UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to

Commission File Number 001-01342

Canadian Pacific Railway Limited

(Exact name of registrant as specified in its charter)

Canada		98-0355078
(State or Other Jurisdiction of Incorporation or Organization)		(IRS Employer Identification No.)
7550 Ogden Dale Road S.E.
Calgary	AB	T2C 4X9
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s Telephone Number, Including Area Code: (403) 319-7000

Securities registered pursuant to Section 12(b) of the Act:

	Title of Each Class	Trading Symbol(s)		Name of Each Exchange on which Registered
Common Shares, without par value, of Canadian Pacific Railway Limited		CP	New York Stock Exchange
			Toronto Stock Exchange
Perpetual 4% Consolidated Debenture Stock of Canadian Pacific Railway Company		CP/40	New York Stock Exchange
		BC87	London Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes  þ    No o

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  þ    No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer  þ Accelerated Filer ☐ Non-accelerated Filer ☐ Smaller Reporting Company ☐ Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ

As of the close of business on July 21, 2020, there were 135,533,633 of the registrant’s Common Shares issued and outstanding.

CANADIAN PACIFIC RAILWAY LIMITED

FORM 10-Q

TABLE OF CONTENTS

	PART I - FINANCIAL INFORMATION
		Page
Item 1.	Financial Statements:
	Interim Consolidated Statements of Income	2
	For the Three and Six Months Ended June 30, 2020 and 2019
	Interim Consolidated Statements of Comprehensive Income	3
	For the Three and Six Months Ended June 30, 2020 and 2019
	Interim Consolidated Balance Sheets	4
	As at June 30, 2020 and December 31, 2019
	Interim Consolidated Statements of Cash Flows	5
	For the Three and Six Months Ended June 30, 2020 and 2019
	Interim Consolidated Statements of Changes in Shareholders' Equity	6
	For the Three and Six Months Ended June 30, 2020 and 2019
	Notes to Interim Consolidated Financial Statements	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	18
	Executive Summary	18
	Performance Indicators	20
	Financial Highlights	23
	Results of Operations	24
	Share Capital	39
	Liquidity and Capital Resources	39
	Non-GAAP Measures	43
	Off-Balance Sheet Arrangements	50
	Contractual Commitments	50
	Critical Accounting Estimates	51
	Forward-Looking Statements	51
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	53
Item 4.	Controls and Procedures	54
	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	55
Item 1A.	Risk Factors	55
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	55
Item 3.	Defaults Upon Senior Securities	55
Item 4.	Mine Safety Disclosures	55
Item 5.	Other Information	56
Item 6.	Exhibits	57
	Signature	58

PART I

ITEM 1. FINANCIAL STATEMENTS

INTERIM CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

	For the three months ended June 30						For the six months ended June 30
(in millions of Canadian dollars, except share and per share data)	2020			2019			2020			2019
Revenues (Note 3)
Freight	$	1,752		$	1,931		$	3,752		$	3,657
Non-freight	40			46			83			87
Total revenues	1,792			1,977			3,835			3,744
Operating expenses
Compensation and benefits	347			383			745			789
Fuel	131			236			343			445
Materials	50			54			109			111
Equipment rents	33			34			69			69
Depreciation and amortization	195			183			387			343
Purchased services and other	266			265			578			622
Total operating expenses	1,022			1,155			2,231			2,379
Operating income	770			822			1,604			1,365
Less:
Other (income) expense (Note 4)	(86		)	(40		)	125			(87		)
Other components of net periodic benefit recovery (Note 13)	(86		)	(98		)	(171		)	(195		)
Net interest expense	118			112			232			226
Income before income tax expense	824			848			1,418			1,421
Income tax expense (Note 5)	189			124			374			263
Net income	$	635		$	724		$	1,044		$	1,158
Earnings per share (Note 6)
Basic earnings per share	$	4.68		$	5.19		$	7.67		$	8.28
Diluted earnings per share	$	4.66		$	5.17		$	7.64		$	8.25
Weighted-average number of shares (millions) (Note 6)
Basic	135.6			139.7			136.1			139.9
Diluted	136.1			140.2			136.6			140.4
Dividends declared per share	$	0.8300		$	0.8300		$	1.6600		$	1.4800

See Notes to Interim Consolidated Financial Statements.

2

INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

	For the three months ended June 30						For the six months ended June 30
(in millions of Canadian dollars)	2020			2019			2020			2019
Net income	$	635		$	724		$	1,044		$	1,158
Net gain (loss) in foreign currency translation adjustments, net of hedging activities	31			15			(34		)	31
Change in derivatives designated as cash flow hedges	1			4			3			6
Change in pension and post-retirement defined benefit plans	45			21			90			41
Other comprehensive income before income taxes	77			40			59			78
Income tax (expense) recovery on above items	(47		)	(22		)	13			(44		)
Other comprehensive income (Note 7)	30			18			72			34
Comprehensive income	$	665		$	742		$	1,116		$	1,192

See Notes to Interim Consolidated Financial Statements.

3

INTERIM CONSOLIDATED BALANCE SHEETS AS AT

(unaudited)

	June 30			December 31
(in millions of Canadian dollars)	2020			2019
Assets
Current assets
Cash and cash equivalents	$	277		$	133
Accounts receivable, net (Note 8)	776			805
Materials and supplies	192			182
Other current assets	110			90
	1,355			1,210
Investments (Note 9)	223			341
Properties	20,019			19,156
Goodwill and intangible assets (Note 9)	291			206
Pension asset	1,214			1,003
Other assets	460			451
Total assets	$	23,562		$	22,367
Liabilities and shareholders’ equity
Current liabilities
Accounts payable and accrued liabilities	$	1,577		$	1,693
Long-term debt maturing within one year (Note 10, 11)	91			599
	1,668			2,292
Pension and other benefit liabilities	784			785
Other long-term liabilities	544			562
Long-term debt (Note 10, 11)	9,457			8,158
Deferred income taxes	3,644			3,501
Total liabilities	16,097			15,298
Shareholders’ equity
Share capital	1,990			1,993
Additional paid-in capital	53			48
Accumulated other comprehensive loss (Note 7)	(2,450		)	(2,522		)
Retained earnings	7,872			7,550
	7,465			7,069
Total liabilities and shareholders’ equity	$	23,562		$	22,367

See Contingencies (Note 15)

See Notes to Interim Consolidated Financial Statements.

4

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	For the three months ended June 30						For the six months ended June 30
(in millions of Canadian dollars)	2020			2019			2020			2019
Operating activities
Net income	$	635		$	724		$	1,044		$	1,158
Reconciliation of net income to cash provided by operating activities:
Depreciation and amortization	195			183			387			343
Deferred income tax expense (recovery) (Note 5)	49			(18		)	88			20
Pension recovery and funding (Note 13)	(62		)	(89		)	(127		)	(177		)
Foreign exchange (gain) loss on debt and lease liabilities (Note 4)	(86		)	(37		)	129			(82		)
Other operating activities, net	27			18			(45		)	63
Change in non-cash working capital balances related to operations	77			(60		)	(152		)	(191		)
Cash provided by operating activities	835			721			1,324			1,134
Investing activities
Additions to properties	(502		)	(459		)	(857		)	(683		)
Investment in Central Maine & Québec Railway (Note 9)	19			—			19			—
Proceeds from sale of properties and other assets	5			8			7			14
Other	10			(4		)	1			(5		)
Cash used in investing activities	(468		)	(455		)	(830		)	(674		)
Financing activities
Dividends paid	(112		)	(91		)	(226		)	(182		)
Issuance of CP Common Shares	5			10			29			14
Purchase of CP Common Shares (Note 12)	(44		)	(257		)	(545		)	(464		)
Issuance of long-term debt, excluding commercial paper (Note 10)	(1		)	—			958			397
Repayment of long-term debt, excluding commercial paper	(10		)	(480		)	(25		)	(485		)
Net (repayment) issuance of commercial paper (Note 10)	(20		)	246			(573		)	246
Net (decrease) increase in short-term borrowings (Note 10)	(140		)	—			5			—
Other	—			—			11			—
Cash used in financing activities	(322		)	(572		)	(366		)	(474		)
Effect of foreign currency fluctuations on U.S. dollar-denominated cash and cash equivalents	(15		)	(1		)	16			(2		)
Cash position
Increase (decrease) in cash and cash equivalents	30			(307		)	144			(16		)
Cash and cash equivalents at beginning of period	247			352			133			61
Cash and cash equivalents at end of period	$	277		$	45		$	277		$	45
Supplemental disclosures of cash flow information:
Income taxes paid	$	5		$	108		$	144		$	257
Interest paid	$	63		$	83		$	220		$	232

See Notes to Interim Consolidated Financial Statements.

5

INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(unaudited)

	For the three months ended June 30
(in millions of Canadian dollars except per share data)		Common shares (in millions)		Share capital			Additional paid-in capital			Accumulated other comprehensive loss			Retained earnings			Total shareholders’ equity
Balance at April 1, 2020		135.6		$	1,985		$	51		$	(2,480	)	$	7,399		$	6,955
Net income		—		—			—			—			635			635
Other comprehensive income (Note 7)		—		—			—			30			—			30
Dividends declared ($0.8300 per share)		—		—			—			—			(113		)	(113		)
Effect of stock-based compensation expense		—		—			4			—			—			4
CP Common Shares repurchased (Note 12)		(0.1	)	(3		)	—			—			(49		)	(52		)
Shares issued under stock option plan		—		8			(2		)	—			—			6
Balance at June 30, 2020		135.5		$	1,990		$	53		$	(2,450	)	$	7,872		$	7,465
Balance at April 1, 2019		139.8		$	1,997		$	46		$	(2,027	)	$	6,798		$	6,814
Net income		—		—			—			—			724			724
Other comprehensive income (Note 7)		—		—			—			18			—			18
Dividends declared ($0.8300 per share)		—		—			—			—			(115		)	(115		)
Effect of stock-based compensation expense		—		—			3			—			—			3
CP Common Shares repurchased (Note 12)		(0.9	)	(14		)	—			—			(282		)	(296		)
Shares issued under stock option plan		0.2		13			(4		)	—			—			9
Balance at June 30, 2019		139.1		$	1,996		$	45		$	(2,009	)	$	7,125		$	7,157
	For the six months ended June 30
(in millions of Canadian dollars except per share data)		Common shares (in millions)		Share capital			Additional paid-in capital			Accumulated other comprehensive loss			Retained earnings			Total shareholders’ equity
Balance at December 31, 2019, as previously reported		137.0		$	1,993		$	48		$	(2,522	)	$	7,550		$	7,069
Impact of accounting change (Note 2)		—		—			—			—			(1		)	(1		)
Balance at January 1, 2020, as restated		137.0		$	1,993		$	48		$	(2,522	)	$	7,549		$	7,068
Net income		—		—			—			—			1,044			1,044
Other comprehensive income (Note 7)		—		—			—			72			—			72
Dividends declared ($1.6600 per share)		—		—			—			—			(225		)	(225		)
Effect of stock-based compensation expense		—		—			9			—			—			9
CP Common Shares repurchased (Note 12)		(1.7	)	(24		)	—			—			(496		)	(520		)
Shares issued under stock option plan		0.2		21			(4		)	—			—			17
Balance at June 30, 2020		135.5		$	1,990		$	53		$	(2,450	)	$	7,872		$	7,465
Balance at January 1, 2019		140.5		$	2,002		$	42		$	(2,043	)	$	6,630		$	6,631
Net income		—		—			—			—			1,158			1,158
Other comprehensive income (Note 7)		—		—			—			34			—			34
Dividends declared ($1.4800 per share)		—		—			—			—			(206		)	(206		)
Effect of stock-based compensation expense		—		—			8			—			—			8
CP Common Shares repurchased (Note 12)		(1.6	)	(24		)	—			—			(457		)	(481		)
Shares issued under stock option plan		0.2		18			(5		)	—			—			13
Balance at June 30, 2019		139.1		$	1,996		$	45		$	(2,009	)	$	7,125		$	7,157

See Notes to Interim Consolidated Financial Statements.

6

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(unaudited)

1    Basis of presentation

These unaudited interim Consolidated Financial Statements of Canadian Pacific Railway Limited (“CP”, or “the Company”), expressed in Canadian dollars, reflect management’s estimates and assumptions that are necessary for their fair presentation in conformity with generally accepted accounting principles in the United States of America (“GAAP”). They do not include all disclosures required under GAAP for annual financial statements and should be read in conjunction with the 2019 annual Consolidated Financial Statements and notes included in CP's 2019 Annual Report on Form 10-K. The accounting policies used are consistent with the accounting policies used in preparing the 2019 annual Consolidated Financial Statements, except for the newly adopted accounting policy discussed in Note 2.

CP's operations can be affected by seasonal fluctuations such as changes in customer demand and weather-related issues. This seasonality could impact quarter-over-quarter comparisons.

In management’s opinion, the unaudited interim consolidated financial statements include all adjustments (consisting of normal and recurring adjustments) necessary to present fairly such information. Interim results are not necessarily indicative of the results expected for the fiscal year.

2    Accounting changes

Implemented in 2020

Financial Instruments - Credit Losses

On January 1, 2020, the Company adopted the new Accounting Standards Update ("ASU") 2016-13, issued by the Financial Accounting Standards Board ("FASB"), and all related amendments under FASB Accounting Standards Codification ("ASC") Topic 326, Financial Instruments - Credit Losses. Using a modified retrospective approach, the Company recognized a cumulative-effect adjustment to its opening retained earnings balance in the period of adoption. Accordingly, comparative financial information has not been restated and continues to be reported under the accounting standards in effect for those periods.

The impact of the adoption of ASC 326 as at January 1, 2020 was an increase in the allowance for credit losses of $1 million, with the offsets to "Deferred income taxes" and "Retained earnings" on the Company's Interim Consolidated Balance Sheet. See Note 8 for further discussion of the current period credit loss.

Simplification of Financial Disclosures about Guarantors

During the second quarter of 2020, the Company early adopted the Securities and Exchange Commission amendments to the financial disclosure requirements for guarantors and issuers of guaranteed securities, as specified in Rule 3-10 of Regulation S-X. The amendments simplify disclosure requirements by replacing condensed consolidating financial information (“CCFI”) with summarized financial information and expanded qualitative non-financial disclosures about the guarantees, issuers, and guarantors. This disclosure can be found in the Liquidity and Capital Resources section of Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

7

3    Revenues

The following table disaggregates the Company’s revenues from contracts with customers by major source:

	For the three months ended June 30				For the six months ended June 30
(in millions of Canadian dollars)	2020		2019		2020		2019
Freight
Grain	$	446	$	422	$	864	$	802
Coal	131		173		281		331
Potash	146		136		258		250
Fertilizers and sulphur	77		63		147		120
Forest products	81		78		159		151
Energy, chemicals and plastics	341		346		832		661
Metals, minerals and consumer products	133		205		322		378
Automotive	34		104		121		180
Intermodal	363		404		768		784
Total freight revenues	1,752		1,931		3,752		3,657
Non-freight excluding leasing revenues	25		30		54		57
Revenues from contracts with customers	1,777		1,961		3,806		3,714
Leasing revenues	15		16		29		30
Total revenues	$	1,792	$	1,977	$	3,835	$	3,744

Contract liabilities       

Contract liabilities represent payments received for performance obligations not yet satisfied and relate to deferred revenue, and are presented as components of "Accounts payable and accrued liabilities" and "Other long-term liabilities" on the Company's Interim Consolidated Balance Sheets.

The following table summarizes the changes in contract liabilities:

	For the three months ended June 30						For the six months ended June 30
(in millions of Canadian dollars)	2020			2019			2020			2019
Opening balance	$	112		$	73		$	146		$	2
Revenue recognized that was included in the contract liability balance at the beginning of the period	(37		)	(3		)	(73		)	(2		)
Increase due to consideration received, net of revenue recognized during the period	4			4			6			74
Closing balance	$	79		$	74		$	79		$	74

4    Other (income) expense

	For the three months ended June 30						For the six months ended June 30
(in millions of Canadian dollars)	2020			2019			2020			2019
Foreign exchange (gain) loss on debt and lease liabilities	$	(86	)	$	(37	)	$	129		$	(82	)
Other foreign exchange losses (gains)	1			(4		)	(4		)	(6		)
Other	(1		)	1			—			1
Other (income) expense	$	(86	)	$	(40	)	$	125		$	(87	)

8

5    Income taxes

	For the three months ended June 30					For the six months ended June 30
(in millions of Canadian dollars)	2020		2019			2020		2019
Current income tax expense	$	140	$	142		$	286	$	243
Deferred income tax expense (recovery)	49		(18		)	88		20
Income tax expense	$	189	$	124		$	374	$	263

The effective tax rates for the three and six months ended June 30, 2020 were 22.98% and 26.38%, respectively, compared to 14.63% and 18.50%, respectively for the same periods of 2019.

For the three months ended June 30, 2020, the effective tax rate was 25.00%, excluding the discrete item of the foreign exchange ("FX") gain of $86 million on debt and lease liabilities.

For the three months ended June 30, 2019, the effective tax rate was 25.75%, excluding the discrete items of the FX gain of $37 million on debt and lease liabilities and an $88 million deferred income tax recovery from the revaluation of deferred income tax balances as at January 1, 2019 on the enactment of Alberta provincial corporate income tax rate decrease.

For the six months ended June 30, 2020, the effective tax rate was 25.00%, excluding the discrete item of the FX loss of $129 million on debt and lease liabilities.

For the six months ended June 30, 2019, the effective tax rate was 25.75%, excluding the discrete items of the FX gain of $82 million on debt and lease liabilities and the aforementioned deferred tax recovery of $88 million on the Alberta provincial corporate income tax rate decrease.

6    Earnings per share

Basic earnings per share has been calculated using Net income for the period divided by the weighted-average number of shares outstanding during the period. The number of shares used in the earnings per share calculations are reconciled as follows:

	For the three months ended June 30		For the six months ended June 30
(in millions)	2020	2019	2020	2019
Weighted-average basic shares outstanding	135.6	139.7	136.1	139.9
Dilutive effect of stock options	0.5	0.5	0.5	0.5
Weighted-average diluted shares outstanding	136.1	140.2	136.6	140.4

For the three and six months ended June 30, 2020, there were 0.2 million options excluded from the computation of diluted earnings per share because their effects were not dilutive (three and six months ended June 30, 2019 - nil and 0.1 million, respectively).

