one year (until November 28, 2022), and for all other crossings (i.e. crossings that do not meet the threshold criteria for low-risk or high priority) by three years (until November 28, 2024). The proposed regulatory changes are pending and will need to be published in Part II of the Canada Gazette for them to come into force.

On November 25, 2020, the Minister of Transport approved updated Duty and Rest Period Rules for Railway Operating Employees. The new rules, founded on modern-day fatigue management principles, reduce the length of a duty period and increase the length of the minimum rest period between shifts. The rules establish limits on the total number of duty hours, 60 hours in a seven-day period, 192 hours in a 28-day period and require the implementation of a Fatigue Management Plan and Fitness of Duty Provision. These requirements must be phased in by May 25, 2023. CP is working to address the requirements.




17 CP 2021 ANNUAL REPORT


On July 11, 2021, the Minister of Transport issued an Order in response to the B.C. wildfires. The Order mandated prescriptive requirements that railway companies must comply with including conducting at least 10 fire detection patrols every 24 hours on regularly used track, an Extreme Weather Fire Risk Mitigation Plan, minimum emergency response requirements and locomotive inspection requirements. The requirements of the Order remain in effect until fire risk reduction measures are incorporated on a permanent basis into the existing regulatory framework governing railway operations in Canada.

On October 29, 2021, the Minister of Transport issued an Order mandating COVID-19 vaccinations. That Order required railway companies to implement their own company-wide vaccine policy by October 30, 2021 requiring all employees to receive their first dose of vaccine by November 15, 2021 and their second dose by January 24, 2022 or implement a set of more prescribed standards for operating employees. CP is complying with this Order and continuing to evaluate the potential impacts to the Company.

Additionally, the Company is working with TC on revisions to multiple rules to improve rail safety, including addressing specific requirements mandated under various Orders issued by the Minister of Transport. This includes changes to the Canadian Rail Operating Rules; Rules Respecting Key Trains and Key Routes; Railway Locomotive Inspection and Safety Rules and Rules Respecting Track Safety.

On February 5, 2022, TC published a Notice of Intent in the Canada Gazette Part I that it would be progressing work to develop a regulatory framework to establish requirements to implement Enhanced Train Control ("ETC") technologies in Canada to help ensure that railway signals are consistently recognized and followed. The Notice of Intent describes an approach that is based on extensive work conducted with railways and labour representatives. The proposed framework would require railway companies to assess the levels of safety risk on their networks and implement systems that are commensurate with the identified levels of risk. Highest risk corridors would need to be equipped with Automatic Train Protection equipment, similar to Positive Train Control ("PTC") in the US; lower risk corridors would need to be equipped with Driver Advisory System equipment that would alert crews to take action; and very low risk corridors could retain conventional train control approaches. The formal regulatory process has not commenced and railway companies will have opportunities to provide input into the proposed regulatory framework as it progresses. At this time, TC has not provided timelines for issuing proposed ETC regulatory requirements or an implementation date.

Safety Regulation - U.S.
The Company’s U.S. operations are subject to safety regulations enforced by the Federal Railroad Administration (“FRA”), and the Pipelines and Hazardous Materials Safety Administration (“PHMSA”). The FRA regulates safety-related aspects of the Company’s railway operations in the U.S. under the Federal Railroad Safety Act, as well as rail portions of other safety statutes. The PHMSA regulates the safe transportation of all hazardous materials by rail.

Various other regulators directly and indirectly affect the Company’s operations in areas such as health, safety, security, environmental, and other matters.

Environmental Laws and Regulations
The Company’s operations and real estate assets are subject to extensive federal, provincial, state, and local environmental laws and regulations governing air pollutants, GHG emissions, management and remediation of historical contaminant sites, discharges to waters and the handling, storage, transportation, and disposal of waste and other materials. If the Company is found to have violated such laws or regulations, it could have a material adverse effect on the Company’s business, financial condition, or operating results. In addition, in operating a railway, it is possible that releases of hazardous materials during derailments or other accidents may occur that could cause harm to human health or to the environment. Costs of remediation, damages and changes in regulations could materially affect the Company’s operating results, financial condition, and reputation.

The Company has implemented an Environmental Management System to facilitate the reduction of environmental risk. Specific environmental programs are in place to address areas such as locomotive air emissions, GHG reporting, management of vegetation, wastewater, chemicals and waste, storage tanks, and fueling facilities. CP has also undertaken environmental impact assessments and risk assessments to identify, prevent, and mitigate environmental risks. There is continued focus on preventing spills and other incidents that have a negative impact on the environment. There is an established strategic emergency response contractor network, and spill equipment kits are located across Canada and the U.S. to ensure a rapid and efficient response in the event of an environmental incident. In addition, emergency preparedness and response plans are regularly updated and tested.

The Company has developed an environmental audit program that comprehensively, systematically, and regularly assesses the Company’s facilities for compliance with legal requirements and the Company’s policies for conformance to accepted industry standards. Included in this is a corrective action follow-up process and review by senior management.

CP focuses on key strategies, identifying tactics and actions to support and operationalize our environmental commitments. The Company’s strategies include:
Implementing measures to minimize or prevent environmental impacts from our operations and facilities, and to ensure compliance with applicable environmental laws and regulations;



CP 2021 ANNUAL REPORT 18
Maintaining an Environmental Management System to provide consistent, effective guidance and resources to CP employees in regard to the management of air emissions, dangerous goods and waste materials, emergency preparedness and response, petroleum products management, and water and wastewater systems;
Reducing environmental and safety risk through business processes to identify and mitigate potential environmental impacts related to all CP operations and activities;
Ensuring that new or altered operations and other business activities are evaluated, planned, permitted in accordance with applicable regulations, and executed to mitigate environmental risk;
Engaging with relevant stakeholders to consider and discuss CP’s environmental management practices and environmental issues and concerns associated with our operations;
Employing best practices, proven technologies, and safe operating standards for activities involving elevated environmental risk;
Planning and preparing for emergency responses to ensure all appropriate steps are taken in the event of a derailment, spill, or other incident involving a release to the environment; and
Implementing CP’s comprehensive Climate Strategy to reduce GHG emissions and adapt CP’s operations to the physical risks of climate change. To guide implementation of the Climate Strategy, CP has established two science-based emissions reduction targets that address 100% of CP’s Scope 1 and Scope 2 emissions, and more than half of CP's Scope 3 emissions.

Security
CP is subject to statutory and regulatory directives in Canada and the U.S. that address security concerns. CP plays a critical role in the North American transportation system. Rail lines, facilities and equipment, including railcars carrying hazardous materials, could be direct targets or indirect casualties of terrorist attacks, actions by criminal and non-criminal organizations, and activities by individuals. Regulations by the U.S. Department of Transportation and the Department of Homeland Security in the U.S. include speed restrictions, chain of custody and security measures, which can impact service and increase costs for the transportation of hazardous materials, especially TIH materials. New regulations published by TC under the TGDA have added requirements for railway companies to take actions to mitigate security risks of transporting dangerous goods by rail. In addition, insurance premiums for some or all of the Company’s current coverage could increase significantly, or certain coverage may not be available to the Company in the future. While CP will continue to work closely with Canadian and U.S. government agencies, future decisions by these agencies on security matters or decisions by the industry in response to security threats to the North American rail network could have a material adverse effect on the Company's business, financial condition, or operating results.
 
CP takes the following security measures:
CP employs its own police service that works closely with communities and other law enforcement and government agencies to promote railway safety and infrastructure security. As a railway law enforcement agency, CP Police Services is headquartered in Calgary, with police officers assigned to over 25 field offices responsible for railway police operations in six Canadian provinces and 14 U.S. states. CP Police Services operates on the CP rail network as well as in areas where CP has non-railway operations;
CP’s Public Safety Communication Centre ("PSCC") operates 24 hours a day. PSCC receives reports of emergencies, dangerous or potentially dangerous conditions, and other safety and security issues from our employees, the public, and law enforcement and other government officials. PSCC ensures that proper emergency responders are notified as well as governing bodies;
CP’s Security Management Plan is a comprehensive, risk-based plan modelled on and developed in conjunction with the security plan prepared by the Association of American Railroads post-September 11, 2001. Under this plan, CP routinely examines and prioritizes railway assets, physical and cyber vulnerabilities, and threats, as well as tests and revises measures to provide essential railway security. To address cyber security risks, CP implements mitigation programs that evolve with the changing technology threat environment. The Company has also worked diligently to establish backup sites to ensure a seamless transition in the event that the Company's operating systems are the target of a cyber-attack. By doing so, CP is able to maintain network fluidity; and
CP security efforts consist of a wide variety of measures including employee training, periodic security assessments, engagement with our customers, and training of emergency responders.
















19 CP 2021 ANNUAL REPORT


Focus on Sustainability
Sustainability at CP is rooted in a long-standing legacy of building for the future. We recognize that integrating sustainability into our business processes is imperative to future growth and long-term success as an organization. As one of North America’s top-performing railways, we seek to continue to innovate and advance practices to meet the evolving needs and increasing engagement of all of CP’s stakeholders, including employees, customers, shareholders, suppliers, communities and society.

CP's Sustainability Priorities
cp-20211231_g40.jpg

Sustainability Governance
CP's Board of Directors, through its committees, is responsible for the monitoring, measurement and oversight of CP's key risks, strategies and sustainability topics. The Risk and Sustainability Committee of the Board reviews performance against short-term and long-term sustainability objectives and results of stakeholder engagement to ensure alignment with CP’s strategic planning. CP’s cross-functional management Sustainability Steering Committee guides decisions on CP’s day-to-day sustainability tasks, programs and priorities, and reports progress and recommendations to the Risk and Sustainability Committee. The Disclosure Policy Committee gives direction and support to the Sustainability Steering Committee concerning how CP communicates information concerning material sustainability topics.

CP leadership and employee engagement at all levels of the business is foundational to the success of our sustainability program. Through ongoing engagement across and beyond our organization, CP continues to refine a sustainability program driven by our values and based on a shared sense of business, community and vision for the future. As we take strides to deliver on our commitments and goals, we constantly challenge ourselves to improve our practices.

Climate Change
Climate change represents a significant global challenge and CP is committed to adapting our business and operations. CP published its first Climate Strategy in 2021, outlining our approach to managing potential climate-related impacts, reducing our carbon footprint and seeking to position CP as an industry leader in the transition to a low-carbon future. As part of the Climate Strategy, CP established science-based GHG emissions reductions targets covering 100% of Scope 1 and 2 emissions and more than half of our Scope 3 emissions.

CP has already taken action and made progress on climate change and to further support the execution of our Climate Strategy, we are strengthening roles and responsibilities for climate governance. CP's President and CEO holds the highest level of responsibility for organizational management,



CP 2021 ANNUAL REPORT 20
including oversight of the Sustainability Steering Committee and performance related to climate change, while the Risk and Sustainability Committee of the Board provides oversight and reviews climate-related risks and opportunities. To lead our focus on decarbonization, we have established a Carbon Reduction Task Force, composed of CP’s industry-leading engineers and operations experts. The Carbon Reduction Task Force reports to the Sustainability Steering Committee and will evaluate, recommend and implement climate action measures to reduce our GHG emissions and drive performance in the direction of our science-based targets.

In 2021, CP significantly expanded its Hydrogen Locomotive Program, aiming to build North America’s first line-haul hydrogen-powered locomotive using fuel cells and batteries to power the locomotive’s electric traction motor. CP is increasing the number of hydrogen locomotive conversions from one to three and adding hydrogen production and fueling facilities. This project will demonstrate and evaluate the technical performance in real-world operations and generate critical industry knowledge and experience that will inform commercialization and future development.

In 2021, we aligned our reporting to include the recommendations from the Task Force on Climate-related Financial Disclosure ("TCFD") and issued our first TCFD Index to demonstrate CP's full alignment to the recommendations. In addition, we regularly report on climate-related efforts through CDP and supplemental sustainability disclosures.

Indigenous Relations
We strive to maintain strong relationships with Indigenous communities and uphold policies that outline our commitment to human rights. We incorporate elements of the Canadian Council for Aboriginal Business’ Progressive Aboriginal Relations program into our practices and aim to strengthen relationships, develop opportunities and provide education and cross-cultural awareness.

CP recognizes the constitutionally protected rights of Indigenous people and is committed to interacting with Indigenous communities in a safe, respectful and responsible manner. Various CP teams collaborate to make certain that we effectively communicate and engage with communities that may be impacted by our practices and projects.

Human Capital Management
CP is focused on attracting, developing, and retaining a resilient, high-performing workforce that delivers on providing service for our customers. CP's culture is guided by three core values: Accountability, Diversity, and Pride. These values drive our actions. Everything we do is grounded in precision scheduled railroading and our five foundations of Provide Service, Control Costs, Optimize Assets, Operate Safely, and Develop People.

At CP, our approximately 12,000-strong team of railroaders across North America underpins CP’s success and brings value to our customers and shareholders. Accordingly, Develop People is one foundation of how we do business, illustrating our focus and energy towards empowering our people, providing an engaging culture and cultivating an industry leading team.

