Canadian Pacific Kansas City Ltd 10-Q for FY2023 Q2

Canadian Pacific Kansas City Ltd (CP)

10-Q 2023-07-28 For: 2023-06-30

Added on April 11, 2026

About this 10-Q

Canadian Pacific Kansas City Ltd filed this 10-Q on July 28, 2023, covering the quarter ended June 30, 2023 (FY2023 Q2).

Headline figures

Quarter ended June 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: 3.17B CAD; up 44.1% from 2.2B CAD a year earlier
Net income: 1.32B CAD; up 73.1% from net income of 765M CAD a year earlier
Diluted EPS: 1.42 CAD; up 73.2% from 0.82 CAD a year earlier

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Canada									98-0355078
(State or Other Jurisdiction of Incorporation or Organization)									(IRS Employer Identification No.)

7550 Ogden Dale Road S.E., Calgary, Alberta,
Canada									T2C 4X9
(Address of principal executive offices)									(Zip Code)


	PART I - FINANCIAL INFORMATION
		Page
Item 1.	Financial Statements:

	Interim Consolidated Statements of Income	2
	For the Three and Six Months Ended June 30, 2023 and 2022

	Interim Consolidated Statements of Comprehensive Income	3
	For the Three and Six Months Ended June 30, 2023 and 2022

	Interim Consolidated Balance Sheets	4
	As at June 30, 2023 and December 31, 2022

	Interim Consolidated Statements of Cash Flows	5
	For the Three and Six Months Ended June 30, 2023 and 2022

	Interim Consolidated Statements of Changes in Equity	6
	For the Three and Six Months Ended June 30, 2023 and 2022

	Notes to Interim Consolidated Financial Statements	7

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	21
	Executive Summary	21
	Performance Indicators	22
	Financial Highlights	23
	Results of Operations	23
	Liquidity and Capital Resources	36
	Share Capital	40
	Non-GAAP Measures	40
	Critical Accounting Estimates	44
	Forward-Looking Statements	45
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	47
Item 4.	Controls and Procedures	48

	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	49
Item 1A.	Risk Factors	49
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	51
Item 3.	Defaults Upon Senior Securities	51
Item 4.	Mine Safety Disclosures	51
Item 5.	Other Information	51
Item 6.	Exhibits	52
	Signature	54


	For the three months ended June 30				For the six months ended June 30
(in millions of Canadian dollars, except share and per share data)	2023		2022		2023		2022
Revenues (Note 3)
Freight	$	3,101	$	2,154	$	5,318	$	3,950
Non-freight	73		48		122		90
Total revenues	3,174		2,202		5,440		4,040
Operating expenses
Compensation and benefits (Note 8)	659		348		1,097		761
Fuel	397		370		723		643
Materials	98		63		170		125
Equipment rents	80		29		110		64
Depreciation and amortization	410		211		635		421
Purchased services and other (Note 8)	586		313		932		623
Total operating expenses	2,230		1,334		3,667		2,637

Operating income	944		868		1,773		1,403
Less:
Equity earnings of Kansas City Southern (Note 8, 9)	(26)		(208)		(230)		(406)
Other expense (Note 8)	21		7		23		6

Other components of net periodic benefit recovery (Note 14)	(83)		(101)		(169)		(202)
Net interest expense	204		160		358		320
Remeasurement loss of Kansas City Southern (Note 8)	7,175		—		7,175		—
(Loss) income before income tax expense	(6,347)		1,010		(5,384)		1,685
Less:
Current income tax expense (Note 4)	281		131		419		217
Deferred tax (recovery) expense (Note 4)	(7,953)		114		(7,928)		113
Income tax (recovery) expense (Note 4)	(7,672)		245		(7,509)		330
Net income	$	1,325	$	765	$	2,125	$	1,355
Less: Net income attributable to non-controlling interest	1		—		1		—
Net income attributable to controlling shareholders	$	1,324	$	765	$	2,124	$	1,355

Earnings per share (Note 5)
Basic earnings per share	$	1.42	$	0.82	$	2.28	$	1.46
Diluted earnings per share	$	1.42	$	0.82	$	2.28	$	1.45

Weighted-average number of shares (millions) (Note 5)
Basic	931.2		929.9		930.9		929.8
Diluted	933.8		932.6		933.6		932.7