9

7    Changes in Accumulated other comprehensive loss ("AOCL") by component

	For the three months ended June 30
(in millions of Canadian dollars)	Foreign currency net of hedging activities(1)			Derivatives and other(1)			Pension and post- retirement defined benefit plans(1)			Total(1)
Opening balance, April 1, 2020	$	119		$	(52	)	$	(2,547	)	$	(2,480	)
Other comprehensive loss before reclassifications	(3		)	(2		)	—			(5		)
Amounts reclassified from accumulated other comprehensive loss	—			2			33			35
Net other comprehensive (loss) income	(3		)	—			33			30
Closing balance, June 30, 2020	$	116		$	(52	)	$	(2,514	)	$	(2,450	)
Opening balance, April 1, 2019	$	113		$	(61	)	$	(2,079	)	$	(2,027	)
Other comprehensive (loss) income before reclassifications	(1		)	1			—			—
Amounts reclassified from accumulated other comprehensive loss	—			2			16			18
Net other comprehensive (loss) income	(1		)	3			16			18
Closing balance, June 30, 2019	$	112		$	(58	)	$	(2,063	)	$	(2,009	)

⁽¹⁾  Amounts are presented net of tax.

	For the six months ended June 30
(in millions of Canadian dollars)	Foreign currency net of hedging activities(1)			Derivatives and other(1)			Pension and post- retirement defined benefit plans(1)			Total(1)
Opening balance, January 1, 2020	$	112		$	(54	)	$	(2,580	)	$	(2,522	)
Other comprehensive income (loss) before reclassifications	4			(2		)	—			2
Amounts reclassified from accumulated other comprehensive loss	—			4			66			70
Net other comprehensive income	4			2			66			72
Closing balance, June 30, 2020	$	116		$	(52	)	$	(2,514	)	$	(2,450	)
Opening balance, January 1, 2019	$	113		$	(62	)	$	(2,094	)	$	(2,043	)
Other comprehensive loss before reclassifications	(1		)	—			(1		)	(2		)
Amounts reclassified from accumulated other comprehensive loss	—			4			32			36
Net other comprehensive (loss) income	(1		)	4			31			34
Closing balance, June 30, 2019	$	112		$	(58	)	$	(2,063	)	$	(2,009	)

⁽¹⁾  Amounts are presented net of tax.

Amounts in Pension and post-retirement defined benefit plans reclassified from AOCL are as follows:

	For the three months ended June 30						For the six months ended June 30
(in millions of Canadian dollars)	2020			2019			2020			2019
Amortization of prior service costs(1)	$	—		$	1		$	—		$	1
Recognition of net actuarial loss(1)	45			20			90			41
Total before income tax	45			21			90			42
Income tax recovery	(12		)	(5		)	(24		)	(10		)
Total net of income tax	$	33		$	16		$	66		$	32

⁽¹⁾  Impacts "Other components of net periodic benefit recovery" on the Interim Consolidated Statements of Income.

10

8    Accounts receivable, net

Accounts receivable from customers are recognized initially at fair value and subsequently measured at amortized cost less allowance for expected credit losses. Losses on accounts receivable are estimated based on historical credit loss experience of receivables with similar risk characteristics. Historical loss experience is adjusted to reflect any management expectations that current or future conditions will differ from conditions that existed for the period over which historical information is evaluated.

To determine expected credit losses, customer receivables are disaggregated by credit characteristics, type of customer service, customer line of business, and receivable aging.

	For the three months ended June 30, 2020									For the six months ended June 30, 2020
(in millions of Canadian dollars)	Freight			Non-freight			Total			Freight			Non-freight			Total
Allowance for credit losses, opening balance(1)	$	(27	)	$	(14	)	$	(41	)	$	(27	)	$	(16	)	$	(43	)
Current period credit loss provision, net	1			—			1			1			2			3
Allowance for credit losses, closing balance	$	(26	)	$	(14	)	$	(40	)	$	(26	)	$	(14	)	$	(40	)

⁽¹⁾  Opening balance at January 1, 2020 was restated as described in Note 2.

	As at June 30, 2020
(in millions of Canadian dollars)	Freight			Non-freight			Total
Total accounts receivable	$	633		$	183		$	816
Allowance for credit losses	(26		)	(14		)	(40		)
Total accounts receivable, net	$	607		$	169		$	776

Receivables are considered to be in default and are written off against the allowance for credit losses when it is probable that all remaining contractual payments due will not be collected in accordance with the terms of the customer contracts. Subsequent recoveries of amounts previously written off are credited to earnings in the period recovered.

9    Business combination

On December 30, 2019, CP purchased 100% of Central Maine & Québec Railway Canada Inc. ("CMQ Canada") and Central Maine & Québec Railway U.S. ("CMQ U.S.") (together "CMQ").

The acquisition of CMQ Canada did not require regulatory approval and was accounted for as a business combination under the acquisition method of accounting on December 30, 2019.

The acquisition of CMQ U.S. was subject to approval from the United States Surface Transportation Board ("STB"). From the December 30, 2019 date of purchase, all purchased shares of CMQ U.S. were held in an independent voting trust (the "Trust") pending the STB's approval of CP's application for control of CMQ U.S. Approval was granted with an effective date of June 3, 2020. Between December 30, 2019 and June 3, 2020, CP accounted for its acquisition of CMQ U.S. as an equity method investment. During this time, CP paid additional consideration for CMQ of $3 million, representing changes from the finalization of previously estimated closing date working capital.

On June 3, 2020 the Trust was dissolved and CP assumed control of CMQ U.S. At this time, CP accounted for its acquisition in CMQ U.S. as a business combination using the acquisition method of accounting. Accordingly, the acquired tangible and intangible assets and assumed liabilities were recorded at their estimated fair values as at June 3, 2020 and results from operations and cash flows were consolidated prospectively. There was no material change in the acquisition-date fair value of the equity interest held by the Company in CMQ U.S. immediately before the acquisition date. Fair values were determined primarily through the use of an income approach.

The purchase price allocation was prepared on a preliminary basis and is subject to change as additional information becomes available concerning the fair value and tax bases of the net assets acquired. Any adjustments to the purchase price allocation will be made as soon as practicable but no later than one year from the date of acquisition.

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The following summarizes the estimated fair values of the acquired assets and liabilities of CMQ U.S. at June 3, 2020:

(in millions of Canadian dollars)	June 3, 2020
Fair value of net assets acquired:
Cash and cash equivalents	$	22
Accounts receivable, net	2
Properties	54
Intangible assets	27
Accounts payable and accrued liabilities	(13		)
Other long-term liabilities	(5		)
Total identifiable assets and liabilities	$	87
Goodwill	51
	$	138
Consideration:
Fair value of previously held equity method investment	$	138

Goodwill of $51 million relates primarily to expected operating business synergies between the Company and CMQ U.S. The factors that contribute to the goodwill are revenue growth from customers which are currently not served by CP, access to new routes, and an assembled workforce. Goodwill recognized is not deductible for tax purposes.

Intangible assets of $27 million reflect customer lists acquired in the purchase of CMQ U.S., and have amortization periods of 20 years.

Acquired cash and cash equivalents of $22 million is presented as a reduction of cash used in investing activities in the Company's Interim Consolidated Statement of Cash Flows for the three and six months ended June 30, 2020, and is presented net of finalized closing working capital adjustments for CMQ of $3 million as described above.

CP has not provided pro forma information relating to the pre-acquisition period as it is not material.

10    Debt

Issuance of long-term debt

During the three months ended March 31, 2020, the Company issued U.S. $500 million 2.050% 10-year unsecured notes due March 5, 2030 for net proceeds of approximately U.S. $495 million ($662 million) and $300 million 3.050% 30-year unsecured notes due March 9, 2050 for net proceeds of approximately $296 million. These notes pay interest semi-annually and carry a negative pledge.

Credit facility

The Company's revolving credit facility consists of a U.S. $1.0 billion tranche maturing September 27, 2024 and a U.S. $300 million tranche maturing September 27, 2021. During the three months ended March 31, 2020, the Company drew U.S. $100 million from the U.S. $300 million tranche of its revolving credit facility. During the three months ended June 30, 2020, the Company repaid this amount in full. As at June 30, 2020, the revolving credit facility was undrawn (December 31, 2019 - undrawn). The Company presents draws and repayments on its revolving credit facility in the Company's Interim Consolidated Statements of Cash Flows on a net basis.

Commercial paper program

The Company has a commercial paper program which 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 U.S. $1.3 billion revolving credit facility. As at June 30, 2020, the Company had no commercial paper borrowings outstanding (December 31, 2019 - U.S. $397 million). The Company presents issuances and repayments of commercial paper, all of which have a maturity of less than 90 days, in the Company's Interim Consolidated Statements of Cash Flows on a net basis.

11    Financial instruments

A. Fair values of financial instruments

The Company categorizes its financial assets and liabilities measured at fair value into a three-level hierarchy established by GAAP that prioritizes those inputs to valuation techniques used to measure fair value based on the degree to which they are observable.

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The three levels of the fair value hierarchy are as follows: Level 1 inputs are quoted prices in active markets for identical assets and liabilities; Level 2 inputs, other than quoted prices included within Level 1, are observable for the asset or liability either directly or indirectly; and Level 3 inputs are not observable in the market.

The carrying values of financial instruments equal or approximate their fair values with the exception of long-term debt as at:

(in millions of Canadian dollars)	June 30, 2020		December 31, 2019
Long-term debt (including current maturities):
Fair value	$	12,115	$	10,149
Carrying value	9,548		8,757

All long-term debt is classified as Level 2. The estimated fair value of current and long-term borrowings has been determined based on market information where available, or by discounting future payments of principal and interest at estimated interest rates expected to be available to the Company at period end.

B. Financial risk management

The effect of the Company's net investment hedge for the three and six months ended June 30, 2020 was an unrealized FX gain of $264 million and an unrealized FX loss of $291 million, respectively (three and six months ended June 30, 2019 - unrealized FX gains of $120 million and $240 million, respectively) recognized in “Other comprehensive income”.

12    Shareholders' equity

On December 17, 2019, the Company announced a normal course issuer bid ("NCIB"), commencing December 20, 2019, to purchase up to 4.80 million Common Shares in the open market for cancellation on or before December 19, 2020. As at June 30, 2020, the Company had purchased 1.90 million Common Shares for $620 million under this NCIB.

On October 19, 2018, the Company announced a NCIB, commencing October 24, 2018, to purchase up to 5.68 million Common Shares for cancellation on or before October 23, 2019. The Company completed this NCIB on October 23, 2019.

All purchases were made in accordance with the respective NCIB at prevailing market prices plus brokerage fees, or such other prices that were permitted by the Toronto Stock Exchange, with consideration allocated to share capital up to the average carrying amount of the shares and any excess allocated to "Retained earnings".

The following table provides activities under the share repurchase programs:

	For the three months ended June 30				For the six months ended June 30
	2020		2019		2020		2019
Number of Common Shares repurchased(1)	150,860		956,243		1,606,714		1,663,921
Weighted-average price per share(2)	$	341.27	$	308.84	$	323.54	$	288.80
Amount of repurchase (in millions of Canadian dollars)(2)	$	52	$	296	$	520	$	481

⁽¹⁾  Includes shares repurchased but not yet cancelled at end of period.

⁽²⁾  Includes brokerage fees.

13    Pension and other benefits

In the three months ended June 30, 2020, the Company made contributions of $6 million (three months ended June 30, 2019 - $12 million) to its defined benefit pension plans. In the six months ended June 30, 2020, the Company made contributions of $15 million (six months ended June 30, 2019 - $23 million) to its defined benefit pension plans.

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Net periodic benefit costs for defined benefit pension plans and other benefits included the following components:

	For the three months ended June 30
	Pensions						Other benefits
(in millions of Canadian dollars)	2020			2019			2020		2019
Current service cost (benefits earned by employees)	$	35		$	27		$	3	$	3
Other components of net periodic benefit (recovery) cost:
Interest cost on benefit obligation	101			113			4		5
Expected return on fund assets	(236		)	(237		)	—		—
Recognized net actuarial loss	44			20			1		—
Amortization of prior service costs	—			—			—		1
Total other components of net periodic benefit (recovery) cost	(91		)	(104		)	5		6
Net periodic benefit (recovery) cost	$	(56	)	$	(77	)	$	8	$	9
	For the six months ended June 30
	Pensions						Other benefits
(in millions of Canadian dollars)	2020			2019			2020		2019
Current service cost (benefits earned by employees)	$	70		$	54		$	6	$	6
Other components of net periodic benefit (recovery) cost:
Interest cost on benefit obligation	203			225			9		10
Expected return on fund assets	(473		)	(474		)	—		—
Recognized net actuarial loss	88			41			2		2
Amortization of prior service costs	—			—			—		1
Total other components of net periodic benefit (recovery) cost	(182		)	(208		)	11		13
Net periodic benefit (recovery) cost	$	(112	)	$	(154	)	$	17	$	19

14    Stock-based compensation

At June 30, 2020, the Company had several stock-based compensation plans including stock option plans, various cash-settled liability plans, and an employee share purchase plan. These plans resulted in an expense for the three and six months ended June 30, 2020 of $43 million and $54 million, respectively (three and six months ended June 30, 2019 - an expense of $39 million and $73 million, respectively).

Stock option plan

In the six months ended June 30, 2020, under CP’s stock option plans, the Company issued 215,943 options at the weighted-average price of $350.65 per share, based on the closing price on the grant date. Pursuant to the employee plan, these options may be exercised upon vesting, which is between 12 months and 48 months after the grant date, and will expire after seven years.

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Under the fair value method, the fair value of the stock options at grant date was approximately $15 million. The weighted-average fair value assumptions were approximately:

	For the six months ended June 30, 2020
Expected option life (years)(1)	4.75
Risk-free interest rate(2)	1.29%
Expected stock price volatility(3)	23.11%
Expected annual dividends per share(4)	$3.3200
Expected forfeiture rate(5)	4.40%
Weighted-average grant date fair value per option granted during the period	$68.86

⁽¹⁾  Represents the period of time that awards are expected to be outstanding. Historical data on exercise behaviour or, when available, specific expectations regarding future exercise behaviour were used to estimate the expected life of the option.

⁽²⁾  Based on the implied yield available on zero-coupon government issues with an equivalent term commensurate with the expected term of the option.

⁽³⁾  Based on the historical volatility of the Company’s stock price over a period commensurate with the expected term of the option.

⁽⁴⁾  Determined by the current annual dividend at the time of grant. The Company does not employ different dividend yields throughout the contractual term of the option. On July 21, 2020, the Company announced an increase in its quarterly dividend to $0.9500 per share, representing $3.8000 on an annual basis.

⁽⁵⁾  The Company estimates forfeitures based on past experience. This rate is monitored on a periodic basis.

Performance share unit plans

During the six months ended June 30, 2020, the Company issued 97,710 Performance Share Units ("PSUs") with a grant date fair value of approximately $34 million and 10,029 Performance Deferred Share Units ("PDSUs") with a grant date fair value, including value of expected future matching units, of approximately $4 million. PSUs and PDSUs attract dividend equivalents in the form of additional units based on dividends paid on the Company’s Common Shares, and vest approximately three years after the grant date, contingent upon CP’s performance ("performance factor"). The fair value of these PSUs and PDSUs is measured periodically until settlement using a lattice-based valuation model. Vested PSUs are settled in cash. Vested PDSUs are settled in cash pursuant to the Deferred Share Unit ("DSU") Plan and are eligible for a 25% match if the holder has not exceeded their share ownership requirements, and are paid out only when the holder ceases their employment with CP.

The performance period for PSUs and PDSUs issued in the six months ended June 30, 2020 is January 1, 2020 to December 31, 2022 and the performance factors are Return on Invested Capital ("ROIC"), Total Shareholder Return ("TSR") compared to the S&P/TSX 60 Index, and TSR compared to Class I railways.

The performance period for PSUs issued in 2017 was January 1, 2017 to December 31, 2019, and the performance factors for these PSUs were ROIC, TSR compared to the S&P/TSX Capped Industrial Index, and TSR compared to S&P 1500 Road and Rail Index. The resulting payout was 193% of the outstanding units multiplied by the Company's average share price calculated using the last 30 trading days preceding December 31, 2019. In the first quarter of 2020, payouts occurred on the total outstanding awards, including dividends reinvested, totalling $76 million on 121,225 outstanding awards.

Deferred share unit plan

During the six months ended June 30, 2020, the Company granted 15,430 DSUs with a grant date fair value of approximately $5 million. DSUs vest over various periods of up to 48 months and are only redeemable for a specified period after employment is terminated. During the six months ended June 30, 2020, payouts totaling $7 million were made in respect of 21,762 vested DSUs, including dividends reinvested. The expense for DSUs is recognized over the vesting period for both the initial subscription price and the change in value between reporting periods.

15    Contingencies

In the normal course of its operations, the Company becomes involved in various legal actions, including claims relating to injuries and damage to property. The Company maintains provisions it considers to be adequate for such actions. While the final outcome with respect to actions outstanding or pending at June 30, 2020 cannot be predicted with certainty, it is the opinion of management that their resolution will not have a material adverse effect on the Company’s business, financial position or results of operations.

Legal proceedings related to Lac-Mégantic rail accident

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

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Following the derailment, MMAC sought court protection in Canada under the Companies’ Creditors Arrangement Act and MMAR filed for bankruptcy in the U.S. Plans of arrangement were approved in both Canada and the U.S. (the “Plans”), providing for the distribution of approximately $440 million amongst those claiming derailment damages.

A number of legal proceedings, set out below, were commenced in Canada and the U.S. against CP and others:

(1) Québec's Minister of Sustainable Development, Environment, Wildlife and Parks ordered various parties, including CP, to remediate the derailment site (the "Cleanup Order") and served CP with a Notice of Claim for $95 million for those costs. CP appealed the Cleanup Order and contested the Notice of Claim with the Administrative Tribunal of Québec. These proceedings are stayed pending determination of the Attorney General of Québec (“AGQ”) action (paragraph 2 below).