Total Employees and Workforce
An employee is defined by the Company as an individual currently engaged in full-time, part-time, or seasonal employment with CP. The total number of employees as of December 31, 2021, was 11,834, a decrease of 56 compared to 11,890 as at December 31, 2020.

Workforce is defined as total employees plus contractors and consultants. The total workforce as at December 31, 2021 was 11,872, a decrease of 32 compared to 11,904 as at December 31, 2020.

Unionized Workforce
Class I railways are party to collective bargaining agreements with various labour unions. The majority of CP's employees belong to labour unions and are subject to these agreements. CP manages collaborative relationships with union members in both Canada and the U.S.

CP employs approximately 12,000 active employees across North America with three-quarters based in Canada and the remainder in the United States. Unionized employees represent nearly 73% of our workforce and are represented by 36 active bargaining units.

Canada
Within Canada there are eight bargaining units representing approximately 6,600 Canadian unionized active employees. From time to time, we negotiate to renew collective agreements with various unionized groups of employees. In such cases, the collective agreements remain in effect until the bargaining process has been exhausted (pursuant to the Canada Labour Code). One agreement is open for renewal and negotiations are underway as at December 31, 2021. Agreements are in place with the other seven bargaining units in Canada. Four collective agreements are effective until December 31, 2022 with the remaining three effective until December 31, 2023, 2025 and 2026.





21 CP 2021 ANNUAL REPORT


U.S.
In the U.S., there are currently 28 active bargaining units on four subsidiary railroads representing nearly 2,100 unionized active employees. 24 agreements are open for amendment and under negotiation as at December 31, 2021. Negotiations have been concluded with respect to three agreements which will expire beyond 2022 while one remaining agreement will be open for amendment in 2022.

Health and Safety
CP is an industry leader in rail safety and we are committed to protecting our employees, our communities, our environment, and our customers’ goods. In spite of 2021 being a very challenging year for our operation, CP remained an industry leader in train accident statistics for the 16th consecutive year. 2021 was also a record breaking year with respect to personal injuries as CP had the lowest injury frequency in its history and is now among the Class I leaders. CP's leadership approach has been the most impactful driver of the strong safety performance metrics and we are committed to continually improving on them. Aside from running trains, many of our employees work in yards, terminals and shops across our network with machinery and heavy equipment, or in extreme weather conditions. Their safety and security are of utmost importance to CP and are integral to the way we view employee safety education and training. Operate Safely is one of our five foundations of successful railroading and it starts with knowing and following the rules.

CP HomeSafe is an initiative designed to improve our safety culture by tapping into the human side of safety and promoting both safety engagement and feedback. HomeSafe puts everyone on the same level and empowers all employees to begin a safety conversation, no matter the rank or position. We intend to continue strengthening our strong HomeSafe foundation in 2022 through active peer engagement and awareness initiatives. Despite the ongoing pandemic in 2021, CP has continued to maintain a safe operation by diligently promoting our pandemic response initiatives including a set of practical strategies and best practices designed to keep all employees safe and healthy at work.

Safety performance is disclosed publicly on a quarterly basis using standardized metrics set out by the FRA. Additional information on FRA safety measures is included in Performance Indicators in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Talent Management
CP’s approach for talent management begins with our Human Resources department, which oversees recruitment, development, engagement, and retention with the current and future workforce and leadership of CP.

The Management Resources and Compensation Committee of the Board of Directors reviews and informs CP’s compensation plan and programming, and makes recommendations to the Board on succession planning for senior management and processes to identify, develop, and retain executive talent. Additionally, as part of CP’s succession planning program, senior leaders are actively engaged in building the pool of future leaders, and present their development plans to the Board.

CP maintains a number of internal policies and processes related to recruitment, relocation, compensation, employment equity, and diversity and inclusion. The effective implementation of these policies alongside our ongoing workforce initiatives ensures CP’s attraction and recruitment, employee development, succession, engagement, and diversity and inclusion practices are consistent and aligned with CP’s commitments, foundations and values.

Attraction and Recruitment
With a rail network spanning Canada and the U.S., we employ a number of recruitment strategies and retention tactics to attract and retain talent across North America. CP offers many rewarding career opportunities in a variety of roles within the organization in both operating and support functions. We base our recruitment strategy on workforce planning needs, and our focus is on ensuring that we have a diverse candidate pool to fill our open positions.

CP recognizes the valuable skills and experience that veterans have gained from serving their country. Our veteran program was recognized as part of Canada's Best Diversity Employers® of 2021 and we were named part of the top 10 Military Friendly® employers in the U.S. for 2021.

CP tracks recruitment performance and success rates to better understand which tactics, benefits, and strategic partnerships are most successful in bringing in and retaining new talent.

Talent Development & Succession
As part of our core foundation and commitment to Develop People, we encourage all employees to take an active role in their career planning and development. We believe that investing in our employees leads to improved workplace morale and fosters a supportive working environment.

Training and Development
One of CP’s five foundations is to Develop People, which is integral to the way we do business at the railway. Our strategy involves delivering specialized training, best practices, and skill-broadening opportunities to all employees.




CP 2021 ANNUAL REPORT 22
CP offers a variety of training opportunities, providing both technical/on-the-job training, role-specific offerings as well as optional courses. Training includes instructor-led classes and online on-demand, self-directed online learning.

Non-union employees also complete annual performance management and development action plans with their leaders to set individual goals tied to CP's five key foundations and track progress against Company expectations as well as career development goals.

Diversity and Inclusion
Diversity is one of our core values at CP. We believe that different backgrounds, experiences, and perspectives enhance creativity and innovation and encourage diversity of thought in the workplace. Fostering an inclusive environment where all employees feel empowered to strive for and achieve success supports our high-performance culture and is integral to our growth and success as an organization. Our Diversity and Inclusion team with support from senior leadership is responsible for developing programs and initiatives to achieve our diversity commitments. We are continually working on programs and opportunities to ensure we are attracting, retaining and developing the best people and skill sets for CP. CP is committed to increasing diversity throughout all levels of the organization.

CP recognizes the importance of Board member diversity as a critical component of objective oversight and continuous improvement. As of December 31, 2021, five of the 11 directors (45%) are women. Additionally, one of our male directors is a visible minority, which makes the majority of the Board of Directors (54.5%) members of "designated groups" as defined in the Employment Equity Act of Canada.

CP has regulatory requirements to report on workforce diversity representation in Canada (Employment Equity Act) and the U.S. (Equal Employment Opportunity Commission). CP currently collects diversity data on the following categories: women, persons with disabilities, minorities (visible minorities), and Indigenous peoples (Canada) from employees through voluntary self-disclosure. CP continues to focus our efforts on attracting, recruiting, and developing a diverse workforce. This data is shared in various disclosures and government reporting, internally with employees and leaders as well as our Board of Directors.

Year over Year Diversity Representation
Canada and U.S. Diversity Percentages(1)
202120202019
Women10 %10 %10 %
Persons with disabilities3 %%%
Minorities (visible minorities)(2)
14 %13 %13 %
Indigenous peoples (Canada only)3 %%%
(1) Percentages are based on total workforce (total number of active employees) at year-end.
(2) Minority is a term used in the U.S., Visible Minority is a term used in Canada.

CP continues to work collaboratively with our employees, communities along our network, and partner organizations in Canada and the U.S. to progress and support CP’s commitment toward a more representative and inclusive workplace. Some of our initiatives include:
Establishing three diversity councils (Indigenous, Gender and Racial). Each council is chaired by a CP executive and represents a diverse group of employees. The councils work to ensure we consider diversity and inclusion when we make decisions, provide feedback on corporate directions and promote initiatives that relate to each council’s area of focus;
Continuing our existing partnerships with associations and organizations that attract, recruit, and support skilled immigrants, transitioning veterans, persons with disabilities, and women;
Working with Indigenous groups to develop relationships that are more meaningful, create targeted outreach programs and employment opportunities, and better understand their history, culture, and opportunities for collaboration;
Supporting the development and advancement of women at CP; and
Increasing employee awareness regarding CP’s workplace diversity and inclusion practices through communications, education, and training.

Further, in 2020 CP published a Diversity Commitment. This commitment re-enforces the efforts we have made, and will continue to make, in our journey to becoming a more diverse and inclusive company, one that we and those we do business with are proud to be a part.

We pride ourselves on offering a diverse workplace with a variety of careers in both our corporate and field locations. We recruit and hire talent based on relevant skills and experience, and seek to attract the highest quality candidates regardless of gender, age, cultural heritage, or ethnic origin. One of our primary objectives is attracting, recruiting, retaining, and developing a workforce representative of the communities in which we operate.





23 CP 2021 ANNUAL REPORT


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 filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such reports are filed with or furnished to the U.S. Securities and Exchange Commission (“SEC”). Our website also contains charters for each of the committees of our Board of Directors, our corporate governance guidelines and our Code of Business Ethics. This Form 10-K and other SEC filings made by CP are also accessible through the SEC’s website at www.sec.gov.

All references to our websites contained herein do not constitute incorporation by reference of information contained on such websites and such information should not be considered part of this document.



CP 2021 ANNUAL REPORT 24
ITEM 1A. RISK FACTORS

The risks set forth in the following risk factors could have a materially adverse effect on the Company's business, financial condition, results of operations, and liquidity, and could cause those results to differ materially from those expressed or implied in the Company's forward-looking statements and forward-looking information (collectively, "forward-looking statements").

The information set forth in this Item 1A. Risk Factors should be read in conjunction with the rest of the information included in this annual report, including Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 8. Financial Statements and Supplementary Data.

Business and Operational Risks
The COVID-19 pandemic has negatively affected and may continue to negatively affect the Company's business and operating results. The effects of the COVID-19 pandemic on consumer demand resulted in lower volumes in several of the Company's lines of business, including Energy, chemicals and plastics, Metals, minerals and consumer products, and Automotive. The future impacts of COVID-19 on the Company's business or operating and financial results are unpredictable and cannot be identified or assessed with certainty at this time. The COVID-19 pandemic has adversely affected the global economy and resulted in a widespread economic downturn which has adversely impacted and could continue to adversely impact demand for our services and otherwise cause interruptions, including fluctuations to commodity prices, disruptions or restrictions on the ability to transport freight in the ordinary course, temporary closures of facilities and ports, or the facilities and ports of our customers, partners, suppliers or other third-party service providers, and/or changes to export/import restrictions. The pandemic caused by COVID-19 has impacted and may continue to impact the seasonal trends that typically characterize our revenues and operating income. There is no assurance that the outbreak will not continue to have a material and adverse impact on our business or results of operations. Additionally, our operations could be further negatively affected if a significant number of our employees are unable to perform their normal duties, including because of contracting COVID-19 or based on further direction from governments, public health authorities or regulatory agencies. The extent of the impact, if any, will depend on developments, many of which are beyond our control, including actions taken by governments, financial institutions, monetary policy authorities, and public health authorities to contain and respond to public health concerns and general economic conditions as a result of the pandemic. The COVID-19 pandemic may also result in continued substantial market volatility and declines, which could adversely impact future net periodic benefit costs and funding requirements of CP’s pension plans. Furthermore, certain impacts of the COVID-19 pandemic, including demand for our services and to economic conditions generally, could continue following the pandemic or the expiration or termination of government actions in respect of the pandemic.

We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required or recommended by federal, provincial, state or local authorities, or that we determine are in the best interests of our employees, customers, partners, suppliers, shareholders and other stakeholders. We cannot be certain of potential effects that any such alterations or modifications may have on our business or operating and financial results in future fiscal periods.

To the extent COVID-19 adversely affects our business or operating and financial results, it may also have the effect of heightening many of the other risks described above and below. In addition, we could be materially and adversely affected by other public health crises, including another widespread epidemic or pandemic.

COVID-19 vaccine mandates could negatively impact our ability to retain employees and could increase our operational costs, which could in turn adversely affect our profitability and growth. On October 29, 2021, the Minister of Transport issued an Order mandating COVID-19 vaccinations. That Order requires railway companies in Canada to implement their own company-wide vaccine policy by October 30, 2021 requiring all employees receive their first dose of COVID-19 vaccine by November 15, 2021 and their second dose by January 24, 2022 or implement a set of more prescribed standards for operating employees. The Order also requires that railway companies place non-compliant employees on unpaid leave. CP is complying with this Order and continuing to evaluate the potential impacts to the company.

President Biden’s COVID-19 Action Plan announced in September 2021 instructed the U.S. Department of Labor’s Occupational Safety and Health Administration ("OSHA") to develop a rule that would require all employers with 100 or more employees to ensure their workforce is fully vaccinated or subjected to weekly testing. On January 13, 2022, the U.S. Supreme Court stayed implementation of OSHA's vaccine or test requirement. As a result, OSHA withdrew its vaccination and testing emergency standards. However, there could be similar vaccination mandates in the U.S. in the future which could negatively impact our ability to retain employees, and increase our operational costs. An increase in expenses and operational costs could materially and adversely affect our growth and profitability.

