Canadian Pacific Railway : CP reports first-quarter results; building momentum in Q2 – Form 8-K

CP studies first-quarter outcomes; constructing momentum in Q2

Calgary – Canadian Pacific Railway Restricted (TSX: CP) (NYSE: CP) (the “Firm”) at the moment introduced first-quarter working outcomes.

In mild of the monetary complexity of buying Kansas Metropolis Southern (“KCS”) into voting belief on Dec. 14, 2021, CP is reporting further monetary metrics, together with Core adjusted income1 and Core adjusted diluted earnings per share1 (“EPS”). These metrics have been added to supply extra transparency by isolating for the affect of KCS buy accounting. KCS buy accounting represents the amortization of the distinction in worth between the consideration paid to amass KCS and the underlying carrying worth of the online property of KCS instantly previous to the acquisition by the Firm.

“I am pleased with the best way CP’s crew {of professional} railroaders managed the troublesome working surroundings they confronted within the first quarter of 2022,” mentioned Keith Creel, CP President and CEO. “The quarter mirrored the affect of final 12 months’s drought on Canadian grain volumes, harsh winter working circumstances and the results of a piece stoppage.”

First-quarter highlights

•Revenues decreased by 6 p.c to $1.84 billion from $1.96 billion final 12 months

•Reported Working Ratio (“OR”) elevated by 1,070 foundation factors to 70.9 p.c from 60.2 p.c

•Adjusted OR1 elevated by 1,130 foundation factors to 69.8 p.c

•Reported diluted EPS was $0.63, a 30 p.c lower from final 12 months

•Core adjusted diluted EPS1, excluding vital objects and KCS buy accounting, was $0.67

“CP continues to see a robust, supportive macroeconomic surroundings and is targeted on offering prospects with artistic service choices,” added Creel. “With a troublesome quarter behind us, we’re constructing momentum, which I totally anticipate will proceed to hold by way of the rest of 2022.”

CP is continuous its work getting ready to create the primary single-line rail community linking the U.S., Mexico and Canada by combining KCS, topic to U.S. Floor Transportation Board approval.

“The demand for North American items and commodities solely continues to develop and spotlight the necessity for brand new single-line routes and retailers to achieve world markets,” Creel mentioned. “Our pleasure in regards to the alternatives forward with the mixed corporations continues to develop.”

Convention Name Particulars

CP will talk about its outcomes with the monetary neighborhood in a convention name starting at 4:30 p.m. ET (2:30 p.m. MT) on April 27, 2022.

Convention Name Entry

Canada and U.S.: 866-342-8591

Worldwide: 203-518-9713

1 These measures haven’t any standardized meanings prescribed by accounting ideas typically accepted in america of America (“GAAP”) and, due to this fact, will not be akin to related measures offered by different corporations. For data concerning non-GAAP measures, together with reconciliations to essentially the most comparable GAAP measures, see the connected supplementary schedule Non-GAAP Measures.

*Convention ID: CPQ122

Callers ought to dial in quarter-hour previous to the decision.

Webcast

We encourage you to entry the webcast and presentation materials within the Traders part of CP’s web site at investor.cpr.ca.

A replay of the first-quarter convention name will probably be out there by cellphone by way of to Might 4, 2022 at 800-688-9445 (U.S.) or 402-220-1371 (Worldwide).

Observe on forward-looking data

This information launch might include sure forward-looking data and forward-looking statements (collectively, “forward-looking data”) inside the which means of relevant securities legal guidelines. Ahead-looking data contains, however is just not restricted to, statements regarding expectations, beliefs, plans, objectives, targets, assumptions and statements about potential future occasions, circumstances, and outcomes of operations or efficiency. Ahead-looking data might include statements with phrases or headings corresponding to “monetary expectations”, “key assumptions”, “anticipate”, “imagine”, “anticipate”, “plan”, “will”, “outlook”, “ought to” or related phrases suggesting future outcomes. This information launch accommodates forward-looking data relating, however not restricted to statements regarding, value management efforts, the success of our enterprise, modifications to financial and business circumstances, our operations, priorities and plans, anticipated monetary and operational efficiency, enterprise prospects and demand for our companies and development alternatives.

The forward-looking data which may be on this information launch relies on present expectations, estimates, projections and assumptions, having regard to CP’s expertise and its notion of historic tendencies, and contains, however is just not restricted to, expectations, estimates, projections and assumptions regarding: modifications in enterprise methods, North American and world financial development; commodity demand development; sustainable industrial and agricultural manufacturing; commodity costs and rates of interest; efficiency of our property and tools; sufficiency of our budgeted capital expenditures in finishing up our marketing strategy; geopolitical circumstances, relevant legal guidelines, rules and authorities insurance policies; the supply and price of labour, companies and infrastructure; the satisfaction by third events of their obligations to CP; and the anticipated impacts of the COVID-19 pandemic on CP companies, working outcomes, money flows and/or monetary situation. Though CP believes the expectations, estimates, projections and assumptions mirrored within the forward-looking data offered herein are cheap as of the date hereof, there could be no assurance that they are going to show to be right. Present circumstances, financial and in any other case, render assumptions, though cheap when made, topic to higher uncertainty.

Undue reliance shouldn’t be positioned on forward-looking data as precise outcomes might differ materially from these expressed or implied by forward-looking data. By its nature, CP’s forward-looking data entails inherent dangers and uncertainties that might trigger precise outcomes to vary materially from the ahead trying data, together with, however not restricted to, the next components: modifications in enterprise methods and strategic alternatives; common Canadian, U.S., Mexican and world social, financial, political, credit score and enterprise circumstances; dangers related to agricultural manufacturing corresponding to climate circumstances and bug populations; the supply and worth of vitality commodities; the results of competitors and pricing pressures, together with competitors from different rail carriers, trucking corporations and maritime shippers in Canada, the U.S. and Mexico; North American and world financial development; business capability; shifts in market demand; modifications in commodity costs and commodity demand; uncertainty surrounding timing and volumes of commodities being shipped through CP; inflation; geopolitical instability; modifications in legal guidelines, rules and authorities insurance policies, together with regulation of charges; modifications in taxes and tax charges; potential will increase in upkeep and working prices; modifications in gasoline costs; disruption in gasoline provides; uncertainties of investigations, proceedings or different sorts of claims and litigation; compliance with environmental rules; labour disputes; modifications in labour prices and labour difficulties; dangers and liabilities arising from derailments; transportation of harmful items; timing of completion of capital and upkeep tasks; sufficiency of budgeted capital expenditures in finishing up enterprise plans; companies and infrastructure; the satisfaction by third events of their obligations; foreign money and rate of interest fluctuations; alternate charges; results of modifications in market circumstances and low cost charges on the monetary place of pension plans and investments; commerce restrictions or different modifications to worldwide commerce preparations; the results of present and future multinational commerce agreements on the extent of commerce amongst Canada, the U.S. and Mexico; local weather change and the market and regulatory responses to local weather change; anticipated in-service dates; success of hedging actions; operational efficiency and reliability; buyer, regulatory and different stakeholder approvals and help; regulatory and legislative choices and actions; the hostile affect of any termination or revocation by the Mexican authorities of Kansas Metropolis Southern de México, S.A. de C.V.’s Concession; public opinion; numerous occasions that might disrupt operations, together with extreme climate, corresponding to droughts, floods, avalanches and earthquakes, and cybersecurity assaults, in addition to safety threats and governmental response to them, and technological modifications; acts of