(2) The AGQ sued CP in the Québec Superior Court claiming $409 million in damages, which was amended and reduced to $315 million (the “AGQ Action”). The AGQ Action alleges that: (i) CP was responsible for the petroleum crude oil from its point of origin until its delivery to Irving Oil Ltd.; and (ii) CP is vicariously liable for the acts and omissions of the MMA Group.

(3) A class action in the Québec Superior Court on behalf of persons and entities residing in, owning or leasing property in, operating a business in, or physically present in Lac-Mégantic at the time of the derailment was certified against CP on May 8, 2015 (the "Class Action"). Other defendants including MMAC and Mr. Thomas Harding ("Harding") were added to the Class Action on January 25, 2017. The Class Action seeks unquantified damages, including for wrongful death, personal injury, property damage, and economic loss.

(4) Eight subrogated insurers sued CP in the Québec Superior Court claiming approximately $16 million in damages, which was amended and reduced to approximately $15 million (the “Promutuel Action”), and two additional subrogated insurers sued CP claiming approximately $3 million in damages (the “Royal Action”). Both actions contain similar allegations as the AGQ Action. The actions do not identify the subrogated parties. As such, the extent of any overlap between the damages claimed in these actions and under the Plans is unclear. The Royal Action is stayed pending determination of the consolidated proceedings described below.

On December 11, 2017, the AGQ Action, the Class Action and the Promutuel Action were consolidated. These consolidated claims are currently scheduled for a joint liability trial commencing September 15, 2021, followed by a damages trial, if necessary.

(5) Forty-eight plaintiffs (all individual claims joined in one action) sued CP, MMAC, and Harding in the Québec Superior Court claiming approximately $5 million in damages for economic loss and pain and suffering, and asserting similar allegations as in the Class Action and the AGQ Action. The majority of the plaintiffs opted-out of the Class Action and all but two are also plaintiffs in litigation against CP, described in paragraph 7 below. This action is stayed pending determination of the consolidated claims described above.

(6) The MMAR U.S. bankruptcy estate representative commenced an action against CP in November 2014 in the Maine Bankruptcy Court claiming that CP failed to abide by certain regulations and seeking damages for MMAR’s loss in business value (as yet unquantified). This action asserts that CP knew or ought to have known that the shipper misclassified the petroleum crude oil and therefore should have refused to transport it.

(7) The class and mass tort action commenced against CP in June 2015 in Texas (on behalf of Lac-Mégantic residents and wrongful death representatives) and the wrongful death and personal injury actions commenced against CP in June 2015 in Illinois and Maine, were all transferred and consolidated in Federal District Court in Maine (the “Maine Actions”). The Maine Actions allege that CP negligently misclassified and improperly packaged the petroleum crude oil. On CP’s motion, the Maine Actions were dismissed. The plaintiffs are appealing the dismissal decision, which may be heard in September 2020.

(8) The trustee for the wrongful death trust commenced Carmack Amendment claims against CP in North Dakota Federal Court, seeking to recover approximately U.S. $6 million for damaged rail cars and lost crude and reimbursement for the settlement paid by the consignor and the consignee under the Plans (alleged to be U.S. $110 million and U.S. $60 million, respectively). This action is scheduled for trial on October 20, 2020.

At this stage of the proceedings, any potential responsibility and the quantum of potential losses cannot be determined. Nevertheless, CP denies liability and is vigorously defending these proceedings.

Environmental liabilities

Environmental remediation accruals, recorded on an undiscounted basis unless a reliable, determinable estimate as to an amount and timing of costs can be established, cover site-specific remediation programs.

The accruals for environmental remediation represent CP’s best estimate of its probable future obligation and include both asserted and unasserted claims, without reduction for anticipated recoveries from third parties. Although the recorded accruals include CP’s best estimate of all probable costs, CP’s total environmental remediation costs cannot be predicted with certainty. Accruals for environmental remediation may change from time to time as new information about previously untested sites becomes known, and

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as environmental laws and regulations evolve and advances are made in environmental remediation technology. The accruals may also vary as the courts decide legal proceedings against outside parties responsible for contamination. These potential charges, which cannot be quantified at this time, may materially affect income in the particular period in which a charge is recognized.

Costs related to existing, but as yet unknown, or future contamination will be accrued in the period in which they become probable and reasonably estimable.

The expense included in “Purchased services and other” for the three and six months ended June 30, 2020 was $3 million and $4 million, respectively (three and six months ended June 30, 2019 - $1 million and $2 million, respectively). Provisions for environmental remediation costs are recorded in “Other long-term liabilities”, except for the current portion which is recorded in “Accounts payable and accrued liabilities”. The total amount provided at June 30, 2020 was $82 million (December 31, 2019 - $77 million). Payments are expected to be made over 10 years through 2029.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 six months ended June 30, 2020 in Item 1. Financial Statements, other information in this report, and Item 8. Financial Statements and Supplementary Data of the Company's 2019 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 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

Second Quarter of 2020 Results

• Financial performance - In the second quarter of 2020, CP reported Diluted earnings per share ("EPS") of $4.66, a decrease of 10% as compared to the same period of 2019 and Net income of $635 million in the second quarter of 2020, a decrease of 12% as compared to the same period of 2019. These decreases were primarily due to lower Operating income in the second quarter of 2020 and an income tax recovery associated with a change in tax rate in 2019, partially offset by higher foreign exchange ("FX") translation gains on debt and lease liabilities in 2020.

Adjusted diluted EPS was $4.07 in the second quarter of 2020, a decrease of 5% compared to the same period of 2019. Adjusted income was $553 million in the second quarter of 2020, a decrease of 8% compared to the same period of 2019. These decreases were primarily due to lower Operating income in the second quarter of 2020.

Adjusted diluted EPS and Adjusted income 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.

CP reported an Operating ratio of 57.0% in the second quarter of 2020, a 140 basis point improvement as compared to the same period of 2019. This improvement was primarily due to favourable changes in fuel prices, revenue from liquidated damages, including customer volume commitments, higher freight rates, and efficiencies generated from improved operating performance, partially offset by lower volumes.

• Total revenues - Total revenues decreased by 9% in the second quarter of 2020 to $1,792 million from $1,977 million in the same period of 2019. This decrease was primarily due to lower volumes as measured by revenue ton-miles ("RTMs") primarily due to the impacts of the novel strain of Coronavirus (“COVID-19”), partially offset by the favourable effect of liquidated damages, including customer volume commitments, and higher freight rates.

• Operating performance - CP's average train weight increased by 7% to 9,984 tons and average train length increased by 8% to 8,089 feet, compared to the same period in 2019. These increases were a result of improvements in operating plan efficiency and continued improvements in operational efficiency for Grain trains, partially offset by lower volumes of heavier commodities such as Canadian coal, in each case compared to the same period in 2019. 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 July 21, 2020, CP declared a quarterly dividend of $0.95 per share on the outstanding Common Shares, an increase from $0.83 per share from the prior quarter. The dividend is payable on October 26, 2020 to holders of record at the close of business on September 25, 2020.

• In the second quarter of 2020, the effects of COVID-19 on consumer demand resulted in lower volumes in the following lines of business: Energy, chemicals and plastics, Metals, minerals and consumer products, Intermodal, and Automotive. The future impacts of the COVID-19 pandemic on CP’s business continue to be uncertain, however the Company has put forward our

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current estimate of the impact on our business in our revised 2020 outlook discussed below. CP continues to adapt its resources in real time and deliver for our customers and the North American economy.

As COVID-19 continued to spread throughout Canada and the United States during the three months ended June 30, 2020, CP conducted business as usual, to the greatest extent possible in the circumstances, while continuing to apply principles of precision scheduled railroading to respond to changes in demand. The Company is continuing to take a variety of measures to ensure the availability of its transportation services throughout our network, promote the safety and security of our employees , and support the communities in which we operate. CP is also supporting employees by working with labour unions to shorten recall times, to be prepared for demand increases. Certain modifications the Company has made in response to the COVID-19 pandemic include but are not limited to: implementing a period of working at home for all non-essential support staff; restricting employee business travel; implementing post-travel employee screening; strengthening clean workplace practices; reinforcing socially responsible sick leave recommendations; limiting visitor and third-party access to Company facilities; launching internal COVID-19 resources for employees; creating a pandemic response team comprised of employees and members of senior management; encouraging telephonic and video conference-based meetings along with other hygiene and social distancing practices recommended by health authorities including Health Canada, the U.S. Centers for Disease Control and Prevention, and the World Health Organization; and supplementing employment insurance payments and maintaining health benefit coverage of employees through the pandemic. CP is responding to this crisis through measures designed to protect our workforce and prevent disruptions to the central role the Company's operations provide to the North American economy. CP's service is deemed essential as part of the transportation industry. We remain well positioned to adjust to market conditions to assist our customers as they work to manage their supply chain and inventories.

Since health authorities in some North American jurisdictions have begun slowly easing restrictions, the Company began a phased reintegration back into the workplace of non-essential office employees who had been working remotely. The Company implemented preventative measures that serve to minimize the risk of exposure to COVID-19. The measures include slowly progressing the number of employees returning to the office, modifying our workspace to implement physical distancing measures, and continuously reevaluating our efforts with safety as a top priority.

We have observed many other companies, including companies in our industry, taking precautionary and preemptive actions to address the COVID-19 pandemic, and companies may take further actions that alter their normal business operations. We will continue to actively monitor the situation and may take further actions that could materially alter our business operations as may be required or recommended by federal, provincial, state or local authorities, or that we determine are in the best interests of our employees, customers, shareholders, partners, suppliers, and other stakeholders.

Additional information concerning the impact COVID-19 may have to our future business and results of operations is provided in Part II, Item 1A. Risk Factors.

• In the second quarter of 2020, CP completed its previously announced acquisition of Central Maine and Québec Railway

U.S. Inc. ("CMQ U.S."). Together with the earlier completion of the previously announced acquisition of Central Maine & Québec Railway Canada Inc. ("CMQ Canada"), the acquisition of CMQ U.S. completes CP's purchase of the entire CMQ network originally announced on November 20, 2019. CMQ U.S. and CMQ Canada will continue to operate in the U.S. and in Canada respectively as subsidiaries of CP. This allows CP to integrate CMQ U.S.'s 244.2 route-miles of rail line in Maine and Vermont into CP's network. The transaction also includes 57.3 route-miles leased from the Maine Department of Transportation. CMQ U.S.'s network links CP directly to the Atlantic Ocean port of Searsport, Maine, and to Port Saint John in New Brunswick through connections with Eastern Maine Railway and New Brunswick Southern Railway. With the CMQ acquisition, CP is now a 13,000-mile rail network connecting the Atlantic coast to the Pacific coast across six Canadian provinces and 11 U.S. states.

Prior Developments

• For the first quarter of 2020, the global emergence of the novel strain of COVID-19 had no material impact to CP’s business, financial condition, or results of operations. However, given the uncertainty of the future impacts of the COVID-19 pandemic on CP’s business and the broader macroeconomic environment, the Company updated its 2020 outlook based on the estimate of the impact on its business.

• The Company’s annual meeting of shareholders, held on April 21, 2020, was conducted via a virtual-only format by live webcast online for the first time. All 11 director nominees were elected.

• During the first quarter of 2019, the Company experienced severe winter operating conditions and an increase in the frequency and severity of casualty incidents and derailments. As a result, the Company incurred significant costs to manage severe weather conditions, as well as direct casualty costs, and higher operating costs. During this period and the subsequent network recovery the Company also experienced losses and deferrals of potential revenues.

2020 Outlook

Based on the strength of the Company’s performance to date, on July 22, 2020, CP updated the outlook for 2020 that CP had previously updated on April 21, 2020. The Company now expects to deliver Adjusted diluted EPS growth year over year based

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on Adjusted diluted EPS of $16.44 in 2019. CP continues to expect volume, as measured in RTMs, to be down mid-single digits and capital expenditures of $1.6 billion as the Company takes advantage of available track time to better position the network for recovery and support long-term shareholder returns. CP's revised earnings guidance assumes an FX rate of approximately $1.35 USD/CAD as compared to $1.40 USD/CAD previously, other components of net periodic benefit recovery to decrease by approximately $40 million as compared to 2019 and an effective tax rate of approximately 24.8 percent as a result of the accelerated reduction of the Alberta corporate tax rate as compared to 25.0 percent previously. Adjusted diluted EPS is 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.

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 variables and uncertainty related to future results. These unknown variables may include unpredictable transactions of significant value. In past years, CP has recognized significant asset impairment charges, management transition costs related to senior executives and discrete tax items. 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, the impact from changes in income tax rates and a provision for uncertain tax item 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 June 30				For the six months ended June 30
	2020	2019(1)	% Change		2020	2019(1)	% Change
Operations Performance
Gross ton-miles (“GTMs”) (millions)	63,077	72,717	(13	)	134,410	137,571	(2	)
Train miles (thousands)	6,865	8,373	(18	)	15,238	16,196	(6	)
Average train weight - excluding local traffic (tons)	9,984	9,295	7		9,544	9,088	5
Average train length - excluding local traffic (feet)	8,089	7,523	8		7,713	7,350	5
Average terminal dwell (hours)	6.5	6.4	2		6.4	7.1	(10	)
Average train speed (miles per hour, or "mph")	22.4	22.4	—		22.0	21.8	1
Locomotive productivity (GTMs / operating horsepower)	212	207	2		206	196	5
Fuel efficiency (U.S. gallons of locomotive fuel consumed / 1,000 GTMs)	0.921	0.934	(1	)	0.947	0.972	(3	)
Total Employees and Workforce
Total employees (average)	12,001	13,274	(10	)	12,244	13,059	(6	)
Total employees (end of period)	11,988	13,330	(10	)	11,988	13,330	(10	)
Workforce (end of period)	12,033	13,365	(10	)	12,033	13,365	(10	)
Safety Indicators(1)
FRA personal injuries per 200,000 employee-hours	1.12	1.00	12		1.14	1.46	(22	)
FRA train accidents per million train-miles	1.06	0.87	22		1.02	1.23	(17	)

⁽¹⁾  FRA personal injuries per 200,000 employee-hours for the six months ended June 30, 2019 was previously reported as 1.47, restated to 1.46 for the current report. FRA train accidents per million train-miles for the three and six months ended June 30, 2019 were previously reported as 0.77 and 1.18, restated to 0.87 and 1.23, respectively for the current report. These adjustments 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 Operating Revenues of this Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

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.

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Three months ended June 30, 2020 compared to the three months ended June 30, 2019

• 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 13% in the second quarter of 2020 compared to the same period of 2019. This decrease was mainly attributable to lower volumes of crude, Coal, frac sand, and Intermodal. This decrease was partially offset by higher volumes of Canadian grain, Fertilizers and sulphur, and Potash.

• Train miles are defined as the sum of the distance moved by all trains operated on the network. Changes in train miles indicate the combined effect of changes in workload (GTMs) and train weight efficiency. Train miles decreased by 18% in the second quarter of 2020 compared to the same period of 2019. This decrease reflects the impact of a 13% decrease in workload (GTMs) as well as a 7% 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 railroads’ 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 7% in the second quarter of 2020 compared to the same period of 2019. This increase was a result of improvements in operating plan efficiency and continued improvements in operational efficiency for Grain trains driven by the 8,500-foot High Efficiency Product ("HEP") train model, partially offset by lower volumes of heavier commodities such as Canadian coal.

• Average train length is defined as the average total length of CP trains, both loaded and empty. This includes all cars and locomotives on the train and is calculated as the sum of each car or locomotive's length multiplied by the distance travelled, divided by train miles. This excludes trains in short-haul service, work trains used to move CP’s track equipment and materials, and the haulage of other railroads’ trains on CP’s network. An increase in average train length indicates improved asset utilization. Average train length increased by 8% in the second quarter of 2020 compared to the same period of 2019. This increase was a result of improvements in operating plan efficiency and continued improvements in operational efficiency for Grain trains driven by the 8,500-foot HEP train model, partially offset by lower volumes of commodities such as Canadian coal, which move in longer trains.

• Average terminal dwell is defined as the average time a freight car resides within terminal boundaries expressed in hours. The timing starts with a train arriving at the terminal, a customer releasing the car to the Company, or a car arriving at interchange from another railroad. The timing ends when the train leaves, a customer receives the car from CP, or the freight car is transferred to another railroad. Freight cars are excluded if they are being stored at the terminal or used in track repairs. A decrease in average terminal dwell indicates improved terminal performance resulting in faster cycle times and improved railcar utilization. Average terminal dwell increased by 2% in the second quarter of 2020 compared to the same period of 2019. This increase was a result of aligning the operating plan to demand in order to maintain efficiencies in network fluidity.

• 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 was flat in the second quarter of 2020 compared to the same period of 2019.

• 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 increased by 2% in the second quarter of 2020 compared to the same period of 2019. This increase was due to improvements in operating plan efficiency.

• Fuel efficiency is defined as U.S. gallons of locomotive fuel consumed per 1,000 GTMs. Fuel consumed includes gallons from freight, yard and commuter service but excludes fuel used in capital projects and other non-freight activities. An improvement in fuel efficiency indicates operational cost savings and CP's commitment to corporate sustainability through a reduction of greenhouse gas emissions intensity. Fuel efficiency improved by 1% in the second quarter of 2020 compared to the same period of 2019. This increase in efficiency was due to improved train productivity.

Six months ended June 30, 2020 compared to the six months ended June 30, 2019

• GTMs decreased by 2% for the first six months of 2020 compared to the same period of 2019. This decrease was primarily due to decreased volumes of Canadian coal, frac sand, and U.S. grain. This decrease was partially offset by increased volumes of Canadian grain, and Fertilizers and sulphur.

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• Train miles decreased by 6% for the first six months of 2020 compared to the same period of 2019. This decrease reflected the impact of a 2% decrease in workload (GTMs), as well as a 5% increase in average train weights.

• Average train weight increased by 5% for the first six months of 2020 compared to the same period of 2019. This increase was a result of improvements in operating plan efficiency, continued improvements in operational efficiency for Grain trains driven by the 8,500-foot HEP train model, and improved winter operating conditions in the first quarter of 2020. This increase is partially offset by lower volumes of heavier commodities such as Canadian coal.