Dividends declared per share	$	0.190	$	0.190	$	0.380	$	0.380


	For the three months ended June 30				For the six months ended June 30
(in millions of Canadian dollars)	2023		2022		2023		2022
Net income	$	1,325	$	765	$	2,125	$	1,355
Net (loss) gain in foreign currency translation adjustments, net of hedging activities	(611)		719		(638)		383
Change in derivatives designated as cash flow hedges	1		2		3		3
Change in pension and post-retirement defined benefit plans	(3)		38		5		77
Equity accounted investments	4		73		7		135
Other comprehensive (loss) income before income taxes	(609)		832		(623)		598
Income tax (expense) recovery on above items	(17)		2		(20)		(34)
Other comprehensive (loss) income (Note 6)	(626)		834		(643)		564
Comprehensive income	$	699	$	1,599	$	1,482	$	1,919
Comprehensive loss attributable to the non-controlling interest	(7)		—		(7)		—
Comprehensive income attributable to controlling shareholders	$	706	$	1,599	$	1,489	$	1,919


	June 30		December 31
(in millions of Canadian dollars)	2023		2022
Assets
Current assets
Cash and cash equivalents	$	325	$	451

Accounts receivable, net (Note 7)	1,656		1,016
Short-term investments (Note 12)	264		—
Materials and supplies	381		284
Other current assets	292		138
	2,918		1,889
Investment in Kansas City Southern (Note 9)	—		45,091
Investments	532		223
Properties	51,183		22,385
Goodwill (Note 10)	17,674		344
Intangible assets (Note 11)	3,019		42
Pension asset	3,261		3,101
Other assets	585		420
Total assets	$	79,172	$	73,495
Liabilities and equity
Current liabilities
Accounts payable and accrued liabilities	$	2,430	$	1,703
Long-term debt maturing within one year (Note 12, 13)	1,909		1,510
	4,339		3,213
Pension and other benefit liabilities	562		538
Other long-term liabilities	834		520
Long-term debt (Note 12, 13)	21,353		18,141
Deferred income taxes	11,080		12,197
Total liabilities	38,168		34,609
Shareholders’ equity
Share capital	25,563		25,516
Additional paid-in capital	88		78
Accumulated other comprehensive (loss) income (Note 6)	(544)		91
Retained earnings	14,972		13,201
	40,079		38,886
Non-controlling interest (Note 8)	925		—
Total equity	41,004		38,886
Total liabilities and equity	$	79,172	$	73,495


	For the three months ended June 30
(in millions of Canadian dollars except per share data)		Common Shares (in millions)	Share capital		Additional paid-in capital		Accumulated other comprehensive income (loss)		Retained earnings		Total shareholders’ equity		Non-controlling interest		Total equity
Balance as at April 1, 2023		930.9	$	25,538	$	84	$	74	$	13,824	$	39,520	$	—	$	39,520
Net income		—	—		—		—		1,324		1,324		1		1,325
Other comprehensive loss (Note 6)		—	—		—		(618)		—		(618)		(8)		(626)
Dividends declared ($0.190 per share)		—	—		—		—		(176)		(176)		—		(176)
Effect of stock-based compensation expense		—	—		9		—		—		9		—		9


Shares issued under stock option plan		0.5	25		(5)		—		—		20		—		20
Non-controlling interest in connection with business acquisition		—	—		—		—		—		—		932		932

Balance as at June 30, 2023		931.4	$	25,563	$	88	$	(544)	$	14,972	$	40,079	$	925	$	41,004
Balance as at April 1, 2022		929.9	$	25,486	$	68	$	(2,373)	$	10,804	$	33,985	$	—	$	33,985
Net income		—	—		—		—		765		765		—		765
Other comprehensive income (Note 6)		—	—		—		834		—		834		—		834
Dividends declared ($0.190 per share)		—	—		—		—		(177)		(177)		—		(177)
Effect of stock-based compensation expense		—	—		5		—		—		5		—		5


Shares issued under stock option plan		0.1	2		—		—		—		2		—		2


Balance as at June 30, 2022		930.0	$	25,488	$	73	$	(1,539)	$	11,392	$	35,414	$	—	$	35,414