terrorism, battle or different acts of violence or crime or threat of such actions; insurance coverage protection limitations; materials hostile modifications in financial and business circumstances, together with the supply of quick and long-term financing; the pandemic created by the outbreak of COVID-19 and its variants and ensuing results on financial circumstances, the demand surroundings for logistics necessities and vitality costs, restrictions imposed by public well being authorities or governments, fiscal and financial coverage responses by governments and monetary establishments, and disruptions to world provide chains; the belief of anticipated advantages and synergies of the KCS transaction and the timing thereof; the success of integration plans for KCS; the main focus of administration time and a focus on the KCS transaction and different disruptions arising from the transaction; estimated future dividends; monetary energy and suppleness; debt and fairness market circumstances, together with the power to entry capital markets on beneficial phrases or in any respect; value of debt and fairness capital; and the power of the administration of the Firm, to execute key priorities, together with these in reference to the KCS transaction. The foregoing listing of things is just not exhaustive. These and different components are detailed sometimes in studies filed by CP with securities regulators in Canada and america. Reference needs to be made to “Merchandise 1A – Threat Components” and “Merchandise 7 – Administration’s Dialogue and Evaluation of Monetary Situation and Outcomes of Operations – Ahead-Trying Statements” in CP’s annual and interim studies on Type 10-Ok and 10-Q.

Any forward-looking data contained on this information launch is made as of the date hereof. Besides as required by regulation, CP undertakes no obligation to replace publicly or in any other case revise any forward-looking data, or the foregoing assumptions and dangers affecting such forward-looking data, whether or not on account of new data, future occasions or in any other case.

About Canadian Pacific

Canadian Pacific is a transcontinental railway in Canada and america with direct hyperlinks to main ports on the west and east coasts. CP gives North American prospects a aggressive rail service with entry to key markets in each nook of the globe. CP is rising with its prospects, providing a collection of freight transportation companies, logistics options and provide chain experience. Go to cpr.ca to see the rail benefits of CP. CP-IR

Contacts:

Media

[email protected]

Funding Neighborhood

Maeghan Albiston

403-319-3591

[email protected]

FINANCIAL STATEMENTS

INTERIM CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

See Notes to Interim Consolidated Monetary Statements.

INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

See Notes to Interim Consolidated Monetary Statements.

INTERIM CONSOLIDATED BALANCE SHEETS AS AT

(unaudited)

See Contingencies (Observe 17).

See Notes to Interim Consolidated Monetary Statements.

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

See Notes to Interim Consolidated Monetary Statements.

INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(unaudited)

See Notes to Interim Consolidated Monetary Statements.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2022

(unaudited)

1 Foundation of presentation

These unaudited Interim Consolidated Monetary Statements (“Interim Consolidated Monetary Statements”) of Canadian Pacific Railway Restricted (“CPRL”) and its subsidiaries (collectively, “CP”, or “the Firm”), expressed in Canadian {dollars}, mirror administration’s estimates and assumptions which can be mandatory for his or her honest presentation in conformity with typically accepted accounting ideas in america of America (“GAAP”). They don’t embrace all disclosures required underneath GAAP for annual monetary statements and needs to be learn together with the 2021 annual Consolidated Monetary Statements and notes included in CP’s 2021 Annual Report on Type 10-Ok. The accounting insurance policies used are in step with the accounting insurance policies utilized in getting ready the 2021 annual Consolidated Monetary Statements.

On April 21, 2021, the Firm’s shareholders authorized a five-for-one share break up of the Firm’s issued and excellent Frequent Shares. On Might 13, 2021, the Firm’s shareholders of report, as of Might 5, 2021 obtained 4 further shares for each Frequent Share held. Ex-distribution buying and selling within the Firm’s Frequent Shares on a split-adjusted foundation commenced on Might 14, 2021. Proportional changes have been additionally made to excellent awards underneath the Firm’s stock-based compensation plans so as to mirror the share break up. All excellent Frequent Shares, stock-based compensation awards, and per share quantities herein have been retrospectively adjusted to mirror the share break up.

CP’s operations could be affected by seasonal fluctuations corresponding to modifications in buyer demand and weather-related points. This seasonality might affect quarter-over-quarter comparisons.

In administration’s opinion, the Interim Consolidated Monetary Statements embrace all changes (consisting of regular and recurring changes) essential to current pretty such data. Interim outcomes are usually not essentially indicative of the outcomes anticipated for the fiscal 12 months.

2 Accounting modifications

Applied in 2022

Authorities Help

On January 1, 2022, the Firm adopted the brand new Accounting Requirements Replace (“ASU”) 2021-10, issued by the Monetary Accounting Requirements Board (“FASB”), and all associated amendments underneath FASB Accounting Requirements Codification (“ASC”) Matter 832, Authorities Help. The modification is made to extend transparency by introducing particular disclosure necessities for entities who apply a grant or contribution mannequin by analogy to account for transactions with a authorities. This replace will probably be utilized to authorities help transactions inside the scope of this modification which can be within the monetary statements on the date of preliminary software and prospectively to new transactions entered into after preliminary software. See Observe 9 for additional dialogue on authorities help.

All different accounting pronouncements that turned efficient through the interval coated by the Interim Consolidated Monetary Statements didn’t have a cloth affect on the Firm’s Consolidated Monetary Statements and associated disclosures.

Future modifications

Contract Property and Contract Liabilities Acquired in a Enterprise Mixture

In October 2021, the FASB issued ASU 2021-08, Enterprise Combos (Matter 805), Accounting for Contract Property and Contract Liabilities from Contracts with Prospects. This modification introduces the requirement for an acquirer to acknowledge and measure contract property and contract liabilities acquired in a enterprise mixture in accordance with the necessities of FASB ASC Matter 606, Income from Contracts with Prospects, moderately than at honest worth. This modification will probably be efficient prospectively from January 1, 2023, with early adoption permitted. The Firm is at present assessing the affect of this modification.

All different lately issued accounting pronouncements issued, however not efficient till after March 31, 2022 have been assessed and are usually not anticipated to have a cloth affect on the Firm’s Consolidated Monetary Statements and associated disclosures.

