The Company assumed control of KCS on April 14, 2023 (the "Control Date') as further described in Note 8 Business Acquisition. Between December 14, 2021, and April 13, 2023, the Company recorded its investment in KCS using the equity method of accounting, see Note 9 Investment in KCS for further discussion.

Accordingly, the Company commenced consolidation of KCS on the Control Date, accounting for the acquisition as a business combination achieved in stages. The results from operations and cash flows have been consolidated prospectively from the Control Date. The Company derecognized its previously held equity method investment in KCS of approximately $44.4 billion as of April 13, 2023 and remeasured the investment at its estimated provisional Control Date fair value of $37.2 billion which forms part of the purchase consideration, resulting in a preliminary estimated net remeasurement loss of $7.2 billion. In addition, a deferred tax recovery of approximately $7.8 billion was recognized upon the derecognition of the deferred tax liability computed on the outside basis that the Company had recognized in relation to its investment in KCS while accounted for using the equity method. The preliminary estimated fair value of the previously held equity interest in KCS was determined through the use of various valuation methodologies.

The identifiable assets acquired, and liabilities and non-controlling interest assumed are measured at their estimated provisional fair values at the Control Date, with certain exceptions. The estimated provisional fair values of the tangible assets were determined using valuation techniques including, but not limited to, the market approach and the cost approach. The significant assumptions used to determine the estimated provisional fair value of the tangible assets include, but are not limited to, a selection of comparable assets and inflation. Presented with the acquired Properties are concession rights and related assets held under the terms of a concession from the Mexican government. The concession expires in June 2047 and is renewable under certain conditions for additional periods of up to 50 years.

The estimated provisional fair values of the intangible assets were determined using valuation techniques including, but not limited to, the multi-period excess earnings method, the replacement cost method, the relief from royalty method and the income approach. The significant assumptions used to determine the estimated provisional fair values of the intangible assets include,

but are not limited to, the renewal probability and term of the Mexican concession extension, discount rates, earnings before interest, tax, depreciation, and amortization ("EBITDA") margins and terminal growth rates.

The protective order issued by the STB on April 2, 2021 ("Protective Order") limited the Company's access to non-public KCS information, including but not limited to, financial forecasts, customer data, collectability of accounts receivable, valuation of materials and supplies, condition of property, plant and equipment, legal and other claims, including environmental matters, other contingent liabilities, and uncertain tax positions. As a result of the limited period of time since the Control Date the Company has presented a provisional purchase price allocation based on best estimates and information currently available. It is subject to adjustments as management completes its validation of KCS’s April 14, 2023 balance sheet and finalizes its fair valuation of KCS.

The Company also has 12 months from the Control Date, the measurement period, to finalize its allocation of the Control Date fair value of KCS to the acquired assets and assumed liabilities and non-controlling interest for additional information which may become available as to facts and circumstances as of the Control Date. Measurement uncertainty may exist at the Control date, however, during the measurement period this uncertainty may be resolved due to new information being obtained about facts and circumstances that existed as of the Control Date that, if known, would have affected the amounts recognized as of that date, including, but not limited to, amounts relating to the items noted above in relation to information for which the Company did not have, or only had limited access to, prior to the Control Date as a result of the STB’s Protective Order.

The following table summarizes the estimated provisional amounts expected to be recognized in respect of the identifiable assets acquired and liabilities and non-controlling interest assumed on the Control Date, as well as the preliminary estimated fair value at the Control Date of the previously held equity interest in KCS:


(in billions of Canadian dollars)
Net assets acquired:
Cash and cash equivalents	$	0.3
Net working capital	0.3
Properties	27.7
Intangible assets	2.6
Other long-term assets	0.4
Long-term debt	(4.5)
Deferred income taxes	(6.6)
Other long-term liabilities	(0.5)
Total identifiable net assets	$	19.7
Goodwill	18.5
	$	38.2
Consideration:
Fair value of previously held equity method investment	$	37.2
Estimated fair value of non-controlling interest	1.0
Total	$	38.2

Intangible assets estimated at $2.6 billion consist of contracts and customer relationships with amortization periods of nine to 22 years as well as U.S. trackage rights and the KCS brand with indefinite estimated useful lives. Included in the acquired Properties are concession rights and related assets held under the terms of a concession from the Mexican government, which have estimated provisional fair values totalling $8.3 billion.

The excess of the total consideration, over the amounts allocated to acquired assets and assumed liabilities and the non-controlling interest to be recognized, will be recognized as goodwill of $18.5 billion. All of the goodwill will be assigned to the rail transportation segment. None of the goodwill is expected to be deductible for income tax purposes.