COVID-19 vaccine mandates may affect employee availability due to absences to get vaccinated and/or unpaid leaves, coping with side-effects, union work stoppages and/or employee resignations due to refusal to comply with a mandate. COVID-19 vaccine mandates in Canada could negatively impact our ability to retain employees, and increase our operational costs. An increase in expenses and operational costs could materially and adversely affect our growth and profitability.




25 CP 2021 ANNUAL REPORT


As a common carrier in Canada and the U.S., the Company is required by law to transport dangerous goods and hazardous materials, which could expose the Company to significant costs and claims. Railways, including CP, are legally required to transport dangerous goods and hazardous materials as part of their common carrier obligations regardless of risk or potential exposure to loss. CP transports dangerous goods and hazardous materials, including but not limited to crude oil, ethanol and TIH materials such as chlorine gas and anhydrous ammonia. A train accident involving hazardous materials could result in significant claims against CP arising from personal injury, property or natural resource damage, environmental penalties and remediation obligations. Such claims, if insured, could exceed the existing insurance coverage commercially available to CP, which could have a material adverse effect on CP’s financial condition, operating results, and liquidity. CP is also required to comply with rules and regulations regarding the handling of dangerous goods and hazardous materials in Canada and the U.S. Noncompliance with these rules and regulations can subject the Company to significant penalties and could factor in litigation arising out of a train accident. Changes to these rules and regulations could also increase operating costs, reduce operating efficiencies and impact service delivery.

The Company faces competition from other transportation providers and failure to compete effectively could adversely affect financial results. The Company faces significant competition for freight transportation in Canada and the U.S., including competition from other railways, motor carriers, ship and barge operators, and pipelines. Competition is based mainly on quality of service, freight rates and access to markets. Other transportation modes generally use public rights-of-way that are built and maintained by government entities, while CP and other railways must use internal resources to build and maintain their rail networks. Competition with the trucking industry is generally based on freight rates, flexibility of service and transit time performance. Any future improvements or expenditures materially increasing the quality or reducing the cost of alternative modes of transportation, or legislation that eliminates or significantly reduces the burden of the size or weight limitations currently applicable to trucking carriers, could have a material adverse effect on CP's financial results.

The operations of carriers with which the Company interchanges may adversely affect operations. The Company's ability to provide rail services to customers in Canada and the U.S. also depends upon its ability to maintain cooperative relationships with connecting carriers with respect to, among other matters, revenue division, car supply and locomotive availability, data exchange and communications, reciprocal switching, interchange, and trackage rights. Deterioration in the operations or services provided by connecting carriers, or in the Company's relationship with those connecting carriers, could result in CP's inability to meet customers' demands or require the Company to use alternate train routes, which could result in significant additional costs and network inefficiencies and adversely affect our business, operating results, and financial condition.

The Company may be affected by acts of terrorism, war, or risk of war. CP plays a critical role in the North American transportation system and therefore could become the target for acts of terrorism or war. CP is also involved in the transportation of hazardous materials, which could result in CP's equipment or infrastructure being direct targets or indirect casualties of terrorist attacks. Acts of terrorism, or other similar events, any government response thereto, and war or risk of war could cause significant business interruption to CP and may adversely affect the Company’s results of operations, financial condition and liquidity.

The Company may be affected by fluctuating fuel prices. Fuel expense constitutes a significant portion of the Company’s operating costs. Fuel prices can be subject to dramatic fluctuations, and significant price increases could have a material adverse effect on the Company's results of operations. The Company currently employs a fuel cost adjustment program to help reduce volatility in changing fuel prices, but the Company cannot be certain that it will always be able to fully mitigate rising or elevated fuel costs through this program. Factors affecting fuel prices include worldwide oil demand, international politics, weather, refinery capacity, supplier and upstream outages, unplanned infrastructure failures, environmental and sustainability policies, and labour and political instability.

The Company relies on technology and technological improvements to operate its business and we are subject to cybersecurity risks. Information technology is critical to all aspects of CP’s business, and the Company relies on technology systems operated by us or under control of third parties. Although the Company devotes significant resources to protect its technology systems and proprietary data, there can be no assurance that the systems we have designed to prevent or limit the effects of cyber incidents or attacks will be sufficient to prevent or detect such incidents or attacks, or to avoid a material adverse impact on our systems after such incidents or attacks do occur. The Company is continually evaluating attackers’ techniques and tactics, and the Company is diligent in its monitoring, training, planning, and prevention. However, due to the increasing sophistication of cyber-attacks and greater complexity in our IT supply chain, the Company may be unable to anticipate or implement appropriate preventive measures to detect and respond to a security breach. This includes the raising rates of reported ransomware events, increased human error, or other cyber-attack methods disrupting CP’s systems or the systems of third parties. If the Company or third parties whose technology systems we rely on were to experience a significant disruption or failure of one or more of their information technology or communications systems (either as a result of an intentional cyber or malicious act, or an unintentional error) it could result in significant service interruptions or other failures, safety failures, other operational difficulties unauthorized access to, the loss of access to or misappropriation of competitively sensitive, confidential or other critical information or systems, loss of customers, financial losses, regulatory fines, and misuse or corruption of critical data and proprietary information, which could have a material adverse effect on the Company's results of operations, financial condition, and liquidity. The Company also may experience security breaches that could remain undetected for an extended period and, therefore, have a greater impact on the services we offer. In addition, if CP is unable to acquire or implement new technology in general, the Company may suffer a competitive disadvantage, which could also have an adverse effect on its results of operations, financial condition, and liquidity.




CP 2021 ANNUAL REPORT 26
Human Capital Risks
The availability of qualified personnel could adversely affect the Company's operations. Changes in employee demographics, training requirements and the availability of qualified personnel, particularly locomotive engineers and trainpersons, could negatively impact the Company’s ability to meet demand for rail services. Unpredictable increases in the demand for rail services may increase the risk of having insufficient numbers of trained personnel, which could have a material adverse effect on the Company’s results of operations, financial condition and liquidity. In addition, changes in operations and other technology improvements may significantly impact the number of employees required to meet the demand for rail services.

Strikes or work stoppages could adversely affect the Company's operations. Class I railways are party to collective bargaining agreements with various labour unions. The majority of CP's employees belong to labour unions and are subject to these agreements. Disputes with regard to the terms of these agreements or the Company's potential inability to negotiate acceptable contracts with these unions could result in, among other things, strikes, work stoppages, slowdowns or lockouts, which could cause a significant disruption of the Company's operations and have a material adverse effect on the Company's results of operations, financial condition and liquidity. Additionally, future national labour agreements, or provisions of labour agreements related to health care, could significantly increase the Company's costs for health and welfare benefits, which could have a material adverse impact on its financial condition and liquidity.

Legal and Regulatory Risks
The Company is subject to significant governmental legislation and regulation over commercial, operating and environmental matters. The Company’s railway operations are subject to extensive federal laws, regulations and rules in both Canada and the U.S. Operations are subject to economic and safety regulations in Canada primarily by the Agency and TC. The Company’s U.S. operations are subject to economic and safety regulation by the STB and the FRA. The STB regulates routes, fuel surcharges, conditions of service, rates for non-exempt traffic, acquisitions of control over rail common carriers and the transfer, extension or abandonment of rail lines, among other railroad activities. Any new rules from the STB regarding these matters could have a material adverse effect on the Company's financial condition, results of operations and liquidity as well as its ability to invest in enhancing and maintaining vital infrastructure. Various other regulators, including the FRA, and its sister agency within the U.S. Department of Transportation ("DOT"), the PHMSA, directly and indirectly affect the Company’s operations in areas such as health, safety, security, environmental and other matters. Together, FRA and PHMSA have broad jurisdiction over railroad operating standards and practices, including track, freight cars, locomotives and hazardous materials requirements. In addition, the U.S. Environmental Protection Agency (“EPA”) has regulatory authority with respect to matters that impact the Company's properties and operations. Additional regulation of the rail industry by these regulators or the Canadian and U.S. federal and state or provincial legislative bodies, whether under new or existing laws, may result in increased capital expenditures and operating costs and could have a significant negative impact on the Company’s ability to determine prices for rail services and result in a material adverse effect in the future on the Company’s business, financial position, results of operations, and liquidity in a particular year or quarter. This potential material adverse effect could also result in reduced capital spending on the Company’s rail network or in abandonment of lines.

The Company is subject to environmental laws and regulations that may result in significant costs. The Company’s operations are subject to extensive federal, state, provincial (Canada) and local environmental laws concerning, among other matters, emissions to the air, land and water and the handling of hazardous materials and wastes. Violation of these laws and regulations can result in significant fines and penalties, as well as other potential impacts on CP’s operations. These laws can impose strict, and in some circumstances, joint and several liability on both current and former owners, and on operators of facilities. Such environmental liabilities may also be raised by adjacent landowners or third parties. In addition, in operating a railway, it is possible that releases of hazardous materials during derailments or other accidents may occur that could cause harm to human health or to the environment. Costs of remediation, damages and changes in regulations could materially affect the Company’s operating results and reputation. The Company has been, and may in the future be, subject to allegations or findings to the effect that it has violated, or is strictly liable under, environmental laws or regulations. The Company currently has obligations at existing sites for investigation, remediation and monitoring, and will likely have obligations at other sites in the future. The actual costs associated with both current and long-term liabilities may vary from the Company’s estimates due to a number of factors including, but not limited to changes in: the content or interpretation of environmental laws and regulations; required remedial actions; technology associated with site investigation or remediation; and the involvement and financial viability of other parties that may be responsible for portions of those liabilities.

The Company may be subject to litigation and other claims that could result in significant expenditures. By nature of its operations, the Company is exposed to potential for litigation and other claims, including personal injury claims, labour and employment disputes, commercial and contract disputes, environmental liability, freight claims and property damage claims. Accruals are made in accordance with applicable accounting standards and based on an ongoing assessment of the likelihood of success of the claim together with an evaluation of the damages or other monetary relief sought. Material changes to litigation trends, a catastrophic rail incident or series of incidents involving freight loss, property damage, personal injury, environmental liability, or other claims, and other significant matters could have a material adverse impact to the Company's results of operations, financial position and liquidity, in each case, to the extent not covered by insurance.

Supply Chain Risks
Disruptions within the supply chain could negatively affect the Company's operational efficiencies and increase costs. The North American transportation system is integrated. CP’s operations and service may be negatively impacted by service disruptions of other transportation links,



27 CP 2021 ANNUAL REPORT


such as ports, handling facilities, customer facilities and other railways. A prolonged service disruption at one of these entities could have a material adverse effect on the Company's results of operations, financial condition, and liquidity.

The Company is dependent on certain key suppliers of core railway equipment and materials that could result in increased price volatility or significant shortages of materials, which could adversely affect results of operations, financial condition, and liquidity. Due to the complexity and specialized nature of core railway equipment and infrastructure (including rolling stock equipment, locomotives, rail and ties), there can be a limited number of suppliers of rail equipment and materials available. Should these specialized suppliers cease production or experience capacity or supply shortages, this concentration of suppliers could result in CP experiencing cost increases or difficulty in obtaining rail equipment and materials, which could have a material adverse effect on the Company's results of operations, financial condition and liquidity. Additionally, CP’s operations are dependent on the availability of diesel fuel. A significant fuel supply shortage arising from production decreases, increased demand in existing or emerging foreign markets, disruption of oil imports, disruption of domestic refinery production, damage to refinery or pipeline infrastructure, political unrest, war or other factors could have a material adverse effect on the Company's results of operations, financial position and liquidity in a particular year or quarter.

Risks Related to the Kansas City Southern Transaction
Following the closing of the KCS acquisition into a voting trust, although the Company does not control KCS, KCS’s operational and financial performance could have an adverse effect on the Company’s financial condition or results of operations. On December 14, 2021, the KCS acquisition closed into a voting trust, whereby the Company indirectly acquired a 100% beneficial ownership interest in KCS but does not control KCS. KCS’s voting stock was deposited into a voting trust that insulates KCS from control by the Company. The Company will not control KCS until STB control approval is obtained. Until that time, KCS will be managed by its own executive team overseen by its own board of directors and the voting trust.

The voting trust precludes the Company from exercising control over the business strategy or other operational aspects of KCS. The Company’s investment in this unconsolidated entity was considered significant under Rule 3-09 of Regulation S-X for the year ended December 31, 2021. The Company cannot provide assurance that KCS will operate in a manner that will increase the value of the Company’s investments, that the Company’s income or losses from KCS will continue at the current level in the future or that the Company will not incur losses from KCS. Write-downs to the carrying amount of the Company’s equity interest could adversely impact the Company’s results of operations.

The Company incurred substantial indebtedness in connection with consummation of the acquisition, which may pose risks and/or intensify existing risks. Prior to the closing into voting trust that occurred on December 14, 2021, the Company incurred additional indebtedness of approximately U.S. $6.7 billion and $2.2 billion notes and a U.S. $500 million term loan to indirectly fund the acquisition.