3 Revenues

The next desk disaggregates the Firm’s revenues from contracts with prospects by main supply:

Contract liabilities

Contract liabilities symbolize funds obtained for efficiency obligations not but glad and relate to deferred income and are offered as elements of “Accounts payable and accrued liabilities” and “Different long-term liabilities” on the Firm’s Interim Consolidated Stability Sheets.

The next desk summarizes the modifications in contract liabilities:

4 Different earnings

5 Earnings taxes

The efficient tax charges together with discrete objects for the three months ended March 31, 2022 was 12.67%, in comparison with 24.05% for a similar interval of 2021.

For the three months ended March 31, 2022, the efficient tax price was 24.25%, excluding fairness earnings of Kansas Metropolis Southern (“KCS”), acquisition-related prices incurred by CP of $20 million, and an out of doors foundation deferred tax restoration of $32 million arising from the distinction between the carrying quantity of CP’s funding in KCS for monetary reporting, and the underlying tax foundation of this funding.

For the three months ended March 31, 2021, the efficient tax price was 24.60%, excluding acquisition-related prices incurred by CP of $36 million and the FX achieve of $33 million on debt and lease liabilities.

6 Earnings per share

Primary earnings per share has been calculated utilizing Internet earnings for the interval divided by the weighted-average variety of shares excellent through the interval. The variety of shares used within the earnings per share calculations are reconciled as follows:

For the three months ended March 31, 2022, there have been nil choices excluded from the computation of diluted earnings per share as a result of their results weren’t dilutive (three months ended March 31, 2021 – nil).

7 Modifications in Gathered different complete loss (“AOCL”) by part

(1)Quantities are offered web of tax.

(2) Comparative figures have been reclassified to evolve with present interval presentation.

Quantities in Pension and post-retirement outlined profit plans reclassified from AOCL are as follows:

(1)Impacts “Different elements of web periodic profit restoration” on the Interim Consolidated Statements of Earnings.

8 Accounts receivable, web

9 Authorities Help

By analogy to the grant mannequin of accounting inside Worldwide Accounting Requirements (“IAS”) 20, Accounting for Authorities Grants and Disclosure of Authorities Help, CP data authorities help from numerous ranges of Canadian and U.S. governments and authorities businesses when the circumstances of their receipt are complied with and there’s cheap assurance that the help will probably be obtained.

Authorities help associated to properties have as a major situation that CP can buy, assemble, or in any other case purchase property, plant and tools. Beneath sure authorities help preparations, there’s a secondary situation which requires CP to repay a portion of the help if sure circumstances associated to the property are usually not adhered to throughout a specified interval. In these circumstances, it’s CP’s intention to adjust to all circumstances imposed by the phrases of the federal government help. Authorities help obtained or receivable associated to CP’s property property are deducted from the price of the property within the Consolidated Stability Sheets and amortized over the identical interval because the associated property in “Depreciation and amortization” within the Consolidated Statements of Earnings.

Through the three months ended March 31, 2022, the Firm obtained $13 million of presidency help in the direction of the acquisition and building of properties. Authorities help obtained is netted in opposition to “Properties” within the Firm’s Interim Consolidated Stability Sheets.

As of March 31, 2022, the full Properties stability of $21,120 million is web of $269 million of unamortized authorities help (December 31, 2021 – $259 million), primarily associated to the enhancement of CP’s observe and roadway infrastructure. Amortization expense associated to authorities help for the three months ended March 31, 2022 was $3 million (three months ended March 31, 2021 – $3 million).

10 Enterprise acquisition

Kansas Metropolis Southern

The Firm accounts for its funding in KCS utilizing the fairness technique of accounting whereas america Floor Transportation Board’s (“STB”) considers the Firm’s software to manage KCS. The STB evaluate of CP’s proposed management of KCS whereas KCS is within the voting belief is anticipated to be accomplished within the first quarter of 2023. The funding in KCS of $41,626 million at March 31, 2022 contains $198 million of fairness earnings of KCS for the primary quarter of 2022, offset by a dividend obtained of $334 million on January 27, 2022. Included inside the $198 million of fairness earnings of KCS within the first quarter of 2022 is $40 million amortization (web of tax) of the roughly $30 billion foundation distinction, representing the distinction in worth between the consideration paid to amass KCS and the underlying carrying worth of the online property of KCS as at December 14, 2021, instantly previous to the acquisition by CP. The idea distinction is expounded to depreciable property, plant and tools, intangible property with particular lives, and long-term debt, and is amortized over the associated property’ remaining helpful lives, and the remaining phrases to maturity of the debt devices.

Through the three months ended March 31, 2022, the Firm incurred $20 million in acquisition-related prices, recorded inside “Bought companies and different” within the Firm’s Interim Consolidated Statements of Earnings. Acquisition-related prices of $13 million incurred by KCS through the three months ended March 31, 2022 are included inside “Fairness earnings of Kansas Metropolis Southern” within the Firm’s Interim Consolidated Statements of Earnings.

Through the three months ended March 31, 2021, the Firm incurred $36 million in acquisition-related prices, of which $33 million was recorded inside “Bought companies and different” and $3 million was recorded inside “Different earnings” together with the amortization of financing charges related to new credit score services. Whole financing charges paid for a bridge facility related to the KCS acquisition through the three months ended March 31, 2021 have been $33 million, offered underneath Money utilized in financing actions within the Firm’s Interim Consolidated Statements of Money Flows.

11 Funding in KCS

The KCS funding carrying value of $41,626 million reported on the Firm’s Interim Consolidated Stability Sheets as at March 31, 2022 displays the consideration paid to amass KCS, the asset recorded upon recognition of a deferred tax legal responsibility computed on an out of doors foundation (see Observe 5), the next recognition of fairness earnings, the dividend obtained from KCS, and international foreign money translation primarily based on the quarter-end alternate price.

The next desk presents summarized monetary data for KCS, on its historic value foundation:

Assertion of Earnings

(1) Quantities translated on the common FX price for the three months ended March 31, 2022 of $1.00 USD = $1.27 CAD.

(2) Contains Fairness in web earnings of KCS’s associates, Curiosity expense, FX loss, and Different earnings, web.

12 Debt

Through the three months ended March 31, 2022, the Firm repaid at maturity $125 million 5.100% 10-year Medium Time period Notes, U.S. $250 million ($313 million) 4.500% 10-year Notes, and a U.S. $76 million ($97 million) 6.99% finance lease.

Credit score Facility

Efficient March 14, 2022, the Firm prolonged the maturity date of the U.S. $500 million unsecured non-revolving time period credit score facility (the “time period facility”) to September 15, 2022. As at March 31, 2022, the Firm had borrowings of U.S. $500 million ($625 million) underneath this time period facility (December 31, 2021 – U.S. $500 million) at a weighted-average rate of interest of 1.55% (December 31, 2021 – 1.38%).