	For the three months ended June 30				For the six months ended June 30
(in millions)	2023		2022		2023		2022
Net income attributable to controlling shareholders	$	1,324	$	765	$	2,124	$	1,355
Weighted-average basic shares outstanding	931.2		929.9		930.9		929.8
Dilutive effect of stock options	2.6		2.7		2.7		2.9
Weighted-average diluted shares outstanding	933.8		932.6		933.6		932.7
Earnings per share - basic	$	1.42	$	0.82	$	2.28	$	1.46
Earnings per share - diluted	$	1.42	$	0.82	$	2.28	$	1.45


	For the three months ended June 30
(in millions of Canadian dollars)	Foreign currency net of hedging activities(1)(2)		Derivatives(1)(2)		Pension and post- retirement defined benefit plans(1)(2)		Equity accounted investments(1)(2)		Total(1)(2)
Opening balance, April 1, 2023	$	1,478	$	1	$	(1,404)	$	(1)	$	74
Other comprehensive (loss) income before reclassifications	(621)		—		(9)		3		(627)
Amounts reclassified from accumulated other comprehensive income	—		1		7		1		9
Net other comprehensive (loss) income	(621)		1		(2)		4		(618)
Closing balance, June 30, 2023	$	857	$	2	$	(1,406)	$	3	$	(544)
Opening balance, April 1, 2022	$	(531)	$	(3)	$	(1,884)	$	45	$	(2,373)
Other comprehensive income before reclassifications	748		—		—		57		805
Amounts reclassified from accumulated other comprehensive loss	—		1		28		—		29
Net other comprehensive income	748		1		28		57		834
Closing balance, June 30, 2022	$	217	$	(2)	$	(1,856)	$	102	$	(1,539)


(in millions of Canadian dollars)	As at June 30, 2023		As at December 31, 2022
Total accounts receivable	$	1,726	$	1,057
Allowance for credit losses	(70)		(41)
Total accounts receivable, net	$	1,656	$	1,016


(in millions of Canadian dollars)
Net assets acquired:
Cash and cash equivalents	$	298
Net working capital	51
Properties	28,748
Intangible assets	3,022
Other long-term assets	496
Long-term debt	(4,545)
Deferred income taxes	(6,984)
Other long-term liabilities	(406)
Total identifiable net assets	$	20,680
Goodwill	17,491
	$	38,171
Consideration:
Fair value of previously held equity method investment	$	37,227
Intercompany net balances acquired	12
Fair value of non-controlling interest	932
Total	$	38,171


	Three Months Ended June 30, 2023				Three Months Ended June 30, 2022
(in millions of Canadian dollars)	KCS Historical(1)		Pro Forma CPKC		KCS Historical(1)		Pro Forma CPKC
Revenue	$	164	$	3,338	$	1,079	$	3,285
Net income attributable to controlling shareholders	34		615		248		794


	Six Months Ended June 30, 2023				Six Months Ended June 30, 2022
(in millions of Canadian dollars)	KCS Historical(1)		Pro Forma CPKC		KCS Historical(1)		Pro Forma CPKC
Revenue	$	1,351	$	6,794	$	2,065	$	6,112
Net income attributable to controlling shareholders	280		1,371		485		2,018


(in millions of Canadian dollars)(1)	For the period April 1 to April 13, 2023		For the three months ended June 30, 2022		For the period January 1 to April 13, 2023		For the six months ended June 30, 2022
Total revenues	$	164	$	1,079	$	1,351	$	2,065
Total operating expenses	109		680		888		1,297
Operating income	55		399		463		768
Less: Other(2)	9		59		83		98
Income before income taxes	46		340		380		670
Net income	$	34	$	248	$	280	$	485


(in millions of Canadian dollars)	Net carrying amount
Balance as at December 31, 2022	$	344
Additions (Note 8)	17,491
Foreign exchange impact	(161)
Balance as at June 30, 2023	$	17,674


(in millions of Canadian dollars)	Cost		Accumulated amortization		Net carrying amount
Balance as at December 31, 2022	$	66	$	(24)	$	42
Additions (Note 8)	3,022		—		3,022
Amortization	—		(18)		(18)
Foreign exchange impact	(27)		—		(27)
Balance as at June 30, 2023	$	3,061	$	(42)	$	3,019


