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    CP   CA13645T1003

CANADIAN PACIFIC RAILWAY LIMITED

(CP)
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CANADIAN PACIFIC RAILWAY LT : CN MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

10/20/2021 | 09:19am EST
The following discussion and analysis should be read in conjunction with the
Company's Interim Consolidated Financial Statements and the related notes for
the three and nine months ended September 30, 2021 in Item 1. Financial
Statements, other information in this report, and Item 8. Financial Statements
and Supplementary Data of the Company's 2020 Annual Report on Form 10-K. Except
where otherwise indicated, all financial information reflected herein is
expressed in Canadian dollars.

For purposes of this report, all references herein to "CP", "the Company", "we",
"our" and "us" refer to Canadian Pacific Railway Limited ("CPRL"), CPRL and its
subsidiaries, CPRL and one or more of its subsidiaries, or one or more of CPRL's
subsidiaries, as the context may require.

Available Information


CP makes available on or through its website www.cpr.ca free of charge, its
annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K and all amendments to those reports as soon as reasonably practicable
after such reports are filed with or furnished to the Securities and Exchange
Commission ("SEC"). Our website also contains charters for our Board of
Directors and each of its committees, our corporate governance guidelines and
our Code of Business Ethics. SEC filings made by CP are also accessible through
the SEC's website at www.sec.gov. The information on our website is not part of
this quarterly report on Form 10-Q.

The Company has included the Chief Executive Officer ("CEO") and Chief Financial
Officer ("CFO") certifications regarding the Company's public disclosure
required by Section 302 of the Sarbanes-Oxley Act of 2002 as Exhibits to this
report.

Executive Summary

Third Quarter of 2021 Results


•Financial performance - In the third quarter of 2021, CP reported Diluted
earnings per share ("EPS") of $0.70, a decrease of 20% compared to the same
period of 2020 and Net income of $472 million in the third quarter of 2021, a
decrease of 21% compared to the same period of 2020. These decreases were
primarily due to acquisition-related costs associated with the pending Kansas
City Southern ("KCS") transaction and a foreign exchange ("FX") translation loss
on debt and lease liabilities compared to an FX translation gain in the same
period of 2020, partially offset by higher freight revenue.

Adjusted diluted EPS was $0.88 in the third quarter of 2021, an increase of 7%
compared to the same period of 2020. Adjusted income was $592 million in the
third quarter of 2021, an increase of 6% compared to the same period of 2020.
These increases were primarily due to higher freight revenue per RTM, partially
offset by lower freight volumes as measured by RTMs.

CP reported an Operating ratio of 60.2% in the third quarter of 2021, a 200
basis point increase compared to the same period of 2020. This increase was
primarily due to the impact of lower freight volumes as measured by RTMs, the
unfavourable impact of higher fuel prices net of recoveries, the
acquisition-related costs associated with the pending KCS transaction, and
higher depreciation and amortization, partially offset by higher freight revenue
per RTM and lower stock-based compensation expense. Adjusted operating ratio was
59.4%, a 120 basis point increase compared to the same period of 2020. This
increase was primarily due to the same factors discussed above for the increase
in Operating ratio, except that Adjusted operating ratio excludes the
acquisition-related costs associated with the pending KCS transaction.

Adjusted diluted EPS, Adjusted income and Adjusted Operating ratio are defined
and reconciled in Non-GAAP Measures and discussed further in Results of
Operations of this Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.

•Total revenues - Total revenues increased by 4% in the third quarter of 2021 to
$1,942 million compared to the same period of 2020. This increase was primarily
due to higher freight revenue per RTM, partially offset by lower volumes as
measured by RTMs.

•Operating performance - CP's average train weight increased by 1% to 9,973 tons
and average train length increased by 3% to 8,285 feet, compared to the same
period in 2020. These increases were a result of improvements in operating plan
efficiency and continued improvements in bulk train efficiency due to moving
longer and heavier Grain trains, in each case compared to the same period in
2020. These metrics are discussed further in Performance Indicators of this Item
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations.

Recent Developments

•On March 21, 2021, CP announced that it entered into an Agreement and Plan of
Merger (the "Original Merger Agreement") with KCS, under which CP agreed to
acquire KCS in a stock and cash transaction representing an enterprise value of
approximately U.S. $29 billion, based on the CP closing price on March 19, 2021,
including the assumption of U.S.
                                                                            

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$3.8 billion of outstanding KCS debt. On May 21, 2021, KCS terminated the
Original Merger Agreement in order to enter into a merger agreement with
Canadian National Railway ("CN") (the "CN Merger Agreement"). As a result, and
under the terms of the Original Merger Agreement, KCS concurrently paid a merger
termination fee of $845 million (U.S. $700 million) to the Company.

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

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

The transaction will be completed in two steps. First, upon approval of the
transaction by the shareholders of both the Company and KCS, Mexican regulatory
approvals, and satisfaction or waiver of customary closing conditions, the
shares of KCS will be deposited into a voting trust subject to a voting trust
agreement, pending final approval of the acquisition of control by the STB.
Approval to use the voting trust has been received from the STB and CP currently
expects to close the transaction into the voting trust in the first quarter of
2022. KCS's management and Board of Directors will continue to steward KCS while
it is in trust, pursuing its independent business plan and growth strategies.
Under the Merger Agreement, common stockholders of KCS will receive 2.884 (the
"Exchange Ratio") of the Company's Common Shares and U.S. $90 in cash for each
KCS common stock held. Preferred stockholders of KCS will receive U.S. $37.50 in
cash for each KCS preferred stock held. Immediately after the KCS transaction
closes into the voting trust, former KCS stockholders are expected to own
approximately 28 percent of the Company's Common Shares. The second step of the
transaction will occur after control approval from the STB and other applicable
regulatory authorities is obtained. The STB's review of the transaction while
KCS is in the voting trust is expected to be completed in the second half of
2022.

Upon obtaining control approval from the STB and any other remaining approvals
of regulatory authorities, if applicable, the two companies will be combined.
Mr. Creel will serve as the Chief Executive Officer of the combined company. The
combined entity will be named Canadian Pacific Kansas City ("CPKC"). Calgary,
Alberta will be the global headquarters of CPKC, and Kansas City, Missouri will
be designated as the U.S. headquarters. The Mexico headquarters will remain in
Mexico City and Monterrey. CP's current U.S. headquarters in Minneapolis-St.
Paul, Minnesota will remain an important base of operations. Four KCS Directors
may join CP's expanded Board at the appropriate time, bringing their experience
and expertise in overseeing KCS's multinational operations.

The transaction will combine the two railroads to create the first rail network
connecting the U.S., Mexico, and Canada and will deliver dramatically expanded
market reach for customers served by CP and KCS, provide new competitive
transportation service options, and support North American economic growth.

The new single-line routes made possible by the transaction are expected to
shift trucks off crowded U.S. highways, lowering emissions and reducing the need
for public investments in road and highway bridge repairs. On average, rail is
three to four times more fuel efficient than trucking, and one train can keep
more than 300 trucks off public roads and produce 75% less greenhouse gas
emissions. The synergies created by this combination are expected to take tens
of thousands of trucks off North American highways annually. Additionally, the
combined company would maintain both CP and KCS's pledges to improve fuel
efficiency and lower emissions in-line with the Paris Agreement to support a
more sustainable North American supply chain.

Specific risk factors related to the pending KCS transaction are included in Item 1A. Risk Factors of this Quarterly Report on Form 10-Q.








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

•In the third quarter of 2021, CP's Pandemic Team continued to proactively
monitor guidance and orders from governments, public health authorities, and
regulatory agencies. Utilizing that guidance while implementing CP protocols and
safety measures, the Company safely reintegrated its employees into the
workplace where permissible. The Company maintained preventative measures that
serve to minimize the risk of exposure to COVID-19, including physical
distancing measures, restricting employee business travel, strengthening clean
workplace and face covering practices, reinforcing socially responsible sick
leave recommendations, limiting visitor and third-party access to Company
facilities, and continuously reevaluating our efforts with safety as a top
priority.

Additional information concerning the impact COVID-19 may have to our future
business and results of operations is provided in Part I, Item 1A. Risk Factors
of the Company's 2020 Annual Report on Form 10-K.

Prior Developments


•On April 21, 2021, the five-for-one Share Split of the issued and outstanding
Common Shares was approved at the Annual and Special Meeting of Shareholders. On
May 13, 2021, the Company's shareholders of record as of May 5, 2021 received
four additional Common Shares for every Common Share held. Ex-distribution
trading in the Company's Common Shares on a split-adjusted basis commenced on
May 14, 2021. Proportional adjustments were also made to outstanding awards
under the Company's stock-based compensation plans in order to reflect the share
split. All outstanding Common Shares, stock-based compensation awards, and per
share amounts herein have been retrospectively adjusted to reflect the share
split.

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


•On March 31, 2021, CP completed the installation of the solar energy farm at
its Calgary headquarters. This sustainability-driven project is one of the
largest private solar farms in Alberta and is expected to generate more power
than consumed annually by the main headquarters building.

•On March 30, 2021, CP and the Illinois State Toll Highway Authority closed
their transaction regarding western access at O'Hare Airport and at Bensenville
Yard, CP's principal rail facility in Chicago, Illinois. The transaction allows
for the construction of a new tollway to the west side of O'Hare Airport while
protecting CP's ability to serve its customers moving freight through the
critical Chicago gateway.

•On March 21, 2021, CP's Board of Directors and President and CEO Keith Creel
agreed on certain contract amendments to Mr. Creel's incentive compensation that
are intended to see him lead the Company until at least early 2026.

•On March 9, 2021, CP announced that it will employ Ballard's hydrogen fuel cell
modules in CP's pioneering Hydrogen Locomotive Program. Through its Hydrogen
Locomotive Program, CP plans to develop North America's first hydrogen-powered
line-haul freight locomotive by retrofitting a diesel-powered locomotive with
Ballard hydrogen fuel cells. This purchase from Ballard further demonstrates the
Company's commitment to action on climate change and developing the next
generation locomotive - one that produces zero emissions.

2021 Outlook


As a result of diminished expectations for the 2021-2022 Canadian grain crop and
ongoing supply chain challenges, CP has updated its 2021 outlook. CP now expects
volumes, as measured in RTMs, to grow by low single-digits year-over-year. In
spite of the revised volume expectations, CP continues to expect double digit
growth in Adjusted diluted EPS based on Adjusted diluted EPS of $3.53 in 2020.
CP's revised guidance continues to assume a decrease in Other components of net
periodic benefit recovery by approximately $40 million versus 2020, an effective
tax rate of approximately 24.6 percent and capital expenditure of $1.55 billion.

Although CP has provided a forward-looking Non-GAAP measure (Adjusted diluted
EPS), management is unable to reconcile, without unreasonable efforts, the
forward-looking Adjusted diluted EPS to the most comparable GAAP measure, due to
unknown
                                                                            

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variables and uncertainty related to future results. These unknown variables may
include unpredictable transactions of significant value. In recent years, CP has
recognized acquisition-related costs (including legal, consulting, and financing
fees and fair value gain or loss on FX forward contracts and interest rate
hedges), the merger termination payment received, changes in income tax rates
and a change to an uncertain tax item. These or other similar, large unforeseen
transactions affect diluted EPS but may be excluded from CP's Adjusted diluted
EPS. Additionally, the U.S.-to-Canadian dollar exchange rate is unpredictable
and can have a significant impact on CP's reported results but may be excluded
from CP's Adjusted diluted EPS. In particular, CP excludes the FX impact of
translating the Company's debt and lease liabilities from Adjusted diluted EPS.
Please see Forward-Looking Statements in this Item 2. Management's Discussion
and Analysis of Financial Condition and Results of Operations for further
discussion.

Performance Indicators


The following table lists the key measures of the Company's operating
performance:

                                                     For the three months ended September 30               For the nine months ended September 30
                                                      2021             2020(1)          % Change           2021              2020(1)          % Change
Operations Performance
Gross ton-miles ("GTMs") (millions)                 64,665             65,997                (2)         207,347            200,383                 3
Train miles (thousands)                              6,999              7,247                (3)          22,406             22,479                 -
Average train weight - excluding local traffic
(tons)                                               9,973              9,857                 1            9,953              9,644                 3
Average train length - excluding local traffic
(feet)                                               8,285              8,082                 3            8,192              7,831                 5
Average terminal dwell (hours)                         7.2                6.7                 7              7.1                6.5                 9
Average train speed (miles per hour, or "mph")        21.7               22.5                (4)            21.4               22.1                

(3)

Locomotive productivity (GTMs / operating
horsepower)                                            203                207                (2)             204                207                

(1)

Fuel efficiency (U.S. gallons of locomotive
fuel consumed / 1,000 GTMs)                          0.907              0.926                (2)           0.928              0.940                

(1)

Total Employees and Workforce
Total employees (average)                           12,485             12,156                 3           12,411             12,214                

2

Total employees (end of period)                     12,262             12,166                 1           12,262             12,166                 1
Workforce (end of period)                           12,301             12,185                 1           12,301             12,185                 1
Safety Indicators(1)
FRA personal injuries per 200,000
employee-hours                                        0.97               1.03                (6)            0.97               1.11               

(13)

FRA train accidents per million train-miles           1.54               1.13                36             1.09               1.05                 4


(1)Federal Railroad Administration ("FRA") personal injuries per 200,000
employee-hours for the three and nine months ended September 30, 2020,
previously reported as 1.06 and 1.13, were restated to 1.03 and 1.11,
respectively in this report. FRA train accidents per million train-miles for the
nine months ended September 30, 2020, previously reported as 1.06, was restated
to 1.05 in this report. These restatements reflect new information available
within specified periods stipulated by the FRA but that exceed the Company's
financial reporting timeline.