Industrial paper program

The Firm has a business paper program which allows it to subject business paper as much as a most mixture principal quantity of U.S. $1.0 billion within the type of unsecured promissory notes. This business paper program is backed by the U.S. $1.3 billion revolving credit score facility. As at March 31, 2022, the Firm had whole business paper borrowings of U.S. $520 million ($650 million), included in “Lengthy-term debt maturing inside one 12 months” on the Firm’s Interim Consolidated Stability sheets (December 31, 2021 – U.S. $265 million). The weighted-average rate of interest on these borrowings was 0.82% (December 31, 2021 – 0.32%). The Firm presents issuances and repayments of economic paper, all of which have a maturity of lower than 90 days, within the Firm’s Interim Consolidated Statements of Money Flows on a web foundation.

13 Monetary devices

A. Truthful values of economic devices

The Firm categorizes its monetary property and liabilities measured at honest worth right into a three-level hierarchy established by GAAP that prioritizes these inputs to valuation methods used to measure honest worth primarily based on the diploma to which they’re observable. The three ranges of the honest worth hierarchy are as follows: Degree 1 inputs are quoted costs in energetic markets for equivalent property and liabilities; Degree 2 inputs, apart from quoted costs included inside Degree 1, are observable for the asset or legal responsibility both instantly or not directly; and Degree 3 inputs are usually not observable available in the market.

The Firm’s short-term monetary devices embrace money and money equivalents, restricted money and money equivalents, accounts receivable, accounts payable and accrued liabilities, and short-term borrowings together with business paper and time period loans. The carrying values of short-term monetary devices approximate their honest values.

The carrying worth of the Firm’s long-term debt and finance lease liabilities doesn’t approximate their honest worth. Their estimated honest worth has been decided primarily based on market data, the place out there, or by discounting future funds of principal and curiosity at estimated rates of interest anticipated to be out there to the Firm at interval finish. All measurements are labeled as Degree 2. The Firm’s long-term debt and finance lease liabilities, together with present maturities, with a carrying worth of $18,389 million at March 31, 2022 (December 31, 2021 – $19,151 million), had a good worth of $18,699 million (December 31, 2021 – $21,265 million).

B. Monetary threat administration

FX administration

Internet funding hedge

The impact of the Firm’s web funding hedge for the three months ended March 31, 2022 was an unrealized FX achieve of $98 million (three months ended March 31, 2021 – unrealized FX achieve of $76 million) acknowledged in “Different complete (loss) earnings”.

14 Shareholders’ fairness

On January 27, 2021, the Firm introduced a standard course issuer bid (“NCIB”), commencing January 29, 2021, to buy as much as 16.7 million Frequent Shares within the open marketplace for cancellation on or earlier than January 28, 2022. Upon expiry of this NCIB, the Firm had not bought any Frequent Shares underneath this NCIB.

15 Pension and different advantages

Within the three months ended March 31, 2022, the Firm made contributions to its outlined profit pension plans of $3 million (three months ended March 31, 2021 – $4 million).

Internet periodic profit prices for outlined profit pension plans and different advantages included the next elements:

16 Inventory-based compensation

At March 31, 2022, the Firm had a number of stock-based compensation plans together with inventory choice plans, numerous cash-settled legal responsibility plans, and an worker share buy plan. These plans resulted in an expense for the three months ended March 31, 2022 of $44 million (three months ended March 31, 2021 – expense of $24 million).

Inventory choice plan

Within the three months ended March 31, 2022, underneath CP’s inventory choice plans, the Firm issued 819,760 choices on the weighted-average worth of $90.86 per share, primarily based on the closing worth on the grant date. Pursuant to the worker plan, these choices could also be exercised upon vesting, which is between 12 months and 48 months after the grant date, and can expire after seven years.

Beneath the honest worth technique, the honest worth of the inventory choices at grant date was roughly $15 million. The weighted-average honest worth assumptions have been roughly:

(1)Represents the time frame that awards are anticipated to be excellent. Historic information on train behaviour or, when out there, particular expectations concerning future train behaviour have been used to estimate the anticipated lifetime of the choice.

(2)Primarily based on the implied yield out there on zero-coupon authorities points with an equal time period commensurate with the anticipated time period of the choice.

(3)Primarily based on the historic volatility of the Firm’s share worth over a interval commensurate with the anticipated time period of the choice.

(4)Decided by the present annual dividend on the time of grant. The Firm doesn’t make use of totally different dividend yields all through the contractual time period of the choice.

(5)The Firm estimates forfeitures primarily based on previous expertise. This price is monitored on a periodic foundation.

Efficiency share unit plans

Through the three months ended March 31, 2022, the Firm issued 411,999 Efficiency Share Models (“PSUs”) with a grant date honest worth of roughly $36 million and 13,506 Efficiency Deferred Share Models (“PDSUs”) with a grant date honest worth, together with the worth of anticipated future matching items, of roughly $2 million. PSUs and PDSUs appeal to dividend equivalents within the type of further items primarily based on dividends paid on the Firm’s Frequent Shares, and vest roughly three years after the grant date, contingent upon CP’s efficiency (“efficiency issue”). The honest worth of those PSUs and PDSUs is measured periodically till settlement. Vested PSUs are settled in money. Vested PDSUs are settled in money pursuant to the Deferred Share Unit (“DSU”) Plan and are eligible for a 25% match if the holder has not exceeded their share possession necessities, and are paid out solely when the holder ceases their employment with CP.

The efficiency interval for PSUs and PDSUs issued within the three months ended March 31, 2022 is January 1, 2022 to December 31, 2024 and the efficiency components are Free Money Move (“FCF”), Adjusted Internet Debt to Adjusted earnings earlier than curiosity, tax, depreciation, and amortization (“EBITDA”) Modifier, Whole Shareholder Return (“TSR”) in comparison with the S&P/TSX 60 Index, and TSR in comparison with S&P 500 Industrials Index.

The efficiency interval for PSUs issued in 2019 was January 1, 2019 to December 31, 2021. The efficiency components for 668,405 PSUs have been Return on Invested Capital (“ROIC”), TSR in comparison with the S&P/TSX 60 Index, and TSR in comparison with Class I Railways. The ensuing payout was 200% of the excellent items multiplied by the Firm’s common share worth calculated utilizing the final 30 buying and selling days previous December 31, 2021. Within the first quarter of 2022, payouts occurred on 631,457 whole excellent awards, together with dividends reinvested, totalling $116 million.

Deferred share unit plan

Through the three months ended March 31, 2022, the Firm granted 39,409 DSUs with a grant date honest worth of roughly $4 million. DSUs vest over numerous intervals of as much as 36 months and are solely redeemable for a specified interval after employment is terminated. The expense for DSUs is acknowledged over the vesting interval for each the preliminary subscription worth and the change in worth between reporting intervals.