	For the three months ended June 30				For the six months ended June 30
(in millions of Canadian dollars)	2023		2022		2023		2022
Freight
Grain	$	537	$	370	$	1,052	$	730
Coal	219		163		374		302
Potash	144		171		276		275
Fertilizers and sulphur	89		85		185		163
Forest products	187		104		290		190
Energy, chemicals and plastics	575		340		941		650
Metals, minerals and consumer products	440		228		673		409
Automotive	257		120		382		211
Intermodal	653		573		1,145		1,020
Total freight revenues	3,101		2,154		5,318		3,950
Non-freight excluding leasing revenues	39		27		66		49
Revenues from contracts with customers	3,140		2,181		5,384		3,999
Leasing revenues	34		21		56		41
Total revenues	$	3,174	$	2,202	$	5,440	$	4,040


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


			For the six months ended June 30, 2023
Expected option life (years)(1)			4.75
Risk-free interest rate(2)			3.35%
Expected share price volatility(3)			28.44%
Expected annual dividends per share(4)			$0.760
Expected forfeiture rate(5)			3.18%
Weighted-average grant date fair value per option granted during the period			$29.79


	For the three months ended June 30			For the six months ended June 30
	2023	2022	% Change	2023	2022	% Change
Operations Performance
Gross ton-miles (“GTMs”) (millions)	88,650	68,847	29	156,099	131,030	19
Train miles (thousands)	10,577	7,259	46	17,834	14,152	26





Fuel efficiency (U.S. gallons of locomotive fuel consumed / 1,000 GTMs)	1.036	0.930	11	1.009	0.960	5

Total employees (average)	19,579	12,509	57	16,257	12,138	34


	For the three months ended June 30
	Pensions				Other benefits
(in millions of Canadian dollars)	2023		2022		2023		2022
Current service cost (benefits earned by employees)	$	17	$	37	$	3	$	3
Other components of net periodic benefit (recovery) cost:
Interest cost on benefit obligation	122		96		6		4
Expected return on plan assets	(221)		(239)		—		—
Recognized net actuarial loss	8		38		—		—
Amortization of prior service costs	1		—		1		—
Total other components of net periodic benefit (recovery) cost	(90)		(105)		7		4
Net periodic benefit (recovery) cost	$	(73)	$	(68)	$	10	$	7


	For the three months ended June 30						For the six months ended June 30
(in millions, except per share data, percentages and ratios)	2023			2022			2023			2022
Financial Performance
Total revenues	$	3,174		$	2,202		$	5,440		$	4,040
Operating income	944			868			1,773			1,403



Net income attributable to controlling shareholders	1,324			765			2,124			1,355

Basic EPS	1.42			0.82			2.28			1.46
Diluted EPS	1.42			0.82			2.28			1.45

Core adjusted combined diluted EPS(1)	0.83			0.95			1.73			1.62
Dividends declared per share	0.190			0.190			0.380			0.380









Financial Ratios
Operating ratio(2)	70.3		%	60.6		%	67.4		%	65.3		%
Core adjusted combined operating ratio(1)	64.6		%	60.3		%	64.0		%	63.3		%


For the three months ended June 30 (in millions of Canadian dollars)	2023		2022		Total Change		% Change
Compensation and benefits	$	659	$	348	$	311	89
Fuel	397		370		27		7
Materials	98		63		35		56
Equipment rents	80		29		51		176
Depreciation and amortization	410		211		199		94
Purchased services and other	586		313		273		87
Total operating expenses	$	2,230	$	1,334	$	896	67


For the six months ended June 30 (in millions of Canadian dollars)	2023		2022		Total Change		% Change
Compensation and benefits	$	1,097	$	761	$	336	44
Fuel	723		643		80		12
Materials	170		125		45		36
Equipment rents	110		64		46		72
Depreciation and amortization	635		421		214		51
Purchased services and other	932		623		309		50
Total operating expenses	$	3,667	$	2,637	$	1,030	39