For key measures of the Company's revenue performance, refer to Results of Operations, Operating Revenues of this Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

22

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Operations Performance


These key measures are used by management as comparisons to historical operating
results and in the planning process to facilitate decisions that continue to
drive further productivity improvements in the Company's operations. Results of
these key measures reflect how effective CP's management is at controlling costs
and executing the Company's operating plan and strategy. Continued monitoring of
these key measures ensures that the Company can take appropriate actions to
ensure the delivery of superior service and be able to grow its business at low
incremental cost.

Three months ended September 30, 2021 compared to the three months ended September 30, 2020


•A GTM is defined as the movement of one ton of train weight over one mile. GTMs
are calculated by multiplying total train weight by the distance the train
moved. Total train weight comprises the weight of the freight cars, their
contents, and any inactive locomotives. An increase in GTMs indicates additional
workload. GTMs decreased by 2% in the third quarter of 2021 compared to the same
period of 2020. This decrease was mainly attributable to lower volumes of Grain
and Potash. This decrease was partially offset by higher volumes of Energy,
chemicals and plastics, Metals, minerals and consumer products, and Intermodal.

•Train miles are defined as the sum of the distance moved by all trains operated
on the network. Train miles provide a measure of the productive utilization of
our network. A smaller increase in train miles relative to increases in volumes,
as measured by RTMs, and/or workload, as measured by GTMs, indicate improved
train productivity. Train miles decreased by 3% in the third quarter of 2021
compared to the same period of 2020. This decrease reflects the impact of a 2%
decrease in workload (GTMs) as well as a 1% increase in average train weights.

•Average train weight is defined as the average gross weight of CP trains, both
loaded and empty. This excludes trains in short-haul service, work trains used
to move CP's track equipment and materials, and the haulage of other railways'
trains on CP's network. An increase in average train weight indicates improved
asset utilization and may also be the result of moving heavier commodities.
Average train weight increased by 1% in the third quarter of 2021 compared to
the same period of 2020. This increase was a result of improvements in operating
plan efficiency and continued improvements in bulk train efficiency due to
moving longer and heavier Grain trains. Improvements for Grain trains were
driven by the High Efficiency Product ("HEP") train model, which is an
8,500-foot train model that features the new high-capacity grain hopper cars and
increased grain carrying capacity. This increase was partially offset by lower
volumes of heavier bulk commodities.

•Average train length is defined as the average total length of CP trains, both
loaded and empty. This includes all cars and locomotives on the train and is
calculated as the sum of each car or locomotive's length multiplied by the
distance travelled, divided by train miles. This excludes trains in short-haul
service, work trains used to move CP's track equipment and materials, and the
haulage of other railways' trains on CP's network. An increase in average train
length indicates improved asset utilization. Average train length increased by
3% in the third quarter of 2021 compared to the same period of 2020. This
increase was a result of improvements in operating plan efficiency and continued
improvements in bulk train efficiency due to moving longer Grain trains.
Improvements for Grain trains were driven by the 8,500-foot HEP train model.

•Average terminal dwell is defined as the average time a freight car resides
within terminal boundaries expressed in hours. The timing starts with a train
arriving at the terminal, a customer releasing the car to the Company, or a car
arriving at interchange from another railway. The timing ends when the train
leaves, a customer receives the car from CP, or the freight car is transferred
to another railway. Freight cars are excluded if they are being stored at the
terminal or used in track repairs. A decrease in average terminal dwell
indicates improved terminal performance resulting in faster cycle times and
improved railcar utilization. Average terminal dwell increased by 7% in the
third quarter of 2021 compared to the same period of 2020, as a result of the
impact of the B.C. wildfires.

•Average train speed is defined as a measure of the line-haul movement from
origin to destination including terminal dwell hours. It is calculated by
dividing the total train miles travelled by the total train hours operated. This
calculation does not include delay time related to customers or foreign
railroads and excludes the time and distance travelled by: i) trains used in or
around CP's yards; ii) passenger trains; and iii) trains used for repairing
track. An increase in average train speed indicates improved on-time performance
resulting in improved asset utilization. Average train speed decreased by 4% in
the third quarter of 2021 compared to the same period of 2020, as a result of
the impact of the B.C. wildfires.

•Locomotive productivity is defined as the daily average GTMs divided by daily
average operating horsepower. Operating horsepower excludes units offline, tied
up or in storage, or in use on other railways, and includes foreign units
online. An increase in locomotive productivity indicates more efficient
locomotive utilization and may also be the result of moving heavier commodities.
Locomotive productivity decreased by 2% in the third quarter of 2021 compared to
the same period of 2020, as a result of moving higher volumes of merchandise and
Intermodal, which are lighter than bulk commodities.

•Fuel efficiency is defined as U.S. gallons of locomotive fuel consumed per
1,000 GTMs. Fuel consumed includes gallons from freight, yard and commuter
service but excludes fuel used in capital projects and other non-freight
activities. An improvement in fuel efficiency indicates operational cost savings
and CP's commitment to corporate sustainability through a
                                                                            

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reduction of greenhouse gas emissions intensity. Fuel efficiency improved by 2%
in the third quarter of 2021 compared to the same period of 2020. This increase
in efficiency was due to running longer and heavier trains as a result of
improvements in the operating plan.

Nine months ended September 30, 2021 compared to the nine months ended September 30, 2020


•GTMs increased by 3% for the first nine months of 2021 compared to the same
period of 2020. This increase was primarily attributable to higher volumes of
Metals, minerals and consumer products, Energy, chemicals and plastics, Coal and
Automotive. This increase was partially offset by lower volumes of Potash and
Grain.

•Train miles were flat for the first nine months of 2021 compared to the same
period of 2020. This reflected the impact of a 3% increase in workload (GTMs),
offset by a 3% increase in average train weights.

•Average train weight increased by 3% for the first nine months of 2021 compared
to the same period of 2020. This increase was a result of improvements in
operating plan efficiency and continued improvements in bulk train efficiency
due to moving longer and heavier Grain trains. Improvements for Grain trains
were driven by the 8500-foot HEP train model. This increase was partially offset
by lower volumes of heavier bulk commodities.

•Average train length increased by 5% for the first nine months of 2021 from the
same period of 2020. This increase was primarily due to improvements in
operating plan efficiency and continued improvements in bulk train efficiency
due to moving longer Grain trains. Improvements for Grain trains were driven by
the 8,500-foot HEP train model.

•Average terminal dwell increased by 9% in the first nine months of 2021
compared to the same period of 2020. This unfavourable increase was driven
primarily by increased network activity in response to demand recovery from the
impact of the COVID-19 pandemic in the prior year as well as the impact of the
B.C. wildfires.

•Average train speed decreased by 3% in the first nine months of 2021 compared
to the same period of 2020. This decrease was driven primarily by harsh winter
operating conditions in the first quarter of 2021 as well as the impact of the
B.C. wildfires.

•Locomotive productivity decreased by 1% in the first nine months of 2021 compared to the same period of 2020, as a result of moving higher volumes of merchandise and Intermodal, which are lighter than bulk commodities.


•Fuel efficiency improved by 1% in the first nine months of 2021 compared to the
same period of 2020. This increase in efficiency was due to running longer and
heavier trains as a result of improvements in the operating plan.

Total Employees and Workforce


An employee is defined as an individual currently engaged in full-time,
part-time, or seasonal employment with CP while workforce is defined as total
employees plus contractors and consultants. The Company monitors employment and
workforce levels in order to efficiently meet service and strategic
requirements. The number of employees is a key driver to total compensation and
benefits costs.

The average number of total employees increased by 3% and 2% for the three and
nine months ended September 30, 2021, respectively, compared to the same periods
of 2020. The total number of employees as at September 30, 2021 was 12,262, an
increase of 96, or 1%, compared to 12,166 as at September 30, 2020. The total
workforce as at September 30, 2021 was 12,301, an increase of 116, or 1%,
compared to 12,185 as at September 30, 2020. The increases in the total
employees and workforce were driven by furloughs in the prior year associated
with the economic downturn caused by COVID-19.

Safety Indicators


Safety is a key priority and core strategy for CP's management, employees, and
Board of Directors. Personal injuries and train accidents are indicators of the
effectiveness of the Company's safety systems, and are used by management to
evaluate and, as necessary, alter the Company's safety systems, procedures, and
protocols. Each measure follows U.S. FRA reporting guidelines, which can result
in restatement after initial publication to reflect new information available
within specified periods stipulated by the FRA but that exceed the Company's
financial reporting timeline.

The FRA personal injuries per 200,000 employee-hours frequency is the number of
personal injuries, multiplied by 200,000 and divided by total employee hours.
Personal injuries are defined as injuries that require employees to lose time
away from work, modify their normal duties or obtain medical treatment beyond
minor first aid. FRA employee-hours are the total hours worked, excluding
vacation and sick time, by all employees, excluding contractors. The FRA
personal injuries per 200,000 employee-hours frequency for CP was 0.97 in the
third quarter of 2021, a decrease from 1.03 in the same period of 2020. For the
first nine months of 2021, the FRA personal injury rate per 200,000
employee-hours for CP was 0.97, a decrease from 1.11 in the same period of 2020.

                                                                            

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The FRA train accidents per million train-miles frequency is the number of train
accidents, multiplied by 1,000,000 and divided by total train miles. Train
accidents included in this metric meet or exceed the FRA reporting threshold of
U.S. $11,200 in 2021 and U.S. $10,700 in damage for 2020. The FRA train
accidents per million train-miles was 1.54 in the third quarter of 2021, an
increase from 1.13 in the same period of 2020. For the first nine months of
2021, the FRA train accidents per million train-miles was 1.09, an increase from
1.05 in the same period of 2020.

Financial Highlights


The following table presents selected financial data related to the Company's
financial results as of, and for the three and nine months ended, September 30,
2021 and the comparative figures in 2020. The financial highlights should be
read in conjunction with Item 1. Financial Statements and this Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
                                                    For the three months ended             For the nine months ended
                                                           September 30                          September 30
(in millions, except per share data, percentages
and ratios)                                             2021            2020                  2021            2020
Financial Performance and Liquidity
Total revenues                                    $     1,942      $     1,863          $     5,955      $     5,698
Operating income                                          774              779                2,374            2,383
Adjusted operating income(1)                              789              779                2,521            2,383
Net income                                                472              598                2,320            1,642
Adjusted income(1)                                        592              560                1,881            1,720
Basic EPS                                                0.71             0.88                 3.48             2.42
Diluted EPS                                              0.70             0.88                 3.46             2.41
Adjusted diluted EPS(1)                                  0.88             0.82                 2.81             2.52
Dividends declared per share                            0.190            0.190                0.570            0.522
Cash provided by operating activities                     548              493                3,084            1,817
Cash used in investing activities                      (2,129)            (483)              (2,820)          (1,313)
Cash provided by (used in) financing activities           902             (100)                (194)            (466)
Free cash(1)                                              203                6                1,245              497
Financial Position                                   As at September 30, 2021               As at December 31, 2020
Total assets                                      $                     26,445          $                     23,640
Total long-term debt, including current portion                          9,968                                 9,771
Total shareholders' equity                                               9,468                                 7,319
                                                    For the three months ended             For the nine months ended
                                                           September 30                          September 30
Financial Ratios                                        2021            2020                  2021            2020
Operating ratio(2)                                       60.2  %          58.2  %              60.1  %          58.2  %
Adjusted operating ratio(1)                              59.4  %          58.2  %              57.7  %          58.2  %
                                                                For the 

twelve months ended September 30

                                                               2021                                  2020
Return on average shareholders' equity(3)                                 36.6  %                               31.2  %
Adjusted return on invested capital ("Adjusted
ROIC")(1)                                                                 15.9  %                               16.2  %

Long-term debt to Net income ratio(4)                                         3.2                                   4.2
Adjusted net debt to adjusted EBITDA ratio(1)                                 2.4                                   2.5


(1)These measures have no standardized meanings prescribed by accounting
principles generally accepted in the United States of America ("GAAP") and,
therefore, may not be comparable to similar measures presented by other
companies. These measures are defined and reconciled in Non-GAAP Measures of
this Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
(2)Operating ratio is defined as operating expenses divided by revenues, further
discussed in Results of Operations of this Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations.
(3)Return on average shareholders' equity is defined as Net income divided by
average shareholders' equity, averaged between the beginning and ending balance
over a rolling 12-month period, further discussed in Results of Operations of
this Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
(4)Long-term debt to Net income ratio is defined as long-term debt, including
long-term debt maturing within one year, divided by Net income, further
discussed in Liquidity and Capital Resources of this Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations.