17 Contingencies

Within the regular course of its operations, the Firm turns into concerned in numerous authorized actions, together with claims regarding accidents and harm to property. The Firm maintains provisions it considers to be satisfactory for such actions. Whereas the ultimate final result with respect to actions excellent or pending at March 31, 2022 can’t be predicted with certainty, it’s the opinion of administration that their decision is not going to have a cloth hostile impact on the Firm’s enterprise, monetary place or outcomes of operations. Nevertheless, an sudden hostile decision of a number of of those authorized actions might have a cloth hostile impact on the Firm’s enterprise, monetary place, outcomes of operations, or liquidity in a specific quarter or fiscal 12 months.

Authorized proceedings associated to Lac-Mégantic rail accident

On July 6, 2013, a prepare carrying petroleum crude oil operated by Montréal Maine and Atlantic Railway (“MMAR”) or a subsidiary, Montréal Maine & Atlantic Canada Co. (“MMAC” and collectively the “MMA Group”), derailed in Lac-Mégantic, Québec. The derailment occurred on a bit of railway owned and operated by the MMA Group and whereas the MMA Group solely managed the prepare.

Following the derailment, MMAC sought courtroom safety in Canada underneath the Firms’ Collectors Association Act and MMAR filed for chapter within the U.S. Plans of association have been authorized in each Canada and the U.S. (the “Plans”), offering for the distribution of roughly $440 million amongst these claiming derailment damages.

Plenty of authorized proceedings, set out under, have been commenced in Canada and the U.S. in opposition to CP and others:

(1)Québec’s Minister of Sustainable Growth, Atmosphere, Wildlife and Parks ordered numerous events, together with CP, to remediate the derailment website (the “Cleanup Order”) and served CP with a Discover of Declare for $95 million for these prices. CP appealed the Cleanup Order and contested the Discover of Declare with the Administrative Tribunal of Québec. These proceedings are stayed pending dedication of the Legal professional Basic of Québec (“AGQ”) motion (paragraph 2 under).

(2)The AGQ sued CP within the Québec Superior Courtroom claiming $409 million in damages, which was amended and diminished to $315 million (the “AGQ Motion”). The AGQ Motion alleges that: (i) CP was answerable for the petroleum crude oil from its level of origin till its supply to Irving Oil Ltd.; and (ii) CP is vicariously responsible for the acts and omissions of the MMA Group.

(3)A category motion within the Québec Superior Courtroom on behalf of individuals and entities residing in, proudly owning or leasing property in, working a enterprise in, or bodily current in Lac-Mégantic on the time of the derailment was licensed in opposition to CP on Might 8, 2015 (the “Class Motion”). Different defendants together with MMAC and Mr. Thomas Harding (“Harding”) have been added to the Class Motion on January 25, 2017. On November 28, 2019, the plaintiffs’ movement to discontinue their motion in opposition to Harding was granted. The Class Motion seeks unquantified damages, together with for wrongful demise, private harm, property harm, and financial loss.

(4)Eight subrogated insurers sued CP within the Québec Superior Courtroom claiming roughly $16 million in damages, which was amended and diminished to roughly $15 million (the “Promutuel Motion”), and two further subrogated insurers sued CP claiming roughly $3 million in damages (the “Royal Motion”). Each actions include related allegations because the AGQ Motion. The actions don’t establish the subrogated events. As such, the extent of any overlap between the damages claimed in these actions and underneath the Plans is unclear. The Royal Motion is stayed pending dedication of the consolidated proceedings described under.

On December 11, 2017, the AGQ Motion, the Class Motion and the Promutuel Motion have been consolidated. The joint legal responsibility trial of those consolidated claims commenced on September 21, 2021 and will probably be adopted by a damages trial, if mandatory.

(5)Forty-eight plaintiffs (all particular person claims joined in a single motion) sued CP, MMAC, and Harding within the Québec Superior Courtroom claiming roughly $5 million in damages for financial loss and ache and struggling, and asserting related allegations as within the Class Motion and the AGQ Motion. Nearly all of the plaintiffs opted-out of the Class Motion and all however two are additionally plaintiffs in litigation in opposition to CP, described in paragraph 7 under. This motion is stayed pending dedication of the consolidated claims described above.

(6)The MMAR U.S. chapter property consultant commenced an motion in opposition to CP in November 2014 within the Maine Chapter Courtroom claiming that CP did not abide by sure rules and in search of roughly U.S. $30 million in damages for MMAR’s loss in enterprise worth in line with a current knowledgeable report filed by the chapter property. This motion asserts that CP knew or should have recognized that the shipper misclassified the petroleum crude oil and due to this fact ought to have refused to move it.

(7)The category and mass tort motion commenced in opposition to CP in June 2015 in Texas (on behalf of Lac-Mégantic residents and wrongful demise representatives) and the wrongful demise and private harm actions commenced in opposition to CP in June 2015 in Illinois and Maine, have been all transferred and consolidated in Federal District Courtroom in Maine (the “Maine Actions”). The Maine Actions allege that CP negligently misclassified and improperly packaged the petroleum crude oil. On CP’s movement, the Maine Actions have been dismissed. The plaintiffs appealed the dismissal determination to america First Circuit Courtroom of Appeals, which dismissed the plaintiffs’ enchantment on June 2, 2021. The plaintiffs additional petitioned america First Circuit Courtroom of Appeals for a rehearing, which was denied on September 8, 2021. On January 24, 2022, the plaintiffs additional appealed to the U.S. Supreme Courtroom on two chapter procedural grounds. CP filed its opposition to the enchantment on April 20, 2022.

(8)The trustee for the wrongful demise belief commenced Carmack Modification claims in opposition to CP in North Dakota Federal Courtroom, in search of to get well roughly U.S. $6 million for broken rail vehicles and misplaced crude and reimbursement for the settlement paid by the consignor and the consignee underneath the Plans (alleged to be U.S. $110 million and U.S. $60 million, respectively). The Courtroom issued an Order on August 6, 2020 granting and denying in components the events’ abstract judgment motions which has been reviewed and confirmed following motions by the events for clarification and reconsideration. This motion is scheduled for trial on July 11 to 14, 2022.

At this stage of the proceedings, any potential duty and the quantum of potential losses can’t be decided. Nonetheless, CP denies legal responsibility and is vigorously defending these proceedings.

Environmental liabilities

Environmental remediation accruals, recorded on an undiscounted foundation except a dependable, determinable estimate as to an quantity and timing of prices could be established, cowl site-specific remediation packages.