Long-term debt	Outlook
Standard & Poor's	BBB+	stable



Moody's	Baa2	stable


Commercial paper program
Standard & Poor's	A-2	N/A
Moody's	P-2	N/A


	CPRC (Subsidiary Issuer) and CPKC (Parent Guarantor)
(in millions of Canadian dollars)	For the six months ended June 30, 2023		For the year ended December 31, 2022
Total revenues	$	3,137	$	6,384
Total operating expenses	2,045		4,110
Operating income(1)	1,092		2,274
Less: Other(2)	166		234
Income before income tax expense	926		2,040
Net income	$	653	$	1,533


(in billions of dollars, except percentages)	Provisional Estimate at Control Date		Sensitivity Range				Value Range
Previously held equity investment in KCS	$	37.2
Revenue growth rate			-1	%	1	%	$	36.2	$	38.3
Terminal EBITDA multiple			-0.5x		0.5x		$	35.6	$	38.8
EBITDA margin			-1	%	1	%	$	36.7	$	37.8
Discount rate			-1	%	1	%	$	38.9	$	35.6

Intangible assets including Mexican concession(1)	$	12.2
Terminal growth rate			-0.5	%	0.5	%	$	11.4	$	13.1
Discount rate			-1	%	1	%	$	14.4	$	10.6

Mexican concession(1)	$	9.2
Renewal probability of Mexican concession(1)			-10	%	10	%	$	8.9	$	9.4


Exhibit			Description
3.1			Restated Certificate and Articles of Incorporation of Canadian Pacific Railway Limited (incorporated by reference to Exhibit 99.2 to Canadian Pacific Railway Limited’s Form 6-K filed with the Securities and Exchange Commission on October 22, 2015, File No. 001-01342).
3.2			Articles of Amendment to Restated Certificate and Articles of Incorporation of Canadian Pacific Railway Limited (incorporated by reference to Exhibit 3.1 to Canadian Pacific Railway Limited’s Form 8-K filed with the Securities and Exchange Commission on May 5, 2021, File No. 001-01342).
3.3			Articles of Amendment to Restated Certificate and Articles of Incorporation of Canadian Pacific Kansas City Limited (incorporated by reference to Exhibit 3.1 to Canadian Pacific Kansas City Limited’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 14, 2023, File No. 001-01342).
3.4			By-law No. 1, as amended, of Canadian Pacific Kansas City Limited (incorporated by reference to Exhibit 3.4 to Canadian Pacific Kansas City Limited's Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on April 27, 2023, File No. 001-01342).
3.5			By-law No. 2 of Canadian Pacific Kansas City Limited (incorporated by reference to Exhibit 3.5 to Canadian Pacific Kansas City Limited's Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on April 27, 2023, File No. 001-01342).
3.6			General By-law, as amended, of Canadian Pacific Railway Company, a wholly owned subsidiary of Canadian Pacific Railway Limited (incorporated by reference to Exhibit 2 to Canadian Pacific Railway Limited’s Form 6-K filed with the Securities and Exchange Commission on May 22, 2009, File No. 001-01342).
4.1			Sixth Supplemental Indenture, dated as of April 19, 2023, by and among Canadian Pacific Railway Company, Canadian Pacific Kansas City Limited, as guarantor, and Computershare Trust Company, N.A., as successor to Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to Canadian Pacific Kansas City Limited’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 19, 2023, File No. 001-01342)
10.1			Second Amended and Restated Credit Agreement, dated as of May 11, 2023, among Canadian Pacific Railway Company, as Borrower, Canadian Pacific Kansas City Limited, as Covenantor, Bank of Montreal, as Administrative Agent, and various Lenders party thereto (incorporated by reference to Exhibit 10.1 to Canadian Pacific Kansas City Limited’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 17, 2023, File No. 001-01342)
10.2* **			Short Term Incentive Plan
10.3* **			Form of US Performance Share Units Notice of Grant and Grant Agreement
10.4* **			Form of Canadian Performance Share Units Notice of Grant and Grant Agreement
10.5* **			Form of US Stock Option Agreement
10.6* **			Form of Canadian Stock Option Agreement
10.7* **			Form of US Performance Share Units Notice of Grant and Grant Agreement (Synergy Award)
10.8* **			Form of Canadian Performance Share Units Notice of Grant and Grant Agreement (Synergy Award)
22.1*			List of Issuers and Guarantor Subsidiaries
31.1*			CEO Rule 13a-14(a) Certifications
31.2*			CFO Rule 13a-14(a) Certifications
32.1*			CEO Section 1350 Certifications
32.2*			CFO Section 1350 Certifications
101.INS*			Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*			Inline XBRL Taxonomy Extension Schema Document
101.CAL*			Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB*			Inline XBRL Taxonomy Extension Label Linkbase Document
101.DEF*			Inline XBRL Taxonomy Extension Definition Linkbase Document
101.PRE*			Inline XBRL Taxonomy Extension Presentation Linkbase Document
			The following financial information from Canadian Pacific Kansas City Limited's Quarterly Report on Form 10-Q for the second quarter ended June 30, 2023, formatted in Extensible Business Reporting Language (XBRL) includes: (i) the Interim Consolidated Statements of Income for the second quarters and first six months ended June 30, 2023 and 2022; (ii) the Interim Consolidated Statements of Comprehensive Income for the second quarters and first six months ended June 30, 2023 and 2022; (iii) the Interim Consolidated Balance Sheets at June 30, 2023, and December 31, 2022; (iv) the Interim Consolidated Statements of Cash Flows for the second quarters and first six months ended June 30, 2023 and 2022; (v) the Interim Consolidated Statements of Changes in Equity for the second quarters and first six months ended June 30, 2023 and 2022; and (vi) the Notes to Interim Consolidated Financial Statements.
104*			Cover Page Interactive Data File (embedded within the Inline XBRL document)