• Average train length increased by 5% for the first six months of 2020 from the same period of 2019. This increase was primarily due to improvements in operating plan efficiency and continued improvements in operational efficiency for Grain trains driven by the 8,500-foot HEP train model, partially offset by lower volumes of commodities such as Canadian coal, which move in longer trains.

• Average terminal dwell decreased by 10% in the first six months of 2020 compared to the same period of 2019. This favourable decrease was due to improved network fluidity as a result of a continued focus on velocity and terminal efficiency in the first quarter of 2020, partially offset by the alignment of the operating plan to demand in order to maintain efficiencies in network fluidity in the second quarter of 2020.

• Average train speed increased by 1% in the first six months of 2020 compared to the same period of 2019. This increase in speed was due to improved winter operating conditions in the first quarter of 2020.

• Locomotive productivity increased by 5% in the first six months of 2020 compared to the same period of 2019. This increase was driven by improvements in operating plan efficiency.

• Fuel efficiency improved by 3% in the first six months of 2020 compared to the same period of 2019. This increase in efficiency was primarily due to improved winter operating conditions in the first quarter of 2020 and increased train productivity.

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 decreased by 10% and 6% for the three and six months ended June 30, 2020, respectively, compared to the same periods of 2019. The total number of employees as at June 30, 2020 was 11,988, a decrease of 1,342, or 10%, compared to 13,330 as at June 30, 2019. The total workforce as at June 30, 2020 was 12,033, a decrease of 1,332, or 10%, compared to 13,365 as at June 30, 2019. The decrease in total employees and workforce is due to more efficient resource planning, including furloughs associated with the economic downturn caused by COVID-19, partially offset by the addition of employees from the acquisition of CMQ.

Safety Indicators

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

The FRA personal injuries per 200,000 employee-hours frequency is the number of personal injuries, multiplied by 200,000 and divided by total employee hours. Personal injuries are defined as injuries that require employees to lose time away from work, modify their normal duties or obtain medical treatment beyond minor first aid. FRA employee-hours are the total hours worked, excluding vacation and sick time, by all employees, excluding contractors. The FRA personal injuries per 200,000 employee-hours frequency for CP was 1.12 in the second quarter of 2020, an increase from 1.00 in the same period of 2019. For the first six months of 2020, the FRA personal injury rate per 200,000 employee-hours for CP was 1.14, a decrease from 1.46 in the same period of 2019.

The FRA train accidents per million train-miles frequency is the number of train accidents, multiplied by 1,000,000 and divided by total train miles. Train accidents included in this metric meet or exceed the FRA reporting threshold of U.S. $10,700 in damage. The FRA train accidents per million train-miles was 1.06 in the second quarter of 2020, an increase from 0.87 in the same period of 2019. For the first six months of 2020, the FRA train accidents per million train-miles was 1.02, a decrease from 1.23 in the same period of 2019.

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Financial Highlights

The following table presents selected financial data related to the Company’s financial results as of, and for the three and six months ended, June 30, 2020 and the comparative figures in 2019. 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 June 30						For the six months ended June 30
(in millions, except per share data, percentages and ratios)	2020			2019			2020			2019
Financial Performance and Liquidity
Total revenues	$	1,792		$	1,977		$	3,835		$	3,744
Operating income	770			822			1,604			1,365
Net income	635			724			1,044			1,158
Adjusted income(1)	553			602			1,160			994
Basic EPS	4.68			5.19			7.67			8.28
Diluted EPS	4.66			5.17			7.64			8.25
Adjusted diluted EPS(1)	4.07			4.30			8.49			7.08
Dividends declared per share	0.8300			0.8300			1.6600			1.4800
Cash provided by operating activities	835			721			1,324			1,134
Cash used in investing activities	(468		)	(455		)	(830		)	(674		)
Cash used in financing activities	(322		)	(572		)	(366		)	(474		)
Free cash(1)	333			265			491			458
Financial Position	As at June 30, 2020						As at December 31, 2019
Total assets	$	23,562					$	22,367
Total long-term debt, including current portion	9,548						8,757
Total shareholders’ equity	7,465						7,069
	For the three months ended June 30						For the six months ended June 30
Financial Ratios	2020			2019			2020			2019
Operating ratio(2)	57.0		%	58.4		%	58.2		%	63.5		%
	For the twelve months ended June 30
	2020						2019
Return on average shareholders' equity(3)	31.8					%	33.9					%
Adjusted return on invested capital ("Adjusted ROIC")(1)	17.1					%	16.8					%
Long-term debt to Net income ratio(4)	4.1						3.7
Adjusted net debt to adjusted EBITDA ratio(1)	2.4						2.4

⁽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.

23

Results of Operations

Three months ended June 30, 2020 compared to the three months ended June 30, 2019

Income

Operating income was $770 million in the second quarter of 2020, a decrease of $52 million, or 6%, from $822 million in the same period of 2019. This decrease was primarily due to lower volumes as measured by RTMs due to the impacts of COVID-19.

This decrease was partially offset by:

• liquidated damages, including customer volume commitments, and higher freight rates;

• the favourable impact of $24 million from changes in fuel prices; and

• the efficiencies generated from improved operating performance and asset utilization.

Net income was $635 million in the second quarter of 2020, a decrease of $89 million, or 12%, from $724 million in the same period of 2019. This decrease was primarily due to lower Operating income in 2020 and an income tax recovery associated with a change in tax rate in 2019, partially offset by higher FX translation gains on U.S. dollar-denominated debt and lease liabilities compared to the same period of 2019.

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 $553 million in the second quarter of 2020, a decrease of $49 million, or 8%, from $602 million in the same period of 2019. This decrease was primarily due to lower Operating income.

Diluted Earnings per Share

Diluted EPS was $4.66 in the second quarter of 2020, a decrease of $0.51, or 10%, from $5.17 in the same period of 2019. This decrease was due to lower Net income, partially offset by a lower average number of outstanding shares due to 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 $4.07 in the second quarter of 2020, a decrease of $0.23, or 5%, from $4.30 in the same period of 2019. This decrease was primarily due to lower Adjusted income, partially offset by a lower average number of outstanding shares due to 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 57.0% in the second quarter of 2020, a 140 basis point improvement from 58.4% in the same period of 2019. This improvement was primarily due to:

• the favourable impact of changes in fuel prices;

• liquidated damages, including customer volume commitments, and higher freight rates; and

• the efficiencies generated from improved operating performance and asset utilization.

This improvement was partially offset by lower volumes as measured by RTMs and lower gains on land sales.

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 31.8% for the twelve months ended June 30, 2020, a 210 basis point decrease compared to 33.9% for the twelve months ended June 30, 2019. This decrease was due to higher average shareholders' equity due to accumulated Net income, partially offset by the impact of the Company's share repurchase program.

Adjusted ROIC was 17.1% for the twelve months ended June 30, 2020, a 30 basis point increase compared to 16.8% for the twelve months ended June 30, 2019, primarily due to higher Operating income. This increase was partially offset by the increase in adjusted average invested capital primarily due to higher Adjusted income, partially offset by the impact of the Company's share repurchase program. 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.

24

Six months ended June 30, 2020 compared to the six months ended June 30, 2019

Income

Operating income was $1,604 million in the first six months of 2020, an increase of $239 million, or 18%, from $1,365 million in the same period of 2019. This increase was primarily due to:

• liquidated damages, including customer volume commitments, and higher freight rates;

• the efficiencies generated from improved operating performance and asset utilization;

• the favourable impact of changes in fuel prices; and

• the impact of harsher winter operating conditions in 2019.

This increase was partially offset by higher depreciation and amortization of $42 million (excluding FX) and cost inflation.

Net income was $1,044 million in the first six months of 2020, a decrease of $114 million, or 10%, from $1,158 million in the same period of 2019. This decrease was primarily due to an FX translation loss on U.S. dollar-denominated debt and lease liabilities of $129 million, compared to an FX translation gain of $82 million in the same period of 2019, an income tax recovery of $88 million associated with a change in tax rate in 2019, partially offset by higher Operating income.

Adjusted income was $1,160 million in the first six months of 2020, an increase of $166 million, or 17%, from $994 million in the same period of 2019. This increase was primarily due to higher Operating income, partially offset by higher taxes due to higher taxable income.

Diluted Earnings per Share

Diluted EPS was $7.64 in the first six months of 2020, a decrease of $0.61, or 7%, from $8.25 in the same period of 2019. This decrease was due to lower Net income, partially offset by a lower average number of outstanding shares due to the Company’s share repurchase program.

Adjusted diluted EPS was $8.49 in the first six months of 2020, an increase of $1.41, or 20%, from $7.08 in the same period of 2019. This increase was primarily due to higher Adjusted income and a lower average number of outstanding shares due to the Company’s share repurchase program.

Operating Ratio

The Company’s Operating ratio was 58.2% in the first six months of 2020, a 530 basis point improvement from 63.5% in the same period of 2019. This improvement was primarily due to:

• liquidated damages, including customer volume commitments, and higher freight rates;

• the favourable impact of changes in fuel prices;

• the efficiencies generated from improved operating performance and asset utilization; and

• the impact of harsh winter operating conditions in 2019.

This improvement was partially offset by 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. In the second quarter of 2020, the impact of a stronger U.S. dollar resulted in an increase in total revenues of $35 million, an increase in total operating expenses of $19 million, and an increase in interest expense of $4 million from the same period of 2019. In the first six months of 2020, the impact of a stronger U.S. dollar resulted in an increase in total revenues of $41 million, an increase in total operating expenses of $25 million, and an increase in interest expense of $5 million from the same period of 2019.

On July 17, 2020, the noon buying rate certified for customs purposes by the U.S. Federal Reserve Bank of New York was U.S. $1.00 = 1.36 Canadian dollar.

25

The following tables set forth, for the periods indicated, the average exchange rate between the Canadian dollar and the U.S. dollar expressed in the Canadian dollar equivalent of one U.S. dollar, the period end exchange rates, and the high and low exchange rates for the periods indicated. Averages 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)	2020		2019
For the three months ended - June 30	$	1.39	$	1.34
For the six months ended - June 30	$	1.37	$	1.33

Ending exchange rates (Canadian/U.S. dollar)	2020		2019
Beginning of year - January 1	$	1.30	$	1.36
Beginning of quarter - April 1	$	1.41	$	1.33
End of quarter - June 30	$	1.36	$	1.31

	For the three months ended June 30				For the six months ended June 30
High/Low exchange rates (Canadian/U.S. dollar)	2020		2019		2020		2019
High	$	1.42	$	1.35	$	1.45	$	1.36
Low	$	1.34	$	1.31	$	1.30	$	1.31

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 six months ended June 30, 2020 and the comparative periods of 2019.

Average Fuel Price (U.S. dollars per U.S. gallon)	2020		2019
For the three months ended - June 30	$	1.63	$	2.61
For the six months ended - June 30	$	1.98	$	2.51

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 second quarter of 2020, the favourable impact of fuel prices on Operating income was $24 million. Lower fuel prices resulted in a decrease in Total operating expenses of $81 million. Lower fuel prices, partially offset by the timing of recoveries from CP's fuel cost adjustment program, and increased carbon tax recoveries, resulted in a decrease in Total revenues of $57 million from the same period of 2019.

In the first six months of 2020, the favourable impact of fuel prices on Operating income was $38 million. Lower fuel prices resulted in a decrease in Total operating expenses of $94 million. Lower fuel prices, partially offset by the timing of recoveries from CP's fuel cost adjustment program, and increased carbon tax recoveries, resulted in a decrease in Total revenues of $56 million from the same period of 2019.

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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 six months ended June 30, 2020 and the comparative periods in 2019.

TSX (in Canadian dollars)	2020		2019
Opening Common Share price, as at January 1	$	331.03	$	242.24
Ending Common Share price, as at March 31	$	310.55	$	275.34
Ending Common Share price, as at June 30	$	345.32	$	308.43
Change in Common Share price for the three months ended June 30	$	34.77	$	33.09
Change in Common Share price for the six months ended June 30	$	14.29	$	66.19

NYSE (in U.S. dollars)	2020		2019
Opening Common Share price, as at January 1	$	254.95	$	177.62
Ending Common Share price, as at March 31	$	219.59	$	206.03
Ending Common Share price, as at June 30	$	255.34	$	235.24
Change in Common Share price for the three months ended June 30	$	35.75	$	29.21
Change in Common Share price for the six months ended June 30	$	0.39	$	57.62

In the second quarter of 2020, the impact of the change in Common Share prices resulted in an increase in stock-based compensation expense of $20 million compared to an increase of $16 million in the same period of 2019.

In the first six months of 2020, the impact of the change in Common Share prices resulted in an increase in stock-based compensation expense of $3 million compared to an increase of $29 million in the same period of 2019.

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 revenues are generated from leasing of certain assets; other arrangements, including logistical services and contracts with passenger service operators; and switching fees.

For the three months ended June 30	2020		2019		Total Change			% Change		FX Adjusted % Change(2)
Freight revenues (in millions)(1)	$	1,752	$	1,931	$	(179	)	(9	)	(11	)
Non-freight revenues (in millions)	40		46		(6		)	(13	)	(13	)
Total revenues (in millions)	$	1,792	$	1,977	$	(185	)	(9	)	(11	)
Carloads (in thousands)	631.0		716.8		(85.8		)	(12	)	N/A
Revenue ton-miles (in millions)	35,727		39,820		(4,093		)	(10	)	N/A
Freight revenue per carload (in dollars)	$	2,777	$	2,694	$	83		3		1
Freight revenue per revenue ton-mile (in cents)	4.90		4.85		0.05			1		(1	)

⁽¹⁾  Freight revenues include fuel surcharge revenues of $63 million in 2020 and $126 million in 2019. Fuel surcharge revenues include recoveries of carbon taxes, levies, and obligations under cap-and-trade programs.

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

Freight revenues were $1,752 million in the second quarter of 2020, a decrease of $179 million, or 9%, from $1,931 million in the same period of 2019. This decrease was primarily due to lower volumes as measured by RTMs. This decrease was partially offset by higher freight revenue per revenue ton-mile.

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 second quarter of 2020 were 35,727 million, a decrease of 10% compared with 39,820 million in the same period of 2019. This decrease was mainly attributable to lower volumes of crude,

27

Coal, frac sand, and Intermodal. This decrease was partially offset by higher volumes of Canadian grain, Fertilizers and sulphur, and Potash.

Freight revenue per revenue ton-mile 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 revenue ton-mile was 4.90 cents in the second quarter of 2020, an increase of 0.05 cents, or 1%, from 4.85 cents in the same period of 2019. This increase was primarily due to higher liquidated damages, including customer volume commitments, higher freight rates, and the favourable impact of the change in FX of $35 million. This increase was partially offset by moving lower volumes of Automotive, which has a higher freight revenue per revenue ton-mile compared to the corporate average, as well as the unfavourable impact of lower fuel surcharge revenue, as a result of lower fuel prices of $57 million.

Carloads are defined as revenue-generating shipments of containers and freight cars. Carloads were 631.0 thousand in the second quarter of 2020, a decrease of 85.8 thousand, or 12%, from 716.8 thousand in the same period of 2019. This decrease was primarily due to lower volumes of Automotive, Coal, crude, Intermodal, and frac sand. This decrease was partially offset by higher volumes of Canadian grain, Fertilizers and sulphur 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 $2,777 in the second quarter of 2020, an increase of $83, or 3%, from $2,694 in the same period of 2019. This increase was primarily due to liquidated damages, including customer volume commitments, higher freight rates, and the favourable impact of the change in FX of $35 million. This increase was partially offset by the unfavourable impact of lower fuel surcharge revenue, as a result of lower fuel prices of $57 million.

Non-freight revenues were $40 million in the second quarter of 2020, a decrease of $6 million, or 13%, from $46 million in the same period of 2019. This decrease was primarily due to lower passenger revenues and switching fees.

For the six months ended June 30	2020		2019		Total Change			% Change		FX Adjusted % Change(2)
Freight revenues (in millions)(1)	$	3,752	$	3,657	$	95		3		1
Non-freight revenues (in millions)	83		87		(4		)	(5	)	(5	)
Total revenues (in millions)	$	3,835	$	3,744	$	91		2		1
Carloads (in thousands)	1,321.6		1,352.4		(30.8		)	(2	)	N/A
Revenue ton-miles (in millions)	74,945		75,822		(877		)	(1	)	N/A
Freight revenue per carload (in dollars)	$	2,839	$	2,704	$	135		5		4
Freight revenue per revenue ton-mile (in cents)	5.01		4.82		0.19			4		3

⁽¹⁾  Freight revenues include fuel surcharge revenues of $182 million in 2020 and $233 million in 2019. 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 $3,752 million in the first six months of 2020, an increase of $95 million, or 3%, from $3,657 million in the same period of 2019. This increase was primarily due to higher freight revenue per revenue ton-mile, partially offset by lower volumes as measured by RTMs.

RTMs for the first six months of 2020 were 74,945 million, a decrease of 1% compared with 75,822 million in the same period of 2019. This decrease was mainly attributable to lower volumes of Coal, frac sand, and U.S. grain. This decrease was partially offset by higher volumes of Canadian grain and Fertilizers and sulphur.

Freight revenue per revenue ton-mile was 5.01 cents in the first six months of 2020, an increase of 0.19 cents, or 4%, from 4.82 cents in the same period of 2019. This increase was primarily due to liquidated damages, including customer volume commitments, higher freight rates, and the favourable impact of the change in FX of $41 million. This increase was partially offset by moving lower volumes of Automotive, which has a higher freight revenue per revenue ton-mile compared to the corporate average, as well as the unfavourable impact of lower fuel surcharge revenue, as a result of lower fuel prices, of $56 million.

Carloads were 1,321.6 thousand in the first six months of 2020, a decrease of 30.8 thousand, or 2%, from 1,352.4 thousand in the same period of 2019. This decrease was primarily due to lower volumes of Coal, Automotive, and frac sand. This decrease was partially offset by higher volumes of Canadian grain.