                                                                            

25

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Results of Operations

Three months ended September 30, 2021 compared to the three months ended September 30, 2020

Income


Operating income was $774 million in the third quarter of 2021, a decrease of $5
million, or 1%, from $779 million in the same period of 2020. This decrease was
primarily due to:
•lower freight volumes as measured by RTMs;
•the unfavourable impact of the change in FX of $26 million;
•acquisition-related costs of $15 million associated with the pending KCS
transaction that were recognized in Purchased services and other;
•higher depreciation and amortization of $11 million (excluding FX); and
•increased training costs driven by recovery from the economic downturn caused
by COVID-19 in the prior year.

This decrease was partially offset by higher freight rates and lower stock-based
compensation of $30 million primarily driven by the impact of changes in share
price.

Adjusted operating income, defined and reconciled in Non-GAAP Measures of this
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations, was $789 million in the third quarter of 2021, an increase of $10
million, or 1%, from $779 million in the same period of 2020. This increase was
primarily due to higher freight rates and lower stock-based compensation of
$30 million primarily driven by the impact of changes in share price.

This increase was partially offset by;
•lower freight volumes as measured by RTMs;
•the unfavourable impact of the change in FX of $26 million;
•higher depreciation and amortization of $11 million (excluding FX); and
•increased training costs driven by recovery from the economic downturn caused
by COVID-19 in the prior year.

Net income was $472 million in the third quarter of 2021, a decrease of $126
million, or 21%, from $598 million in the same period of 2020. This decrease was
primarily due to acquisition-related costs of $83 million associated with the
pending KCS transaction that were recognized in Other expense (income) and an FX
translation loss of $46 million on debt and lease liabilities compared to an FX
translation gain of $40 million in the same period of 2020.

This decrease was partially offset by lower income tax expense due to lower taxable earnings.


Adjusted income, defined and reconciled in Non-GAAP Measures of this Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations, was $592 million in the third quarter of 2021, an increase of $32
million, or 6%, from $560 million in the same period of 2020. This increase was
primarily due to higher Adjusted operating income.

Diluted Earnings per Share


Diluted EPS was $0.70 in the third quarter of 2021, a decrease of $0.18, or 20%,
from $0.88 in the same period of 2020. This decrease was due to lower Net
income, partially offset by lower average number of outstanding shares due to
share repurchases under the Company's share repurchase program.

Adjusted diluted EPS, defined and reconciled in Non-GAAP Measures of this Item
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations, was $0.88 in the third quarter of 2021, an increase of $0.06, or 7%,
from $0.82 in the same period of 2020. This increase was due to higher Adjusted
income and lower average number of outstanding shares due to share repurchases
under the Company's share repurchase program.

Operating Ratio


The Operating ratio provides the percentage of revenues used to operate the
railway. A lower percentage normally indicates higher efficiency in the
operation of the railway. The Company's Operating ratio was 60.2% in the third
quarter of 2021, a 200 basis point increase from 58.2% in the same period of
2020. This increase was primarily due to:
•lower freight volumes as measured by RTMs;
•the unfavourable impact of higher fuel prices net of recoveries;
•acquisition-related costs associated with the pending KCS transaction that were
recognized in Purchased services and other;
•higher depreciation and amortization; and
•increased training costs driven by recovery from the economic downturn caused
by COVID-19 in the prior year.

This increase was partially offset by higher freight rates and lower stock-based compensation primarily driven by the impact of changes in share price.

26

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Adjusted operating ratio, defined and reconciled in Non-GAAP Measures of this
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations, was 59.4% in the third quarter of 2021, a 120 basis point
increase from the same period of 2020. This increase was primarily due to the
same factors discussed above for the increase in Operating ratio, except that
Adjusted operating ratio excludes the acquisition-related costs associated with
the pending KCS transaction that were recognized in Purchased services and
other.

Return on Average Shareholders' Equity and Adjusted Return on Invested Capital


Return on average shareholders' equity and Adjusted ROIC are measures used by
management to determine how productively the Company uses its long-term capital
investments, representing critical indicators of good operating and investment
decisions. Adjusted ROIC is also an important performance criteria in
determining certain elements of the Company's long-term incentive plan.

Return on average shareholders' equity was 36.6% for the twelve months ended
September 30, 2021, a 540 basis point increase compared to 31.2% for the twelve
months ended September 30, 2020, primarily due to higher Net income. This
increase was partially offset by higher average shareholders' equity due to
accumulated Net income, partially offset by the impact of the Company's share
repurchase program.

Adjusted ROIC was 15.9% for the twelve months ended September 30, 2021, a 30
basis point decrease compared to 16.2% for the twelve months ended September 30,
2020. This decrease was primarily due to higher average shareholders' equity
driven by accumulated Adjusted income, partially offset by lower shares due to
the Company's share repurchase program, and higher average long-term debt. This
decease was partially offset by higher Adjusted operating income. Adjusted ROIC
is a Non-GAAP measure, which is defined and reconciled from Return on average
shareholders' equity, the most comparable measure calculated in accordance with
GAAP, in Non-GAAP Measures of this Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations.

Nine months ended September 30, 2021 compared to the nine months ended September 30, 2020


Income

Operating income was $2,374 million in the first nine months of 2021, a decrease
of $9 million, from $2,383 million in the same period of 2020. This decrease was
primarily due to:
•acquisition-related costs of $147 million associated with the pending KCS
transaction that were recognized in Purchased services and other;
•the unfavourable impact of the change in FX of $98 million;
•the unfavourable impact of higher fuel prices net of recoveries of $37 million;
•higher depreciation and amortization of $35 million (excluding FX);
•cost inflation; and
•higher defined benefit pension current service cost of $23 million.

This decrease was partially offset by:
•higher freight volumes as measured by RTMs and higher freight rates;
•a gain on the exchange of property and construction easements in Chicago of $50
million and gains on sale of land in British Columbia of $16 million; and
•the efficiencies generated from improved operating performance and asset
utilization.

Adjusted operating income, defined and reconciled in Non-GAAP Measures of this
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations, was $2,521 million in the first nine months of 2021, an increase
of $138 million, or 6%, from $2,383 million in the same period of 2020. This
increase was primarily due to:
•higher freight volumes as measured by RTMs and higher freight rates;
•a gain on the exchange of property and construction easements in Chicago of $50
million and gains on sale of land in British Columbia of $16 million; and
•the efficiencies generated from improved operating performance and asset
utilization.

This increase was partially offset by:
•the unfavourable impact of the change in FX of $98 million;
•the unfavourable impact of higher fuel prices net of recoveries of $37 million;
•higher depreciation and amortization of $35 million (excluding FX);
•cost inflation; and
•higher defined benefit pension current service cost of $23 million.

Net income was $2,320 million in the first nine months of 2021, an increase of
$678 million, or 41%, from $1,642 million in the same period of 2020. This
increase was primarily due to the $845 million merger termination payment
received in connection with KCS's termination of the Original Merger Agreement
and an FX translation gain of $39 million on debt and lease liabilities
                                                                            

27

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compared to an FX loss of $89 million in the same period of 2020, partially offset by acquisition-related costs of $295 million associated with the pending KCS transaction that were recognized in Other expense (income).


Adjusted income was $1,881 million in the first nine months of 2021, an increase
of $161 million, or 9%, from $1,720 million in the same period of 2020. This
increase was primarily due to higher Adjusted operating income and higher other
components of net periodic benefits recovery, partially offset by higher income
tax expense due to higher taxable earnings.

Diluted Earnings per Share


Diluted EPS was $3.46 in the first nine months of 2021, an increase of $1.05, or
44%, from $2.41 in the same period of 2020. This increase was due to higher Net
income and lower average number of outstanding shares due to share repurchases
under the Company's share repurchase program.

Adjusted diluted EPS was $2.81 in the first nine months of 2021, an increase of
$0.29, or 12%, from $2.52 in the same period of 2020. This increase was due to
higher Adjusted income and lower average number of outstanding shares due to
share repurchases under the Company's share repurchase program.

Operating Ratio


The Company's Operating ratio was 60.1% in the first nine months of 2021, a 190
basis point increase from 58.2% in the same period of 2020. This increase was
primarily due to:
•acquisition-related costs associated with the pending KCS transaction that were
recognized in Purchased services and other;
•the unfavourable impact of higher fuel prices net of recoveries;
•higher depreciation and amortization; and
•cost inflation.

This increase was partially offset by higher freight rates and a gain on the
exchange of property and construction easements in Chicago and gains on sale of
land in British Columbia.

Adjusted operating ratio, which excludes the acquisition-related costs
associated with the pending KCS transaction that were recognized in Purchased
services and other, was 57.7% in the first nine months of 2021, a 50 basis point
improvement from 58.2% in the same period of 2020. This improvement was
primarily due to higher freight rates and a gain on the exchange of property and
construction easements in Chicago and gains on sale of land in British Columbia.

This improvement was partially offset by:
•the unfavourable impact of higher fuel prices net of recoveries;
•higher depreciation and amortization;and
•cost inflation.

Impact of FX on Earnings


Fluctuations in FX affect the Company's results because U.S. dollar-denominated
revenues and expenses are translated into Canadian dollars. U.S.
dollar-denominated revenues and expenses increase (decrease) when the Canadian
dollar weakens (strengthens) in relation to the U.S. dollar.

On October 15, 2021, the noon buying rate certified for customs purposes by the U.S. Federal Reserve Bank of New York was U.S. $1.00 = $1.24 Canadian dollar.


The following tables set forth, for the periods indicated, the average exchange
rate between the Canadian dollar and the U.S. dollar expressed in the Canadian
dollar equivalent of one U.S. dollar, the high and low exchange rates and period
end exchange rates for the periods indicated. Average for year-end periods are
calculated by using the exchange rates on the last day of each full month during
the relevant period. These rates are based on the noon buying rate certified for
customs purposes by the U.S. Federal Reserve Bank of New York set forth in the
H.10 statistical release of the Federal Reserve Board.

Average exchange rates (Canadian/U.S. dollar) 2021 2020 For the three months ended - September 30 $ 1.26 $ 1.33 For the nine months ended - September 30 $ 1.25 $ 1.35

28

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Ending exchange rates (Canadian/U.S. dollar)      2021     2020
Beginning of year - January 1                   $ 1.28   $ 1.30
Beginning of quarter - July 1                   $ 1.24   $ 1.36
End of quarter - September 30                   $ 1.27   $ 1.33



                                                        For the three

months ended For the nine months ended

                                                               September 30               September 30
High/Low exchange rates (Canadian/U.S. dollar)               2021         2020          2021         2020
High                                                    $      1.29    $   1.36    $      1.29    $   1.45
Low                                                     $      1.23    $   1.30    $      1.20    $   1.30



In the third quarter of 2021, the impact of a weaker U.S. dollar resulted in a
decrease in total revenues of $50 million, a decrease in total operating
expenses of $24 million, and a decrease in interest expense of $5 million from
the same period of 2020. In the first nine months of 2021, the impact of a
weaker U.S. dollar resulted in a decrease in total revenues of $196 million, a
decrease in total operating expenses of $98 million, and a decrease in interest
expense of $24 million from the same period of 2020.
The impact of FX on total revenues and operating expenses is discussed further
in Item 3. Quantitative and Qualitative Disclosures About Market Risk, in the
Foreign Exchange Risk section.

Impact of Fuel Price on Earnings


Fluctuations in fuel prices affect the Company's results because fuel expense
constitutes a significant portion of CP's operating costs. As fuel prices
fluctuate, there will be an impact on earnings due to the timing of recoveries
from CP's fuel cost adjustment program. The following table indicates the
average fuel price for the three and nine months ended September 30, 2021 and
the comparative periods of 2020.

Average Fuel Price (U.S. dollars per U.S. gallon) 2021 2020 For the three months ended - September 30

             $ 2.70   $ 1.72
For the nine months ended - September 30              $ 2.59   $ 1.90



The impact of fuel prices on earnings includes the impacts of carbon taxes, levies, and obligations under cap-and-trade programs recovered and paid, on revenues and expenses, respectively.


In the third quarter of 2021, the favourable impact of fuel prices on Operating
income was $15 million. Higher fuel prices and increased carbon tax recoveries,
partially offset by the unfavourable impact of the timing of recoveries from
CP's fuel cost adjustment program resulted in an increase in Total revenues of
$89 million. Higher fuel prices resulted in an increase in Total operating
expenses of $74 million from the same period of 2020.