	Three Months Ended March 31, 2023				Three Months Ended March 31, 2022
(in billions of Canadian dollars)	KCS Historical(1)		Pro Forma		KCS Historical(1)		Pro Forma
Revenue	$	1.2	$	3.5	$	1.0	$	2.8
Net income attributable to controlling shareholders	0.2		0.8		0.2		1.2

(1) Revenues are translated into Canadian dollars at the Bank of Canada daily exchange rate for the three months ended March 31, 2023 and three months ended March 31, 2022 with effective exchange rates of 1.3526 and $1.2668, respectively. All remaining expenses and income are translated at the Bank of Canada monthly average exchange rate for the three months ended March 31, 2023 and three months ended March 31, 2022 with effective exchange rates of $1.3526 and $1.2669, respectively.

•the remeasurement loss of $7.2 billion for the three months ended March 31, 2022 upon derecognition of CPRL’s previously held equity method investment in KCS and remeasurement at its Control Date fair value, and includes the reclassification of associated accumulated other comprehensive income to retained earnings;

•the removal of equity earnings from KCS as previously held equity method investment of $0.2 billion and $0.2 billion for the three months ended March 31, 2023 and for the three months ended March 31, 2022, respectively;

On March 20, 2023, the Company announced the commencement of offers to exchange any and all validly tendered (and not validly withdrawn notes) and accepted notes of seven series, each previously issued by KCS (the "Old Notes") for notes issued by Canadian Pacific Railway Company ("CPRC") (the "CPRC Notes"), a wholly owned subsidiary of CPKC, and unconditionally guaranteed on an unsecured basis by CPKC. Each CPRC Note in a series contains the same interest rates, interest payment dates, maturity dates, and substantively the same redemption provisions as the corresponding series of Old Notes.

In exchange for each U.S. $1,000 principal amount of Old Notes that was validly tendered prior to March 31, 2023 (the "Early Participation Date") and not validly withdrawn, holders of Old Notes received consideration consisting of U.S. $1,000 principal amount of CPRC Notes and a cash amount of U.S. $1.00. This total consideration included an early participation premium, consisting of U.S. $30 principal amount of CPRC Notes per U.S. $1,000 principal amount of Old Notes. In exchange for each U.S. $1,000 principal amount of Old Notes that was validly tendered after the Early Participation Date but prior to the expiration of the exchange offers on April 17, 2023 (the "Expiration Date") and not validly withdrawn, holders of Old Notes received consideration consisting of U.S. $970 principal amount of CPRC Notes and a cash amount of U.S. $1.00. On April 19, 2023, the exchange offerings were settled as follows:


Series of Old Notes Subject to Exchange			Aggregate Principal Amount Tendered and Consents Received		Percentage of Total Outstanding Principal Amount of such Series of Old Notes Tendered and Consenting		Series of CPRC Notes Issued by CPRC			Aggregate Principal Amount of CPRC Notes Issued
3.125	%	Senior Notes due 2026	$	227	90.8	%	3.125	%	Notes due 2026	$	227
2.875	%	Senior Notes due 2029	415		97.6	%	2.875	%	Notes due 2029	415
4.300	%	Senior Notes due 2043	448		100.0	%	4.300	%	Notes due 2043	448
4.950	%	Senior Notes due 2045	463		92.8	%	4.950	%	Notes due 2045	463
4.700	%	Senior Notes due 2048	498		99.6	%	4.700	%	Notes due 2048	498
3.500	%	Senior Notes due 2050	543		98.7	%	3.500	%	Notes due 2050	543
4.200	%	Senior Notes due 2069	420		98.9	%	4.200	%	Notes due 2069	420
Total			$	3,014	97.3	%				$	3,014

The debt exchange is accounted for as a modification of debt as the financial terms of the CPRC Notes do not differ from the Old Notes of KCS and there is no substantial difference between the present value of cash flows under each respective set of notes. During the three months ended March 31, 2023, the Company incurred $3 million of costs associated with the debt exchange, recorded within "Other expense (income)".

On April 24, 2023, KCS irrevocably deposited U.S. $647 million of non-callable government securities to the KCS 2023 note trustee to satisfy and discharge KCS's obligations under two series of notes that mature in 2023 and were not included within the KCS debt exchange. As a result of the satisfaction and discharge, the obligations of the Company under the indenture with respect to the KCS 2023 Notes have been terminated, except those provisions of the indenture that, by their terms, survive the satisfaction and discharge. The Company utilized existing cash resources and issuances of commercial paper to fund the satisfaction and discharge. The KCS 2023 notes will be presented on the Company’s consolidated balance sheet until their respective maturity dates of May 2023 and November 2023. The balances of principal and interest outstanding as of April 24, 2023 on the two series of notes were U.S. $445 million and U.S. $203 million, respectively. This transaction, along with the debt exchange mentioned above, will relieve KCS from continuous disclosure obligations.