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

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

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

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

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




CP 2021 ANNUAL REPORT 28
The pendency of the STB's regulatory review of the combination could have an adverse effect on the Company’s businesses, results of operations, financial condition, cash flows or the market value of the Company’s common stock and debt securities. The pendency of the regulatory review of the combination could disrupt the Company’s businesses, and uncertainty about the outcome of that review may have an adverse effect on the Company or the combined company. The attention of the Company’s management may be directed towards obtaining final approval from the STB and addressing related requests from the third parties for conditions on STB approval and may be diverted from the day-to-day business operations of the Company. Matters related to the combination may require commitments of time and resources that could otherwise have been devoted to other opportunities that might have been beneficial to the Company. Further, the combination may give rise to potential liabilities, including as a result of pending and future shareholder lawsuits relating to the combination. In addition, the Company has incurred, and expects to incur additional, material non-recurring expenses in connection with the completion of the combination. Any of these matters could adversely affect the businesses of, or harm the results of operations, financial condition or cash flows of the Company and the market value of the Company’s common stock.

The combination is subject to final approval by the STB, and there can be no assurance as to whether and when it may be approved or if such approval will be granted with conditions applicable to the parties; accordingly, the combination may be delayed, jeopardized or prevented entirely and the anticipated benefits of the combination could be reduced. The STB has the authority to impose conditions on its approval of a control transaction to alleviate competitive and other public interest harm. If such conditions were imposed, the anticipated benefits of the combination might be reduced. There is no assurance that final approval from the STB will be obtained or obtained on terms acceptable to the Company.

In addition, the STB's review process allows railroad competitors of the Company and KCS and other interested parties to intervene to oppose the STB application or seek conditions in the event approval by the STB is granted, which might delay the approval process or reduce the anticipated benefits of the combination. On January 12, 2022, CN submitted a notice of intent to file a responsive application on February 28, 2022, with the STB. According to CN, its responsive application will ask the STB to condition any approval of a CP-KCS combination on the divestiture of KCS lines from Kansas City, Missouri to Springfield and East St. Louis, Illinois to CN, pursuant to the STB’s statutory authority to order “the divestiture of parallel tracks” as a merger condition. Furthermore, if the STB does not provide final approval or imposes conditions on its approval in a final order, and the Company and KCS decide to appeal such final order from the STB, any such appeal might not be resolved for a substantial period of time after the entry of such order by the STB.

If we determine in our reasonable judgment that the STB final approval will not be sought or has not or will not be received prior to March 25, 2023, then we will be required to redeem all of the outstanding 2.450% notes due 2031 and 3.000% notes due 2041 at a special mandatory redemption price equal to 101% of the aggregate principal amount of the applicable notes plus accrued and unpaid interest, if any. The Company may not have sufficient funds or other resources to satisfy such repurchase obligation, which could have a significant adverse impact on the business and financial condition of the Company.

If either (i) final approval from the STB has not been obtained by December 31, 2023 or (ii) the STB has, by a final and non-appealable order, refused to provide final approval (an “STB denial”), the Company would be required to dispose of its investment in KCS. Similarly, if the STB imposes onerous conditions on its final approval, the Company may choose to dispose of its investment in KCS rather than agreeing to the conditions imposed by the STB. In either case, the Company would be obligated under the voting trust agreement to directly or indirectly divest the trust stock in a manner that is acceptable to the STB. In the case of a divestiture, the market and divestiture alternatives for the trust stock might be limited, and such a disposition could cause the Company to incur significant losses and expenses in connection with the transaction, which could have a significant adverse impact on the business and financial condition of the Company.

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

Climate-Related Risks
The Company has established greenhouse gas (GHG) emission reduction targets to guide the implementation of CP's Climate Strategy. CP's inability to achieve GHG emissions reduction targets could negatively impact both our reputation and financial results. CP has established two science-based GHG emissions reduction targets to address a substantial portion of the Company's Scope 1, Scope 2 and Scope 3 emissions by 2030. The primary risks associated with achieving these commitments include but are not limited to future investments in and the availability of GHG emissions-reduction tools and technologies, CP's ability to work with governments and third parties to mitigate the impacts of climate change, domestic and international economic conditions, including exchange rates, the effects of competition and regulation, uncertainties in the financial markets, capital spending, actions of vendors, the willingness of customers to acquire our services, cost of network expansion, maintenance and retrofits, and physical impact of climate change on our business. Our targets are subject to the successful implementation of the actions and plans outlined in the Climate Strategy as well as the accuracy of the assumptions in the science-based methodology used to calculate these targets. We cannot assure that CP's plans to reduce GHG emissions will be viable or successful. Inability to meet GHG emissions reduction targets could have a material adverse effect on CP's reputation, results of operations or financial position.



29 CP 2021 ANNUAL REPORT


Changing climate conditions, severe weather or natural disasters could result in significant business interruptions and costs to the Company. CP is exposed to severe weather conditions and natural disasters, including earthquakes, hurricanes, floods, fires, avalanches, mudslides, extreme temperatures and significant precipitation that may cause track outages, severe damage to infrastructure and business interruptions that can adversely affect the Company’s entire rail network. For example, the atmospheric river rain storm in British Columbia in November 2021 resulted in damage at more than 30 locations across CP’s Thompson and Cascade subdivision with 20 locations experiencing a significant loss of infrastructure. These events can result in substantial costs to respond during the event and recover following the event. Costs can include modifications to existing infrastructure or implementation of new infrastructure to prevent future impacts to our business.

Impacts from these types of events are highly variable based on the severity and length of the event and scope of network impact. Climate-related changes such as higher temperatures, more intense and frequent rainfall and extreme storms can increase physical climate risk potentially compounding impacts to the business and operations. Such events have had and in the future could have a material adverse effect on the Company’s results of operations, financial condition, and liquidity.

Insurance maintained by the Company to protect against loss of business and other related consequences resulting from these natural occurrences is subject to coverage limitations, depending on the nature of the risk insured. This insurance may not be sufficient to cover all of the Company's damages or damages to others, and may not continue to be available at commercially reasonable rates. Even with insurance, if any natural occurrence leads to a catastrophic interruption of services, the Company may not be able to restore services without a significant interruption in operations.

An escalating price on carbon emissions could materially increase direct costs related to fuel purchases and indirect expenses related to purchased goods, materials, and electricity required to operate our business. As a fuel-intensive operation, CP is exposed to both emerging and escalating carbon pricing regulations. CP is regulated under multiple carbon taxation systems and cap and trade market mechanisms in the Canadian provinces in which we operate. Approximately 75% of CP’s Scope 1 and Scope 2 GHG emissions are generated through our operations in Canada and are impacted by carbon pricing mechanisms.

In most provinces, energy providers and utilities are directly regulated through carbon pricing programs. CP’s carbon costs are generally assessed by our primary fuel suppliers based on fuel purchase transactions. The amount collected by our suppliers follows current regulatory carbon pricing rates multiplied by the total volume of fuel purchased. CP’s carbon costs are also paid to a province as part of tax returns in some locations, based on reported locomotive fuel consumption in a specific region. CP is further exposed to carbon pricing through electricity purchases, where electric utilities pass on carbon costs to customers. Introduction of, or changes to, regulations by government bodies in response to climate change that increase the cost of carbon emissions could result in a significant increase in expenses and could adversely affect our business performance, results of operations, financial position and liquidity.

A number of the sectors CP serves have the potential to be significantly impacted by climate-related transitional risks, including increased regulations, technology changes and shifts in consumer preferences. CP’s business is based on transporting a wide variety of commodities from suppliers to the marketplace. CP regularly transports energy commodities that serve refineries, processing locations and end-users across North America and global markets. CP’s business lines include thermal and metallurgical coal, crude oil and petroleum products, including liquefied petroleum gas, fuel oil, asphalt, gasoline, condensate (diluent) and lubricant oils.

Shifting consumer demand to lower-carbon products and increased climate-focused regulations, such as carbon pricing and fuel regulations, may instigate a broad transition in the energy sector. Programs that place a price on carbon emissions or other government restrictions on certain market sectors may further impact current and potential freight rail customers in the thermal coal, petroleum, crude oil and renewable fuel sectors. A comprehensive transition in the energy sector could significantly impact the markets of CP’s energy customers or lead to market differentiation through geographic variation in policies and demand trends. A portion of CP’s business could be materially affected by such a transition, including thermal coal, crude oil and petroleum products. Potential future changes and instability in these markets represent a significant transition risk to these business lines.

General Risk Factors
Global Risks
Global economic conditions could negatively affect demand for commodities and other freight transported by the Company. A decline or disruption in domestic, cross border or global economic conditions that affect the supply or demand for the commodities that CP transports may decrease CP’s freight volumes and may result in a material adverse effect on CP’s financial or operating results and liquidity. Economic conditions resulting in bankruptcies of one or more large customers could have a significant impact on CP's financial position, results of operations, and liquidity in a particular year or quarter.








CP 2021 ANNUAL REPORT 30
Liquidity Risks
The state of capital markets could adversely affect the Company's liquidity. Weakness in the capital and credit markets could negatively impact the Company’s access to capital. From time to time, the Company relies on the capital markets to provide some of its capital requirements, including the issuance of long-term debt instruments and commercial paper. Significant instability or disruptions of the capital markets and the credit markets, or deterioration of the Company's financial condition due to internal or external factors could restrict or eliminate the Company's access to, and/or significantly increase the cost of, various financing sources, including bank credit facilities and issuance of corporate bonds. Instability or disruptions of the capital markets and deterioration of the Company's financial condition, alone or in combination, could also result in a reduction in the Company's credit rating to below investment grade, which could also further prohibit or restrict the Company from accessing external sources of short-term and long-term debt financing, and/or significantly increase the associated costs.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Network Geography
The Company’s network in Canada extends from the Port of Vancouver, B.C. on Canada’s Pacific Coast to the Port of Montréal, Québec and eastern Québec and to the Port of Saint John, New Brunswick via a haulage agreement, and to the U.S. industrial centres of Chicago, Illinois; Detroit, Michigan; Buffalo and Albany, New York; Kansas City, Missouri; and Minneapolis, Minnesota.
cp-20211231_g41.jpg
The Company’s network is composed of three primary corridors: Western, Central and Eastern.

The Western Corridor: Vancouver to Thunder Bay
Overview – The Western Corridor links Vancouver with Thunder Bay, which is the Western Canadian terminus of the Company’s Eastern Corridor. With service through Calgary, the Western Corridor is an important part of the Company’s routes between Vancouver and the U.S. Midwest, and between Vancouver and eastern Canada. The Western Corridor provides access to the Port of Thunder Bay, Canada’s primary Great Lakes bulk terminal.

Products – The Western Corridor is the Company’s primary route for bulk and resource products traffic from western Canada to the Port of Vancouver for export. CP also handles significant volumes of international intermodal containers and domestic general merchandise traffic.

Feeder Lines – CP supports its Western Corridor with four significant feeder lines: the “Coal Route”, which links southeastern B.C. coal deposits to the Western Corridor and to coal terminals at the Port of Vancouver; the “Edmonton-Calgary Route”, which provides rail access to Alberta’s Industrial



31 CP 2021 ANNUAL REPORT


Heartland (north of Edmonton, Alberta) in addition to the petrochemical facilities in central Alberta; the “Pacific CanAm Route”, which connects Calgary and Medicine Hat in Alberta with Pacific Northwest rail routes at Kingsgate, B.C. via the Crowsnest Pass in Alberta; and the “North Main Line Route” that provides rail service to customers between Portage la Prairie, Manitoba, and Wetaskiwin, Alberta, including intermediate stations at Yorkton and Saskatoon in Saskatchewan. This line is an important collector of Canadian grain and fertilizer, serving the potash mines located east and west of Saskatoon and many high-throughput grain elevators and processing facilities. In addition, this line provides direct access to refining and upgrading facilities at Lloydminster, Alberta, and western Canada’s largest pipeline terminal at Hardisty, Alberta.

Connections – The Company’s Western Corridor connects with the Union Pacific Railroad (“UP”) at Kingsgate and with Burlington Northern Santa Fe Railway ("BNSF") at Coutts, Alberta, and at New Westminster and Huntingdon in B.C. This corridor also connects with CN at many locations including Thunder Bay, Winnipeg, Manitoba, Regina and Saskatoon in Saskatchewan, Red Deer, Camrose, Calgary and Edmonton in Alberta, Kamloops and several locations in the Greater Vancouver area in B.C.

Yards and Repair Facilities – CP supports rail operations on the Western Corridor with main rail yards at Vancouver, Calgary, Edmonton, Moose Jaw in Saskatchewan, Winnipeg and Thunder Bay. The Company has locomotive and railcar repair facilities at Golden in B.C., Vancouver, Calgary, Moose Jaw and Winnipeg. CP also has major intermodal terminals at Vancouver, Calgary, Edmonton, Regina and Winnipeg.

The Central Corridor: Moose Jaw and Winnipeg to Chicago and Kansas City
Overview – The Central Corridor connects with the Western Corridor at Moose Jaw and Winnipeg. By running south to Chicago and Kansas City, through the Twin Cities of Minneapolis and St. Paul, Minnesota, and through Milwaukee, Wisconsin, CP provides a direct, single-carrier route between western Canada and the U.S. Midwest, providing access to Great Lakes and Mississippi River ports. From La Crosse, Wisconsin, the Central Corridor continues south towards Kansas City via the Quad Cities (Davenport and Bettendorf in Iowa, and Rock Island and Moline in Illinois), providing an efficient route for traffic destined for southern U.S. and Mexican markets. CP’s Kansas City line also has a direct connection into Chicago and by extension to points east on CP’s network such as Toronto, Ontario and the Port of Montréal.