In the first nine months of 2021, the unfavourable impact of fuel prices on
Operating income was $37 million. Higher fuel prices resulted in an increase in
Total operating expenses of $149 million. Higher fuel prices and increased
carbon tax recoveries, partially offset by the unfavourable impact of the timing
of recoveries from CP's fuel cost adjustment program resulted in an increase in
Total revenues of $112 million from the same period of 2020.

Impact of Share Price on Earnings


Fluctuations in the Common Share price affect the Company's operating expenses
because share-based liabilities are measured at fair value. The Company's Common
Shares are listed on the Toronto Stock Exchange ("TSX") and the New York Stock
Exchange ("NYSE") with ticker symbol "CP". The following tables indicate the
opening and closing Common Share price on the TSX and the NYSE for the three and
nine months ended September 30, 2021 and the comparative periods in 2020.

TSX (in Canadian dollars)                                               2021        2020
Opening Common Share price, as at January 1                          $  

88.31 $ 66.21


Ending Common Share price, as at June 30                             $  95.32    $  69.06
Ending Common Share price, as at September 30                        $  

82.71 $ 81.01

Change in Common Share price for the three months ended September 30 $ (12.61) $ 11.95 Change in Common Share price for the nine months ended September 30 $ (5.60) $ 14.80

29

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NYSE (in U.S. dollars)                                                  2021        2020
Opening Common Share price, as at January 1                          $  

69.34 $ 50.99


Ending Common Share price, as at June 30                             $  76.91    $  51.07
Ending Common Share price, as at September 30                        $  

65.07 $ 60.89

Change in Common Share price for the three months ended September 30 $ (11.84) $ 9.82 Change in Common Share price for the nine months ended September 30 $ (4.27) $ 9.90

In the third quarter of 2021, the impact of the change in Common Share prices resulted in a decrease in stock-based compensation expense of $27 million compared to an increase of $32 million in the same period of 2020.

In the first nine months of 2021, the impact of the change in Common Share prices resulted in a decrease in stock-based compensation expense of $10 million compared to an increase of $35 million in the same period of 2020.

The impact of share price on stock-based compensation is discussed further in

Item 3. Quantitative and Qualitative Disclosures About Market Risk , Share Price Impact on Stock-Based Compensation.

Operating Revenues


The Company's revenues are primarily derived from transporting freight. Changes
in freight volumes generally contribute to corresponding changes in freight
revenues and certain variable expenses, such as fuel, equipment rents, and crew
costs. Non-freight revenue is generated from leasing of certain assets; other
arrangements, including contracts with passenger service operators and
logistical services; and switching fees.
                                                                                                       FX Adjusted

For the three months ended September 30 2021 2020 Total Change % Change % Change(2) Freight revenues (in millions)(1) $ 1,896 $ 1,821 $

         75              4                 7
Non-freight revenues (in millions)              46           42               4             10                10
Total revenues (in millions)             $   1,942    $   1,863    $         79              4                 7
Carloads (in thousands)                      665.0        659.0             6.0              1                     N/A
Revenue ton-miles (in millions)             35,391       36,690          (1,299)            (4)                    N/A

Freight revenue per carload (in dollars) $ 2,851 $ 2,763 $

  88              3                 6
Freight revenue per revenue ton-mile (in
cents)                                        5.36         4.96            0.40              8                11


(1)Freight revenues include fuel surcharge revenues of $148 million in 2021 and
$55 million in 2020. Fuel surcharge revenues include recoveries of carbon taxes,
levies, and obligations under cap-and-trade programs.
(2)FX Adjusted % Change does not have any standardized meaning prescribed by
GAAP and, therefore, is unlikely to be comparable to similar measures presented
by other companies. FX Adjusted % Change is defined and reconciled in Non-GAAP
Measures of this Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.

Freight revenues were $1,896 million in the third quarter of 2021, an increase of $75 million, or 4%, from $1,821 million in the same period of 2020. This increase was primarily due to increased freight revenue per RTM, partially offset by lower volumes as measured by RTMs.


RTMs are defined as the movement of one revenue-producing ton of freight over a
distance of one mile. RTMs measure the relative weight and distance of rail
freight moved by the Company. RTMs for the third quarter of 2021 were 35,391
million, a decrease of 1,299 million, or 4%, from 36,690 million in the same
period of 2020. This decrease was mainly attributable to lower volumes of Grain
and Potash. This decrease was partially offset by higher volumes of Energy,
chemicals and plastics, Metals, minerals and consumer products, and Intermodal.

Freight revenue per RTM is defined as freight revenue per revenue-producing ton
of freight over a distance of one mile. This is an indicator of yield. Freight
revenue per RTM was 5.36 cents in the third quarter of 2021, an increase of 0.40
cents, or 8%, from 4.96 cents in the same period of 2020. This increase was
primarily due to higher fuel surcharge revenue as a result of higher fuel prices
of $89 million and higher freight rates. This increase was partially offset by
the unfavourable impact of the change in FX of $50 million.

Carloads are defined as revenue-generating shipments of containers and freight
cars. Carloads were 665.0 thousand in the third quarter of 2021, an increase of
6.0 thousand, or 1%, from 659.0 thousand in the same period of 2020. This
increase was primarily due to higher volumes of Intermodal, Energy, chemicals
and plastics, Coal, and Metals, minerals and consumer products. This increase
was partially offset by lower volumes of Grain, Automotive, and Potash.

Freight revenue per carload is defined as freight revenue per revenue-generating
shipment of containers or freight cars. This is an indicator of yield. Freight
revenue per carload was $2,851 in the third quarter of 2021, an increase of $88,
or 3%, from $2,763
                                                                            

30

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in the same period of 2020. This increase was primarily due to higher fuel
surcharge revenue as a result of higher fuel prices of $89 million and higher
freight rates, partially offset by the unfavourable impact of the change in FX
of $50 million.

Non-freight revenues were $46 million in the third quarter of 2021, an increase
of $4 million, or 10%, from $42 million in the same period of 2020. This
increase was primarily due to revenue recognized for construction easements in
Chicago of $5 million, higher revenue from passenger service operators, and
higher leasing revenue, partially offset by lower revenue from logistical
services and switching fees.
                                                                                                          FX Adjusted

For the nine months ended September 30 2021 2020 Total Change % Change % Change(2) Freight revenues (in millions)(1) $ 5,822 $ 5,573 $

         249              4                 8
Non-freight revenues (in millions)              133           125                8              6                 7
Total revenues (in millions)             $    5,955    $    5,698    $         257              5                 8
Carloads (in thousands)                     2,079.9       1,980.6             99.3              5                     N/A
Revenue ton-miles (in millions)             113,725       111,635            2,090              2                     N/A

Freight revenue per carload (in dollars) $ 2,799 $ 2,814 $

    (15)            (1)                3
Freight revenue per revenue ton-mile (in
cents)                                         5.12          4.99             0.13              3                 6


(1)Freight revenues include fuel surcharge revenues of $366 million in 2021 and
$237 million in 2020. Fuel surcharge revenues include carbon taxes, levies, and
obligations recovered under cap-and-trade programs.
(2)FX Adjusted % Change does not have any standardized meaning prescribed by
GAAP and, therefore, is unlikely to be comparable to similar measures presented
by other companies. FX Adjusted % Change is defined and reconciled in Non-GAAP
Measures of this Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.

Freight revenues were $5,822 million in the first nine months of 2021, an
increase of $249 million, or 4%, from $5,573 million in the same period of 2020.
This increase was primarily due to increased freight revenue per RTM and higher
volumes as measured by RTMs.

RTMs for the first nine months of 2021 were 113,725 million, an increase of 2,090 million, or 2% from 111,635 million in the same period of 2020. This increase was mainly attributable to higher volumes of Metals, minerals and consumer products, Energy, chemicals and plastics, Coal, and Automotive. This increase was partially offset by lower volumes of Potash and Grain.


Freight revenue per RTM was 5.12 cents in the first nine months of 2021, an
increase of 0.13 cents, or 3%, from 4.99 cents in the same period in 2020. This
increase was primarily due to higher fuel surcharge revenue as a result of
higher fuel prices of $112 million, moving higher volumes of Automotive, which
has a higher freight revenue per RTM compared to the corporate average, and
higher freight rates. This increase was partially offset by the unfavourable
impact of the change in FX of $195 million.

Carloads were 2,079.9 thousand in the first nine months of 2021, an increase of
99.3 thousand, or 5%, from 1,980.6 thousand in the same period of 2020. This
increase was primarily due to higher volumes of Intermodal, Coal, Metals,
minerals, and consumer products, and Automotive. This increase was partially
offset by lower volumes Grain and Potash.

Freight revenue per carload was $2,799 in the first nine months of 2021, a
decrease of $15, or 1%, from $2,814 in the same period of 2020. This decrease
was primarily due the unfavourable impact of the change in FX of $195 million.
This decrease was partially offset by higher fuel surcharge revenue as a result
of higher fuel prices of $112 million and higher freight rates.

Non-freight revenues were $133 million in the first nine months of 2021, an
increase of $8 million, or 6%, from $125 million in the same period of 2020.
This increase was primarily due to revenue recognized for construction easements
in Chicago of $9 million, higher leasing revenues, and higher revenue from
passenger service operators, partially offset by lower revenue from logistical
services and switching fees.

Fuel Cost Adjustment Program


Freight revenues include fuel surcharge revenues associated with CP's fuel cost
adjustment program, which is designed to respond to fluctuations in fuel prices
and help reduce exposure to changing fuel prices. The surcharge is applied to
shippers through tariffs and by contract, within agreed-upon guidelines. This
program includes recoveries of carbon taxes, levies, and obligations under
cap-and-trade programs. Freight revenues included fuel surcharge revenues of
$148 million in the third quarter of 2021, an increase of $93 million, or 169%,
from $55 million in the same period of 2020. This increase was primarily due to
higher fuel prices, increased carbon tax recoveries, and higher volumes. This
increase was partially offset by the unfavourable timing of recoveries from CP's
fuel cost adjustment program and the unfavourable impact of the change in FX.

In the first nine months of 2021, fuel surcharge revenues were $366 million, an
increase of $129 million, or 54%, from $237 million in the same period of 2020.
This increase was primarily due to higher fuel prices, higher volumes, and
increased carbon
                                                                            

31

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tax recoveries. This increase was partially offset by the unfavourable timing of
recoveries from CP's fuel cost adjustment program and the unfavourable impact of
the change in FX.

Lines of Business

Grain
                                                                                                       FX Adjusted
For the three months ended September 30            2021        2020  Total Change      % Change        % Change(1)
Freight revenues (in millions)              $    352    $    457    $       (105)          (23)              (21)
Carloads (in thousands)                         89.0       124.5           (35.5)          (29)                    N/A
Revenue ton-miles (in millions)                7,715      10,549          (2,834)          (27)                    N/A

Freight revenue per carload (in dollars) $ 3,955 $ 3,671 $

  284             8                10
Freight revenue per revenue ton-mile (in
cents)                                          4.56        4.33            0.23             5                 8


(1)FX Adjusted % Change does not have any standardized meaning prescribed by
GAAP and, therefore, is unlikely to be comparable to similar measures presented
by other companies. FX Adjusted % Change is defined and reconciled in Non-GAAP
Measures of this Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.

Grain revenue was $352 million in the third quarter of 2021, a decrease of $105
million, or 23%, from $457 million in the same period of 2020. This decrease was
primarily due to lower volumes of Canadian grain to Vancouver and eastern Canada
as a result of drought conditions, lower volumes of U.S. soybeans and corn to
the U.S. Pacific Northwest and Midwest, and the unfavourable impact of the
change in FX. This decrease was partially offset by increased freight revenue
per RTM. Freight revenue per RTM increased due to higher freight rates and
higher fuel surcharge revenue as a result of higher fuel prices. Carloads
decreased more than RTMs due to moving lower volumes of U.S. corn and soybeans
to the U.S. Midwest, which has a shorter length of haul.
                                                                                                        FX Adjusted
For the nine months ended September 30             2021        2020   Total Change      % Change        % Change(1)
Freight revenues (in millions)              $  1,244    $  1,321    $         (77)           (6)               (3)
Carloads (in thousands)                        323.8       343.5            (19.7)           (6)                    N/A
Revenue ton-miles (in millions)               28,564      29,734           (1,170)           (4)                    N/A

Freight revenue per carload (in dollars) $ 3,842 $ 3,846 $

    (4)            -                 3
Freight revenue per revenue ton-mile (in
cents)                                          4.36        4.44            (0.08)           (2)                1


(1)FX Adjusted % Change does not have any standardized meaning prescribed by
GAAP and, therefore, is unlikely to be comparable to similar measures presented
by other companies. FX Adjusted % Change is defined and reconciled in Non-GAAP
Measures of this Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.