Freight revenue per carload was $2,839 in the first six months of 2020, an increase of $135, or 5%, from $2,704 in the same period of 2019. This increase was primarily due to higher liquidated damages, including customer volume commitments, higher freight rates, and the favourable impact of the change in FX of $41 million. This increase is partially offset by the unfavourable impact of lower fuel surcharge revenue, as a result of lower fuel prices of $56 million.

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Non-freight revenues were $83 million in the first six months of 2020, a decrease of $4 million, or 5%, from $87 million in the same period of 2019. This decrease was primarily due to lower passenger revenues 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 $63 million in the second quarter of 2020, a decrease of $63 million, or 50%, from $126 million in the same period of 2019. This decrease was primarily due to lower fuel prices and lower volumes. This decrease was partially offset by the timing of recoveries from CP's fuel cost adjustment program and increased carbon tax recoveries.

In the first six months of 2020, fuel surcharge revenues were $182 million, a decrease of $51 million, from $233 million in the same period of 2019. This decrease was primarily due to lower fuel prices. This decrease was partially offset by the timing of recoveries from CP's fuel cost adjustment program and increased carbon tax recoveries.

Lines of Business

Grain

For the three months ended June 30	2020		2019		Total Change			% Change		FX Adjusted % Change(1)
Freight revenues (in millions)	$	446	$	422	$	24		6		3
Carloads (in thousands)	118.4		113.1		5.3			5		N/A
Revenue ton-miles (in millions)	10,169		9,452		717			8		N/A
Freight revenue per carload (in dollars)	$	3,767	$	3,731	$	36		1		(1	)
Freight revenue per revenue ton-mile (in cents)	4.39		4.46		(0.07		)	(2	)	(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.  

Grain revenue was $446 million in the second quarter of 2020, an increase of $24 million, or 6%, from $422 million in the same period of 2019. This increase was primarily due to moving record volumes of Canadian grain, primarily to Vancouver and Thunder Bay, higher freight rates, and the favourable impact of the change in FX. This increase was partially offset by decreased freight revenue per revenue ton-mile and moving lower volumes of U.S. grain, primarily corn, to western Canada. Freight revenue per revenue ton-mile decreased due to the unfavourable impact of lower fuel surcharge revenue as a result of lower fuel prices. RTMs increased more than carloads driven by moving increased volumes of Canadian grain to Vancouver, which has a longer length of haul.

For the six months ended June 30	2020		2019		Total Change		% Change	FX Adjusted % Change(1)
Freight revenues (in millions)	$	864	$	802	$	62	8	6
Carloads (in thousands)	219.0		205.9		13.1		6	N/A
Revenue ton-miles (in millions)	19,185		17,804		1,381		8	N/A
Freight revenue per carload (in dollars)	$	3,945	$	3,895	$	50	1	—
Freight revenue per revenue ton-mile (in cents)	4.50		4.50		—		—	(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 $864 million in the first six months of 2020, an increase of $62 million, or 8%, from $802 million in the same period of 2019. This increase was primarily due to moving record volumes of Canadian grain, primarily to Vancouver and Thunder Bay, higher freight rates, and the favourable impact of the change in FX. This increase was partially offset by lower volumes of U.S. grain, primarily corn, to western Canada and lower fuel surcharge revenue as a result of lower fuel prices. RTMs increased more than carloads driven by moving increased volumes of Canadian grain to Vancouver, which has a longer length of haul.

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Coal

For the three months ended June 30	2020		2019		Total Change			% Change		FX Adjusted % Change(1)
Freight revenues (in millions)	$	131	$	173	$	(42	)	(24	)	(24	)
Carloads (in thousands)	59.4		77.7		(18.3		)	(24	)	N/A
Revenue ton-miles (in millions)	4,337		5,492		(1,155		)	(21	)	N/A
Freight revenue per carload (in dollars)	$	2,205	$	2,227	$	(22	)	(1	)	(1	)
Freight revenue per revenue ton-mile (in cents)	3.02		3.15		(0.13		)	(4	)	(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.  

Coal revenue was $131 million in the second quarter of 2020, a decrease of $42 million, or 24%, from $173 million in the same period of 2019. This decrease was primarily due to lower volumes of Canadian coal, driven by supply chain challenges at both the mines and the ports, lower volumes of U.S. coal to Wisconsin, and decreased freight revenue per revenue ton-mile. Freight revenue per revenue ton-mile decreased due to the unfavourable impact of lower fuel surcharge revenue as a result of lower fuel prices. Carloads decreased more than RTMs driven by moving lower volumes of U.S. coal to Wisconsin, which has a shorter length of haul.

For the six months ended June 30	2020		2019		Total Change			% Change		FX Adjusted % Change(1)
Freight revenues (in millions)	$	281	$	331	$	(50	)	(15	)	(15	)
Carloads (in thousands)	123.2		148.1		(24.9		)	(17	)	N/A
Revenue ton-miles (in millions)	8,772		10,724		(1,952		)	(18	)	N/A
Freight revenue per carload (in dollars)	$	2,281	$	2,235	$	46		2		2
Freight revenue per revenue ton-mile (in cents)	3.20		3.09		0.11			4		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.  

Coal revenue was $281 million in the first six months of 2020, a decrease of $50 million, or 15%, from $331 million in the same period of 2019. This decrease was primarily due to lower volumes of Canadian coal, driven by supply chain challenges at both the mines and ports and lower fuel surcharge revenue as a result of lower fuel prices. This decrease was partially offset by increased freight revenue per revenue ton-mile due to higher freight rates.

Potash

For the three months ended June 30	2020		2019		Total Change		% Change	FX Adjusted % Change(1)
Freight revenues (in millions)	$	146	$	136	$	10	7	5
Carloads (in thousands)	47.0		44.4		2.6		6	N/A
Revenue ton-miles (in millions)	5,490		5,242		248		5	N/A
Freight revenue per carload (in dollars)	$	3,106	$	3,063	$	43	1	(1	)
Freight revenue per revenue ton-mile (in cents)	2.66		2.59		0.07		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.  

Potash revenue was $146 million in the second quarter of 2020, an increase of $10 million, or 7%, from $136 million in the same period of 2019. This increase was primarily due to higher volumes of domestic potash following three consecutive poor application seasons, higher volumes of export potash following resolved international contract negotiations as well as increased freight revenue per revenue ton-mile. This increase was partially offset by lower fuel surcharge revenue as a result of lower fuel prices. Freight revenue per revenue ton-mile increased due to higher freight rates and the favourable impact of the change in FX.

30

For the six months ended June 30	2020		2019		Total Change			% Change		FX Adjusted % Change(1)
Freight revenues (in millions)	$	258	$	250	$	8		3		2
Carloads (in thousands)	83.4		82.3		1.1			1		N/A
Revenue ton-miles (in millions)	9,628		9,815		(187		)	(2	)	N/A
Freight revenue per carload (in dollars)	$	3,094	$	3,038	$	56		2		1
Freight revenue per revenue ton-mile (in cents)	2.68		2.55		0.13			5		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.  

Potash revenue was $258 million in the first six months of 2020, an increase of $8 million, or 3%, from $250 million in the same period of 2019. This increase was primarily due to increased freight revenue per revenue ton-mile and higher volumes of domestic potash. This increase was partially offset by lower fuel surcharge revenue as a result of lower fuel prices and lower volumes of export potash driven by unresolved international contract negotiations in the first quarter of 2020. Freight revenue per revenue ton-mile increased due to higher freight rates and the favourable impact of the change in FX. Carloads increased while RTMs decreased driven by moving proportionately less export potash to the Port of Vancouver, which has a longer length of haul.

Fertilizers and Sulphur

For the three months ended June 30	2020		2019		Total Change			% Change		FX Adjusted % Change(1)
Freight revenues (in millions)	$	77	$	63	$	14		22		20
Carloads (in thousands)	16.7		14.1		2.6			18		N/A
Revenue ton-miles (in millions)	1,233		940		293			31		N/A
Freight revenue per carload (in dollars)	$	4,611	$	4,468	$	143		3		2
Freight revenue per revenue ton-mile (in cents)	6.24		6.70		(0.46		)	(7	)	(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 $77 million in the second quarter of 2020, an increase of $14 million, or 22%, from $63 million in the same period of 2019. This increase was primarily due to higher volumes of dry fertilizers and sulphur as a result of improved application conditions and the favourable impact of the change in FX. This increase was partially offset by decreased freight revenue per revenue-ton mile. Freight revenue per revenue ton-mile decreased due to lower fuel surcharge revenue as a result of lower fuel prices. RTMs increased more than carloads driven by moving proportionately more dry fertilizers from Chicago, Illinois to western Canada, which has a longer length of haul.

For the six months ended June 30	2020		2019		Total Change			% Change		FX Adjusted % Change(1)
Freight revenues (in millions)	$	147	$	120	$	27		23		20
Carloads (in thousands)	31.8		27.8		4.0			14		N/A
Revenue ton-miles (in millions)	2,328		1,842		486			26		N/A
Freight revenue per carload (in dollars)	$	4,623	$	4,317	$	306		7		5
Freight revenue per revenue ton-mile (in cents)	6.31		6.51		(0.20		)	(3	)	(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 $147 million in the first six months of 2020, an increase of $27 million, or 23%, from $120 million in the same period of 2019. This increase was primarily due to higher volumes of dry fertilizers, sulphur, and wet fertilizers as well as the favourable impact of the change in FX. This increase was partially offset by decreased freight revenue per revenue-ton mile. Freight revenue per revenue ton-mile decreased due to lower fuel surcharge revenue as a result of lower fuel prices. RTMs increased more than carloads driven by moving proportionately more dry fertilizers from Chicago, Illinois to western Canada, which has a longer length of haul.

31

Forest Products

For the three months ended June 30	2020		2019		Total Change			% Change		FX Adjusted % Change(1)
Freight revenues (in millions)	$	81	$	78	$	3		4		—
Carloads (in thousands)	17.5		18.5		(1.0		)	(5	)	N/A
Revenue ton-miles (in millions)	1,319		1,289		30			2		N/A
Freight revenue per carload (in dollars)	$	4,629	$	4,216	$	413		10		6
Freight revenue per revenue ton-mile (in cents)	6.14		6.05		0.09			1		(2	)

⁽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 $81 million in the second quarter of 2020, an increase of $3 million, or 4%, from $78 million in the same period of 2019. This increase was primarily due to higher volumes of wood pulp and increased freight revenue per revenue ton-mile. This increase was partially offset by lower volumes of lumber and lower fuel surcharge revenue as a result of lower fuel prices. Freight revenue per revenue ton-mile increased due to higher freight rates and the favourable impact of the change in FX. RTMs increased while carloads decreased due to higher volumes of wood pulp from Ontario to the U.S., which has a longer length of haul.

For the six months ended June 30	2020		2019		Total Change		% Change	FX Adjusted % Change(1)
Freight revenues (in millions)	$	159	$	151	$	8	5	3
Carloads (in thousands)	35.6		35.6		—		—	N/A
Revenue ton-miles (in millions)	2,596		2,468		128		5	N/A
Freight revenue per carload (in dollars)	$	4,466	$	4,242	$	224	5	3
Freight revenue per revenue ton-mile (in cents)	6.12		6.12		—		—	(2	)

⁽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 $159 million in the first six months of 2020, an increase of $8 million, or 5%, from $151 million in the same period of 2019. This increase was primarily due to higher volumes of wood pulp and panel products, higher freight rates, and the favourable impact of the change in FX. This increase was partially offset by lower fuel surcharge revenue as a result of lower fuel prices. RTMs increased while carloads remained flat due to higher volumes of panel products and wood pulp from eastern Canada to the U.S., which have a longer length of haul.

Energy, Chemicals and Plastics

For the three months ended June 30	2020		2019		Total Change			% Change		FX Adjusted % Change(1)
Freight revenues (in millions)	$	341	$	346	$	(5	)	(1	)	(3	)
Carloads (in thousands)	62.8		87.4		(24.6		)	(28	)	N/A
Revenue ton-miles (in millions)	4,512		6,971		(2,459		)	(35	)	N/A
Freight revenue per carload (in dollars)	$	5,430	$	3,959	$	1,471		37		35
Freight revenue per revenue ton-mile (in cents)	7.56		4.96		2.60			52		50

⁽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 $341 million in the second quarter of 2020, a decrease of $5 million, or 1%, from $346 million in the same period of 2019. This decrease was primarily due to lower volumes of crude and liquefied petroleum gas ("LPG") as a result of the COVID-19 pandemic and lower fuel surcharge revenue as a result of lower fuel prices. This decrease was partially offset by increased freight revenue per revenue ton-mile. Freight revenue per revenue ton-mile increased primarily due to higher liquidated damages, including customer volume commitments, the favourable impact of the change in FX, and higher freight rates. RTMs decreased more than carloads due to moving lower volumes of crude, which has a longer length of haul.

32

For the six months ended June 30	2020		2019		Total Change			% Change		FX Adjusted % Change(1)
Freight revenues (in millions)	$	832	$	661	$	171		26		25
Carloads (in thousands)	164.6		166.2		(1.6		)	(1	)	N/A
Revenue ton-miles (in millions)	13,361		13,330		31			—		N/A
Freight revenue per carload (in dollars)	$	5,055	$	3,977	$	1,078		27		26
Freight revenue per revenue ton-mile (in cents)	6.23		4.96		1.27			26		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.  

Energy, chemicals and plastics revenue was $832 million in the first six months of 2020, an increase of $171 million, or 26%, from $661 million in the same period of 2019. This increase was primarily due to higher freight revenue per revenue ton-mile and higher volumes of crude. This increase was partially offset by lower fuel surcharge revenue as a result of lower fuel prices and lower volumes of LPG as a result of the COVID-19 pandemic. Freight revenue per revenue ton-mile increased primarily due to higher liquidated damages, including customer volume commitments, higher freight rates and the favourable impact of the change in FX.

Metals, Minerals and Consumer Products

For the three months ended June 30	2020		2019		Total Change			% Change		FX Adjusted % Change(1)
Freight revenues (in millions)	$	133	$	205	$	(72	)	(35	)	(37	)
Carloads (in thousands)	45.1		63.7		(18.6		)	(29	)	N/A
Revenue ton-miles (in millions)	1,877		2,867		(990		)	(35	)	N/A
Freight revenue per carload (in dollars)	$	2,949	$	3,218	$	(269	)	(8	)	(11	)
Freight revenue per revenue ton-mile (in cents)	7.09		7.15		(0.06		)	(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 $133 million in the second quarter of 2020, a decrease of $72 million, or 35%, from $205 million in the same period of 2019. This decrease was primarily due to lower volumes of frac sand and steel as a result of the COVID-19 pandemic and decreased freight revenue per revenue ton-mile. This decrease was partially offset by the favourable impact of the change in FX. Freight revenue per revenue ton-mile decreased due to lower fuel surcharge revenue as a result of lower fuel prices. RTMs decreased more than carloads due to moving lower volumes of frac sand to the Bakken, which has a longer length of haul.

For the six months ended June 30	2020		2019		Total Change			% Change		FX Adjusted % Change(1)
Freight revenues (in millions)	$	322	$	378	$	(56	)	(15	)	(17	)
Carloads (in thousands)	103.3		117.2		(13.9		)	(12	)	N/A
Revenue ton-miles (in millions)	4,648		5,315		(667		)	(13	)	N/A
Freight revenue per carload (in dollars)	$	3,117	$	3,225	$	(108	)	(3	)	(5	)
Freight revenue per revenue ton-mile (in cents)	6.93		7.11		(0.18		)	(3	)	(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.  

Metals, minerals and consumer products revenue was $322 million in the first six months of 2020, a decrease of $56 million, or 15%, from $378 million in the same period of 2019. This decrease was primarily due to moving lower volumes of frac sand as a result of the COVID-19 pandemic and decreased freight revenue per revenue ton-mile. This decrease was partially offset by the favourable impact of the change in FX. Freight revenue per revenue ton-mile decreased due to lower fuel surcharge revenue as a result of lower fuel prices.

33

Automotive

For the three months ended June 30	2020		2019		Total Change			% Change		FX Adjusted % Change(1)
Freight revenues (in millions)	$	34	$	104	$	(70	)	(67	)	(68	)
Carloads (in thousands)	11.9		31.5		(19.6		)	(62	)	N/A
Revenue ton-miles (in millions)	130		439		(309		)	(70	)	N/A
Freight revenue per carload (in dollars)	$	2,857	$	3,302	$	(445	)	(13	)	(16	)
Freight revenue per revenue ton-mile (in cents)	26.15		23.69		2.46			10		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.  

Automotive revenue was $34 million in the second quarter of 2020, a decrease of $70 million, or 67%, from $104 million in the same period of 2019. This decrease was primarily due to lower volumes caused by manufacturing plant shutdowns across North America as a result of the COVID-19 pandemic and lower fuel surcharge revenue as a result of lower fuel prices. This decrease was partially offset by higher freight revenue per revenue ton-mile. Freight revenue per revenue ton-mile increased due the favourable impact of the change in FX and higher freight rates. RTMs decreased more than carloads due to increased short haul volumes within southern Ontario.

For the six months ended June 30	2020		2019		Total Change			% Change		FX Adjusted % Change(1)
Freight revenues (in millions)	$	121	$	180	$	(59	)	(33	)	(34	)
Carloads (in thousands)	40.1		56.6		(16.5		)	(29	)	N/A
Revenue ton-miles (in millions)	456		774		(318		)	(41	)	N/A
Freight revenue per carload (in dollars)	$	3,017	$	3,180	$	(163	)	(5	)	(7	)
Freight revenue per revenue ton-mile (in cents)	26.54		23.26		3.28			14		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.  

Automotive revenue was $121 million in the first six months of 2020, a decrease of $59 million, or 33%, from $180 million in the same period of 2019. This decrease was primarily due to lower volumes caused by manufacturing plant shutdowns across North America as a result of the COVID-19 pandemic and lower fuel surcharge revenue as a result of lower fuel prices. This decrease was partially offset by higher freight revenue per revenue ton-mile. Freight revenue per revenue ton-mile increased due to the favourable impact of the change in FX and higher freight rates. RTMs decreased more than carloads due to increased short haul volumes within southern Ontario.