CANADIAN PACIFIC KANSAS CITY LIMITED
(Registrant)
By:			/s/ NADEEM VELANI
			Nadeem Velani
			Executive Vice-President and Chief Financial Officer (Principal Financial Officer)


Policy Statement			Canadian Pacific Kansas City (“CPKC" or the “Company”) offers a Short Term Incentive Plan (the "Plan"), to recognize the contribution that each regular, non-unionized employee makes to the Railway’s achievement of its business objectives.

Accountability			The Management Resources and Compensation Committee of the Board of Directors of Canadian Pacific Railway Company and Canadian Pacific Kansas City Limited (the "Committee") has complete authority to interpret and define individual and group eligibility and to establish rules and regulations required to properly administer the Plan. The Board may also suspend, amend or terminate this Plan at any time. On an annual basis, managers are responsible for guiding their employees in the objective setting process. Managers must conduct regular progress reviews throughout the year, evaluate performance against objectives at year end and report results to Human Resources. Employees are responsible for setting and striving to achieve their annual performance objectives and for soliciting performance feedback from their managers. Human Resources is responsible for interpreting this policy, guiding its administration and supporting employees and managers applying the policy.
Process and Application
Plan Year			The Plan Year runs from January 1 to December 31.

Eligibility			Regular full-time or part-time employees who participate in the Company’s non-unionized compensation program are eligible to participate in the Plan provided they join the Plan prior to October 1st in their first year of participation. Employees must complete three (3) months (65 working days) of cumulative active service in the Plan year in order to be eligible for a STIP payout.

Transfers and Joint Ventures			Employees transferred or seconded to employers participating in a joint venture with CPKC may be designated as participants in the Plan by the Company.

Temporary Replacements			Unionized employees who temporarily assume a non-unionized position, in accordance with Policy 8503 (applicable to Canada only), will be eligible for STIP, provided the temporary assignment commences prior to October 1st of the Plan year and has a minimum continuous duration of three (3) months (65 working days) in the Plan year.



Plan Objectives			The objectives of the Plan are: •to tie a part of the employee’s compensation directly to CPKC's results; •to reward the achievement of individual and team objectives that support CPKC's achievement of its annual business plans and long-term strategy; and •to maintain the competitiveness of CPKC's compensation program.

Ending Participation			Participation in the Plan ends when the employee reverts to a unionized position at the Company’s request, retires or terminates their employment with CPKC. Employees who revert to a unionized position at their own initiative prior to payout will not be eligible for a STIP award.

Target Award Levels			For each Plan Year the Committee establishes the various classes of participants, the weighting of each performance measure assigned to each class and the Target Award Levels. Employee level determines their Target Award Levels. Target Award Levels are expressed as a percentage of annual salary and are the basis for calculating STIP awards.