Products – Traffic transported on the Central Corridor includes intermodal containers from the Port of Vancouver, fertilizers, chemicals, crude, frac sand, Automotive, and Grain and other agricultural products.

Feeder Lines – The Company has operating rights over BNSF tracks between Minneapolis and St. Paul along with connectivity to the twin ports of Duluth and Superior. CP maintains its own yard facilities that provide an outlet for grain from the U.S. Midwest to the grain terminals at these ports. This is a strategic entry point for large dimensional shipments that can be routed via CP's network to locations such as Alberta's Industrial Heartland to serve the needs of the oil sands and energy industry. CP's route from Winona, Minnesota, to Tracy, Minnesota, provides access to key agricultural and industrial commodities. CP’s feeder line between Drake and New Town in North Dakota is geographically situated in a highly strategic region for Bakken oil production. CP also owns two significant feeder lines in North Dakota and western Minnesota operated by the Dakota Missouri Valley and Western Railroad and the Northern Plains Railroad, respectively. Both of these short lines are also active in providing service to agricultural and Bakken-oil-related customers.

Connections – The Company’s Central Corridor connects with all major railways at Chicago. Outside of Chicago, CP has major connections with BNSF at Minneapolis, Minot, North Dakota, and the Duluth-Superior Terminal and with UP at St. Paul and Mankato, Minnesota. CP connects with CN at Milwaukee and Chicago. At Kansas City, CP connects with KCS, BNSF, Norfolk Southern Railway ("NS") and UP. CP’s Central Corridor also links to several short-line railways that primarily serve grain and coal producing areas in the U.S., and extend CP’s market reach in the rich agricultural areas of the U.S. Midwest. A haulage arrangement with Genesee & Wyoming Inc., provides Intermodal service to Jeffersonville, Ohio.

Yards and Repair Facilities – The Company supports rail operations on the Central Corridor with main rail yards in Chicago, Milwaukee, St. Paul and Glenwood in Minnesota, and Mason City and Davenport in Iowa. In addition, CP has a major locomotive repair facility at St. Paul and car repair facilities at St. Paul and Chicago. CP shares a yard with KCS in Kansas City. CP owns 49% of the Indiana Harbor Belt Railroad, a switching railway serving Greater Chicago and northwest Indiana. CP is also part owner of the Belt Railway Company of Chicago, which is the largest intermediate switching terminal railroad in the U.S. CP has major intermodal terminals in Minneapolis and Chicago as well as a dried distillers' grains transload facility that complements the service offering in Chicago.

The Eastern Corridor: Thunder Bay to Eastern Québec, Detroit and Albany
Overview – The Eastern Corridor extends from Thunder Bay through to the Port of Montréal, Searsport, Maine and the Port of Saint John, via a haulage agreement, and from Toronto to Chicago via Detroit or Buffalo. The Company’s Eastern Corridor provides shippers direct rail service from Toronto, Montréal, and Saint John to Calgary and Vancouver via the Company’s Western Corridor and to the U.S. via the Central Corridor. This is a key element of the Company’s transcontinental intermodal service. The corridor also supports the Company’s market position at the Port of Montréal by providing one of the shortest rail routes for European cargo destined to the U.S. Midwest, using the CP-owned route between Montréal and Detroit, coupled with a trackage rights arrangement on NS tracks between Detroit and Chicago or the CP-owned route between Montréal and Buffalo coupled with a haulage arrangement on CSX Corporation (“CSX”) tracks between Buffalo and Chicago. CP’s 2019 acquisition of CMQ Canada and the 2020 acquisition of CMQ



CP 2021 ANNUAL REPORT 32
U.S. extends access through southern and eastern Québec to Saint John, New Brunswick, via a haulage agreement, and to the U.S. Northeast including Searsport, Maine. In 2020, CP acquired full ownership of the DRTP. The 1.6-mile tunnel linking Windsor and Detroit will continue to be operated by CP.

Products – Major traffic categories transported in the Eastern Corridor include Forest products, chemicals and plastics, crude, ethanol, Metals, minerals and consumer products, Intermodal, automotive products and general merchandise.

Feeder Lines – A major feeder line serves the steel industry at Hamilton, Ontario and provides connections with both CSX and NS at Buffalo. The Delaware & Hudson Railway Company, Inc. ("D&H") feeder line extends from Montréal to Albany.

Connections – The Eastern Corridor connects with a number of short-line railways including routes from Montréal to Québec City, Québec and Brownsville Junction, Maine to Saint John, New Brunswick. Connections are also made with Pan Am Southern, LLC at Mechanicville, New York, for service to the Boston and New England areas, the Vermont Railway at Whitehall, New York, and at Northern Main Junction. Through haulage arrangements, CP has service to Fresh Pond, New York, to connect with New York & Atlantic Railway as well as direct access to the Bronx and Queens, New York. CP can also access Philadelphia as well as a number of short-lines in Pennsylvania. Connections are also made with CN at a number of locations, including Sudbury, North Bay, Windsor, London, Hamilton and Toronto in Ontario, and Montréal in Québec. CP also connects in New York with the two eastern Class I railways; NS and CSX at Buffalo, NS at Schenectady and CSX at Albany.

Yards and Repair Facilities – CP supports its rail operations in the Eastern Corridor with major rail yards at Sudbury, Toronto, London and Montréal. The Company has locomotive repair facilities at Montréal and Toronto and car repair facilities at Thunder Bay, Toronto and Montréal. The Company’s largest intermodal facility is located in the northern Toronto suburb of Vaughan and serves the Greater Toronto and southwestern Ontario areas. CP also operates intermodal terminals at Montréal and Detroit. CP also has transload facilities in Agincourt, Milton, and Hamilton, Ontario and in Montréal, Québec to meet a variety of commodity needs in these areas.

Right-of-Way
The Company’s rail network is standard gauge, which is used by all major railways in Canada, the U.S. and Mexico. Continuous welded rail is used on the core main line rail network.

CP uses different train control systems on portions of the Company’s owned track, depending on the volume of rail traffic. Remotely controlled centralized traffic control signals are used in various corridors to authorize the movement of trains. CP has implemented PTC on 2,117 miles of its U.S. network.

In other corridors, train movements are directed by written instructions transmitted electronically and by radio from rail traffic controllers to train crews. In some specific areas of intermediate traffic density, CP uses an automatic block signalling system in conjunction with written instructions from rail traffic controllers.

Network Investment
The Company continually assesses its network to ensure appropriate capacity to meet market demand. As part of CP's annual capital program, the Company has made substantial investments to support current and future volumes, including upgrading the network to handle longer and heavier trains, such as extending sidings to accommodate new train lengths. The Company’s operating metrics, such as average train speed, length, and weight, demonstrate efficient utilization of network capacity, discussed in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Performance Indicators.

Track and Infrastructure
CP operates on a network of approximately 13,000 miles of first main track, of which 2,300 miles CP accesses under trackage rights. The Company's owned track miles include leases with wholly owned subsidiaries where the term of the lease exceeds 99 years. CP's track miles do not include approximately 7,100 miles of tracks owned and operated by KCS and its subsidiaries. CP's track network represents the size of the Company's operations that connects markets, customers and other railways. Of the total mileage operated, approximately 5,400 miles are located in western Canada, 2,500 miles in eastern Canada (including CMQ Canada), 4,500 miles in the U.S. Midwest and 700 miles in the U.S. Northeast. CP’s network accesses the U.S. markets directly through four wholly owned subsidiaries: Soo Line Railroad Company (“Soo Line”), a Class I railway operating in the U.S. Midwest; the Dakota, Minnesota & Eastern Railroad ("DM&E"), which operates in the U.S. Midwest; the D&H, which operates between eastern Canada and the U.S. Northeast; and the CMQ U.S., which operates in the U.S. Northeast.









33 CP 2021 ANNUAL REPORT


At December 31, 2021, the breakdown of CP operated track miles is as follows:
Total
First main track13,046 
Second and other main track1,046 
Passing sidings and yard track4,262 
Industrial and way track879 
Total track miles19,233 

Rail Facilities
CP operates numerous facilities including: terminals for intermodal, transload, automotive and other freight; classification rail yards for train-building and switching, storage-in-transit and other activities; offices to administer and manage operations; dispatch centres to direct traffic on the rail network; crew quarters to house train crews along the rail line; shops and other facilities for fuelling; maintenance and repairs of locomotives; and facilities for maintenance of freight cars and other equipment. The Company continues to invest in terminal upgrades and new facilities to accommodate incremental growth in volumes, such as new transload facilities in Vancouver and Montreal. Typically in all of our major yards, CP Police Services has offices to ensure the safety and security of the yards and operations.

The following table includes the major yards, terminals and transload facilities on CP's network:
Classification YardsIntermodal TerminalsTransload Facilities
Vancouver, British ColumbiaVancouver, British ColumbiaVancouver, British Columbia
Calgary, AlbertaCalgary, AlbertaToronto, Ontario
Edmonton, AlbertaEdmonton, Alberta Hamilton, Ontario
Moose Jaw, SaskatchewanRegina, Saskatchewan
Côte Saint-Luc, Québec
Winnipeg, ManitobaWinnipeg, Manitoba
Toronto, OntarioVaughan, Ontario
Montréal, Québec
Lachine, Québec
Chicago, IllinoisChicago, Illinois
St. Paul, MinnesotaMinneapolis, Minnesota

Equipment
CP's equipment includes: owned and leased locomotives and railcars; heavy maintenance equipment and machinery; other equipment and tools in our shops, offices and facilities; and vehicles for maintenance, transportation of crews, and other activities. In this section, owned equipment includes units acquired by CP, equipment leased to third parties, and units held under finance leases, and leased equipment includes units under a short-term or long-term operating lease.

The Company’s locomotive fleet is composed of largely high-adhesion alternating current locomotives that are more fuel efficient and reliable and have superior hauling capacity as compared with standard direct current locomotives. The Company has entered into locomotive leases in the past to ensure there is appropriate capacity to meet market demand. The Company continued a modernization program on several of the oldest locomotives in the fleet in order to improve reliability and availability, as well as to introduce new technology to the fleet. CP’s locomotive productivity, defined as the daily average GTMs divided by daily average operating horsepower, for the years ended December 31, 2021, 2020, and 2019, was 201, 207, and 202 GTMs per Operating horsepower, respectively. Operating horsepower excludes units offline, tied up or in storage, or in use on other railways, and includes foreign units online. As of December 31, 2021, the Company had 304 locomotives in storage. As of December 31, 2021, CP owned or leased the following locomotive units: 
LocomotivesOwnedLeasedTotalAverage Age
(in years)
Line haul768 56 824 14 
Road switcher562 570 31 
Total locomotives1,330641,39421 




CP 2021 ANNUAL REPORT 34
CP’s average in-service utilization percentage for freight cars, for the years ended December 31, 2021, 2020, and 2019, was 83%, 81%, and 81%, respectively. Average in-service utilization is defined as average active fleet for the year divided by total cars, excluding company service cars and tank cars as these are utilized only as required for non-revenue movements. As of December 31, 2021, CP owned and leased the following units of freight cars:
Freight carsOwnedLeasedTotalAverage Age
(in years)
Box car2,361422 2,78331 
Covered hopper9,9385,38615,32416 
Flat car1,4071,1192,52627 
Gondola3,6051,6115,21621 
Intermodal1,2651501,41517 
Multi-level autorack2,7521,1053,85727 
Company service car2,4081762,58446 
Open top hopper11— 1133 
Tank car3083818 
Total freight cars23,7779,97733,75422 

As of December 31, 2021, CP owned and leased the following units of intermodal equipment:
Intermodal equipmentOwnedLeasedTotalAverage Age
(in years)
Containers8,229— 8,2297
Chassis6,9921097,10111
Total intermodal equipment15,22110915,3309

Headquarters Office Building
CP owns and operates a multi-building campus in Calgary encompassing the head office building, a data centre, training facility and other office and operational buildings.

The Company's main dispatch centre is located in Calgary, and is the primary dispatching facility in Canada. Rail traffic controllers coordinate and dispatch crews, and manage the day-to-day locomotive management along the network, 24 hours a day, and seven days a week. The operations centre has a complete backup system in the event of any power disruption. 

In addition to fully operational redundant systems, CP has a fully integrated Business Continuity Centre, should CP's operations centre be affected by any natural disaster, fire, cyber-attack or hostile threat.

CP also maintains a secondary dispatch centre located in Minneapolis, where a facility similar to the one in Calgary exists. It services the dispatching needs of locomotives and train crews working in the U.S. 

Capital Expenditures
The Company incurs expenditures to expand and enhance its rail network, rolling stock and other infrastructure. These expenditures are aimed at improving efficiency and safety of our operations. Such investments are also an integral part of the Company's multi-year capital program and support growth initiatives. For further details, refer to Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Liquidity and Capital Resources.