Intermodal

For the three months ended June 30	2020		2019		Total Change			% Change		FX Adjusted % Change(1)
Freight revenues (in millions)	$	363	$	404	$	(41	)	(10	)	(11	)
Carloads (in thousands)	252.2		266.4		(14.2		)	(5	)	N/A
Revenue ton-miles (in millions)	6,660		7,128		(468		)	(7	)	N/A
Freight revenue per carload (in dollars)	$	1,439	$	1,517	$	(78	)	(5	)	(6	)
Freight revenue per revenue ton-mile (in cents)	5.45		5.67		(0.22		)	(4	)	(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.  

Intermodal revenue was $363 million in the second quarter of 2020, a decrease of $41 million, or 10%, from $404 million in the same period of 2019. This decrease was primarily due to lower domestic volumes as a result of the COVID-19 pandemic, and decreased freight revenue per revenue ton-mile. This decrease was partially offset by the onboarding of a new international customer and the favourable impact of the change in FX. Freight revenue per revenue ton-mile decreased due to lower fuel surcharge revenue as a result of lower fuel prices. Carloads decreased less than RTMs due to moving proportionately higher volumes of international intermodal, which has a shorter length of haul.

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For the six months ended June 30	2020		2019		Total Change			% Change		FX Adjusted % Change(1)
Freight revenues (in millions)	$	768	$	784	$	(16	)	(2	)	(3	)
Carloads (in thousands)	520.6		512.7		7.9			2		N/A
Revenue ton-miles (in millions)	13,971		13,750		221			2		N/A
Freight revenue per carload (in dollars)	$	1,475	$	1,529	$	(54	)	(4	)	(4	)
Freight revenue per revenue ton-mile (in cents)	5.50		5.70		(0.20		)	(4	)	(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.  

Intermodal revenue was $768 million in the first six months of 2020, a decrease of $16 million, or 2%, from $784 million in the same period of 2019. This decrease was primarily due to decreased freight revenue per revenue ton-mile, and lower domestic volumes as a result of the COVID-19 pandemic. This decrease was partially offset by higher international volumes due to onboarding of a new international customer and the favourable impact of the change in FX. Freight revenue per revenue ton-mile decreased due to lower fuel surcharge revenues as a result of lower fuel prices, and moving proportionately more international intermodal, which has a lower freight revenue per revenue ton-mile compared to domestic intermodal.

Operating Expenses

For the three months ended June 30 (in millions)	2020		2019		Total Change			% Change		FX Adjusted % Change(1)
Compensation and benefits	$	347	$	383	$	(36	)	(9	)	(11	)
Fuel	131		236		(105		)	(44	)	(46	)
Materials	50		54		(4		)	(7	)	(7	)
Equipment rents	33		34		(1		)	(3	)	(6	)
Depreciation and amortization	195		183		12			7		6
Purchased services and other	266		265		1			—		(1	)
Total operating expenses	$	1,022	$	1,155	$	(133	)	(12	)	(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.  

Operating expenses were $1,022 million in the second quarter of 2020, a decrease of $133 million, or 12%, from $1,155 million in the same period of 2019. This decrease was primarily due to:

• the favourable impact of $81 million from lower fuel prices;

• lower volume variable expense; and

• efficiencies generated from improved operating performance and asset utilization.

This decrease was partially offset by the unfavourable impact of the change in FX of $19 million and gains on land sales of $17 million in 2019.

For the six months ended June 30 (in millions)	2020		2019		Total Change			% Change		FX Adjusted % Change(1)
Compensation and benefits	$	745	$	789	$	(44	)	(6	)	(6	)
Fuel	343		445		(102		)	(23	)	(24	)
Materials	109		111		(2		)	(2	)	(2	)
Equipment rents	69		69		—			—		(1	)
Depreciation and amortization	387		343		44			13		12
Purchased services and other	578		622		(44		)	(7	)	(8	)
Total operating expenses	$	2,231	$	2,379	$	(148	)	(6	)	(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.  

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Operating expenses were $2,231 million in the first six months of 2020, a decrease of $148 million, or 6%, from $2,379 million in the same period of 2019. This decrease was primarily due to:

• the favourable impact of $94 million from lower fuel prices;

• efficiencies generated from improved operating performance and asset utilization;

• lower volume variable expenses;

• the impact of harsher winter operating conditions in 2019; and

• the impact of changes in share price on stock-based compensation of $26 million.

This decrease was partially offset by:

• higher depreciation and amortization of $42 million (excluding FX);

• cost inflation; and

• the unfavourable impact of the change in FX of $25 million.

Compensation and Benefits

Compensation and benefits expense includes employee wages, salaries, fringe benefits, and stock-based compensation. Compensation and benefits expense was $347 million in the second quarter of 2020, a decrease of $36 million, or 9%, from $383 million in the same period of 2019. This decrease was primarily due to:

• lower volume variable expense as a result of decreased workload as measured by GTMs;

• labour efficiencies;

• reduced training costs; and

• lower incentive compensation.

This decrease was partially offset by:

• higher pension current service cost of $8 million;

• the impact of wage and benefit inflation;

• the unfavourable impact of the change in FX of $5 million; and

• increase to stock-based compensation primarily driven by the $4 million impact of changes to stock price.

Compensation and benefits expense was $745 million in the first six months of 2020, a decrease of $44 million, or 6%, from $789 million in the same period of 2019. This decrease was primarily due to:

• labour efficiencies;

• reduction to stock-based compensation primarily driven by the impact of changes in share price of $26 million;

• reduced training costs;

• the impact of weather related costs as a result of harsh winter operating conditions in the first quarter of 2019; and

• lower volume variable expense as a result of decreased workload as measured by GTMs.

This decrease was partially offset by:

• the impact of wage and benefit inflation;

• higher pension current service cost of $16 million; and

• the unfavourable impact of the change in FX of $6 million.

Fuel

Fuel expense consists mainly of fuel used by locomotives and includes provincial, state, and federal fuel taxes. Fuel expense was $131 million in the second quarter of 2020, a decrease of $105 million, or 44%, from $236 million in the same period of 2019. This decrease was primarily due to:

• the favourable impact of $81 million from lower fuel prices;

• a decrease in workload, as measured by GTMs; and

• an increase in fuel efficiency of approximately 1% resulting from improved train productivity and higher horsepower utilization.

This decrease was partially offset by the unfavourable impact of the change in FX of $7 million.

Fuel expense was $343 million in the first six months of 2020, a decrease of $102 million, or 23%, from $445 million in the same period of 2019. This decrease was primarily due to:

• the favourable impact of $94 million from lower fuel prices;

• an improvement in fuel efficiency of 3% from improved winter operating conditions in the first quarter of 2020 and increased train productivity; and

• a decrease in workload, as measured by GTMs.

This decrease was partially offset by the unfavourable impact of the change in FX of $9 million.

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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 $50 million in the second quarter of 2020, a decrease of $4 million, or 7%, from $54 million in the same period of 2019. This decrease was due to lower freight car maintenance net of recoveries, locomotive maintenance and vehicle fuel prices.

Materials expense was $109 million in the first six months of 2020, a decrease of $2 million, or 2%, from $111 million in the same period of 2019. This decrease was due to lower vehicle fuel prices, locomotive servicing and track maintenance, partially offset by higher locomotive maintenance.

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 railroads for the use of CP’s equipment. Equipment rents expense was $33 million in the second quarter of 2020, a decrease of $1 million, or 3%, from $34 million in the same period of 2019. This decrease was primarily due to lower usage of pooled freight cars as a result of lower volumes; partially offset by the unfavourable impact of the change in FX of $1 million.

Equipment rents expense was $69 million in the first six months of 2020, unchanged from $69 million in the same period of 2019. Lower usage of pooled freight cars as a result of lower volumes was offset by the unfavourable impact of the change in FX of $1 million.

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 $195 million in the second quarter of 2020, an increase of $12 million, or 7%, from $183 million in the same period of 2019. This increase was primarily due to a higher depreciable asset base and the unfavourable impact of the change in FX of $1 million.

Depreciation and amortization expense was $387 million in the first six months of 2020, an increase of $44 million, or 13%, from $343 million in the same period of 2019. This increase was primarily due to a higher depreciable asset base, the unfavourable impact of the change in FX of $2 million, and other adjustments made in 2019.

Purchased Services and Other

For the three months ended June 30 (in millions)	2020		2019			Total Change			% Change
Support and facilities	$	63	$	66		$	(3	)	(5	)
Track and operations	62		74			(12		)	(16	)
Intermodal	47		55			(8		)	(15	)
Equipment	27		35			(8		)	(23	)
Casualty	30		16			14			88
Property taxes	31		36			(5		)	(14	)
Other	6		—			6			—
Land sales	—		(17		)	17			(100	)
Total Purchased services and other	$	266	$	265		$	1		—

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 $266 million in the second quarter of 2020, an increase of $1 million from $265 million in the same period of 2019. This increase was primarily due to:

• gains on land sales of $17 million in 2019, reported in Land sales;

• higher expenses primarily due to the increased number and severity of casualty incidents, reported in Casualty; and

• the unfavourable impact of the change in FX of $5 million.

This increase was partially offset by:

• lower volume variable expenses, reported primarily in Intermodal and Equipment;

• lower business travel and event costs due to COVID-19, reported primarily in Support and facilities and Track and operations;

• efficiencies generated from improved operating performance, reported primarily in Equipment and Track and operations; and

• lower property taxes.

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For the six months ended June 30 (in millions)	2020			2019			Total Change			% Change
Support and facilities	$	136		$	137		$	(1	)	(1	)
Track and operations	140			149			(9		)	(6	)
Intermodal	104			111			(7		)	(6	)
Equipment	58			67			(9		)	(13	)
Casualty	68			85			(17		)	(20	)
Property taxes	67			72			(5		)	(7	)
Other	9			18			(9		)	(50	)
Land sales	(4		)	(17		)	13			(76	)
Total Purchased services and other	$	578		$	622		$	(44	)	(7	)

Purchased services and other expense was $578 million in the first six months of 2020, a decrease of $44 million, or 7%, from $622 million in the same period of 2019. This decrease was primarily due to:

• lower expenses primarily due to the reduced number and severity of casualty incidents, reported in Casualty;

• lower snow removal and other weather related costs reported in Track and operations and Intermodal;

• a decrease in charges associated with contingencies of $10 million, reported in Other;

• reduced business travel, reported in Track and operations and Support and facilities; and

• lower property taxes.

This decrease was partially offset by higher gains on land sales of $13 million in 2019, reported in Land sales and the unfavourable impact of the change in FX of $7 million.

Other Income Statement Items

Other (Income) Expense

Other (income) expense 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 income was $86 million in the second quarter of 2020, an increase of $46 million, or 115%, from $40 million in the same period of 2019. This increase was primarily due to a higher FX translation gain on U.S. dollar-denominated debt and lease liabilities of $49 million.

Other expense was $125 million in the first six months of 2020, a change of $212 million, or 244%, compared to an income of $87 million in the same period of 2019. This change was primarily due to a FX translation loss on U.S. dollar-denominated debt and lease liabilities of $129 million, compared to a FX translation gain of $82 million in the same period of 2019.

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.

Other Components of Net Periodic Benefit Recovery

Other components of net periodic recovery was $86 million in the second quarter of 2020, a decrease of $12 million or 12%, compared to $98 million in the same period of 2019 and was $171 million in the first six months of 2020, a decrease of $24 million or 12%, compared to $195 million in the same period of 2019. These decreases were primarily due to increases in the recognized net actuarial loss.

Net Interest Expense

Net interest expense includes interest on long-term debt and finance leases. Net interest expense was $118 million in the second quarter of 2020, an increase of $6 million, or 5%, from $112 million in the same period of 2019. This increase was primarily due to the unfavourable impact of the change in FX of $4 million.

Net interest expense was $232 million in the first six months of 2020, an increase of $6 million, or 3%, from $226 million in the same period of 2019. This increase was primarily due to:

• the unfavourable impact of an increase in debt levels of $11 million;

• the unfavourable impact of the change in FX of $5 million; and

• an increase in commercial paper interest of $3 million.

This was partially offset by a reduction in interest related to long-term debt of $15 million as a result of a lower effective interest rate following the Company's debt refinancing in 2019 and 2020.

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Income Tax Expense

Income tax expense was $189 million in the second quarter of 2020, an increase of $65 million, or 52%, from $124 million in the same period of 2019. This increase was primarily due to the Alberta provincial corporate tax rate decrease enacted in 2019 resulting in deferred income tax recoveries of $88 million, partially offset by lower taxable earnings and a lower effective tax rate.

Income tax expense was $374 million in the first six months of 2020, an increase of $111 million, or 42%, from $263 million in the same period of 2019. This increase was primarily due to deferred income tax recoveries in 2019, described above.

The effective tax rate in the second quarter of 2020, including discrete items, was 22.98% compared to 14.63% in the same period of 2019. The effective tax rate in the first six months of 2020, including discrete items, was 26.38% compared to 18.50% in the same period of 2019. The effective tax rate in the second quarter and first six months of 2020, excluding discrete items, was 25.00% compared to 25.75% in 2019. The decrease in the effective tax rate excluding discrete items was primarily due to the decrease in Alberta's corporate tax rate and the 2020 U.S. track maintenance credit.

The Company expects an effective tax rate in 2020 of 24.80%. The Company’s 2020 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 2019 Annual Report on Form 10-K.

Share Capital

At July 21, 2020, the latest practicable date, there were 135,533,633 Common Shares and no preferred shares issued and outstanding, which consists of 13,877 holders of record of the Common Shares. In addition, CP has a Management Stock Option Incentive Plan (“MSOIP”), under which key officers and employees are granted options to purchase the Common Shares. Each option granted can be exercised for one Common Share. At July 21, 2020, 1,510,722 options were outstanding under the MSOIP and stand-alone option agreements entered into with Mr. Keith Creel. There are 895,523 options available to be issued by the Company’s MSOIP in the future. CP has a Director's Stock Option Plan (“DSOP”), under which directors are granted options to purchase Common Shares. There are no outstanding options under the DSOP, which has 340,000 options available to be issued in the future.

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. 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, and its revolving credit facility.

As at June 30, 2020, the Company had $277 million of Cash and cash equivalents compared to $133 million at December 31, 2019.

As at June 30, 2020, the Company's revolving credit facility was undrawn (December 31, 2019 - undrawn), from a total available amount of U.S. $1.3 billion. The agreement requires the Company to maintain a financial covenant in conjunction with the credit facility. As at June 30, 2020, the Company was in compliance with all terms and conditions of the credit facility arrangements and satisfied the financial covenant.

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 June 30, 2020, total commercial paper borrowings was $nil, compared to U.S. $397 million as at December 31, 2019.

As at June 30, 2020, under its bilateral letter of credit facilities, the Company had letters of credit drawn of $62 million from a total available amount of $300 million. This compares to letters of credit drawn of $80 million from a total available amount of $300 million as at December 31, 2019. 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 June 30, 2020 and December 31, 2019, 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.

39

Operating Activities

Cash provided by operating activities was $835 million in the second quarter of 2020, an increase of $114 million, or 16%, compared to $721 million in the same period of 2019. This increase was primarily due to a favourable change in working capital which included lower income tax payments, partially offset by a decrease in cash generating income during the second quarter of 2020, compared to the same period of 2019. The Company had lower income tax payments in the second quarter of 2020 as a result of the deferral of Canadian federal and provincial as well as U.S. federal payments until the third quarter of 2020 due to COVID-19.

Cash provided by operating activities was $1,324 million in the first six months of 2020, an increase of $190 million, or 17%, compared to $1,134 million in the same period of 2019. This increase was primarily due to higher cash generating income and a favourable change in working capital primarily due to lower income tax payments, partially offset by a decrease in receipts from customers in advance of performing services in the six months ended June 30, 2020, compared to the same period of 2019.

Investing Activities

Cash used in investing activities was $468 million in the second quarter of 2020, an increase of $13 million, or 3%, compared to $455 million in the same period of 2019. Cash used in investing activities was $830 million in the first six months of 2020, an increase of $156 million, or 23%, compared to $674 million in the same period of 2019. These increases were primarily due to higher capital additions during 2020 compared to the same periods of 2019.

Free Cash

CP generated positive Free cash of $333 million in the second quarter of 2020, an increase of $68 million from $265 million, or 26%, in the same period of 2019. For the first six months of 2020, CP generated positive Free cash of $491 million, an increase of $33 million, or 7%, from $458 million in the same period of 2019. These increases were primarily due to an increase in cash provided by operating activities, partially offset by an increase in cash used in investing activities as a result of higher additions to properties.

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 used in financing activities was $322 million in the second quarter of 2020, a decrease of $250 million, or 44%, compared to $572 million in the same period of 2019. This decrease was primarily due to the principal repayment of U.S. $350 million 7.250% notes in the second quarter of 2019 as well as lower payments to buy back shares under the Company's share repurchase program during the three months ended June 30, 2020. This was partially offset by net repayments of commercial paper and short-term borrowings compared to net issuances of commercial paper in the same period of 2019.

Cash used in financing activities was $366 million in the first six months of 2020, a decrease of $108 million, or 23%, compared to $474 million in the same period of 2019. This decrease was primarily due to the issuances of U.S. $500 million 2.050% notes due March 5, 2030 and $300 million 3.050% notes due March 9, 2050, compared to the issuance of $400 million 3.150% notes due March 13, 2029 in the same period of 2019, as well as the principal repayment of U.S. $350 million of the Company's 7.250% notes during the six months ended June 30, 2019. This was partially offset by net repayments of commercial paper during the six months ended June 30, 2020 compared to net issuances in the same period of 2019, and higher payments to buy back shares under the Company's share repurchase program during 2020.

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 mid-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 June 30, 2020, CP's credit ratings from Standard & Poor's Rating Services ("Standard & Poor's") and Moody's Investor Service ("Moody's") remain unchanged from December 31, 2019.

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Credit ratings as at June 30, 2020⁽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	Baa1	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 June 30, 2020 and June 30, 2019 was 4.1 and 3.7, respectively. This increase was primarily due to higher debt.