Grain revenue was $1,244 million in the first nine months of 2021, a decrease of
$77 million, or 6%, from $1,321 million in the same period of 2020. This
decrease was primarily due to lower volumes of Canadian grain to Vancouver and
eastern Canada as a result of drought conditions and decreased freight revenue
per RTM. This decrease was partially offset by moving higher volumes of U.S.
corn and wheat to the U.S. Pacific Northwest, higher freight rates, and higher
fuel surcharge revenue as a result of higher fuel prices. Freight revenue per
RTM decreased due to the unfavourable impact of the change in FX. Carloads
decreased more than RTMs due to moving higher volumes of U.S. corn and wheat to
the U.S. Pacific Northwest, which has a longer length of haul.

Coal

                                                                                                        FX Adjusted
For the three months ended September 30            2021        2020   Total Change      % Change        % Change(1)
Freight revenues (in millions)              $    158    $    130    $          28            22                22
Carloads (in thousands)                         73.4        63.5              9.9            16                     N/A
Revenue ton-miles (in millions)                4,334       4,437             (103)           (2)                    N/A

Freight revenue per carload (in dollars) $ 2,153 $ 2,047 $

   106             5                 6
Freight revenue per revenue ton-mile (in
cents)                                          3.65        2.93             0.72            25                25


(1)FX Adjusted % Change does not have any standardized meaning prescribed by
GAAP and, therefore, is unlikely to be comparable to similar measures presented
by other companies. FX Adjusted % Change is defined and reconciled in Non-GAAP
Measures of this Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.

Coal revenue was $158 million in the third quarter of 2021, an increase of $28
million, or 22%, from $130 million in the same period of 2020. This increase was
primarily due to increased freight revenue per RTM, higher volumes of Canadian
coal to Kamloops, B.C., and higher volumes of U.S. coal. This increase was
partially offset by lower volumes of Canadian coal to
                                                                            

32

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Vancouver and impacts of the B.C. wildfires. Freight revenue per RTM increased
due to higher fuel surcharge revenue as a result of higher fuel prices. Carloads
increased while RTMs decreased due to moving lower volumes of Canadian coal to
Vancouver, which has a longer length of haul, and higher volumes of Canadian
coal to Kamloops, B.C., which has a shorter length of haul.
                                                                                                        FX Adjusted
For the nine months ended September 30             2021        2020   Total Change      % Change        % Change(1)
Freight revenues (in millions)              $    491    $    411    $          80            19                21
Carloads (in thousands)                        224.2       186.7             37.5            20                     N/A
Revenue ton-miles (in millions)               14,451      13,209            1,242             9                     N/A

Freight revenue per carload (in dollars) $ 2,190 $ 2,201 $

   (11)            -                 -
Freight revenue per revenue ton-mile (in
cents)                                          3.40        3.11             0.29             9                10


(1)FX Adjusted % Change does not have any standardized meaning prescribed by
GAAP and, therefore, is unlikely to be comparable to similar measures presented
by other companies. FX Adjusted % Change is defined and reconciled in Non-GAAP
Measures of this Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.

Coal revenue was $491 million in the first nine months of 2021, an increase of
$80 million, or 19%, from $411 million in the same period of 2020. This increase
was primarily due to higher volumes of Canadian coal, driven by prior year
supply chain challenges at both the mines and the ports, and increased freight
revenue per RTM. This increase was partially offset by the unfavourable impact
of the change in FX. Freight revenue per RTM increased due to higher fuel
surcharge revenue as a result of higher fuel prices. Carloads increased more
than RTMs due to moving lower volumes of Canadian coal to Vancouver, which has a
longer length of haul, and higher volumes of Canadian coal to Kamloops B.C.,
which has a shorter length of haul.

Potash

                                                                                                        FX Adjusted
For the three months ended September 30            2021        2020   Total Change      % Change        % Change(1)
Freight revenues (in millions)              $    113    $    132    $         (19)          (14)              (12)
Carloads (in thousands)                         35.8        43.6             (7.8)          (18)                    N/A
Revenue ton-miles (in millions)                3,941       5,036           (1,095)          (22)                    N/A

Freight revenue per carload (in dollars) $ 3,156 $ 3,028 $

   128             4                 7
Freight revenue per revenue ton-mile (in
cents)                                          2.87        2.62             0.25            10                12


(1)FX Adjusted % Change does not have any standardized meaning prescribed by
GAAP and, therefore, is unlikely to be comparable to similar measures presented
by other companies. FX Adjusted % Change is defined and reconciled in Non-GAAP
Measures of this Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.

Potash revenue was $113 million in the third quarter of 2021, a decrease of $19
million, or 14%, from $132 million in the same period of 2020. This decrease was
primarily due to lower volumes of export potash to Vancouver as a result of the
B.C. wildfires, lower volumes of domestic potash as a result of mine closures,
and the unfavourable impact of the change in FX. This decrease was partially
offset by increased freight revenue per RTM. Freight revenue per RTM increased
due to higher fuel surcharge revenue as a result of higher fuel prices and
higher freight rates. RTMs decreased more than carloads due to moving lower
volumes of export potash, which has a longer length of haul.
                                                                                                        FX Adjusted
For the nine months ended September 30             2021        2020   Total Change      % Change        % Change(1)
Freight revenues (in millions)              $    348    $    390    $         (42)          (11)               (7)
Carloads (in thousands)                        114.8       127.0            (12.2)          (10)                    N/A
Revenue ton-miles (in millions)               12,705      14,664           (1,959)          (13)                    N/A

Freight revenue per carload (in dollars) $ 3,031 $ 3,071 $

   (40)           (1)                2
Freight revenue per revenue ton-mile (in
cents)                                          2.74        2.66             0.08             3                 7


(1)FX Adjusted % Change does not have any standardized meaning prescribed by
GAAP and, therefore, is unlikely to be comparable to similar measures presented
by other companies. FX Adjusted % Change is defined and reconciled in Non-GAAP
Measures of this Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.

Potash revenue was $348 million in the first nine months of 2021, a decrease of
$42 million, or 11%, from $390 million in the same period of 2020. This decrease
was primarily due to lower volumes of export potash to Vancouver and the U.S.
Pacific Northwest as a result of construction at the Port of Vancouver and the
Port of Portland, and the unfavourable impact of the change in FX. This decrease
was partially offset by increased freight revenue per RTM. Freight revenue per
RTM increased due to higher fuel surcharge revenue as a result of higher fuel
prices and higher freight rates. RTMs decreased more than carloads as a result
of moving lower volumes of export potash, which has a longer length of haul.
                                                                            

33

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Fertilizers and Sulphur

                                                                                                       FX Adjusted
For the three months ended September 30            2021        2020  Total Change      % Change        % Change(1)
Freight revenues (in millions)              $     72    $     65    $          7            11                16
Carloads (in thousands)                         15.1        13.9             1.2             9                     N/A
Revenue ton-miles (in millions)                1,141       1,059              82             8                     N/A

Freight revenue per carload (in dollars) $ 4,768 $ 4,676 $

   92             2                 7
Freight revenue per revenue ton-mile (in
cents)                                          6.31        6.14            0.17             3                 8


(1)FX Adjusted % Change does not have any standardized meaning prescribed by
GAAP and, therefore, is unlikely to be comparable to similar measures presented
by other companies. FX Adjusted % Change is defined and reconciled in Non-GAAP
Measures of this Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.

Fertilizers and sulphur revenue was $72 million in the third quarter of 2021, an
increase of $7 million, or 11%, from $65 million in the same period of 2020.
This increase was primarily due to higher volumes of wet fertilizer and sulphur
from western Canada to the U.S. Midwest and increased freight revenue per RTM.
This increase was partially offset by the unfavourable impact of the change in
FX. Freight revenue per RTM increased due to higher fuel surcharge revenue as a
result of higher fuel prices and higher freight rates.
                                                                                                       FX Adjusted
For the nine months ended September 30             2021        2020  Total Change      % Change        % Change(1)
Freight revenues (in millions)              $    227    $    212    $         15             7                14
Carloads (in thousands)                         48.4        45.7             2.7             6                     N/A
Revenue ton-miles (in millions)                3,673       3,387             286             8                     N/A

Freight revenue per carload (in dollars) $ 4,690 $ 4,639 $

   51             1                 7
Freight revenue per revenue ton-mile (in
cents)                                          6.18        6.26           (0.08)           (1)                5


(1)FX Adjusted % Change does not have any standardized meaning prescribed by
GAAP and, therefore, is unlikely to be comparable to similar measures presented
by other companies. FX Adjusted % Change is defined and reconciled in Non-GAAP
Measures of this Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.

Fertilizers and sulphur revenue was $227 million in the first nine months of
2021, an increase of $15 million, or 7%, from $212 million in the same period of
2020. This increase was primarily due to higher volumes of wet and dry
fertilizer, higher freight rates, and higher fuel surcharge revenue as a result
of higher fuel prices. This increase was partially offset by decreased freight
revenue per RTM. Freight revenue per RTM decreased due to the unfavourable
impact of the change in FX. RTMs increased more than carloads due to moving
higher volumes of wet fertilizers from western Canada to the U.S. Midwest, which
has a longer length of haul.

Forest Products

                                                                                                       FX Adjusted
For the three months ended September 30            2021        2020  Total Change      % Change        % Change(1)
Freight revenues (in millions)              $     89    $     85    $          4             5                10
Carloads (in thousands)                         18.7        17.9             0.8             4                     N/A
Revenue ton-miles (in millions)                1,419       1,463             (44)           (3)                    N/A

Freight revenue per carload (in dollars) $ 4,759 $ 4,749 $

   10             -                 5
Freight revenue per revenue ton-mile (in
cents)                                          6.27        5.81            0.46             8                13


(1)FX Adjusted % Change does not have any standardized meaning prescribed by
GAAP and, therefore, is unlikely to be comparable to similar measures presented
by other companies. FX Adjusted % Change is defined and reconciled in Non-GAAP
Measures of this Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.

Forest products revenue was $89 million in the third quarter of 2021, an
increase of $4 million, or 5%, from $85 million in the same period of 2020. This
increase was primarily due to increased freight revenue per RTM. This increase
was partially offset by the unfavourable impact of the change in FX and lower
volumes of lumber. Freight revenue per RTM increased due to higher fuel
surcharge revenue as a result of higher fuel prices and higher freight rates.
Carloads increased while RTMs decreased due to moving lower volumes of lumber,
which has a longer length of haul, and higher volumes of paperboard, which has a
shorter length of haul.
                                                                            

34

--------------------------------------------------------------------------------


                                                                                                        FX Adjusted
For the nine months ended September 30             2021        2020   Total Change      % Change        % Change(1)
Freight revenues (in millions)              $    259    $    244    $          15             6                13
Carloads (in thousands)                         55.1        53.5              1.6             3                     N/A
Revenue ton-miles (in millions)                4,290       4,059              231             6                     N/A

Freight revenue per carload (in dollars) $ 4,701 $ 4,561 $

   140             3                10
Freight revenue per revenue ton-mile (in
cents)                                          6.04        6.01             0.03             -                 7


(1)FX Adjusted % Change does not have any standardized meaning prescribed by
GAAP and, therefore, is unlikely to be comparable to similar measures presented
by other companies. FX Adjusted % Change is defined and reconciled in Non-GAAP
Measures of this Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.

Forest products revenue was $259 million in the first nine months of 2021, an
increase of $15 million, or 6%, from $244 million in the same period of 2020.
This increase was primarily due to higher volumes of lumber, higher freight
rates, and higher fuel surcharge revenue as a result of higher fuel prices. This
increase was partially offset by the unfavourable impact of the change in FX.
RTMs increased more than carloads due to moving higher volumes of lumber, which
has a longer length of haul.

Energy, Chemicals and Plastics

                                                                                                        FX Adjusted
For the three months ended September 30            2021        2020   Total Change      % Change        % Change(1)
Freight revenues (in millions)              $    392    $    321    $          71            22                27
Carloads (in thousands)                         78.2        63.6             14.6            23                     N/A
Revenue ton-miles (in millions)                6,330       4,620            1,710            37                     N/A

Freight revenue per carload (in dollars) $ 5,013 $ 5,047 $

   (34)           (1)                3
Freight revenue per revenue ton-mile (in
cents)                                          6.19        6.95            (0.76)          (11)               (7)


(1)FX Adjusted % Change does not have any standardized meaning prescribed by
GAAP and, therefore, is unlikely to be comparable to similar measures presented
by other companies. FX Adjusted % Change is defined and reconciled in Non-GAAP
Measures of this Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.