Weighting of Corporate Individual Components			Individual STIP awards are based on two components, individual and corporate. STIP award payouts are based on an employee’s group and weighting category at year-end. The following table outlines the weighting for corporate and individual performance for the various management levels in the organization: LEVEL CORPORATE INDIVIDUAL Level A to F 75% 25% Level 1 60% 40% Level 2 to 6 50% 50%


Assessing PMP Objectives			The individual component of STIP awards is tied directly to the individual’s PMP objectives established under the Performance Management Program (PMP). A PMP rating (from Unsatisfactory to Outstanding) will be assigned to each of the individual’s PMP objectives. The performance ratings are determined on the basis of three dimensions: 1.achievement of objectives against the standards and measures established for each objective; 2.context of performance throughout the year; and 3.peer clustering of employees into a distribution profile established by the Company. The context of performance dimension considers the “how” of the achievement and adds a necessary judgmental component to the assessment process. The demonstration of company values must be considered. Taking the three dimensions into account, through the calibration process, an overall PMP rating and an overall STIP attainment level, based on the scales below, are determined for the employee’s individual performance component. Overall PMP Rating Overall STIP Attainment Level Outstanding 170% - 200% Exceeds 125% - 165% Achieved 90% - 120% Partially Achieved 0% - 85% Unsatisfactory 0%


Potential Corporate Payout Levels			Annually, the Committee establishes the performance metrics, the weighting assigned to each performance metric and corporate performance target levels for the STIP Program. Each corporate performance metric will have three levels of performance and payout. a)Exceptional Level - 200% of Target Award Level assigned to the corporate component where the actual CPKC performance meets or exceeds the exceptional level established by the Committee; b)Target Level - 100% of Target Award Level assigned to the corporate component where the actual CPKC performance meets the target level established by the Committee; c)Threshold Level - 50% of Target Award Level assigned to the corporate component when the actual CPKC performance level for the Plan Year is at the threshold level established by the Committee; and Where the actual CPKC performance metric falls between the threshold and exceptional levels, the payout level will be interpolated. Where the actual CPKC performance metric falls below the threshold Level, no awards will be paid under the corporate component.

Corporate Hurdle			For each Plan Year, the Committee establishes a minimum level of corporate performance, below the threshold level, called the corporate hurdle. If the Company’s performance falls below this hurdle, no awards will be paid under the individual or corporate components.

Individual Hurdle			If individual performance levels are unsatisfactory, no award will be paid to the individual under the corporate or individual components.

CP Net Loss			The Committee has the discretion to adjust the amount of awards so that payment of awards under the Plan does not result in a net loss for CPKC. No awards will be paid if CPKC has a net loss for the Plan Year.


Calculation of Awards			Awards are calculated by performing the following calculation: Target Award Level multiplied by the weighting for the individual component, multiplied by the annual salary in effect at the end of the Plan Year, multiplied by the STIP attainment level added to the Target Award Level, multiplied by the weighting for the corporate component, multiplied by the annual salary in effect at the end of the Plan Year, multiplied by the weighting of the performance measure, multiplied by the payout level. This calculation is repeated for each of the Company’s performance measures. For sample STIP calculations, see Appendix 1. KCSM Only If an employee is eligible under statutory law for a profit-sharing payment from KCSM for a calendar year, the STIP payout amount otherwise payable to the employee shall be reduced by an amount equal to such statutory profit-sharing amount payable to the employee. For sample calculations, see Appendix 2.
Payment of Awards			Awards to be paid out in any Plan Year, will be paid as soon as possible after CPKC financial results are determined, the Committee has approved a payout, and the participants’ performance has been assessed under PMP.

Joining Plan Before October 1st			New entrants prior to October 1 of the plan year will have their award for that year prorated based on the length of time they have been a member of the Plan.

Leaving the Plan Before April 1st			Employees who cease participation in the Plan prior to April 1 of the Plan Year will not be eligible for any STIP Award for the Plan Year.

Leaves of Absence			Leaves of absence (LOA) are those periods when an employee is not actively at work i.e. short or long term disability, personal, maternity, parental, educational leaves. Participants who take a leave of absence greater than 30 consecutive days (22 working days) during the year will have their award prorated based on the length of time in active service during the year. Potential STIP Awards will be held for participants who take a personal (non-medical or educational) leave of absence. Eligibility for STIP will be determined at the end of the LOA. If the participant decides not to return it will be considered a voluntary resignation and the participant will not be eligible for a STIP Award. The payment of any STIP Award will only occur when the participant returns from the LOA.