The Adjusted net debt to Adjusted earnings before interest, tax, depreciation and amortization (“EBITDA”) ratio remained unchanged at 2.4 for the twelve months ended June 30, 2020 and June 30, 2019. 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.

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 past years, CP has recognized significant asset impairment charges, management transition costs related to senior executives and discrete tax items. 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 Canadian Pacific Railway Limited (“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 of June 30, 2020, CPRC has outstanding $7,972 million principal amount of debt securities due through 2115, and $47 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 and payable, 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.

The Company early adopted Rule 13-01 of the SEC's Regulation S-X which simplifies the existing disclosure requirements relating to our guaranteed securities and allows such disclosure to be included within this Part 1, Item II, "Management’s Discussion and Analysis of Financial Condition and Results of Operations." Pursuant to Rule 13-01, we are eligible to provide this summarized financial and non-financial information in lieu of providing separate financial statements of CPRC.

41

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.

Statements of Income

	CPRC (Subsidiary Issuer) and CPRL (Parent Guarantor)
(in millions of Canadian dollars)	For the six months ended June 30, 2020		For the year ended December 31, 2019
Total revenues	$	2,872	$	5,662
Total operating expenses	1,665		3,446
Operating income(1)	1,207		2,216
Less: Other(2)	211		(13		)
Income before income tax expense	996		2,229
Net income	$	712	$	1,704

⁽¹⁾  Includes net lease costs incurred from non-guarantor subsidiaries for the six months ended June 30, 2020 and for the year ended December 31, 2019 of $160 million and $320 million, respectively.

⁽²⁾  Includes Other (income) expense, Other components of net periodic benefit recovery, and Net interest expense.

Balance Sheets

	CPRC (Subsidiary Issuer) and CPRL (Parent Guarantor)
(in millions of Canadian dollars)	As at June 30, 2020		As at December 31, 2019
Assets
Current assets	$	847	$	842
Properties	10,679		10,287
Other non-current assets	1,423		1,208
Liabilities
Current liabilities	$	1,192	$	1,833
Long-term debt	9,458		8,145
Other non-current liabilities	2,750		2,711

Excluded from the Income Statements and Balance Sheets above are the following significant intercompany transactions and balances that CPRC and CPRL have with the Non-Guarantor Subsidiaries:

Cash Transactions with Non-Guarantor Subsidiaries

	CPRC (Subsidiary Issuer) and CPRL (Parent Guarantor)
(in millions of Canadian dollars)	For the six months ended June 30, 2020		For the year ended December 31, 2019
Dividend income from non-guarantor subsidiaries	$	97	$	158
Capital contributions to non-guarantor subsidiaries	—		(125		)
Redemption of shares by non-guarantor subsidiaries	—		1,345

42

Balances with Non-Guarantor Subsidiaries

	CPRC (Subsidiary Issuer) and CPRL (Parent Guarantor)
(in millions of Canadian dollars)	As at June 30, 2020		As at December 31, 2019
Assets
Accounts receivable, intercompany	$	192	$	318
Short-term advances to affiliates	19		14
Long-term advances to affiliates	8		7
Liabilities
Accounts payable, intercompany	$	125	$	249
Short-term advances from affiliates	3,754		3,700
Long-term advances from affiliates	88		84

Non-GAAP Measures

The Company presents Non-GAAP measures to provide a basis for evaluating underlying earnings and liquidity trends in the Company’s business that can be compared with the results of operations in prior periods. In addition, these Non-GAAP measures facilitate a multi-period assessment of long-term profitability, allowing management and other external users of the Company’s consolidated financial information to compare profitability on a long-term basis, including assessing future profitability, with that of the Company’s peers.

These Non-GAAP measures have no standardized meaning and are not defined by GAAP and, therefore, may not be comparable to similar measures presented by other companies. The presentation of these Non-GAAP measures is not intended to be considered in isolation from, as a substitute for, or as superior to the financial information presented in accordance with GAAP.

Non-GAAP Performance Measures

The Company uses adjusted earnings results including Adjusted income and Adjusted diluted earnings per share to evaluate the Company’s operating performance and for planning and forecasting future business operations and future profitability. These Non-GAAP measures are presented in Financial Highlights and discussed further in other sections of this Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. These Non-GAAP measures provide meaningful supplemental information regarding operating results because they exclude certain significant items that are not considered indicative of future financial trends either by nature or amount. As a result, these items are excluded for management assessment of operational performance, allocation of resources and preparation of annual budgets. These significant items may include, but are not limited to, restructuring and asset impairment charges, individually significant gains and losses from sales of assets, the FX impact of translating the Company’s debt and lease liabilities (including borrowings under the credit facility), discrete tax items, and certain items outside the control of management. These items may not be non-recurring. However, excluding these significant items from GAAP results allows for a consistent understanding of the Company's consolidated financial performance when performing a multi-period assessment including assessing the likelihood of future results. Accordingly, these Non-GAAP financial measures may provide insight to investors and other external users of the Company's consolidated financial information.

In the first six months of 2020, there was one significant item included in Net income as follows:

• during the year to date, a non-cash loss of $129 million ($116 million after deferred tax) due to FX translation of debt and lease liabilities that unfavourably impacted Diluted EPS by 95 cents as follows:

– in the second quarter, an $86 million gain ($82 million after deferred tax) that favourably impacted Diluted EPS by 59 cents; and

– in the first quarter, a $215 million loss ($198 million after deferred tax) that unfavourably impacted Diluted EPS by $1.44.

In 2019, there were three significant items included in Net income as follows:

• in the fourth quarter, a deferred tax expense of $24 million as a result of a provision for an uncertain tax item of a prior period that unfavourably impacted Diluted EPS by 17 cents;

• in the second quarter, a deferred tax recovery of $88 million due to the change in the Alberta provincial corporate income tax rate that favourably impacted Diluted EPS by 63 cents; and

• during the course of the year, a net non-cash gain of $94 million ($86 million after deferred tax) due to FX translation of debt and lease liabilities as follows:

– in the fourth quarter, a $37 million gain ($32 million after deferred tax) that favourably impacted Diluted EPS by 22 cents;

– in the third quarter, a $25 million loss ($22 million after deferred tax) that unfavourably impacted Diluted EPS by 15 cents;

– in the second quarter, a $37 million gain ($34 million after deferred tax) that favourably impacted Diluted EPS by 24 cents; and

– in the first quarter, a $45 million gain ($42 million after deferred tax) that favourably impacted Diluted EPS by 30 cents.

43

In the last six months ended December 31, 2018, there was one significant item included in Net income as follows:

• a net non-cash loss of $75 million ($70 million after deferred tax) due to FX translation of debt as follows:

– in the fourth quarter, a $113 million loss ($103 million after deferred tax) that unfavourably impacted Diluted EPS by 72 cents; and

– in the third quarter, a $38 million gain ($33 million after deferred tax) that favourably impacted Diluted EPS by 23 cents.

Reconciliation of GAAP Performance Measures to Non-GAAP Performance Measures

The following tables reconcile the most directly comparable measures presented in accordance with GAAP to the Non-GAAP measures presented in Financial Highlights and discussed further in other sections of this Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations:

Adjusted income is calculated as Net income reported on a GAAP basis adjusted for significant items.

	For the three months ended June 30					For the six months ended June 30						For the twelve months ended December 31
(in millions)	2020		2019			2020			2019			2019
Net income as reported	$	635	$	724		$	1,044		$	1,158		$	2,440
Less significant items (pre-tax):
Impact of FX translation gain (loss) on debt and lease liabilities	86		37			(129		)	82			94
Add:
Tax effect of adjustments(1)	4		3			(13		)	6			8
Income tax rate changes	—		(88		)	—			(88		)	(88		)
Provision for uncertain tax item	—		—			—			—			24
Adjusted income	$	553	$	602		$	1,160		$	994		$	2,290

⁽¹⁾  The tax effect of adjustments was calculated as the pre-tax effect of the adjustments multiplied by the applicable tax rate for the above items of 5.62% and 9.87% for the three and six months ended June 30, 2020, 9.47% and 7.82% for the three and six months ended June 30, 2019, and 8.55% for the twelve months ended December 31, 2019, respectively. The applicable tax rates reflect the taxable jurisdictions and nature, being on account of capital or income, of the significant items.

Adjusted diluted earnings per share is calculated using Adjusted income, as defined above, divided by the weighted-average diluted number of Common Shares outstanding during the period as determined in accordance with GAAP.

	For the three months ended June 30					For the six months ended June 30						For the twelve months ended December 31
	2020		2019			2020			2019			2019
Diluted earnings per share as reported	$	4.66	$	5.17		$	7.64		$	8.25		$	17.52
Less significant items (pre-tax):
Impact of FX translation gain (loss) on debt and lease liabilities	0.63		0.27			(0.94		)	0.58			0.67
Add:
Tax effect of adjustments(1)	0.04		0.03			(0.09		)	0.04			0.05
Income tax rate changes	—		(0.63		)	—			(0.63		)	(0.63		)
Provision for uncertain tax item	—		—			—			—			0.17
Adjusted diluted earnings per share	$	4.07	$	4.30		$	8.49		$	7.08		$	16.44

⁽¹⁾  The tax effect of adjustments was calculated as the pre-tax effect of the adjustments multiplied by the applicable tax rate for the above items of 5.62% and 9.87% for the three and six months ended June 30, 2020, 9.47% and 7.82% for the three and six months ended June 30, 2019, and 8.55% for the twelve months ended December 31, 2019, respectively The applicable tax rates reflect the taxable jurisdictions and nature, being on account of capital or income, of the significant items.

Adjusted ROIC

Adjusted ROIC is calculated as Adjusted return divided by Adjusted average invested capital. Adjusted return is defined as Net income adjusted for interest expense, tax effected at the Company’s adjusted annualized effective tax rate, and significant items in the Company’s Consolidated Financial Statements, tax effected at the applicable tax rate. Adjusted average invested capital is defined as the sum of total Shareholders' equity, Long-term debt, and Long-term debt maturing within one year, as presented in the Company's Consolidated Financial Statements, each averaged between the beginning and ending balance over a rolling 12-month period, adjusted for the impact of significant items, tax effected at the applicable tax rate, on closing balances as part of this average.

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Adjusted ROIC excludes significant items reported in the Company's Consolidated Financial Statements, as these significant items are not considered indicative of future financial trends either by nature or amount, and excludes interest expense, net of tax, to incorporate returns on the Company’s overall capitalization. Adjusted ROIC is a performance measure that measures how productively the Company uses its long-term capital investments, representing critical indicators of good operating and investment decisions made by management, and is an important performance criteria in determining certain elements of the Company's long-term incentive plan. Adjusted ROIC, which is reconciled below from Return on average shareholders' equity, the most comparable measure calculated in accordance with GAAP, is also presented in Financial Highlights and discussed further in Results of Operations of this Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Beginning in the first quarter of 2020, CP aligned the reconciliation sequence for Adjusted ROIC to start with Net income, with no change to the calculated Adjusted return.

Calculation of Return on average shareholders' equity

	For the twelve months ended June 30
(in millions, except for percentages)	2020			2019
Net income as reported	$	2,326		$	2,325
Average shareholders' equity	$	7,311		$	6,866
Return on average shareholders' equity	31.8		%	33.9		%

Reconciliation of Net income to Adjusted return

	For the twelve months ended June 30
(in millions)	2020			2019
Net income as reported	$	2,326		$	2,325
Add:
Net interest expense	454			452
Tax on interest(1)	(113		)	(114		)
Significant items:
Impact of FX translation loss (gain) on debt and lease liabilities (pre-tax)	117			(7		)
Tax on significant items(2)	(11		)	1
Income tax recovery from income tax rate changes	—			(88		)
Provision for uncertain tax item	24			—
Adjusted return	$	2,797		$	2,569

⁽¹⁾  Tax was calculated at the adjusted annualized effective tax rate of 24.69% and 25.03% for the twelve months ended June 30, 2020 and 2019, respectively.

⁽²⁾  Tax was calculated as the pre-tax effect of the adjustments multiplied by the applicable tax rate for the above items of 9.68% and 14.62% for the twelve months ended June 30, 2020 and 2019, respectively.

Reconciliation of Average shareholders' equity to Adjusted average invested capital

	For the twelve months ended June 30
(in millions)	2020			2019
Average shareholders' equity	$	7,311		$	6,866
Average Long-term debt, including long-term debt maturing within one year	9,044			8,511
	$	16,355		$	15,377
Less:
Income tax recovery from income tax rate changes	—			44
Provision for uncertain tax item	(12		)	—
Adjusted average invested capital	$	16,367		$	15,333

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Calculation of Adjusted ROIC

	For the twelve months ended June 30
(in millions, except for percentages)	2020			2019
Adjusted return	$	2,797		$	2,569
Adjusted average invested capital	$	16,367		$	15,333
Adjusted ROIC	17.1		%	16.8		%

Free Cash

Free cash is calculated as Cash provided by operating activities, less Cash used in investing activities, adjusted for changes in cash and cash equivalents balances resulting from FX fluctuations, and the acquisition of Central Maine and Québec Railway ("CMQ"). Free cash is a measure that management considers to be an indicator of liquidity. Free cash is useful to investors and other external users of the Company's Consolidated Financial Statements as it assists with the evaluation of the Company's ability to generate cash from its operations without incurring additional external financing. The acquisition of CMQ is not indicative of investment trends and has also been excluded from Free cash. Positive Free cash indicates the amount of cash available for reinvestment in the business, or cash that can be returned to investors through dividends, stock repurchase programs, debt retirements or a combination of these. Conversely, negative Free cash indicates the amount of cash that must be raised from investors through new debt or equity issues, reduction in available cash balances or a combination of these. Free cash should be considered in addition to, rather than as a substitute for, Cash provided by operating activities. Free cash is presented in Financial Highlights and discussed further in Liquidity and Capital Resources of this Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Reconciliation of Cash Provided by Operating Activities to Free Cash

	For the three months ended June 30						For the six months ended June 30
(in millions)	2020			2019			2020			2019
Cash provided by operating activities	$	835		$	721		$	1,324		$	1,134
Cash used in investing activities	(468		)	(455		)	(830		)	(674		)
Effect of foreign currency fluctuations on U.S. dollar-denominated cash and cash equivalents	(15		)	(1		)	16			(2		)
Less:
Investment in Central Maine and Québec Railway	19			—			19			—
Free cash	$	333		$	265		$	491		$	458

Foreign Exchange Adjusted % Change

FX adjusted % change allows certain financial results to be viewed without the impact of fluctuations in foreign currency exchange rates, thereby facilitating period-to-period comparisons in the analysis of trends in business performance. Financial result variances at constant currency are obtained by translating the comparable period of the prior year results denominated in U.S. dollars at the foreign exchange rates of the current period.

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FX adjusted % changes in revenues are further used in calculating FX adjusted % change in freight revenue per carload and RTM. These items are presented in Operating Revenues of this Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

	For the three months ended June 30
(in millions)	Reported 2020		Reported 2019		Variance due to FX		FX Adjusted 2019		FX Adjusted % Change
Freight revenues by line of business
Grain	$	446	$	422	$	9	$	431	3
Coal	131		173		—		173		(24	)
Potash	146		136		3		139		5
Fertilizers and sulphur	77		63		1		64		20
Forest products	81		78		3		81		—
Energy, chemicals and plastics	341		346		5		351		(3	)
Metals, minerals and consumer products	133		205		7		212		(37	)
Automotive	34		104		3		107		(68	)
Intermodal	363		404		4		408		(11	)
Freight revenues	1,752		1,931		35		1,966		(11	)
Non-freight revenues	40		46		—		46		(13	)
Total revenues	$	1,792	$	1,977	$	35	$	2,012	(11	)

	For the six months ended June 30
(in millions)	Reported 2020		Reported 2019		Variance due to FX		FX Adjusted 2019		FX Adjusted % Change
Freight revenues by line of business
Grain	$	864	$	802	$	10	$	812	6
Coal	281		331		—		331		(15	)
Potash	258		250		3		253		2
Fertilizers and sulphur	147		120		2		122		20
Forest products	159		151		3		154		3
Energy, chemicals and plastics	832		661		6		667		25
Metals, minerals and consumer products	322		378		8		386		(17	)
Automotive	121		180		4		184		(34	)
Intermodal	768		784		5		789		(3	)
Freight revenues	3,752		3,657		41		3,698		1
Non-freight revenues	83		87		—		87		(5	)
Total revenues	$	3,835	$	3,744	$	41	$	3,785	1

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FX adjusted % changes in operating expenses are presented in Operating Expenses of this Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

	For the three months ended June 30
(in millions)	Reported 2020		Reported 2019		Variance due to FX		FX Adjusted 2019		FX Adjusted % Change
Compensation and benefits	$	347	$	383	$	5	$	388	(11	)
Fuel	131		236		7		243		(46	)
Materials	50		54		—		54		(7	)
Equipment rents	33		34		1		35		(6	)
Depreciation and amortization	195		183		1		184		6
Purchased services and other	266		265		5		270		(1	)
Total operating expenses	$	1,022	$	1,155	$	19	$	1,174	(13	)

	For the six months ended June 30
(in millions)	Reported 2020		Reported 2019		Variance due to FX		FX Adjusted 2019		FX Adjusted % Change
Compensation and benefits	$	745	$	789	$	6	$	795	(6	)
Fuel	343		445		9		454		(24	)
Materials	109		111		—		111		(2	)
Equipment rents	69		69		1		70		(1	)
Depreciation and amortization	387		343		2		345		12
Purchased services and other	578		622		7		629		(8	)
Total operating expenses	$	2,231	$	2,379	$	25	$	2,404	(7	)

Adjusted Net Debt to Adjusted EBITDA Ratio

Adjusted net debt to Adjusted EBITDA ratio is calculated as Adjusted net debt divided by Adjusted EBITDA. The Adjusted net debt to Adjusted EBITDA ratio is a key credit measure used to assess the Company’s financial capacity. The ratio provides information on the Company’s ability to service its debt and other long-term obligations. The Adjusted net debt to Adjusted EBITDA ratio, which is reconciled below from the Long-term debt to Net income ratio, the most comparable measure calculated in accordance with GAAP, is also presented in Financial Highlights and discussed further in Results of Operations of this Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Calculation of Long-term Debt to Net Income Ratio

(in millions, except for ratios)	2020		2019
Long-term debt including long-term debt maturing within one year as at June 30	$	9,548	$	8,539
Net income for the twelve months ended June 30	2,326		2,325
Long-term debt to Net income ratio	4.1		3.7

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Reconciliation of Long-term Debt to Adjusted Net Debt

Adjusted net debt is defined as Long-term debt, Long-term debt maturing within one year and Short-term borrowing as reported on the Company’s Consolidated Balance Sheets adjusted for pension plans deficit, operating lease liabilities recognized on the Company's Consolidated Balance Sheets, and Cash and cash equivalents.