The accruals for environmental remediation symbolize CP’s finest estimate of its possible future obligation and embrace each asserted and unasserted claims, with out discount for anticipated recoveries from third events. Though the recorded accruals embrace CP’s finest estimate of all possible prices, CP’s whole environmental remediation prices can’t be predicted with certainty. Accruals for environmental remediation might change sometimes as new details about beforehand untested websites turns into recognized, and as environmental legal guidelines and rules evolve and advances are made in environmental remediation expertise. The accruals might also fluctuate because the courts resolve authorized proceedings in opposition to exterior events answerable for contamination. These potential costs, which can’t be quantified at the moment, might materially have an effect on earnings within the specific interval wherein a cost is acknowledged. Prices associated to current, however as but unknown, or future contamination will probably be accrued within the interval wherein they change into possible and fairly estimable.

The expense included in “Bought companies and different” within the Firm’s Interim Consolidated Statements of Earnings for the three months ended March 31, 2022 was $2 million (three months ended March 31, 2021 – $2 million). Provisions for environmental remediation prices are recorded within the Firm’s Interim Consolidated Stability Sheets in “Different long-term liabilities”, apart from the present portion which is recorded in “Accounts payable and accrued liabilities”. The overall quantity offered at March 31, 2022 was $79 million (December 31, 2021 – $79 million). Funds are anticipated to be remodeled 10 years by way of 2031.

Abstract of Rail Knowledge

(1)On account of the five-for-one share break up of the Firm’s issued and excellent Frequent Shares, which started buying and selling on a post-split foundation on Might 14, 2021, per share quantities and all excellent Frequent Shares for Q1 2021 have been retrospectively adjusted.

Abstract of Rail Knowledge (Continued)

(1)This earnings measure has no standardized which means prescribed by GAAP and, due to this fact, is unlikely to be akin to related measures offered by different corporations. This measure is outlined and reconciled in Non-GAAP Measures of this Earnings Launch.

Abstract of Rail Knowledge (Continued)

(1)This earnings measure has no standardized which means prescribed by GAAP and, due to this fact, is unlikely to be akin to related measures offered by different corporations. This measure is outlined and reconciled in Non-GAAP Measures of this Earnings Launch.

Abstract of Rail Knowledge (Continued)

(1)Common prepare velocity is outlined as a measure of the line-haul motion from origin to vacation spot together with terminal dwell hours. It’s calculated by dividing the full prepare miles travelled by the full prepare hours operated. This calculation doesn’t embrace delay time associated to prospects or international railroads and excludes the time and distance travelled by: i) trains utilized in or round CP’s yards; ii) passenger trains; and iii) trains used for repairing observe.

(2)Locomotive productiveness is outlined as each day GTMs divided by each day common working horsepower. Working horsepower excludes items offline, tied up or in storage, or in use on different railways, and contains international items on-line.

(3)Gasoline effectivity is outlined as U.S. gallons of locomotive gasoline consumed per 1,000 GTMs.

(4)Contains gallons of gasoline consumed from freight, yard and commuter service however excludes gasoline utilized in capital tasks and different non-freight actions.

(5)An worker is outlined as a person at present engaged in full-time, part-time, or seasonal employment with CP.

(6)Workforce is outlined as whole workers plus contractors and consultants.

(7)Federal Railroad Administration (“FRA”) private accidents per 200,000 employee-hours for the three months ended March 31, 2021, beforehand reported as 1.20, was restated to 1.16 on this Earnings Launch. FRA prepare accidents per million train-miles for the three months ended March 31, 2021, beforehand reported as 1.28, was restated to 1.39 on this Earnings Launch. These restatements mirror new data out there inside specified intervals stipulated by the FRA however that exceed the Firm’s monetary reporting timeline.

Non-GAAP Measures

The Firm presents Non-GAAP measures to supply a foundation for evaluating underlying earnings and liquidity tendencies within the Firm’s enterprise that may be in contrast with the outcomes of operations in prior intervals. As well as, these Non-GAAP measures facilitate a multi-period evaluation of long-term profitability, permitting administration and different exterior customers of the Firm’s consolidated monetary data to match profitability on a long-term foundation, together with assessing future profitability, with that of the Firm’s friends.

These Non-GAAP measures haven’t any standardized which means and are usually not outlined by accounting ideas typically accepted in america of America (“GAAP”) and, due to this fact, will not be akin to related measures offered by different corporations. The presentation of those Non-GAAP measures is just not meant to be thought-about in isolation from, as an alternative to, or as superior to the monetary data offered in accordance with GAAP.

Non-GAAP Efficiency Measures

The Firm makes use of adjusted earnings outcomes together with Adjusted earnings, Adjusted diluted earnings per share, Adjusted working earnings and Adjusted working ratio to judge the Firm’s working efficiency and for planning and forecasting future enterprise operations and future profitability. Core adjusted earnings and Core adjusted diluted earnings per share are offered to supply monetary assertion customers with further transparency by isolating for the affect of KCS buy accounting. KCS buy accounting represents the amortization of foundation variations, being the distinction in worth between the consideration paid to amass KCS and the underlying carrying worth of the online property of KCS instantly previous to its acquisition by the Firm. All property topic to KCS buy accounting contribute to earnings technology and can proceed to amortize over their estimated helpful lives. These Non-GAAP measures present significant supplemental data concerning working outcomes as a result of they exclude sure vital objects that aren’t thought-about indicative of future monetary tendencies both by nature or quantity or present improved comparability to previous efficiency. In consequence, these things are excluded for administration evaluation of operational efficiency, allocation of assets and preparation of annual budgets. These vital objects might embrace, however are usually not restricted to, restructuring and asset impairment costs, individually vital beneficial properties and losses from gross sales of property, acquisition-related prices, the merger termination fee obtained, the international alternate (“FX”) affect of translating the Firm’s debt and lease liabilities (together with borrowings underneath the credit score facility), discrete tax objects, modifications within the exterior foundation tax distinction between the carrying quantity of CP’s fairness funding in KCS and its tax foundation of this funding, modifications in earnings tax charges, modifications to an unsure tax merchandise, and sure objects exterior the management of administration. Acquisition-related prices embrace authorized, consulting, financing charges, integration planning prices consisting of third-party companies and system migration, honest worth achieve or loss on FX ahead contracts and rate of interest hedges, FX achieve on U.S. dollar-denominated money available from the issuances of long-term debt to fund the KCS acquisition, and transaction and integration prices incurred by KCS which have been acknowledged inside Fairness earnings of Kansas Metropolis Southern within the Firm’s Interim Consolidated Statements of Earnings. These things will not be non-recurring. Nevertheless, excluding these vital objects from GAAP outcomes permits for a constant understanding of the Firm’s consolidated monetary efficiency when performing a multi-period evaluation together with assessing the chance of future outcomes. Accordingly, these Non-GAAP monetary measures might present perception to traders and different exterior customers of the Firm’s consolidated monetary data.