Energy, chemicals and plastics revenue was $392 million in the third quarter of
2021, an increase of $71 million, or 22%, from $321 million in the same period
of 2020. This increase was primarily due to higher volumes of crude and
petroleum products as a result of demand recovery from the impact of the
COVID-19 pandemic in the prior year, higher fuel surcharge revenue as a result
of higher fuel prices, and higher freight rates. This increase was partially
offset by decreased freight revenue per RTM. Freight revenue per RTM decreased
primarily due to moving proportionately higher volumes of crude to Kansas City,
which has a longer length of haul, and the unfavourable impact of the change in
FX.
                                                                                                       FX Adjusted
For the nine months ended September 30             2021        2020  Total Change      % Change        % Change(1)
Freight revenues (in millions)              $  1,149    $  1,153    $         (4)            -                 4
Carloads (in thousands)                        241.5       228.2            13.3             6                     N/A
Revenue ton-miles (in millions)               19,328      17,981           1,347             7                     N/A

Freight revenue per carload (in dollars) $ 4,758 $ 5,053 $ (295)

           (6)               (2)
Freight revenue per revenue ton-mile (in
cents)                                          5.94        6.41           (0.47)           (7)               (3)


(1)FX Adjusted % Change does not have any standardized meaning prescribed by
GAAP and, therefore, is unlikely to be comparable to similar measures presented
by other companies. FX Adjusted % Change is defined and reconciled in Non-GAAP
Measures of this Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.

Energy, chemicals and plastics revenue was $1,149 million in the first nine
months of 2021, a decrease of $4 million, from $1,153 million in the same period
of 2020. This decrease was primarily due to decreased freight revenue per RTM
and lower volumes of crude to Chicago. This decrease was partially offset by
higher volumes of liquefied petroleum gas ("LPG") and other petroleum products
as a result of demand recovery from the impact of the COVID-19 pandemic in the
prior year, higher fuel surcharge revenue as a result of higher fuel prices, and
higher freight rates. Freight revenue per RTM decreased primarily due to the
unfavourable impact of the change in FX and higher volumes of crude to Kansas
City, which has a longer length of haul.

                                                                            

35

--------------------------------------------------------------------------------

Metals, Minerals and Consumer Products

                                                                                                        FX Adjusted
For the three months ended September 30            2021        2020   Total Change      % Change        % Change(1)
Freight revenues (in millions)              $    196    $    152    $          44            29                35
Carloads (in thousands)                         60.4        50.8              9.6            19                     N/A
Revenue ton-miles (in millions)                2,992       2,303              689            30                     N/A

Freight revenue per carload (in dollars) $ 3,245 $ 2,992 $

   253             8                14
Freight revenue per revenue ton-mile (in
cents)                                          6.55        6.60            (0.05)           (1)                4


(1)FX Adjusted % Change does not have any standardized meaning prescribed by
GAAP and, therefore, is unlikely to be comparable to similar measures presented
by other companies. FX Adjusted % Change is defined and reconciled in Non-GAAP
Measures of this Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.

Metals, minerals and consumer products revenue was $196 million in the third
quarter of 2021, an increase of $44 million, or 29%, from $152 million in the
same period of 2020. This increase was primarily due to higher volumes of frac
sand and steel, higher fuel surcharge revenue as a result of higher fuel prices,
and higher freight rates. This increase was partially offset by decreased
freight revenue per RTM. Freight revenue per RTM decreased due to the
unfavourable impact of the change in FX. RTMs increased more than carloads due
to moving proportionately higher volumes of frac sand, which has a longer length
of haul.
                                                                                                        FX Adjusted
For the nine months ended September 30             2021        2020   Total Change      % Change        % Change(1)
Freight revenues (in millions)              $    535    $    474    $          61            13                20
Carloads (in thousands)                        177.2       154.1             23.1            15                     N/A
Revenue ton-miles (in millions)                8,328       6,951            1,377            20                     N/A

Freight revenue per carload (in dollars) $ 3,019 $ 3,076 $

   (57)           (2)                4
Freight revenue per revenue ton-mile (in
cents)                                          6.42        6.82            (0.40)           (6)                -


(1)FX Adjusted % Change does not have any standardized meaning prescribed by
GAAP and, therefore, is unlikely to be comparable to similar measures presented
by other companies. FX Adjusted % Change is defined and reconciled in Non-GAAP
Measures of this Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.

Metals, minerals and consumer products revenue was $535 million in the first
nine months of 2021, an increase of $61 million, or 13%, from $474 million in
the same period of 2020. This increase was primarily due to higher volumes of
steel and frac sand, higher fuel surcharge revenue as a result of higher fuel
prices, and higher freight rates. This increase was partially offset by
decreased freight revenue per RTM. Freight revenue per RTM decreased due to the
unfavourable impact of the change in FX. RTMs increased more than carloads due
to moving proportionately higher volumes of frac sand, which has a longer length
of haul.

Automotive
                                                                                                        FX Adjusted
For the three months ended September 30            2021        2020   Total Change      % Change        % Change(1)
Freight revenues (in millions)              $     83    $     94    $         (11)          (12)               (8)
Carloads (in thousands)                         23.3        31.2             (7.9)          (25)                    N/A
Revenue ton-miles (in millions)                  403         390               13             3                     N/A

Freight revenue per carload (in dollars) $ 3,562 $ 3,013 $

   549            18                23
Freight revenue per revenue ton-mile (in
cents)                                         20.60       24.10            (3.50)          (15)              (11)


(1)FX Adjusted % Change does not have any standardized meaning prescribed by
GAAP and, therefore, is unlikely to be comparable to similar measures presented
by other companies. FX Adjusted % Change is defined and reconciled in Non-GAAP
Measures of this Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.

Automotive revenue was $83 million in the third quarter of 2021, a decrease of
$11 million, or 12%, from $94 million in the same period of 2020. This decrease
was primarily due to decreased freight revenue per RTM. This decrease was
partially offset by higher fuel surcharge revenue as a result of higher fuel
prices, higher volumes as a result of onboarding a customer moving from
Vancouver to eastern Canada, and higher freight rates. Freight revenue per RTM
decreased due to moving proportionately higher volumes from Vancouver to eastern
Canada, which has a longer length of haul, and the unfavourable impact of the
change in FX. RTMs increased while carloads decreased due to moving lower
volumes from eastern Canada to the eastern U.S., which has a shorter length of
haul, as a result of the global semiconductor chip shortage causing
manufacturing plant shutdowns across North America.

                                                                            

36

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                                                                                                        FX Adjusted
For the nine months ended September 30             2021        2020   Total Change      % Change        % Change(1)
Freight revenues (in millions)              $    289    $    215    $          74            34                42
Carloads (in thousands)                         85.4        71.3             14.1            20                     N/A
Revenue ton-miles (in millions)                1,378         846              532            63                     N/A

Freight revenue per carload (in dollars) $ 3,384 $ 3,015 $

   369            12                19
Freight revenue per revenue ton-mile (in
cents)                                         20.97       25.41            (4.44)          (17)              (13)


(1)FX Adjusted % Change does not have any standardized meaning prescribed by
GAAP and, therefore, is unlikely to be comparable to similar measures presented
by other companies. FX Adjusted % Change is defined and reconciled in Non-GAAP
Measures of this Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.

Automotive revenue was $289 million in the first nine months of 2021, an
increase of $74 million, or 34%, from $215 million in the same period of 2020.
This increase was primarily due to higher volumes as a result of onboarding
customers moving to and from Vancouver, prior year manufacturing plant shutdowns
across North America as a result of the COVID-19 pandemic, higher freight rates,
and higher fuel surcharge revenue as a result of higher fuel prices. This
increase was partially offset by decreased freight revenue per RTM. Freight
revenue per RTM decreased due to moving proportionately higher volumes from
Vancouver to eastern Canada, which has a longer length of haul, and the
unfavourable impact of the change in FX.

Intermodal

                                                                                                       FX Adjusted
For the three months ended September 30            2021        2020  Total Change      % Change        % Change(1)
Freight revenues (in millions)              $    441    $    385    $         56            15                16
Carloads (in thousands)                        271.1       250.0            21.1             8                     N/A
Revenue ton-miles (in millions)                7,116       6,833             283             4                     N/A

Freight revenue per carload (in dollars) $ 1,627 $ 1,540 $

   87             6                 7
Freight revenue per revenue ton-mile (in
cents)                                          6.20        5.63            0.57            10                12


(1)FX Adjusted % Change does not have any standardized meaning prescribed by
GAAP and, therefore, is unlikely to be comparable to similar measures presented
by other companies. FX Adjusted % Change is defined and reconciled in Non-GAAP
Measures of this Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.

Intermodal revenue was $441 million in the third quarter of 2021, an increase of
$56 million, or 15%, from $385 million in the same period of 2020. This increase
was primarily due to increased freight revenue per RTM and higher international
intermodal volumes driven by the onboarding of new customers. This increase was
partially offset by the unfavourable impact of the change in FX. Freight revenue
per RTM increased due to higher fuel surcharge revenue as a result of higher
fuel prices and higher freight rates. Carloads increased more than RTMs due to
moving lower volumes of international intermodal to and from the Port of
Vancouver, which has a longer length of haul.
                                                                                                        FX Adjusted
For the nine months ended September 30             2021        2020   Total Change      % Change        % Change(1)
Freight revenues (in millions)              $  1,280    $  1,153    $         127            11                13
Carloads (in thousands)                        809.5       770.6             38.9             5                     N/A
Revenue ton-miles (in millions)               21,008      20,804              204             1                     N/A

Freight revenue per carload (in dollars) $ 1,581 $ 1,496 $

    85             6                 8
Freight revenue per revenue ton-mile (in
cents)                                          6.09        5.54             0.55            10                12


(1)FX Adjusted % Change does not have any standardized meaning prescribed by
GAAP and, therefore, is unlikely to be comparable to similar measures presented
by other companies. FX Adjusted % Change is defined and reconciled in Non-GAAP
Measures of this Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.

Intermodal revenue was $1,280 million in the first nine months of 2021, an
increase of $127 million, or 11%, from $1,153 million in the same period of
2020. This increase was primarily due to increased freight revenue per RTM and
higher domestic retail and wholesale intermodal volumes. This increase was
partially offset by the unfavourable impact of the change in FX. Freight revenue
per RTM increased due to higher fuel surcharge revenue as a result of higher
fuel prices and higher freight rates. Carloads increased more than RTMs due to
moving lower volumes of international intermodal to and from the Port of
Vancouver, which has a longer length of haul.


                                                                            

37

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Operating Expenses


For the three months ended September 30
(in millions of Canadian dollars)               2021        2020      Total Change      % Change      FX Adjusted % Change(1)
Compensation and benefits                    $    381    $    382    $         (1)            -                     2
Fuel                                              199         140              59            42                    49
Materials                                          51          53              (2)           (4)                   (4)
Equipment rents                                    31          39              (8)          (21)                  (16)
Depreciation and amortization                     203         195               8             4                     6
Purchased services and other                      303         275              28            10                    13
Total operating expenses                     $  1,168    $  1,084    $         84             8                    10


(1)FX Adjusted % Change does not have any standardized meaning prescribed by
GAAP and, therefore, is unlikely to be comparable to similar measures presented
by other companies. FX Adjusted % Change is defined and reconciled in Non-GAAP
Measures of this Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.

Operating expenses were $1,168 million in the third quarter of 2021, an increase
of $84 million, or 8%, from $1,084 million in the same period of 2020. This
increase was primarily due to:
•the unfavourable impact of higher fuel prices of $74 million;
•acquisition-related costs of $15 million associated with the pending KCS
transaction that were recognized in Purchased services and other;
•higher depreciation and amortization of $11 million (excluding FX);
•increased training costs driven by recovery from the economic downturn caused
by COVID-19 in the prior year;
•increased costs due to the wildfire response in British Columbia;
•higher defined benefit pension current service cost of $7 million; and
•cost inflation.

This increase was partially offset by decreased stock-based compensation of $30 million primarily driven by the impact of changes in share price and the favourable impact of the change in FX of $24 million.


For the nine months ended September 30
(in millions of Canadian dollars)               2021        2020       Total Change      % Change      FX Adjusted % Change(1)
Compensation and benefits                    $  1,165    $  1,127    $          38             3                     6
Fuel                                              623         483              140            29                    36
Materials                                         164         162                2             1                     3
Equipment rents                                    92         108              (16)          (15)                   (9)
Depreciation and amortization                     605         582               23             4                     6
Purchased services and other                      932         853               79             9                    13
Total operating expenses                     $  3,581    $  3,315    $         266             8                    11


(1)FX Adjusted % Change does not have any standardized meaning prescribed by
GAAP and, therefore, is unlikely to be comparable to similar measures presented
by other companies. FX Adjusted % Change is defined and reconciled in Non-GAAP
Measures of this Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.

Operating expenses were $3,581 million in the first nine months of 2021, an
increase of $266 million, or 8%, from $3,315 million in the same period of 2020.
This increase was primarily due to:
•the unfavourable impact of higher fuel prices of $149 million;
•acquisition-related costs of $147 million associated with the pending KCS
transaction that were recognized in Purchased services and other;
•increased variable expenses from higher volumes;
•higher depreciation and amortization of $35 million (excluding FX);
•cost inflation;
•higher defined benefit pension current service cost of $23 million; and
•increased training costs driven by recovery from the economic downturn caused
by COVID-19 in the prior year.