Encumbrances
Refer to Item 8. Financial Statements and Supplementary Data, Note 18 Debt, for information on the Company's finance lease obligations and assets held as collateral under these agreements.




35 CP 2021 ANNUAL REPORT


ITEM 3. LEGAL PROCEEDINGS

For further details, refer to Item 8. Financial Statements and Supplementary Data, Note 27 Commitments and contingencies.

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

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.



CP 2021 ANNUAL REPORT 36
INFORMATION ABOUT OUR EXECUTIVE OFFICERS

Our executive officers are appointed by the Board of Directors and they hold office until their successors are appointed, subject to resignation, retirement or removal by the Board of Directors. There are no family relationships among our officers, nor any arrangement or understanding between any officer and any other person pursuant to which the officer was selected. As of the date of this filing, the executive officers’ names, ages and business experience are:

Name, Age and PositionBusiness Experience
Keith Creel, 53
President and Chief Executive Officer
Mr. Creel became President and CEO of CP on January 31, 2017. Previously, he was President and Chief Operating Officer ("COO") from February 5, 2013, to January 30, 2017.

Prior to joining CP, Mr. Creel was Executive Vice-President and COO at CN from January 2010 to February 2013. During his time at CN, Mr. Creel held various positions including Executive Vice-President, Operations, Senior Vice-President Eastern Region, Senior Vice-President Western Region, and Vice-President of the Prairie Division.

Mr. Creel began his railroad career at Burlington Northern Railway in 1992 as an intermodal ramp manager in Birmingham, Alabama. He also spent part of his career at Grand Trunk Western Railroad as a superintendent and general manager, and at Illinois Central Railroad as a trainmaster and director of corridor operations, prior to its merger with CN in 1999. Mr. Creel holds a Bachelor of Science in marketing from Jacksonville State University and completed the Advanced Management Program at Harvard Business School.
Nadeem Velani, 49
Executive Vice-President and Chief Financial Officer
Mr. Velani has been Executive Vice-President and CFO of CP since October 17, 2017. Previous to this appointment, he was the Vice-President and CFO of CP from October 19, 2016, to October 16, 2017, Vice-President, Investor Relations from October 28, 2015, and Assistant Vice-President, Investor Relations from March 11, 2013.

Prior to joining CP, Mr. Velani spent 15 years at CN where he worked in a variety of positions in Strategic and Financial Planning, Investor Relations, Sales and Marketing, and the Office of the President and CEO.

Mr. Velani holds a Bachelor of Economics degree from Western University and an MBA in Finance/International Business from McGill University.
John Brooks, 51
Executive Vice-President and Chief Marketing Officer
Mr. Brooks has been Executive Vice-President and Chief Marketing Officer ("CMO") of CP since February 14, 2019. Previous to this appointment, he was the Senior Vice-President and CMO of CP from February 14, 2017, to February 13, 2019. He has worked in senior marketing roles at CP since he joined the Company in 2007, most recently as Vice-President, Marketing – Bulk and Intermodal.

Mr. Brooks began his railroading career with UP and later helped start I&M Rail Link, LLC, which was purchased by DM&E in 2002. Mr. Brooks was Vice-President, Marketing at DM&E prior to it being acquired by CP in 2007.

With more than 20 years in the railroading business, Mr. Brooks brings a breadth of experience to the CMO role that is pivotal to CP's continued and future success. 
Mark Redd, 51
Executive Vice-President, Operations
Mr. Redd has been Executive Vice-President Operations since September 1, 2019. Before this appointment, he was Senior Vice-President Operations Western Region from February 2, 2017, to August 31, 2019, and Vice-President Operations Western Region from April 20, 2016, to February 1, 2017.

Previous to these roles, he was General Manager Operations U.S. West and General Manager Operations Central Division. He was named CP's 2016 Railroader of the Year. Prior to joining CP in October 2013, Mr. Redd worked for over 20 years at Kansas City Southern Railway where he held a variety of leadership positions in network and field operations. Mr. Redd holds a Bachelor and Master of Science in Management from the University of Phoenix and an Executive MBA from the University of Missouri – Kansas City.



37 CP 2021 ANNUAL REPORT


Jeffrey Ellis, 54
Chief Legal Officer and Corporate Secretary
Mr. Ellis has been Chief Legal Officer and Corporate Secretary of CP since November 23, 2015. Mr. Ellis is accountable for the overall strategic leadership, oversight and performance of the legal, corporate secretarial, government relations and public affairs functions of CP in Canada and the U.S.

Prior to joining CP in 2015, Mr. Ellis was the U.S. General Counsel at BMO Financial Group ("BMO"). Before joining BMO in 2006, Mr. Ellis was with the law firm of Borden Ladner Gervais LLP in Toronto, Ontario.

Mr. Ellis has Bachelor of Arts and Master's of Arts degrees from the University of Toronto, Juris Doctor and Master of Laws degrees from Osgoode Hall Law School, and an MBA from the Richard Ivey School of Business, Western University. Mr. Ellis is a member of the bars of New York, Illinois, Ontario and Alberta.
Laird Pitz, 77
Senior Vice-President and Chief Risk Officer
Mr. Pitz has been Senior Vice-President and Chief Risk Officer ("CRO") of CP since October 17, 2017. Previously, he was the Vice-President and CRO of CP from October 29, 2014, to October 16, 2017, and the Vice-President, Security and Risk Management of CP from April 2014 to October 2014.

Prior to joining CP, Mr. Pitz was retired from March 2012 to April 2014, and Vice-President, Risk Mitigation of CN from September 2003 to March 2012.

Mr. Pitz, a Vietnam War veteran and former Federal Bureau of Investigation special agent, is a 40-year career professional who has directed strategic and operational risk mitigation, security and crisis management functions for companies operating in a wide range of fields, including defence, logistics and transportation.
James Clements, 52
Senior Vice-President, Strategic Planning and Technology Transformation
Mr. Clements has been Senior Vice-President, Strategic Planning and Technology Transformation since September 1, 2019. Before this appointment, he was the Vice-President, Strategic Planning and Transportation Services of CP from 2014. Mr. Clements has responsibilities that include strategic network issues, Network Service Centre operations and Information Services. 

Mr. Clements has been at CP for 27 years and his previous experience and leadership roles covers a wide range of areas of CP’s business, including car management, finance, joint facilities agreements, logistics, grain marketing and sales in both Canada and the U.S., as well as marketing and sales responsibility for various other lines of business at CP.

Mr. Clements holds an MBA in International Business and Finance from McGill University and a Bachelor of Science in Computer Science and Mathematics from McMaster University.
Mike Foran, 48
Vice-President, Market Strategy and
Asset Management


Mr. Foran has been Vice-President, Market Strategy and Asset Management of CP since February 14, 2017. His prior roles with CP include Vice-President Network Transportation from 2014 to 2017, Assistant Vice-President Network Transportation from 2013 to 2014, and General Manager – Asset Management from 2012 to 2013. In over 20 years at CP, Mr. Foran has worked in operations, business development, marketing and general management.  

Mr. Foran holds an Executive MBA from the Ivey School of Business at Western University and a Bachelor of Commerce from the University of Calgary.



CP 2021 ANNUAL REPORT 38
Chad Rolstad, 45
Vice-President, Human Resources and Chief Culture Officer
Mr. Rolstad has been Vice-President, Human Resources since February 14, 2019, and the Chief Culture Officer since September 1, 2019. Previous to this appointment, he was Assistant Vice-President, Human Resources of CP from August 1, 2018, to February 13, 2019, and Assistant Vice-President, Strategic Procurement of CP from April 10, 2017, to July 31, 2018.

Prior to joining CP, Mr. Rolstad held various leadership positions at BNSF Railway in marketing and operations.

Mr. Rolstad has a Bachelor of Science from the Colorado School of Mines and an MBA from Duke University.
Pam Arpin, 46
Vice-President and Chief Information Officer
Ms. Arpin has been Vice-President and Chief Information Officer since July 19, 2021. Previous to this appointment, she was the Company's first Vice-President Innovation & Business Transformation. a portfolio she retains in her current role. Ms. Arpin is accountable for redefining CP's digital strategy and information services roadmap, enabling CP's strategic business goals with the right investments in technology.

Ms. Arpin has navigated an extensive and varied career at CP, and has 20-plus years of experience covering a wide range of areas including commercial, operations, finance and customer service roles. She was named the 2019 Railway Woman of the Year by the League of Railway Women and was named one of Canada's Most Powerful Women: Top 100 by the Women's Executive Network that same year.

Ms. Arpin holds a Bachelor of Commerce from the University of Saskatchewan.




39 CP 2021 ANNUAL REPORT


PART II




CP 2021 ANNUAL REPORT 40
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Share Information
The Common Shares are listed on the TSX and on the NYSE under the symbol "CP".

Share Capital
At February 22, 2022, the latest practicable date prior to the date of this Annual Report on Form 10-K, there were 929,712,071 Common Shares and no preferred shares issued and outstanding, which consists of 15,332 holders of record of the Common Shares. In addition, CP has a Management Stock Option Incentive Plan (“MSOIP”), under which key officers and employees are granted options to purchase the Common Shares. Options issued prior to the share split further described in Item 1. Business, Business Developments now each provide rights over five shares. For consistency, all number of options presented herein are shown on the basis of the number of shares subject to the options. At February 22, 2022, 8,144,004 options were outstanding under the MSOIP and stand-alone option agreements entered into with Mr. Keith Creel. There are 2,504,311 options available to be issued by the Company’s MSOIP in the future. CP also has a Director's Stock Option Plan (“DSOP”), under which directors are granted options to purchase Common Shares. There are no outstanding options under the DSOP, which has 1,700,000 options available to be issued in the future.

Stock Performance Graph
The following graph provides an indicator of cumulative total shareholder return on the Common Shares, of an assumed investment of $100, as compared to the TSX 60 Index (“TSX 60”), the Standard & Poor's 500 Stock Index (“S&P 500”), and the peer group index (comprising CN, UP, NS and CSX) on December 31 for each of the years indicated. The values for the assumed investments depicted on the graph and in the table have been calculated assuming that any dividends are reinvested.

cp-20211231_g42.jpg
(1) KCS was excluded from the peer group index in 2021 as shares were no longer publicly listed effective December 14, 2021. Comparative periods were restated to conform with the current year presentation.




41 CP 2021 ANNUAL REPORT


Issuer Purchase of Equity Securities
CP established a share repurchase program which is further described in Item 8. Financial Statements and Supplementary Data, Note 22 Shareholders' equity. As at December 31, 2021, the Company had not purchased any Common Shares under this program.


ITEM 6. [RESERVED]



CP 2021 ANNUAL REPORT 42
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


INDEX TO MANAGEMENT'S DISCUSSION AND ANALYSIS
Page
Executive Summary
Performance Indicators
Results of Operations
Impact of Foreign Exchange on Earnings
Impact of Fuel Price on Earnings
Impact of Share Price on Earnings
Operating Revenues
Operating Expenses
Other Income Statement Items
Liquidity and Capital Resources
Share Capital
Non-GAAP Measures
Critical Accounting Estimates
Forward-Looking Statements




43 CP 2021 ANNUAL REPORT


The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to enhance a reader’s understanding of the Company’s results of operations and financial condition. The MD&A is provided as a supplement to, and should be read in conjunction with the Company’s Consolidated Financial Statements and the related notes in Item 8. Financial Statements and Supplementary Data, and other information in this annual report. 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 Canadian Pacific Railway Limited ("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.

Executive Summary
2021 Results
Financial performance – In 2021, CP reported Diluted earnings per share ("EPS") of $4.18, a 16% increase from $3.59 in 2020. Adjusted diluted EPS increased by 7% to $3.76 in 2021 from $3.53 in 2020. CP’s commitment to service and operational efficiency produced an Operating ratio of 59.9% and an Adjusted operating ratio of 57.6%. Adjusted diluted EPS and Adjusted operating ratio are defined and reconciled in Non-GAAP Measures and discussed further in Results of Operations of this Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Total revenues – CP’s Total revenues increased by 4% to $7,995 million in 2021 from $7,710 million in 2020, driven primarily by higher freight rates, partially offset by lower volumes as measured by revenue ton-miles ("RTMs").

Operating performance – Average train weight increased by 3% to 9,967 tons and average train length increased by 3% to 8,200 feet due to improvements in operating plan efficiency, in each case compared to 2020. These metrics are discussed further in Performance Indicators of this Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following table compares 2021 outlook to actual results:
RTM growth
Adjusted diluted EPS(1)
Capital expenditures
OutlookHigh-single-digit growth

Revised quarterly and updated during the fourth quarter to be approximately flat
Double-digit growth

Revised quarterly and updated during the fourth quarter to high single-digit growth
Approximately $1.55 billion
Actual outcomesRTMs decreased by 2,205 million, or 1%Adjusted diluted EPS growth of 7% to $3.76$1.53 billion
(1) Adjusted diluted EPS is defined and reconciled in Non-GAAP Measures of this Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

The update in RTM growth expectation was based on the impact of severe weather from the drought conditions on Canadian grain and the British Columbia ("B.C.") floods. The update in Adjusted diluted EPS expectation was also based on the impacts of the accelerated timeline of the Kansas City Southern ("KCS") acquisition closing into trust.