Important objects that affect reported earnings for the primary three months of 2022, the twelve months of 2021, and the final 9 months of 2020 embrace:

2022:

•Deferred tax restoration of $32 million on modifications within the exterior foundation distinction of the fairness funding in KCS that favourably impacted Diluted EPS by 3 cents; and

•Acquisition-related prices of $33 million in reference to the KCS acquisition ($30 million after present tax restoration of $3 million), together with an expense of $20 million acknowledged in Bought companies and different and $13 million acknowledged in Fairness earnings of KCS that unfavourably impacted Diluted EPS by 3 cents.

2021:

•Within the fourth quarter, a deferred tax restoration of $33 million on modifications within the exterior foundation distinction of the fairness funding in KCS that favourably impacted Diluted EPS by 5 cents;

•within the second quarter, merger termination fee obtained of $845 million ($748 million after present taxes) in reference to KCS’s termination of the Unique Merger Settlement efficient Might 21, 2021, that favourably impacted Diluted EPS by $1.11;

•through the course of the 12 months, acquisition-related prices of $599 million in reference to the KCS acquisition ($500 million after present tax restoration of $107 million web of deferred tax expense of $8 million), together with an expense of $183 million acknowledged in Bought companies and different, $169 million acknowledged in Fairness lack of KCS, and $247 million acknowledged in Different expense (earnings), that unfavourably impacted Diluted EPS by 75 cents as follows:

-in the fourth quarter, acquisition-related prices of $157 million ($157 million after present tax restoration of $13 million web of deferred tax expense of $13 million), together with prices of $36 million acknowledged in Bought companies and

different, $169 million in Fairness lack of KCS, and a $48 million restoration acknowledged in Different (earnings) expense, that unfavourably impacted Diluted EPS by 22 cents;

-in the third quarter, acquisition-related prices of $98 million ($80 million after present tax restoration of $61 million web of deferred tax expense of $43 million), together with prices of $15 million acknowledged in Bought companies and different and $83 million acknowledged in Different expense (earnings), that unfavourably impacted Diluted EPS by 12 cents;

-in the second quarter, acquisition-related prices of $308 million ($236 million after present taxes of $25 million and deferred taxes of $47 million), together with prices of $99 million acknowledged in Bought companies and different and $209 million acknowledged in Different expense (earnings), that unfavourably impacted Diluted EPS by 35 cents; and

-in the primary quarter, acquisition-related prices of $36 million ($27 million after present taxes of $8 million and deferred taxes of $1 million), together with prices of $33 million acknowledged in Bought companies and different and $3 million acknowledged in Different expense (earnings), that unfavourably impacted Diluted EPS by 4 cents; and

•through the course of the 12 months, a web non-cash achieve of $7 million ($6 million after deferred tax) on account of FX translation of debt and lease liabilities that favourably impacted Diluted EPS by 1 cent as follows:

-in the fourth quarter, a $32 million loss ($28 million after deferred tax) that unfavourably impacted Diluted EPS by 4 cents;

-in the third quarter, a $46 million loss ($40 million after deferred tax) that unfavourably impacted Diluted EPS by 6 cents;

-in the second quarter, a $52 million achieve ($45 million after deferred tax) that favourably impacted Diluted EPS by 7 cents; and

-in the primary quarter, a $33 million achieve ($29 million after deferred tax) that favourably impacted Diluted EPS by 4 cents.

2020:

•Within the fourth quarter, a deferred tax restoration of $29 million on account of a change regarding a tax return submitting election for the state of North Dakota that favourably impacted Diluted EPS by 5 cents; and

•through the course of the 12 months, a web non-cash achieve of $229 million ($210 million after deferred tax) on account of FX translation of debt and lease liabilities that favourably impacted Diluted EPS by 31 cents as follows:

-in the fourth quarter, a $103 million achieve ($90 million after deferred tax) that favourably impacted Diluted EPS by 13 cents;

-in the third quarter, a $40 million achieve ($38 million after deferred tax) that favourably impacted Diluted EPS by 6 cents; and

-in the second quarter, an $86 million achieve ($82 million after deferred tax) that favourably impacted Diluted EPS by 12 cents.

Reconciliation of GAAP Efficiency Measures to Non-GAAP Efficiency Measures

The next tables reconcile essentially the most instantly comparable measures offered in accordance with GAAP to the Non-GAAP measures:

Adjusted earnings is calculated as Internet earnings reported on a GAAP foundation adjusted for vital objects. Core adjusted earnings is calculated as Adjusted earnings much less KCS buy accounting.

(1)The tax impact of changes was calculated because the pre-tax impact of the changes multiplied by the relevant tax price for the above objects of 8.69% for the three months endedMarch 31, 2022, and 223.54% for the three months endedMarch 31, 2021, respectively. The relevant tax charges mirror the taxable jurisdictions and nature, being on account of capital or earnings, of the numerous objects.

Adjusted diluted earnings per share is calculated utilizing Adjusted earnings, as outlined above, divided by the weighted-average diluted variety of Frequent Shares excellent through the interval as decided in accordance with GAAP. Core adjusted diluted earnings per share is calculated as Adjusted diluted earnings per share much less KCS buy accounting.

(1)The tax impact of changes was calculated because the pre-tax impact of the changes multiplied by the relevant tax price for the above objects of 8.69% for the three months endedMarch 31, 2022, and 223.54% for the three months endedMarch 31, 2021, respectively. The relevant tax charges mirror the taxable jurisdictions and nature, being on account of capital or earnings, of the numerous objects.

Adjusted working earnings is calculated as Working earnings reported on a GAAP foundation much less vital objects.

Adjusted working ratio excludes these vital objects which can be reported inside working earnings.

Adjusted Return on Invested Capital (“Adjusted ROIC”)

Adjusted ROIC is calculated as Adjusted return divided by Adjusted common invested capital. Adjusted return is outlined as Internet earnings adjusted for curiosity expense, tax effected on the Firm’s adjusted annualized efficient tax price, and vital objects within the Firm’s Consolidated Monetary Statements, tax effected on the relevant tax price. Adjusted common invested capital is outlined because the sum of whole Shareholders’ fairness, Lengthy-term debt, and Lengthy-term debt maturing inside one 12 months, as offered within the Firm’s Consolidated Monetary Statements, every averaged between the start and ending stability over a trailing twelve month interval, adjusted for the affect of serious objects, tax effected on the relevant tax price, on closing balances as a part of this common. Adjusted ROIC excludes vital objects reported within the Firm’s Consolidated Monetary Statements, as these vital objects are usually not thought-about indicative of future monetary tendencies both by nature or quantity, and excludes curiosity expense, web of tax, to include returns on the Firm’s total capitalization. Adjusted ROIC is a efficiency measure that measures how productively the Firm makes use of its long-term capital investments, representing essential indicators of fine working and funding choices made by administration, and is a vital efficiency standards in figuring out sure

parts of the Firm’s long-term incentive plan. Adjusted ROIC is reconciled under from Return on common shareholders’ fairness, essentially the most comparable measure calculated in accordance with GAAP.