This increase was partially offset by:
•the favourable impact of the change in FX of $98 million;
•a gain on the exchange of property and construction easements in Chicago of $50
million and gains on sale of land in British Columbia of $16 million; and
•the efficiencies generated from improved operating performance and asset
utilization.

                                                                            

38

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Compensation and Benefits


Compensation and benefits expense includes employee wages, salaries, fringe
benefits, and stock-based compensation. Compensation and benefits expense was
$381 million in the third quarter of 2021, a decrease of $1 million from $382
million in the same period of 2020. This decrease was primarily due to lower
stock-based compensation of $30 million primarily driven by the impact of
changes in share price and the favourable impact of the change in FX of
$7 million.

This decrease was partially offset by:
•increased training costs driven by recovery from the economic downturn caused
by COVID-19 in the prior year;
•the impact of wage and benefit inflation;
•higher defined benefit pension current service cost of $7 million; and
•higher health and welfare costs due to higher usage as a result of the recovery
from the impact of the COVID-19 pandemic from the prior year.

Compensation and benefits expense was $1,165 million in the first nine months of
2021, an increase of $38 million, or 3%, from $1,127 million in the same period
of 2020. This increase was primarily due to:
•the impact of wage and benefit inflation;
•higher defined benefit pension current service cost of $23 million;
•higher volume variable expenses as a result of an increase in workload as
measured by GTMs;
•increased training costs driven by recovery from the economic downturn caused
by COVID-19 in the prior year; and
•increased health and welfare costs due to higher usage as a result of the
recovery from the impact of the COVID-19 pandemic from the prior year.

This increase was partially offset by:
•lower stock-based compensation of $35 million primarily driven by the impact of
changes in share price;
•the favourable impact of the change in FX of $24 million; and
•labour efficiencies generated from improved operating performance and asset
utilization.

Fuel

Fuel expense consists mainly of fuel used by locomotives and includes
provincial, state, and federal fuel taxes. Fuel expense was $199 million in the
third quarter of 2021, an increase of $59 million, or 42%, from $140 million in
the same period of 2020. This increase was primarily due to the unfavourable
impact of higher fuel prices of $74 million.

This increase was partially offset by:
•the favourable impact of the change in FX of $6 million;
•a decrease in workload, as measured by GTMs; and
•an increase in fuel efficiency of 2% from improvements in the operating plan
resulting in running longer and heavier trains.

Fuel expense was $623 million in the first nine months of 2021, an increase of
$140 million, or 29%, from $483 million in the same period of 2020. This
increase was primarily due to the unfavourable impact of higher fuel prices of
$149 million and an increase in workload, as measured by GTMs.

This increase was partially offset by the favourable impact of the change in FX
of $25 million and an increase in fuel efficiency of 1% from improvements in the
operating plan resulting in running longer and heavier trains.

Materials


Materials expense includes the cost of materials used for the maintenance of
track, locomotives, freight cars, and buildings, as well as software
sustainment. Materials expense was $51 million in the third quarter of 2021, a
decrease of $2 million, or 4%, from $53 million in the same period of 2020. This
decrease was primarily due to reduced track and locomotive maintenance,
partially offset by increased fuel prices and cost inflation.

Materials expense was $164 million in the first nine months of 2021, an increase
of $2 million, or 1%, from $162 million in the same period of 2020. This
increase was primarily due to the unfavorable impact of higher fuel prices,
increased locomotive maintenance and cost inflation, partially offset by the
favourable impact of the change in FX of $3 million and reduced track and
freight car maintenance.








                                                                              39

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Equipment Rents


Equipment rents expense includes the cost associated with using other railways'
freight cars, intermodal equipment, and locomotives, net of rental income
received from other railways for the use of CP's equipment. Equipment rents
expense was $31 million in the third quarter of 2021, a decrease of $8 million,
or 21%, from $39 million in the same period of 2020. This decrease was primarily
due to:
•price incentives received on intermodal cars;
•higher receipts for CP freight cars used by other railways;
•efficiencies in usage of pooled freight cars by CP; and
•the favourable impact of the change in FX of $2 million.

This decrease was partially offset by greater usage of pooled freight cars.


Equipment rents expense was $92 million in the first nine months of 2021, a
decrease of $16 million, or 15%, from $108 million in the same period of 2020.
This decrease was primarily due to:
•efficiencies in usage of pooled freight cars by CP;
•price incentives received on intermodal cars;
•the favourable impact of the change in FX of $7 million; and
•higher receipts for CP freight cars used by other railways.

This decrease was partially offset by greater usage of pooled freight cars.

Depreciation and Amortization


Depreciation and amortization expense represents the charge associated with the
use of track and roadway, buildings, rolling stock, information systems, and
other depreciable assets. Depreciation and amortization expense was $203 million
in the third quarter of 2021, an increase of $8 million, or 4%, from $195
million in the same period of 2020. This increase was primarily due to a higher
depreciable asset base, partially offset by the favourable impact of the change
in FX of $3 million.

Depreciation and amortization expense was $605 million in the first nine months
of 2021, an increase of $23 million, or 4%, from $582 million in the same period
of 2020. This increase was primarily due to a higher depreciable asset base,
partially offset by the favourable impact of the change in FX of $12 million.

Purchased Services and Other


For the three months ended September 30
(in millions of Canadian dollars)          2021    2020    Total Change   % Change
Support and facilities                    $  80   $  68   $         12       18
Track and operations                         66      65              1        2
Intermodal                                   50      51             (1)      (2)
Equipment                                    26      27             (1)      (4)
Casualty                                     42      31             11       35
Property taxes                               30      28              2        7
Other                                        17       5             12      240
Land sales                                   (8)      -             (8)       -

Total Purchased services and other $ 303 $ 275 $ 28

10




Purchased services and other expense encompasses a wide range of third-party
costs, including expenses for joint facilities, personal injuries and damage
claims, environmental remediation, property taxes, contractor and consulting
fees, insurance, and gains on land sales. Purchased services and other expense
was $303 million in the third quarter of 2021, an increase of $28 million from
$275 million in the same period of 2020. This increase was primarily due to:
•the acquisition-related expenses of $15 million related to the pending KCS
transaction, reported in Other;
•higher expenses of $11 million primarily due to the third party claims reported
in Casualty;
•expenses due to the wildfire response in British Columbia, reported in Support
and Facilities, and Track and operations; and
•cost inflation.

This increase was partially offset by:
•a gain on sale of land in British Columbia of $7 million;
•the favourable impact of the change in FX of $6 million; and
•lower variable expenses from lower volumes, reported in Intermodal and Track
and operations.
                                                                            

40

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For the nine months ended September 30
(in millions of Canadian dollars)          2021    2020    Total Change   % Change
Support and facilities                    $ 214   $ 198   $         16        8
Track and operations                        204     210             (6)      (3)
Intermodal                                  154     154              -        -
Equipment                                    80      85             (5)      (6)
Casualty                                    101     100              1        1
Property taxes                               98      95              3        3
Other                                       148      15            133      887
Land sales                                  (67)     (4)           (63)   1,575

Total Purchased services and other $ 932 $ 853 $ 79

9




Purchased services and other expense was $932 million in the first nine months
of 2021, an increase of $79 million, or 9%, from $853 million in the same period
of 2020. This increase was primarily due to:
•the acquisition-related expenses of $147 million related to the pending KCS
transaction, reported in Other;
•cost inflation;
•expenses due to the wildfire response in British Columbia, reported in Support
and facilities, and Track and operations; and
•higher variable expenses from higher volumes, reported in Intermodal, Track and
operations, and Equipment;

This increase was partially offset by:
•a gain on the exchange of property and construction easements in Chicago of $50
million and gains on sale of land in British Columbia of $16 million;
•the favourable impact of the change in FX of $27 million;
•a $16 million legal claim recovery, reported in Other; and
•a $7 million arbitration settlement, reported in Track and operations.

Other Income Statement Items
Other Expense (Income)

Other expense (income) consists of gains and losses from the change in FX on
debt and lease liabilities and working capital, costs related to financing,
shareholder costs, equity income, and other non-operating expenditures. Other
expense was $124 million in the third quarter of 2021, a change of $160 million,
or 444%, compared to other income of $36 million in the same period of 2020.
This change was primarily due to an FX translation loss on U.S.
dollar-denominated debt and lease liabilities of $46 million, compared to an FX
translation gain of $40 million in the same period of 2020, as well as
acquisition-related expenses of $83 million which include losses on interest
rate hedges of $111 million, gains on FX hedges of $30 million, and bridge
facility fees of $2 million. This was partially offset by FX gains on cash and
working capital of $7 million, compared to FX losses of $2 million in the same
period of 2020.

Other expense was $253 million in the first nine months of 2021, an increase of
$164 million, or 184%, from $89 million in the same period of 2020. This
increase is primarily due to acquisition-related expenses of $295 million which
include losses on interest rate hedges of $261 million, bridge facility and
backstop revolver fees of $47 million, and gains on FX hedges of $13 million.
This increase is partially offset by an FX translation gain on U.S.
dollar-denominated debt and lease liabilities of $39 million, compared to an FX
translation loss of $89 million in the same period of 2020.

FX translation gains and losses on debt and lease liabilities are discussed further in Non-GAAP Measures of this Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations .

Merger Termination Fee


On May 21, 2021, KCS terminated the Original Merger Agreement with CP to enter
into a definitive agreement with CN. At the same time and in accordance with the
terms of the Original Merger Agreement, KCS paid CP a termination fee of
$845 million (U.S. $700 million). This amount is reported as "Merger termination
fee" in the Company's Interim Consolidated Statements of Income for the first
nine months of 2021. No similar items were received in the same period of 2020.

Other Components of Net Periodic Benefit Recovery


Other components of net periodic benefit recovery is related to the Company's
pension and other post-retirement and post-employment benefit plans. It includes
interest cost on benefit obligations, expected return on fund assets, recognized
net actuarial losses, and amortization of prior service costs. Other components
of net periodic benefit recovery was $95 million in the third quarter of 2021,
an increase of $9 million or 10%, compared to $86 million in the same period of
2020. This increase
                                                                            

41

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was primarily due to a decrease in the interest cost on the benefit obligation
of $14 million and an increase in expected return on fund assets of $4 million,
partially offset by an increase in recognized net actuarial losses of $8
million.

Other components of net periodic benefit recovery was $286 million in the first
nine months of 2021, an increase of $29 million or 11%, compared to $257 million
in the same period of 2020. This increase was primarily due to a decrease in the
interest cost on the benefit obligation of $42 million and an increase in
expected return on fund assets of $11 million, partially offset by an increase
in recognized net actuarial losses of $23 million.

Net Interest Expense


Net interest expense includes interest on long-term debt and finance leases. Net
interest expense was $104 million in the third quarter of 2021, a decrease of
$10 million, or 9%, from $114 million in the same period of 2020. This decrease
was primarily due to:
•the favourable impact of the change in FX rates of $5 million;
•a decrease in debt levels of $3 million; and
•a reduction in interest related to long-term debt of $2 million as the result
of a lower effective interest rate.

Net interest expense was $315 million in the first nine months of 2021, a
decrease of $31 million, or 9%, from $346 million in the same period of 2020.
This decrease was primarily due to:
•the favourable impact of the change in FX rates of $24 million;
•a reduction in interest related to long-term debt of $8 million as the result
of a lower effective interest rate; and
•higher interest income of $4 million.

This was partially offset by the unfavourable impact of an increase in debt levels of $4 million.

Income Tax Expense


Income tax expense was $169 million in the third quarter of 2021, a decrease of
$20 million, or 11%, from $189 million in the same period of 2020. The decrease
was primarily due to tax recoveries on acquisition-related costs associated with
the pending KCS transaction and a lower effective tax rate.

Income tax expense was $617 million in the first nine months of 2021, an
increase of $54 million, or 10%, from $563 million in the same period of 2020.
The increase was primarily a result of higher taxable earnings due to the $845
million (U.S. $700 million) merger termination payment received in connection
with KCS's termination of the Original Merger Agreement, partially offset by
acquisition-related costs associated with the pending KCS transaction and a
lower effective tax rate.

The effective tax rate in the third quarter of 2021, including discrete items,
was 26.36% compared to 23.97% in the same period of 2020. The effective tax rate
in the first nine months of 2021, including discrete items, was 21.00% compared
to 25.52% in the same period of 2020. The effective tax rate in the third
quarter and first nine months of 2021, excluding discrete items, was 24.60%
compared to 25.00% for the same periods in 2020. The decrease in the effective
tax rates, excluding discrete items, was primarily due to the decrease in
Alberta's corporate tax rate and a lower North Dakota tax rate.

The Company expects an annualized effective tax rate in 2021 of 24.60%. The
Company's 2021 outlook for its effective income tax rate is based on certain
assumptions about events and developments that may or may not materialize or
that may be offset entirely or partially by new events and developments. This is
discussed further in Item 1A. Risk Factors of CP's 2020 Annual Report on Form
10-K.