CP 2021 ANNUAL REPORT 44
Performance Indicators
The following table lists the key measures of the Company’s operating performance:
  % Change
For the year ended December 312021202020192021 vs. 20202020 vs. 2019
Operations Performance
Gross ton-miles (“GTMs”) (millions)271,921 272,360 280,724 — (3)
Train miles (thousands)29,397 30,324 32,924 (3)(8)
Average train weight – excluding local traffic (tons)9,967 9,707 9,129 
Average train length – excluding local traffic (feet)8,200 7,929 7,388 
Average terminal dwell (hours)7.2 6.5 6.4 11 
Average train speed (miles per hour, or "mph")21.6 22.0 22.2 (2)(1)
Locomotive productivity (GTMs / operating horsepower, or "GTMs/OHP")
201 207 202 (3)
Fuel efficiency (U.S. gallons of locomotive fuel consumed /1,000 GTMs)0.931 0.942 0.955 (1)(1)
Total Employees and Workforce
Total employees (average)12,337 12,168 13,103 (7)
Total employees (end of period)11,834 11,890 12,694 — (6)
Workforce (end of period)11,872 11,904 12,732 — (7)
Safety Indicators
FRA personal injuries per 200,000 employee-hours0.92 1.11 1.42 (17)(22)
FRA train accidents per million train-miles1.10 0.96 1.06 15 (9)

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.

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 for 2021 were 271,921 million, a slight decrease compared with 272,360 million in 2020. This decrease was mainly attributable to lower volumes of Grain and Potash. This decrease was partially offset by increased volumes of Metals, minerals and consumer products, Energy, chemicals and plastics, and Automotive.

GTMs in 2020 were 272,360 million, a 3% decrease compared with 280,724 million in 2019. This decrease was primarily driven by decreased volumes of crude, Coal, and frac sand. This decrease was partially offset by increased volumes of Grain, Potash, and Fertilizers and sulphur.

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, indicates improved train productivity. Train miles for 2021 were 29,397 thousands, a decrease of 3% compared with 30,324 thousands in 2020. This decrease reflects the impact of a slight decrease in workload (GTMs), as well as the impact of a 3% increase in average train weights.

Train miles in 2020 were 30,324, an decrease of 8% compared with 32,924 thousands in 2019. This decrease reflects the impact of a 3% decrease in workload (GTMs), as well as a 6% increase in average train weights.

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 railways’ 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 of 9,967 tons in 2021 increased by 260 tons, or 3% compared with 9,707 tons in 2020. This increase was a result of improvements in operating plan efficiency and continued improvements



45 CP 2021 ANNUAL REPORT


in bulk train efficiency due to moving longer and heavier Grain and export potash trains. This increase was partially offset by lower volumes of heavier bulk commodities. 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 weight of 9,707 tons in 2020 increased by 578 tons, or 6% compared with 9,129 tons in 2019. This increase was a result of improvements in operating plan efficiency, continued improvements in operational efficiency due to moving longer and heavier export potash and Grain trains, and improved winter operating conditions in the first quarter of 2020. This increase was partially offset by moving lower volumes of heavier commodities such as Canadian coal and crude. Improvements for Grain trains were driven by the 8,500-foot HEP train model.

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 of 8,200 feet in 2021 increased by 271 feet, or 3%, compared with 7,929 feet in 2020. This increase was a result of improvements in operating plan efficiency and continued improvements in bulk train efficiency due to moving longer Grain and export potash trains. Improvements for Grain trains were driven by the 8,500-foot HEP train model.

Average train length of 7,929 feet in 2020 increased by 541 feet, or 7%, compared with 7,388 feet in 2019. This increase was a result of improvements in operating plan efficiency and continued improvements in operational efficiency due to moving longer Grain and export potash trains. This increase was partially offset by moving lower volumes of commodities such as Canadian coal, which move in longer 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 of 7.2 hours in 2021 increased by 11% from 6.5 hours in 2020. This unfavourable increase was a result of aligning the operating plan to demand in order to maintain network efficiencies, as well as the impacts of the B.C. wildfires in the third quarter and B.C. floods in the fourth quarter of 2021. Aligning the operating plan to demand resulted in increased average train weight and average train length.

Average terminal dwell of 6.5 hours in 2020 increased by 2% from 6.4 hours in 2019. This unfavourable increase was a result of aligning the operating plan to demand in order to maintain network efficiencies in the last three quarters of 2020. Aligning the operating plan to demand resulted in increased average train weight, average train length, and increased locomotive productivity.

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 railways 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 was 21.6 mph in 2021, a decrease of 2%, from 22.0 mph in 2020. This decrease in speed was driven primarily by harsh winter operating conditions in the first quarter of 2021 as well as the impact of the B.C. wildfires in the third quarter of 2021.

Average train speed in 2020 was 22.0 mph, a decrease of 1%, from 22.2 mph in 2019. This decrease in speed was a result of aligning the operating plan to demand in order to maintain network efficiencies in the last three quarters of 2020, partially offset by improved winter operating conditions in the first quarter of 2020. Aligning the operating plan to demand resulted in increased average train weight, average train length, and increased locomotive productivity.

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 201 GTMs/OHP in 2021, a decrease of 6 GTMs/OHP, or 3%, compared to 207 GTMs/OHP in 2020. This decrease was primarily due to moving higher volumes of merchandise, which are lighter than bulk commodities, as well the impacts of the B.C. floods in the fourth quarter of 2021.

Locomotive productivity was 207 GTMs/OHP in 2020, an increase of 5 GTMs/OHP, or 2%, compared to 202 GTMs/OHP in 2019. This increase was primarily due to improvements in operating plan efficiency as a result of aligning the operating plan to demand.

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 for 2021 was 0.931 U.S. gallons/1,000 GTMs, an improvement of 1% compared to 0.942 U.S. gallons/1,000 GTMs in 2020. This improvement was due to running longer and



CP 2021 ANNUAL REPORT 46
heavier trains as a result of improvements in the operating plan. Fuel efficiency for 2020 was 0.942 U.S. gallons/1,000 GTMs, an improvement of 1% compared to 0.955 U.S. gallons/1,000 GTMs in 2019. This improvement was primarily due to improved winter operating conditions in the first quarter of 2020.

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 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 for 2021 was 12,337, an increase of 169, or 1%, compared to 12,168 in 2020. This increase was driven by the return to work of employees furloughed in the prior year as a result of the economic downturn caused by COVID-19. The total number of employees as at December 31, 2021 was 11,834, a decrease of 56 compared to 11,890 as at December 31, 2020.

The average number of total employees for 2020 was 12,168, a decrease of 935, or 7%, compared to 13,103 in 2019. This decrease was primarily due to more efficient resource planning, including furloughs associated with the economic downturn caused by COVID-19, partially offset by the addition of Central Maine & Quebec Railway U.S. Inc. employees. The total number of employees as at December 31, 2020 was 11,890, a decrease of 804, or 6%, compared to 12,694 as at December 31, 2019, due to reduced workload as measured in GTMs and more efficient resource planning.

The total workforce as at December 31, 2021 was 11,872, a decrease of 32, compared to 11,904 as at December 31, 2020.

The total workforce as at December 31, 2020 was 11,904, a decrease of 828, or 7%, compared to 12,732 as at December 31, 2019, due to more efficient resource planning.

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 Federal Railroad Administration ("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 0.92 in 2021, compared with 1.11 in 2020 and 1.42 in 2019.

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 in 2021 and U.S. $10,700 in damage for 2020 and 2019. The FRA train accidents per million train-miles frequency for CP was 1.10 in 2021 , compared with 0.96 in 2020 and 1.06 in 2019.




47 CP 2021 ANNUAL REPORT


Results of Operations
Income
cp-20211231_g43.jpgcp-20211231_g44.jpg
* Adjusted operating income is defined and reconciled in Non-GAAP Measures of this Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Operating income was $3,206 million in 2021, a decrease of $105 million, or 3%, from $3,311 million in 2020. This decrease was primarily due to:
acquisition-related costs of $183 million associated with the KCS acquisition that were recognized in Purchased services and other;
lower volumes as measured by RTMs;
the unfavourable impact of the change in foreign exchange ("FX") of $117 million;
a gain of $68 million recognized in 2020 as a result of the remeasurement to fair value of the previously held equity investment in the Detroit River Tunnel Partnership ("DRTP");
higher depreciation and amortization of $46 million (excluding FX);
cost inflation; and
higher defined benefit ("DB") pension and post-retirement benefits current service cost of $32 million.

This decrease was partially offset by:
higher freight rates;
a gain on the exchange of property and construction easements in Chicago of $50 million and higher gains on land sales primarily in B.C. of $29 million;
lower stock-based compensation of $39 million primarily driven by the impact of changes in share price; and
the efficiencies generated from improved operating performance and asset utilization.

Adjusted operating income, defined and reconciled in Non-GAAP Measures of this Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, was $3,389 million in 2021, an increase of $78 million, or 2%, from $3,311 million in 2020. This increase was primarily due to:
higher freight rates;
a gain on the exchange of property and construction easements in Chicago of $50 million and higher gains on land sales primarily in B.C. of $29 million;
lower stock-based compensation of $39 million primarily driven by the impact of changes in share price; and
the efficiencies generated from improved operating performance and asset utilization.

This increase was partially offset by:
lower volumes as measured by RTMs;
the unfavourable impact of the change in FX of $117 million;
a gain of $68 million recognized in 2020 as a result of the remeasurement to fair value of the previously held equity investment in DRTP;
higher depreciation and amortization of $46 million (excluding FX);
cost inflation; and
higher DB pension and post-retirement benefits current service cost of $32 million.





CP 2021 ANNUAL REPORT 48
Operating income was $3,311 million in 2020, an increase of $187 million, or 6%, from $3,124 million in 2019. This increase was primarily due to:
liquidated damages, including customer volume commitments, and higher freight rates;
the efficiencies generated from improved operating performance and asset utilization;
a gain of $68 million as a result of the remeasurement to fair value of the previously held equity investment in DRTP;
the impact of harsher winter operating conditions in 2019; and
decreased operating expense associated with lower casualty costs incurred in 2020.

This increase was partially offset by:
lower volumes as measured by RTMs;
higher depreciation and amortization of $71 million (excluding FX);
cost inflation; and
higher stock-based compensation of $37 million primarily driven by an increase in stock price.

There were no adjustments to operating income in 2020 and 2019.

Operating Ratio
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*Adjusted operating ratio is defined and reconciled in Non-GAAP Measures of this Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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 59.9% in 2021, a 280 basis point increase from 57.1% in 2020. This increase was primarily due to:
acquisition-related costs associated with the KCS acquisition that were recognized in Purchased services and other;
the unfavourable impact of changes in fuel prices, net of recoveries;
lower volumes as measured by RTMs;
a gain recognized in 2020 as a result of the remeasurement to fair value of the previously held equity investment in DRTP;
higher depreciation and amortization (excluding FX); and
cost inflation.

This increase was partially offset by higher freight rates and a gain on the exchange of property and construction easements in Chicago and higher gains on land sales primarily in B.C.

Adjusted operating ratio was 57.6% in 2021, a 50 basis point increase from 57.1% in 2020. This increase reflects the same factors discussed above for the increase in Operating ratio, except that Adjusted operating ratio in 2021 excludes the acquisition-related costs associated with the KCS acquisition that were recognized in Purchased services and other.

The Company’s Operating ratio was 57.1% in 2020, a 280 basis point improvement from 59.9% in 2019. This improvement was primarily due to:
liquidated damages, including customer volume commitments, and higher freight rates;
the favourable impact of changes in fuel prices;
the efficiencies generated from improved operating performance and asset utilization; and
a gain as a result of the remeasurement to fair value of the previously held equity investment in DRTP.



49 CP 2021 ANNUAL REPORT


This improvement was partially offset by:
higher depreciation and amortization;
cost inflation; and
higher stock-based compensation.

There were no adjustments to the operating ratio in 2020 and 2019.

Net Income
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*Adjusted income is defined and reconciled in Non-GAAP Measures of this Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Net income was $2,852 million in 2021, an increase of $408 million, or 17%, from $2,444 million in 2020. This increase was primarily due to the $845 million merger termination payment received in connection with KCS's termination of the Original Merger Agreement and higher freight rates.

This increase was partially offset by:
acquisition-related costs of $599 million associated with the KCS acquisition including $169 million costs incurred by KCS recognized in Equity loss of KCS;
lower volumes as measured by RTMs; and
the unfavourable impact of the change in FX of $90 million.

Net income was $2,444 million in 2020, an increase of $4 million, from $2,440 million in 2019. This increase was primarily due to:
higher Operating income;
a deferred tax recovery relating to a tax return filing election for the state of North Dakota; and
a provision for an uncertain tax item of a prior period in 2019.