Calculation of Return on common shareholders’ fairness

Reconciliation of Internet earnings to Adjusted return

(1)Tax was calculated on the adjusted annualized efficient tax price of 23.75% and 24.55% for the twelve months ended March 31, 2022 and 2021, respectively.

(2)Tax was calculated because the pre-tax impact of the changes multiplied by the relevant tax price for the above objects of 0.32% and 5.92% for the twelve months ended March 31, 2022 and 2021, respectively. The relevant tax charges mirror the taxable jurisdictions and nature, being on account of capital or earnings, of the numerous objects.

Reconciliation of Common shareholders’ fairness to Adjusted common invested capital

(1)Tax was calculated on the pre-tax impact of the adjustment multiplied by the relevant tax price of 1.71% and 26.13% for the twelve months ended March 31, 2022 and 2021, respectively. The relevant tax price displays the taxable jurisdiction and nature, being on account of capital or earnings, of the numerous merchandise.

Calculation of Adjusted ROIC

Free Money

Free money is calculated as Money offered by working actions, much less Money utilized in investing actions, adjusted for modifications in money and money equivalents balances ensuing from FX fluctuations, and the working money circulation impacts of acquisition-related prices related to the KCS transaction. Free money is a measure that administration considers to be a priceless indicator of liquidity. Free money is beneficial to traders and different exterior customers of the Firm’s Consolidated Monetary Statements because it assists with the analysis of the Firm’s capacity to generate money to fulfill debt obligations and discretionary actions corresponding to dividends, share repurchase packages, and different strategic alternatives. The acquisition-related prices related to the KCS acquisition are usually not indicative of working tendencies and have been excluded from Free money. Free money needs to be thought-about along with, moderately than as an alternative to, Money offered by working actions.

Reconciliation of Money Offered by Working Actions to Free Money

International Change Adjusted % Change

FX adjusted % change permits sure monetary outcomes to be considered with out the affect of fluctuations in international foreign money alternate charges, thereby facilitating period-to-period comparisons within the evaluation of tendencies in enterprise efficiency. Monetary consequence variances at fixed foreign money are obtained by translating the comparable interval of the prior 12 months outcomes denominated in U.S. {dollars} on the international alternate charges of the present interval.

FX adjusted % modifications in revenues are additional utilized in calculating FX adjusted % change in freight income per carload and RTM. FX adjusted % modifications in revenues are as follows:

FX adjusted % modifications in working bills are as follows:

FX adjusted % change in working earnings is as follows:

Adjusted Internet Debt to Adjusted EBITDA Ratio and Professional-forma adjusted Internet Debt to Professional-forma adjusted EBITDA Ratio

Adjusted web debt to Adjusted earnings earlier than curiosity, tax, depreciation and amortization (“EBITDA”) ratio is calculated as Adjusted web debt divided by Adjusted EBITDA. The Adjusted web debt to Adjusted EBITDA ratio is a key credit score measure used to evaluate the Firm’s monetary capability. The ratio gives data on the Firm’s capacity to service its debt and different long-term obligations from operations, excluding vital objects. The Adjusted web debt to Adjusted EBITDA ratio is reconciled under from the Lengthy-term debt to Internet earnings ratio, essentially the most comparable measure calculated in accordance with GAAP.

Starting within the first quarter of 2022, CP added disclosure of Professional-forma adjusted web debt to Professional-forma adjusted EBITDA ratio to higher align with CP’s debt covenant calculation, which contains the trailing twelve month adjusted EBITDA of KCS in addition to KCS’s excellent debt. CP is incorporating the trailing twelve month adjusted EBITDA of KCS on a pro-forma foundation, as CP is just not entitled to earnings previous to the acquisition date of December 14, 2021. CP doesn’t management KCS whereas it’s in voting belief

throughout evaluate of our merger software by america Floor Transportation Board (“STB”), although CP is the useful proprietor of KCS’s excellent shares and receives money dividends from KCS. The adjustment to incorporate the trailing twelve month EBITDA and KCS’s excellent debt gives customers of the monetary statements with higher perception into CP’s progress in reaching deleveraging commitments. KCS’s disclosed U.S. greenback monetary values for the trailing twelve month ended March 31, 2022 have been adjusted to Canadian {dollars} reflecting the FX price for the suitable intervals offered. We’ve not offered 2021 Professional-forma adjusted web debt to Professional-forma adjusted EBITDA as CP was not the useful proprietor of KCS’s shares as at March 31, 2021.

Calculation of Lengthy-term Debt to Internet Earnings Ratio

Reconciliation of Lengthy-term Debt to Adjusted Internet Debt and Professional-forma Adjusted Internet Debt

Adjusted web debt is outlined as Lengthy-term debt, Lengthy-term debt maturing inside one 12 months, and Quick-term borrowing as reported on the Firm’s Consolidated Stability Sheets adjusted for pension plans deficit, working lease liabilities acknowledged on the Firm’s Consolidated Stability Sheets, and Money and money equivalents. Adjusted web debt is used as a measure of debt and long-term obligations as a part of the calculation of Adjusted Internet Debt to Adjusted EBITDA.

(1) KCS’s quantities have been translated on the March 31, 2022 interval finish FX price of $1.25.

(2) Pension plans deficit is the full funded standing of the Pension plans in deficit solely.

Reconciliation of Internet Earnings to EBIT, Adjusted EBIT and Adjusted EBITDA and Professional-forma Adjusted EBITDA

Earnings earlier than curiosity and tax (“EBIT”) is calculated as Internet earnings earlier than Internet curiosity expense and Earnings tax expense. Adjusted EBIT excludes vital objects reported in each Working earnings and Different earnings. Adjusted EBITDA is calculated as Adjusted EBIT plus working lease expense and Depreciation and amortization, much less Different elements of web periodic profit restoration. Adjusted EBITDA is used as a measure of liquidity derived from operations, excluding vital objects, as a part of the calculation of Adjusted Internet Debt to Adjusted EBITDA.

(1) KCS’s quantities have been translated on the quarterly common FX price of $1.27, $1.26, $1.26, and $1.23 for Q1 2022, This autumn 2021, Q3 2021 and Q2 2021, respectively.

(2) Fairness earnings of KCS have been a part of CP’s reported web earnings and due to this fact have been deducted in arriving to the Professional-forma Adjusted EBITDA.

(3) Acquisition-related prices of KCS have been adjusted in CP’s Adjusted EBITDA calculation above, due to this fact have been deducted in arriving to the Professional-forma Adjusted EBITDA.

Calculation of Adjusted Internet Debt to Adjusted EBITDA Ratio and Professional-forma Adjusted Internet Debt to Professional-forma Adjusted EBITDA Ratio