(in millions)	2020		2019
Long-term debt including long-term debt maturing within one year as at June 30	$	9,548	$	8,539
Add:
Pension plans deficit(1)	294		263
Operating lease liabilities	343		375
Less:
Cash and cash equivalents	277		45
Adjusted net debt as at June 30	$	9,908	$	9,132

⁽¹⁾  Pension plans deficit is the total funded status of the Pension plans in deficit only.  

Reconciliation of Net Income to EBIT, Adjusted EBIT and Adjusted EBITDA

Earnings before interest and tax ("EBIT") is calculated as Net income before Net interest expense and Income tax expense. Adjusted EBIT excludes significant items reported in both Operating income and Other (income) expense. Adjusted EBITDA is calculated as Adjusted EBIT plus operating lease expense and Depreciation and amortization, less Other components of net periodic benefit recovery.

	For the twelve months ended June 30
(in millions)	2020			2019
Net income as reported	$	2,326		$	2,325
Add:
Net interest expense	454			452
Income tax expense	817			656
EBIT	3,597			3,433
Less significant items (pre-tax):
Impact of FX translation (loss) gain on debt and lease liabilities	(117		)	7
Adjusted EBIT	3,714			3,426
Add:
Operating lease expense	80			102
Depreciation and amortization	750			697
Less:
Other components of net periodic benefit recovery	357			388
Adjusted EBITDA	$	4,187		$	3,837

Calculation of Adjusted Net Debt to Adjusted EBITDA Ratio

(in millions, except for ratios)	2020		2019
Adjusted net debt as at June 30	$	9,908	$	9,132
Adjusted EBITDA for the twelve months ended June 30	$	4,187	$	3,837
Adjusted net debt to Adjusted EBITDA ratio	2.4		2.4

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Off-Balance Sheet Arrangements

Guarantees

As at June 30, 2020, the Company had residual value guarantees on operating lease commitments of $2 million. The maximum amount that could be payable under these and all of the Company’s other guarantees cannot be reasonably estimated due to the nature of certain of these guarantees. All or a portion of amounts paid under certain guarantees could be recoverable from other parties or through insurance. The Company accrues for all guarantees that it expects to pay. As at June 30, 2020, these accruals amounted to $6 million, reduced from $10 million at December 31, 2019, as a result of settlements.

Contractual Commitments

The following table indicates the Company’s obligations and commitments to make future payments for contracts such as debt, leases, and commercial arrangements as at June 30, 2020.

Payments due by period (in millions)	Total		2020		2021 & 2022		2023 & 2024		Thereafter
Contractual commitments
Interest on long-term debt and finance leases	$	11,821	$	237	$	885	$	766	$	9,933
Long-term debt	9,486		55		876		594		7,961
Finance leases	157		4		119		15		19
Operating leases(1)	389		36		126		97		130
Supplier purchases	1,949		241		832		493		383
Other long-term liabilities(2)	474		28		104		100		242
Total contractual commitments	$	24,276	$	601	$	2,942	$	2,065	$	18,668

⁽¹⁾  Residual value guarantees on certain leased equipment with a maximum exposure of $2 million are not included in the minimum payments shown above.

⁽²⁾  Includes expected cash payments for environmental remediation, post-retirement benefits, workers’ compensation benefits, long-term disability benefits, pension benefit payments for the Company’s non-registered supplemental pension plan, and certain other long-term liabilities. Projected payments for post-retirement benefits, workers’ compensation benefits, and long-term disability benefits include the anticipated payments for years 2020 to 2029. Pension contributions for the Company’s registered pension plans are not included due to the volatility in calculating them. Pension payments are discussed further in Critical Accounting Estimates of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Company's 2019 Annual Report on Form 10-K.

Certain Other Financial Commitments

In addition to the financial commitments mentioned previously in Off-Balance Sheet Arrangements and those mentioned above, the Company is party to certain other financial commitments discussed below.

Letters of Credit

Letters of credit are obtained mainly to provide security to third parties under the terms of various agreements, including the supplemental pension plan. CP is liable for these contractual amounts in the case of non-performance under these agreements. Letters of credit are accommodated through a revolving credit facility and the Company’s bilateral letter of credit facilities.

Capital Commitments

The Company remains committed to maintaining the current high level of quality of our capital assets in pursuing sustainable growth. As part of this commitment, CP has entered into contracts with suppliers to make various capital purchases related to track and rolling stock programs. Payments for these commitments are due in 2020 through 2032. These expenditures are expected to be financed by cash generated from operations or by issuing new debt.

The following table outlines the Company’s commitments to make future payments for letters of credit and capital expenditures as at June 30, 2020:

Payments due by period (in millions)	Total		2020		2021 & 2022		2023 & 2024		Thereafter
Certain other financial commitments
Letters of credit	$	62	$	62	$	—	$	—	$	—
Capital commitments	581		233		206		70		72
Total certain other financial commitments	$	643	$	295	$	206	$	70	$	72

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Critical Accounting Estimates

To prepare consolidated financial statements that conform with GAAP, the Company is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reported periods. Using the most current information available, the Company reviews estimates on an ongoing basis, including those related to environmental liabilities, pensions and other benefits, property, plant and equipment, deferred income taxes, and personal injury and other claims liabilities. Additional information concerning critical accounting estimates is supplemented in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company's 2019 Annual Report on Form 10-K.

Following completion of the January 1, 2020 actuarial valuations of the Canadian pension plans, CP has changed its estimate of aggregate pension contributions, including its defined benefit and defined contribution plans, to be in the range of $40 million to $50 million in 2020, a reduction of $25 million from the previous estimate. The estimate for 2021 to 2023 remains in the range of $50 million to $100 million per year. There have been no other material changes to the Company's critical accounting estimates in the first six months of 2020.

The development, selection and disclosure of these estimates, and this MD&A, have been reviewed by the Board of Directors’ Audit and Finance Committee, which is composed entirely of independent directors.

Forward-Looking Statements

This Management's Discussion and Analysis of Financial Condition and Results of Operations and Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995 and other relevant securities legislation, including applicable securities laws in Canada. Forward-looking statements typically include words such as “financial expectations”, “key assumptions”, “anticipate”, “believe”, “expect”, “plan”, “will”, “outlook”, “should” or similar words suggesting future outcomes. To the extent that CP has provided forecasts or targets using Non-GAAP financial measures, the Company may not be able to provide a reconciliation to a GAAP measure without unreasonable efforts, due to unknown variables and uncertainty related to future results. This Management's Discussion and Analysis of Financial Condition and Results of Operations and Quarterly Report on Form 10-Q includes forward-looking statements relating, but not limited to, statements concerning 2020 volume as measured in revenue ton-miles, adjusted diluted EPS, capital program investments, the U.S.-to-Canadian dollar exchange rate and expected impacts resulting from changes therein, annualized effective tax rate and other components of net periodic benefit recovery, the purpose of which is to assist readers in understanding our expected and targeted financial results, and this information may not be appropriate for other purposes.

The forward-looking statements contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations and Quarterly Report on Form 10-Q are based on current expectations, estimates, projections and assumptions, having regard to the Company's experience and its perception of historical trends, and includes, but is not limited to, expectations, estimates, projections and assumptions relating to: North American and global economic growth; commodity demand growth; sustainable industrial and agricultural production; commodity prices and interest rates; foreign exchange rates (as specified herein); effective tax rates (as specified herein); performance of our assets and equipment; sufficiency of our budgeted capital expenditures in carrying out our business plan; geopolitical conditions; applicable laws, regulations and government policies; the availability and cost of labour, services and infrastructure; the satisfaction by third parties of their obligations to the Company; and the anticipated impacts of the COVID-19 pandemic on the Company’s business, operating results, cash flows and/or financial condition. Although the Company believes the expectations, estimates, projections and assumptions reflected in the forward-looking statements presented herein are reasonable as of the date hereof, there can be no assurance that they will prove to be correct. Current conditions, economic and otherwise, render assumptions, although reasonable when made, subject to greater uncertainty.

Undue reliance should not be placed on forward-looking statements as actual results may differ materially from those expressed or implied by forward-looking statements. By their nature, forward-looking statements involve numerous inherent risks and uncertainties that could cause actual results to differ materially from the forward-looking statements, including but not limited to the following factors: changes in business strategies; general North American and global economic, credit and business conditions; risks associated with agricultural production such as weather conditions and insect populations; the availability and price of energy commodities; the effects of competition and pricing pressures; industry capacity; shifts in market demand; changes in commodity prices; uncertainty surrounding timing and volumes of commodities being shipped via CP; inflation; geopolitical instability; changes in laws, regulations and government policies, including regulation of rates; changes in taxes and tax rates; potential increases in maintenance and operating costs; changes in fuel prices; uncertainties of investigations, proceedings or other types of claims and litigation; labour disputes; risks and liabilities arising from derailments; transportation of dangerous goods; timing of completion of capital and maintenance projects; currency and interest rate fluctuations; effects of changes in market conditions and discount rates on the financial position of pension plans and investments; trade restrictions or other changes to international trade arrangements; climate change; various events that could disrupt operations, including severe weather, such as droughts, floods, avalanches and earthquakes, and cybersecurity attacks, as well as security threats and governmental response to them, and technological changes; and the pandemic created by the outbreak of the novel strain of coronavirus (and the disease known as COVID-19) and resulting effects on economic conditions, the demand environment for logistics requirements and energy prices, restrictions imposed by public health authorities or governments, fiscal and monetary policy responses by governments and financial institutions, and disruptions to global supply chains. The foregoing list of factors is not exhaustive. There are more specific factors that could cause

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actual results to differ materially from those described in the forward-looking statements contained in this Management's Discussion and Analysis of Financial Condition and Results of Operations and Quarterly Report on Form 10-Q. These more specific factors are identified and discussed in Item 1A. Risk Factors of CP's 2019 Annual Report on Form 10-K. Other risks are detailed from time to time in reports filed by CP with securities regulators in Canada and the United States.

The forward-looking statements contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations and Quarterly Report on Form 10-Q are made as of the date hereof. Except as required by law, CP undertakes no obligation to update publicly or otherwise revise any forward-looking statements, or the foregoing assumptions and risks affecting such forward-looking statements, whether as a result of new information, future events or otherwise.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes to interest rate risk during the three and six months ended June 30, 2020 from the information provided in Item 7A. Quantitative and Qualitative Disclosure about Market Risk of CP's 2019 Annual Report on Form 10-K. Refer to information on foreign exchange risk and share price impact on stock-based compensation discussed below:

Foreign Exchange Risk

Although CP conducts business primarily in Canada, a significant portion of its revenues, expenses, assets, and liabilities including debt are denominated in U.S. dollars. The value of the Canadian dollar is affected by a number of domestic and international factors, including, without limitation, economic performance, and Canadian, U.S. and international monetary policies. Consequently, the Company’s results are affected by fluctuations in the exchange rate between these currencies. On an annualized basis, a $0.01 weakening (or strengthening) of the Canadian dollar relative to the U.S. dollar positively (or negatively) impacts Total revenues by approximately $30 million (2019 - approximately $28 million), negatively (or positively) impacts Operating expenses by approximately $15 million (2019 - approximately $15 million), and negatively (or positively) impacts Net interest expense by approximately $3 million (2019 - approximately $3 million).

CP uses U.S. dollar-denominated debt to hedge its net investment in U.S. operations. As at June 30, 2020, the net investment in U.S. operations is less than the total U.S. denominated debt. Consequently, FX translation on the Company’s undesignated debt and lease liabilities causes additional impacts on earnings in Other (income) expense. For further information on the net investment hedge, please refer to Financial Statements, Note 19 Financial instruments of CP's 2019 Annual Report on Form 10-K.

To manage this exposure to fluctuations in exchange rates between Canadian and U.S. dollars, CP may sell or purchase U.S. dollar forwards at fixed rates in future periods. In addition, changes in the exchange rate between the Canadian dollar and other currencies (including the U.S. dollar) make the goods transported by the Company more or less competitive in the world marketplace and may in turn positively or negatively affect revenues.

Share Price Impact on Stock-Based Compensation

Based on information available at June 30, 2020, for every $1.00 change in share price, stock-based compensation expense has a corresponding change of approximately $0.5 million to $0.6 million (2019 - approximately $0.4 million to $0.6 million). This excludes the impact of changes in share price relative to the S&P/TSX 60 Index, the S&P/TSX Capped Industrial Index, the S&P 1500 Road and Rail Index, and to Class I railways, which may trigger different performance share unit payouts. Stock-based compensation may also be impacted by non-market performance conditions.

Additional information concerning stock-based compensation is included in Item 1. Financial Statements, Note 14 Stock-based compensation.

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ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of June 30, 2020, an evaluation was carried out under the supervision of and with the participation of CP's management, including its CEO and CFO, of the effectiveness of the design and operation of the Company's disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based on that evaluation, the CEO and CFO concluded that these disclosure controls and procedures were effective as of June 30, 2020, to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified by the SEC rules and forms and (ii) accumulated and communicated to the Company’s management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

During the second quarter of 2020, the Company has not identified any changes in internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II

ITEM 1. LEGAL PROCEEDINGS

For further details refer to Item 1. Financial Statements, Note 15 Contingencies.

ITEM 1A. RISK FACTORS

There have been no material changes to the risk factors from the information provided in Item 1A. Risk Factors of CP's 2019 Annual Report on Form 10-K, with the exception of those discussed below.

The COVID-19 pandemic has negatively affected and may continue to negatively affect the Company's business and operating results

In the second quarter of 2020, the effects of the Coronavirus and the disease it causes (known as "COVID-19") on consumer demand resulted in lower volumes in several of the Company's lines of business, including Energy, chemicals and plastics, Metals, minerals and consumer products, Intermodal, and Automotive. The future impacts of COVID-19 on the Company's business or operating and financial results are unpredictable and cannot be identified with certainty at this time. The widespread health crisis has adversely affected the global economy and resulted in a widespread economic downturn which has adversely impacted and could continue to adversely impact demand for our services and otherwise cause interruptions, including fluctuations to commodity prices, disruptions or restrictions on the ability to transport freight in the ordinary course, temporary closures of facilities and ports, or the facilities and ports of our customers, partners, suppliers or other third-party service providers, and/or changes to export/import restrictions. The pandemic caused by COVID-19 has impacted and may continue to impact the seasonal trends that typically characterize our revenues and operating income. There is no assurance that the outbreak will not continue to have a material adverse impact on our business or results of operations. Further, our operations could be negatively affected if a significant number of our employees are unable to perform their normal duties because of contracting COVID-19 or based on further direction from governments, public health authorities or regulatory agencies. The extent of the impact, if any, will depend on developments beyond our control, including actions taken by governments, financial institutions, monetary policy authorities, and public health authorities to contain and respond to public health concerns and general economic conditions as a result of the pandemic. The COVID-19 pandemic may also result in substantial market volatility and declines, which could adversely impact future net periodic benefit costs and funding requirements of CP’s pension plans.

We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required or recommended by federal, provincial, state or local authorities, or that we determine are in the best interests of our employees, customers, partners, suppliers, shareholders and other stakeholders. We cannot be certain of potential effects any such alterations or modifications may have on our business or operating and financial results for the fiscal year ending December 31, 2020.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchase of Equity Securities

CP has established a share repurchase program which is further described in Item 1. Financial Statements, Note 12 Shareholders' equity. The following table presents the number of Common Shares repurchased during each month of the second quarter of 2020 and the average price paid by CP for the repurchase of such Common Shares.

2020	Total number of shares purchased(1)	Average price paid per share(2)		Total number of shares purchased as part of publicly announced plans or programs	Maximum number of shares (or units) that may yet be purchased under the plans or programs
April 1 to April 30	—	$	—	—	3,046,599
May 1 to May 31	—	—		—	3,046,599
June 1 to June 30	150,860	341.27		150,860	2,895,739
Ending Balance	150,860	$	341.27	150,860	N/A

⁽¹⁾  Includes shares repurchased but not yet cancelled at quarter end.

⁽²⁾  Includes brokerage fees.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

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ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

Exhibit	Description
22.1*	List of Issuers and Guarantor Subsidiaries
31.1*	CEO Rule 13a-14(a) Certifications
31.2*	CFO Rule 13a-14(a) Certifications
32.1*	CEO Section 1350 Certifications
32.2*	CFO Section 1350 Certifications
101.INS*	Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*	Inline XBRL Taxonomy Extension Schema Document
101.CAL*	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB*	Inline XBRL Taxonomy Extension Label Linkbase Document
101.DEF*	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.PRE*	Inline XBRL Taxonomy Extension Presentation Linkbase Document
	The following financial information from Canadian Pacific Railway Limited's Quarterly Report on Form 10-Q for the second quarter ended June 30, 2020, formatted in Extensible Business Reporting Language (XBRL) includes: (i) the Interim Consolidated Statements of Income for the second quarters and first six months ended June 30, 2020 and 2019; (ii) the Interim Consolidated Statements of Comprehensive Income for the second quarters and first six months ended June 30, 2020 and 2019; (iii) the Interim Consolidated Balance Sheets at June 30, 2020, and December 31, 2019; (iv) the Interim Consolidated Statements of Cash Flows for the second quarters and first six months ended June 30, 2020 and 2019; (v) the Interim Consolidated Statements of Changes in Shareholders’ Equity for the second quarters and first six months ended June 30, 2020 and 2019; and (vi) the Notes to Interim Consolidated Financial Statements.
104*	Cover Page Interactive Data File (embedded within the Inline XBRL document)

*Filed with this Quarterly Report on Form 10-Q

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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

Dated: July 22, 2020

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