This increase was partially offset by:
an income tax recovery associated with changes in tax rates in 2019;
lower FX translation gain on U.S. dollar-denominated debt and lease liabilities compared to 2019; and
lower other components of net periodic benefit recovery.

Adjusted income, defined and reconciled in Non-GAAP Measures of this Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, was $2,565 million in 2021, an increase of $162 million, or 7%, from $2,403 million in 2020. This increase was primarily due to higher
Adjusted operating income and higher other components of net periodic benefit recovery.

Adjusted income was $2,403 million in 2020, an increase of $113 million, or 5%, from $2,290 million in 2019. This increase was primarily due to higher Operating income, partially offset by lower other components of net periodic benefit recovery.



CP 2021 ANNUAL REPORT 50
Diluted Earnings per Share
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*Adjusted diluted EPS is defined and reconciled in Non-GAAP Measures of this Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Diluted EPS was $4.18 in 2021, an increase of $0.59, or 16%, from $3.59 in 2020. This increase was due to a higher Net income.

Diluted EPS was $3.59 in 2020, an increase of $0.09, or 3%, from $3.50 in 2019. This increase was due to a lower average number of outstanding Common Shares due to the Company's share repurchase program, and higher Net income.

Adjusted diluted EPS, defined and reconciled in Non-GAAP Measures of this Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, was $3.76 in 2021, an increase of $0.23, or 7%, from $3.53 in 2020. This increase was due to higher Adjusted income.

Adjusted diluted EPS was $3.53 in 2020, an increase of $0.24, or 7%, from $3.29 in 2019. This increase was due to higher Adjusted income and lower average number of outstanding Common Shares due to the Company's share repurchase program.

Return on Average Shareholders' Equity and Adjusted Return on Invested Capital
Return on average shareholders' equity and Adjusted return on invested capital ("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 13.9% in 2021, a 2,010 basis point decrease compared to 34.0% in 2020. This decrease was due to higher average shareholders' equity driven by shares issued for the KCS acquisition and accumulated Net income, partially offset by higher Net income.

Return on average shareholders' equity was 34.0% in 2020, a 160 basis point decrease compared to 35.6% in 2019. This decrease was due to higher average shareholders' equity due to accumulated Net income, partially offset by the impact of the Company's share repurchase program.

Adjusted ROIC was 8.2% in 2021, an 850 basis point decrease compared to 16.7% in 2020. This decrease was primarily due to higher average long-term debt and shares issued for the KCS acquisition and accumulated Adjusted income.

Adjusted ROIC was 16.7% in 2020, a 20 basis point decrease compared to 16.9% in 2019. This decrease was primarily due to higher average long-term debt, partially offset by higher Operating income.

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 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Impact of Foreign Exchange 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.




51 CP 2021 ANNUAL REPORT


On February 18, 2022, the noon buying rate certified for customs purposes by the U.S. Federal Reserve Bank of New York was U.S. $1.00 = $1.27 Canadian dollars.

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 period end exchange rates, and the high and low exchange rates for the periods indicated. Average exchange rates 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)20212020201920182017
For the year ended – December 31$1.25 $1.34 $1.33 $1.30 $1.30 
For the three months ended – December 31$1.26 $1.30 $1.32 $1.32 $1.27 

Exchange rates (Canadian/U.S. dollar)20212020201920182017
Beginning of year – January 1$1.28 $1.30 $1.36 $1.25 $1.34 
Beginning of quarter – April 1$1.26 $1.41 $1.33 $1.29 $1.33 
Beginning of quarter – July 1$1.24 $1.36 $1.31 $1.32 $1.30 
Beginning of quarter – October 1$1.27 $1.33 $1.32 $1.29 $1.25 
End of year – December 31$1.28 $1.28 $1.30 $1.36 $1.25 
High/Low exchange rates (Canadian/U.S. dollar)20212020201920182017
High$1.29 $1.45 $1.36 $1.37 $1.37 
Low$1.20 $1.27 $1.30 $1.23 $1.21 

In 2021, the impact of a weaker U.S. dollar resulted in a decrease in Total revenues of $228 million, a decrease in Total operating expenses of $111 million and a decrease in Net interest expense of $27 million. In 2020, the impact of a stronger U.S. dollar resulted in an increase in Total revenues of $33 million, an increase in Total operating expenses of $23 million and an increase in Net interest expense of $4 million.

The impact of fluctuations in the exchange rate between the Canadian dollar and the U.S. dollar on the Company's results is discussed further in Item 7A. Quantitative and Qualitative Disclosures About Market Risk, Foreign Exchange Risk.

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 a timing impact on earnings, as discussed further in Item 1. Business, Operations, Fuel Cost Adjustment Program and Item 1A. Risk Factors, Fuel Cost Volatility.
Average Fuel Price (U.S. dollars per U.S. gallon)202120202019
For the year ended – December 31$2.70 $1.90 $2.49 
For the three months ended – December 31$3.03 $1.91 $2.53 

The impact of fuel price on earnings includes the impacts of provincial and federal carbon taxes and levies recovered and paid, on revenues and expenses, respectively.

In 2021, the unfavourable impact of fuel prices on Operating income was $7 million. Higher fuel prices resulted in an increase in Total operating expenses of $243 million. Higher fuel prices and increased carbon tax recoveries, partially offset by the timing of recoveries from CP's fuel cost adjustment program, resulted in an increase in Total revenues of $236 million from 2020. In 2020, the impact of lower fuel prices resulted in a decrease in Total revenues of $170 million and a decrease in Total operating expenses of $195 million.




CP 2021 ANNUAL REPORT 52
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 Toronto Stock Exchange ("TSX") and the New York Stock Exchange ("NYSE") with ticker symbol "CP". As a result of the five-for-one share split of the Company's issued and outstanding Common Shares, which began trading on a post-split basis on May 14, 2021, per share amounts and all outstanding Common Shares for periods prior to Q2 2021 have been retrospectively adjusted. The following tables indicate the opening and closing Common Share price on the TSX and the NYSE for each quarter, on a post-split basis, and the change in the price of the Common Shares on the TSX and the NYSE for the years ended December 31, 2021, 2020 and 2019:
Toronto Stock Exchange (in Canadian dollars)202120202019
Opening Common Share price, as at January 1$88.31 $66.21 $48.45 
Ending Common Share price, as at March 31$96.00 $62.11 $55.07 
Ending Common Share price, as at June 30$95.32 $69.06 $61.69 
Ending Common Share price, as at September 30$82.71 $81.01 $58.88 
Ending Common Share price, as at December 31$90.98 $88.31 $66.21 
Change in Common Share price for the year ended December 31$2.67 $22.10 $17.76 
New York Stock Exchange (in U.S. dollars)202120202019
Opening Common Share price, as at January 1$69.34 $50.99 $35.52 
Ending Common Share price, as at March 31$75.86 $43.92 $41.21 
Ending Common Share price, as at June 30$76.91 $51.07 $47.05 
Ending Common Share price, as at September 30$65.07 $60.89 $44.49 
Ending Common Share price, as at December 31$71.94 $69.34 $50.99 
Change in Common Share price for the year ended December 31$2.60 $18.35 $15.47 

In 2021, the impact of the change in Common Share prices resulted in an increase in stock-based compensation expense of $11 million compared to $58 million in 2020, and $42 million in 2019.

The impact of share price on stock-based compensation is discussed further in Item 7A. Quantitative and Qualitative Disclosures About Market Risk, Share Price Impact on Stock-Based Compensation.




53 CP 2021 ANNUAL REPORT


Operating Revenues
2021 vs. 20202020 vs. 2019
For the year ended December 31202120202019Total Change% Change
FX Adjusted % Change(2)
Total Change% Change
FX Adjusted % Change(2)
Freight revenues (in millions)(1)
$7,816 $7,541 $7,613 $275 $(72)(1)(1)
Non-freight revenues (in millions)179 169 179 10 (10)(6)(6)
Total revenues (in millions)$7,995 $7,710 $7,792 $285 $(82)(1)(1)
Carloads (in thousands)2,735.5 2,708.4 2,766.4 27.1 N/A(58.0)(2)N/A
Revenue ton-miles (in millions)149,686 151,891 154,378 (2,205)(1)N/A(2,487)(2)N/A
Freight revenue per carload (in dollars)$2,857 $2,784 $2,752 $73 $32 
Freight revenue per revenue ton-mile (in cents)5.22 4.96 4.93 0.26 0.03 — 
(1) Freight revenues include fuel surcharge revenues of $535 million in 2021, $297 million in 2020 and $464 million in 2019. 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 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

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, crew costs, and equipment rents. Non-freight revenue is generated from leasing of certain assets; other arrangements, including contracts with passenger service operators and logistical services; and switching fees.

Freight Revenues
Freight revenues were $7,816 million in 2021, an increase of $275 million, or 4%, from $7,541 million in 2020. This increase was primarily due to increased freight revenue per RTM. This increase was partially offset by lower volumes as measured by RTMs.

Freight revenues were $7,541 million in 2020, a decrease of $72 million, or 1%, from $7,613 million in 2019. This decrease was primarily due to lower volumes as measured by RTMs. This decrease was partially offset by higher freight revenue per RTM.

RTMs
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 2021 were 149,686 million, a decrease of 2,205 million, or 1%, compared with 151,891 million in 2020. This decrease was mainly attributable to lower volumes of Grain and Potash. This decrease was partially offset by higher volumes of Metals, minerals and consumer products, Energy, chemicals and plastics, and Automotive.

RTMs for 2020 were 151,891 million, a decrease of 2,487 million, or 2%, compared with 154,378 million in 2019. This decrease was mainly attributable to lower volumes of crude, Coal and frac sand. This decrease was partially offset by higher volumes of Grain, Potash, and Fertilizers and sulphur.

Freight revenue per RTM
Freight revenue per RTM 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 RTM was 5.22 cents in 2021, an increase of 0.26 cents, or 5%, from 4.96 cents in 2020. This increase was primarily due to higher fuel surcharge revenue as a result of higher fuel prices of $236 million, higher freight rates, and moving higher volumes of Automotive, which has a higher freight revenue per RTM compared to the corporate average. This increase was partially offset by the unfavourable impact of the change in FX of $226 million.

Freight revenue per RTM was 4.96 cents in 2020, an increase of 0.03 cents, or 1%, from 4.93 cents in 2019. This increase was primarily due to higher liquidated damages, including customer volume commitments, higher freight rates, and the favourable impact of the change in FX of $33 million. This increase was partially offset by the unfavourable impact of lower fuel surcharge revenue as a result of lower fuel prices of $170 million and moving lower volumes of Automotive, which has a higher freight revenue per RTM compared to the corporate average.

Carloads
Carloads are defined as revenue-generating shipments of containers and freight cars. Carloads were 2,735.5 thousand in 2021, an increase of 27.1 thousand, or 1%, from 2,708.4 thousand in 2020. This increase was primarily due to higher volumes of Coal, Metals, minerals and consumer products, Intermodal, and Energy, chemicals and plastics. This increase was partially offset by lower volumes of Grain and Potash.



CP 2021 ANNUAL REPORT 54
Carloads were 2,708.4 thousand in 2020, a decrease of 58.0 thousand, or 2%, from 2,766.4 thousand in 2019. This decrease was primarily due to lower volumes of crude, Coal, and frac sand. This decrease was partially offset by higher volumes of Grain and Potash.

Freight revenue per carload
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 $2,857 in 2021, an increase of $73, or 3%, from $2,784 in 2020. This increase was primarily due to higher fuel surcharge revenue as a result of higher fuel prices of $236 million and higher freight rates. This increase was partially offset by the unfavourable impact of the change in FX of $226 million.

Freight revenue per carload was $2,784 in 2020, an increase of $32, or 1%, from $2,752 in 2019. This increase was primarily due to higher liquidated damages, including customer volume commitments, higher freight rates, and the favourable impact of the change in FX of $33 million. This increase was partially offset by the unfavourable impact of lower fuel surcharge revenue as a result of lower fuel prices of $170 million.

Non-freight Revenues
Non-freight revenues were $179 million in 2021, an increase of $10 million, or 6%, from $169 million in 2020. This increase was primarily due to revenue recognized for construction easements in Chicago of $13 million, higher leasing revenues, and higher revenue from passenger service operators, partially offset by lower revenue from logistical services and switching fees.

Non-freight revenues were $169 million in 2020, a decrease of $10 million, or 6%, from $179 million in 2019. This decrease was primarily due to lower revenue from passenger service operators.

Lines of Business
Grain
2021 vs. 20202020 vs. 2019
For the year ended December 31202120202019Total Change% Change
FX Adjusted % Change(1)
Total Change% Change
FX Adjusted % Change(1)
Freight revenues (in millions)$1,684 $1,829 $1,684 $(145)(8)(5)$145 
Carloads (in thousands)426.2 480.1 431.4 (53.9)(11)N/A48.7 11 N/A
Revenue ton-miles (in millions)37,999 41,747 36,941 (3,748)(9)N/A4,806 13 N/A
Freight revenue per carload (in dollars)$3,951 $3,810 $3,904 $141 $(94)(2)(3)
Freight revenue per revenue ton-mile (in cents)4.43 4.38 4.56 0.05