Liquidity and Capital Resources


The Company believes adequate amounts of Cash and cash equivalents are available
in the normal course of business to provide for ongoing operations, including
the obligations identified in the tables in Contractual Commitments of this Item
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations. Additionally, CP believes that its existing sources of liquidity,
including the new 364-day bridge facility described below, along with
anticipated long-term financing will be sufficient to fund the pending KCS
transaction. The Company is not aware of any trends or expected fluctuations in
the Company's liquidity that would create any deficiencies. The Company's
primary sources of liquidity include its cash and cash equivalents, its
commercial paper program, its bilateral letter of credit facilities, its term
credit facility, and its revolving credit facility.

On June 21, 2021, the Company filed a new base shelf prospectus in each province
of Canada and a registration statement with the SEC to issue up to U.S. $8.5
billion in debt securities in the Canadian and U.S. capital markets over 25
months from the filing date. The Company had previously entered into forward
starting floating-to-fixed interest rate swap agreements totalling a notional
U.S. $2.4 billion and interest rate bond locks totalling a notional $600 million
to fix benchmark rates on future debt issuances in 2021.

                                                                            

42

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During the third quarter of 2021, the Company obtained commitments for a new
364-day senior unsecured facility (the "bridge facility") in the amount of U.S.
$8.5 billion to bridge debt financing required to fund a portion of the cash
component of the pending KCS transaction. Based on the Exchange Ratio, the
Company plans to issue approximately 262 million new Common Shares to fund the
share consideration portion of the pending KCS transaction. The Exchange Ratio
is fixed and will not be adjusted for fluctuations in the market price of the
Company's Common Shares or KCS common stock between the date of the Merger
Agreement and closing of the pending KCS transaction.

As at September 30, 2021, the Company had $210 million of Cash and cash equivalents compared to $147 million at December 31, 2020.


As at September 30, 2021, the Company's revolving credit facility was undrawn,
unchanged from December 31, 2020 from a total available amount of U.S. $1.3
billion. Effective April 9, 2021, the Company amended its revolving credit
facility to modify certain provisions relating to the calculation of the
financial covenant ratio in its revolving credit facility. In addition,
effective September 24, 2021, the Company entered into an amendment to extend
the two-year tranche and the five-year tranche of its revolving credit facility
to September 27, 2023 and September 27, 2026, respectively. Effective September
29, 2021, the Company entered into a further amendment to its revolving credit
facility in order to provide financial covenant flexibility for the anticipated
acquisition financing pertaining to the pending KCS transaction, which is in
place for a two-year period from the date the transaction closes. Effective
September 15, 2021, the Company entered into a U.S. $500 million unsecured
non-revolving term credit facility with an initial maturity date of March 15,
2022. As at September 30, 2021, the unsecured non-revolving term credit facility
was fully drawn. The credit facility agreements require the Company to maintain
a financial covenant. As at September 30, 2021, the Company was in compliance
with all terms and conditions of the credit facility arrangements and satisfied
the financial covenants.

The Company has a commercial paper program that enables it to issue commercial
paper up to a maximum aggregate principal amount of U.S. $1.0 billion in the
form of unsecured promissory notes. This commercial paper program is backed by
the revolving credit facility. As at September 30, 2021, there was U.S. $565
million commercial paper borrowings outstanding, compared to U.S. $644 million
as at December 31, 2020.

As at September 30, 2021, under its bilateral letter of credit facilities, the
Company had letters of credit drawn of $59 million from a total available amount
of $300 million, compared to $59 million from a total available amount of $300
million as at December 31, 2020. Under the bilateral letter of credit
facilities, the Company has the option to post collateral in the form of Cash or
cash equivalents, equal at least to the face value of the letter of credit
issued. As at September 30, 2021 and December 31, 2020, the Company did not have
any collateral posted on its bilateral letter of credit facilities.

The following discussion of operating, investing, and financing activities describes the Company's indicators of liquidity and capital resources.

Operating Activities


Cash provided by operating activities was $548 million in the third quarter of
2021, an increase of $55 million, or 11%, compared to $493 million in the same
period of 2020. This increase was primarily due to a favourable change in
working capital.

Cash provided by operating activities was $3,084 million in the first nine
months of 2021, an increase of $1,267 million, or 70%, compared to $1,817
million in the same period of 2020. This increase was primarily due to a
favourable change in working capital driven by acquisition-related payables as
well as higher cash generating income as a result of the $845 million merger
termination payment received from KCS in the second quarter of 2021.

Investing Activities


Cash used in investing activities was $2,129 million in the third quarter of
2021, an increase of $1,646 million, or 341%, compared to $483 million in the
same period of 2020. Cash used in investing activities was $2,820 million in the
first nine months of 2021, an increase of $1,507 million, or 115%, compared to
$1,313 million in the same period of 2020. These increases were primarily due to
the cash payment made to KCS in the third quarter of 2021, partially offset by
lower capital spending compared to the same period of 2020.

Free Cash


CP generated positive Free cash of $203 million in the third quarter of 2021, an
increase of $197 million, or 3,283%, from $6 million in the same period of 2020.
For the first nine months of 2021, CP generated positive Free cash of $1,245
million, an increase of $748 million, or 151%, from $497 million in the same
period of 2020. These increases were primarily due to an increase in cash
provided by operating activities as well as lower capital additions and higher
proceeds from the sale of properties during 2021 compared to the same period of
2020.

                                                                              43

--------------------------------------------------------------------------------


Free cash is affected by seasonal fluctuations and by other factors including
the size of the Company's capital programs. Free cash is defined and reconciled
in Non-GAAP Measures of this Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.

Financing Activities


Cash provided by financing activities was $902 million in the third quarter of
2021, a change of $1,002 million, or 1,002%, compared to cash used in financing
activities of $100 million in the same period of 2020. This change was primarily
due to an increase in short-term borrowings, including commercial paper and the
term loan, and a pause on payments to buy back shares under the Company's share
repurchase program due to the pending KCS transaction during the three months
ended September 30, 2021. This was partially offset by higher debt repayments
including the repayment of U.S. $250 million 9.450% debentures in the three
months ended September 30, 2021.

Cash used in financing activities was $194 million in the first nine months of
2021, a decrease of $272 million, or 58%, compared to $466 million in the same
period of 2020. This decrease was primarily due to a pause on payments to buy
back shares under the Company's share repurchase program due to the pending KCS
transaction, an increase in short-term borrowings, and lower repayments of
commercial paper during the nine months ended September 30, 2021. This was
partially offset by the issuances of U.S. $500 million 2.050% notes due March 5,
2030 and $300 million 3.050% notes due March 9, 2050 during the first nine
months of 2020, higher debt repayments including the repayment of U.S.
$250 million 9.450% debentures at maturity, acquisition-related financing fees,
and an increase in dividends paid during the nine months ended September 30,
2021.

Credit Measures

Credit ratings provide information relating to the Company's operations and liquidity, and affect the Company's ability to obtain short-term and long-term financing and/or the cost of such financing.


A strong investment grade credit rating is an important measure in assessing the
Company's ability to maintain access to public financing and to minimize the
cost of capital. It also affects the ability of the Company to engage in certain
collateralized business activities on a cost-effective basis.

Credit ratings and outlooks are based on the rating agencies' methodologies and can change from time to time to reflect their views of CP. Their views are affected by numerous factors including, but not limited to, the Company's financial position and liquidity along with external factors beyond the Company's control.


As at September 30, 2021, CP's credit ratings from Standard & Poor's Rating
Services ("Standard & Poor's") remain unchanged from December 31, 2020. During
the first quarter of 2021, Moody's Investor Service ("Moody's") downgraded CP's
credit rating to Baa2 from Baa1 due to the announcement of the pending KCS
transaction.

Credit ratings as at September 30, 2021(1)
Long-term debt                                        Outlook

Standard & Poor's

              Long-term corporate credit     BBB+      stable
              Senior secured debt               A      stable
              Senior unsecured debt          BBB+      stable
Moody's
              Senior unsecured debt          Baa2      stable
Commercial paper program
Standard & Poor's                             A-2         N/A
Moody's                                       P-2         N/A


(1)Credit ratings are not recommendations to purchase, hold or sell securities
and do not address the market price or suitability of a specific security for a
particular investor. Credit ratings are based on the rating agencies'
methodologies and may be subject to revision or withdrawal at any time by the
rating agencies.

Financial Ratios

The Long-term debt to Net income ratio for the twelve months ended September 30,
2021 and September 30, 2020 was 3.2 and 4.2, respectively. This decrease was
primarily due to a higher Net income, partially offset by higher debt balance
for the twelve months ended September 30, 2021.

The Adjusted net debt to Adjusted earnings before interest, tax, depreciation
and amortization ("EBITDA") ratio for the twelve months ended September 30, 2021
and September 30, 2020 was 2.4 and 2.5, respectively. The decrease as at
September 30,
                                                                            

44

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2021 was primarily due to an increase in Adjusted EBITDA, partially offset by a
higher Adjusted net debt as of September 30, 2020. The Adjusted net debt to
Adjusted EBITDA ratio is a Non-GAAP measure, which is defined and reconciled
from the Long-term debt to Net income ratio, the most comparable measure
calculated in accordance with GAAP, in Non-GAAP Measures of this Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations. Over the long term, CP targets an Adjusted net debt to Adjusted
EBITDA ratio of 2.0 to 2.5. The pending KCS transaction and the anticipated
issuance of debt securities in connection with the pending transaction is
expected to temporarily increase the Adjusted net debt to Adjusted EBITDA ratio
to approximately 3.9 in 2021. CP plans to repay a portion of the financing in
connection with the pending KCS transaction as well as maturing long-term debt,
and expects to return back to its target range approximately 24 months after the
pending KCS transaction closes into the voting trust.

Although CP has provided a target Non-GAAP measure (Adjusted net debt to
Adjusted EBITDA ratio), management is unable to reconcile, without unreasonable
efforts, the target Adjusted net debt to Adjusted EBITDA ratio to the most
comparable GAAP measure (Long-term debt to Net income ratio), due to unknown
variables and uncertainty related to future results. These unknown variables may
include unpredictable transactions of significant value. In recent years, CP has
recognized acquisition-related costs (including legal, consulting, and financing
fees and fair value gain or loss on FX forward contracts and interest rate
hedges), the merger termination payment received, changes in income tax rates,
and a change to an uncertain tax item. These or other similar, large unforeseen
transactions affect Net income but may be excluded from CP's Adjusted EBITDA.
Additionally, the U.S.-to-Canada dollar exchange rate is unpredictable and can
have a significant impact on CP's reported results but may be excluded from CP's
Adjusted EBITDA. In particular, CP excludes the FX impact of translating the
Company's debt and lease liabilities, interest and taxes from Adjusted EBITDA.
Please see Forward-Looking Statements in this Item 2. Management's Discussion
and Analysis of Financial Condition and Results of Operations for further
discussion.

Supplemental Guarantor Financial Information


Canadian Pacific Railway Company ("CPRC"), a 100%-owned subsidiary of CPRL, is
the issuer of certain securities which are fully and unconditionally guaranteed
by CPRL on an unsecured basis. The other subsidiaries of CPRC do not guarantee
the securities and are referred to below as the "Non-Guarantor Subsidiaries".
The following is a description of the terms and conditions of the guarantees
with respect to securities for which CPRC is the issuer and CPRL provides a full
and unconditional guarantee.

As at September 30, 2021, CPRC had $7,135 million principal amount of debt securities outstanding due through 2115, and $44 million in perpetual 4% consolidated debenture stock, for all of which CPRL is the guarantor.


CPRL fully and unconditionally guarantees the payment of the principal (and
premium, if any) and interest on the debt securities and consolidated debenture
stock issued by CPRC, any sinking fund or analogous payments payable with
respect to such securities, and any additional amounts payable when they become
due, whether at maturity or otherwise. The guarantee is CPRL's unsubordinated
and unsecured obligation and ranks equally with all of CPRL's other unsecured,
unsubordinated obligations.

CPRL will be released and relieved of its obligations under the guarantees after
obligations to the holders are satisfied in accordance with the terms of the
respective instruments.

Pursuant to Rule 13-01 of the SEC's Regulation S-X, the Company provides summarized financial and non-financial information of CPRC in lieu of providing separate financial statements of CPRC.


More information on the securities under this guarantee structure can be found
in Exhibit 22.1 List of Issuers and Guarantor Subsidiaries of this quarterly
report.

Summarized Financial Information


The following tables present summarized financial information for CPRC
(Subsidiary Issuer) and CPRL (Parent Guarantor) on a combined basis after
elimination of (i) intercompany transactions and balances among CPRC and CPRL;
(ii) equity in earnings from and investments in the Non-Guarantor Subsidiaries;
and (iii) intercompany dividend income.











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