Transfers			Participants transferring on or after April 1st of the Plan Year to a position to which this plan does not apply will have their award prorated based on the length of time in the eligible position.

Termination without Cause			Participants whose employment is terminated by the Company without cause on or after April 1st of the Plan Year will continue to participate in the Plan until their last day actively at work. If all program conditions are met, (i.e. Company performance and individual performance warrants a payout), they will receive a prorated award based on the length of time they participated in the plan during the year. For KCSM - If an employee is eligible under statutory law for a profit-sharing payment from KCSM for a calendar year, they will be eligible for a profit-sharing payment in accordance with the applicable statutory law.

Retirements			Employees that retire on or after April 1 of the plan year without a severance payment are eligible for a prorated STIP award provided: •he/she provided Retirement Notice in accordance with Retirement Policy 8101; and •retirees are between 55 and less than 60 years of age with a minimum of 5 years of company service from the last date of hire or if retiring at age 60 or greater, must have a minimum of 2 years of company service from their last date of hire. For KCSM - If an employee is eligible under statutory law for a profit-sharing payment from KCSM for a calendar year, the STIP payout amount otherwise payable to the employee shall be reduced by an amount equal to such statutory profit-sharing amount payable to the employee.

Termination for Cause			Employees who are terminated for cause during the year will not receive an award for the year in which their employment ended. They will also not be eligible to receive any award not yet paid at the time of their termination for cause. For KCSM - If an employee is eligible under statutory law for a profit-sharing payment from KCSM for a calendar year, they will be eligible for a profit-sharing payment in accordance with the applicable statutory law.
Resignation			Employees who resign prior to the STIP payout date will not be eligible for an award for the previous or current plan year. For KCSM - If an employee is eligible under statutory law for a profit-sharing payment from KCSM for a calendar year, they will be eligible for a profit-sharing payment in accordance with the applicable statutory law.


Death			Employees who are deceased after April 1st of the Plan Year, if all program conditions are met, a prorated award based on the length of their membership in the Plan during the year will be paid to the employee's estate. For KCSM - If an employee is eligible under statutory law for a profit-sharing payment from KCSM for a calendar year, they will be eligible for a profit-sharing payment in accordance with the applicable statutory law.
Administration
Setting PMP Objectives			The STIP cycle begins with the establishment of PMP Objectives. In discussion with their manager and/or team leader, participants are responsible for the development of their PMP objectives and assigning weightings.

Assigning Weights			PMP objectives are weighted according to their relative importance. The total value of all PMP objectives must equal 100%.

Reporting Results			By the end of January, annually, managers should have STIP attainment levels reported to Human Resources for the previous Plan Year.

Additional Information			For additional information, please contact your HR Business Partner or Employee Services by e-mail at Employee_Services@cpr.ca.

Cross Reference			Policy 5611 - Performance Management Program Policy 8503 - Compensation & Benefits for Unionized Employees who Temporarily Assume Non-Unionized Positions Policy 8101 - Retirement Policy
			(U.S. only disclaimer: This policy statement represents the current policy and practice of CPKC regarding the Short Term Incentive Plan for non-unionized employees and may be changed from time to time by CPKC without notice. Nothing in this policy is intended to create any contract, agreement or other obligation by CPKC with any of its employees.)


Grant Date			[ ]
PSU Service Year			[ ]
Below Threshold			[ ]% of Target
Threshold			[ ]% of Target
Maximum			[ ]% of Target
Performance Period			[ ] – [ ]
Payment in respect of PSUs covered by this Agreement will be based on the extent to which the Performance Criteria (as defined below) set out in Schedule A are satisfied at the end of the Performance Period.


Grant Date			[ ]
Vest Date			[ ]
Performance Period			[ ] – [ ]
Below Threshold			[ ]% of Target
Threshold			[ ]% of Target
Maximum			[ ]% of Target
Payment in respect of PSUs covered by this Agreement will be based on the extent to which the Performance Criteria (as defined below) set out in Schedule A are satisfied at the end of the Performance Period.



Date: July 27, 2023						/s/ KEITH CREEL
						Keith Creel
						President and Chief Executive Officer