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Business acquisition
 6 Months Ended
Jun. 30, 2024
Business Combination, Asset Acquisition, and Joint Venture Formation [Abstract]  
Business acquisition Business acquisition
Kansas City Southern

On December 14, 2021, the Company purchased 100% of the issued and outstanding shares of KCS with the objective of creating the only single-line railroad linking the U.S., Mexico and Canada, and the Company placed the shares of KCS in a voting trust. On March 15, 2023, the U.S. Surface Transportation Board (the “STB”) approved the Company and KCS’s joint merger application, and the Company assumed control of KCS on April 14, 2023 (the "Control Date"). From December 14, 2021 to April 13, 2023, the Company recorded its investment in KCS using the equity method of accounting.

Accordingly, the Company commenced consolidation of KCS on the Control Date, accounting for the acquisition as a business combination achieved in stages. The results from operations and cash flows have been consolidated prospectively from the Control Date. The Company derecognized its previously held equity method investment in KCS of $44,402 million as of April 13, 2023 and remeasured the investment at its Control Date fair value of $37,227 million, which formed part of the purchase consideration, resulting in a remeasurement loss of $7,175 million recorded in the second quarter of 2023. In addition, and on the same date, a deferred income tax recovery of $7,832 million was recognized upon the derecognition of the deferred income tax liability computed on the outside basis that the Company had recognized in relation to its investment in KCS while accounted for using the equity method. The fair value of the previously held equity interest in KCS was determined by a discounted cash flow approach, which incorporated the Company’s best estimates of long-term growth rates, tax rates, discount rates, and terminal multiples.

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

The provisional fair values of the intangible assets were determined using valuation techniques including, but not limited to, the multi-period excess earnings method, the replacement cost method, the relief from royalty method and the income approach. The significant assumptions used to determine the provisional fair values of the intangible assets included, but were not limited to, the renewal probability and term of the Mexican concession extension, discount rates, earnings before interest, tax, depreciation, and amortization ("EBITDA") margins and terminal growth rates.

The fair value of non-controlling interest was determined using a combination of the income and market approaches to determine the fair value of Meridian Speedway LLC in which Norfolk Southern Corporation ("NSC") owns a non-controlling interest, and this fair value was allocated proportionately between KCS and NSC.

The accounting for the acquisition of KCS was completed on April 13, 2024, with the end of the measurement period and the final validation of the fair values assigned to acquired assets and assumed liabilities. This validation was completed using additional information about facts and circumstances as of the Control Date, that was obtained during the measurement period.

The following table summarizes the final purchase price allocation with the amounts recognized in respect of the identifiable assets acquired and liabilities and non-controlling interest assumed on the Control Date, as well as the fair value of the previously held equity interest in KCS and the measurement period adjustments recorded:

(in millions of Canadian dollars)Preliminary allocation - April 14, 2023Measurement period adjustmentsFinal allocation
Net assets acquired:
Cash and cash equivalents$298 $— $298 
Net working capital51 (161)(110)
Properties28,748 1 28,749 
Intangible assets3,022 — 3,022 
Other long-term assets496 (6)490 
Debt including debt maturing within one year(4,545)— (4,545)
Deferred income taxes(6,984)62 (6,922)
Other long-term liabilities(406)(37)(443)
Total identifiable net assets$20,680 $(141)$20,539 
Goodwill17,491 141 17,632 
$38,171 $— $38,171 
Consideration:
Fair value of previously held equity method investment$37,227 $— $37,227 
Intercompany payable balance, net acquired12 — 12 
Fair value of non-controlling interest932 — 932 
Total$38,171 $— $38,171 

During the measurement period adjustments were recorded as a result of new information that was obtained about facts and circumstances of certain KCS assets and liabilities as of the Control Date. New information obtained during 2023 was primarily in relation to CPKCM's value added tax assets and liabilities, as well as income and other tax positions. New information obtained during the first quarter of 2024 was primarily in relation to KCS's environmental liabilities, certain liabilities for other taxes in Mexico and legal and personal injury claims. Other adjustments recorded in relation to assets and liabilities were not significant in value. These adjustments to the Company's December 31, 2023 Consolidated Balance Sheet and March 31, 2024 Interim Consolidated Balance Sheet had a negligible impact to the Company's net income in 2023 and in the three and six months ended June 30, 2024.

The net working capital acquired included trade receivables of $697 million and accounts payable and accrued liabilities of $1,014 million.

Intangible assets of $3,022 million consisted of contracts and customer relationships with amortization periods of nine to 22 years as well as U.S. trackage rights and the KCS brand with indefinite estimated useful lives. Included in the acquired Properties are concession rights and related assets held under the terms of a concession from the Mexican government, which have fair values totalling $9,176 million. The Concession rights and related assets are amortized over the shorter of the underlying asset lives and the estimated concession term, including one renewal period of 74 years.

Net working capital and Other long-term liabilities included environmental liabilities of $15 million and $160 million, respectively, and legal and personal injury claims of $44 million and $40 million, respectively, which are contingent on the outcome of uncertain future events. The values are measured at estimated cost and evaluated for changes in facts at the end of the reporting period.

The excess of the total consideration, over the amounts allocated to acquired assets and assumed liabilities and non-controlling interest recognized, has been recognized as goodwill of $17,632 million. Goodwill represents future synergies and an acquired assembled workforce. All of the goodwill has been assigned to the Company's single, rail transportation operating segment. None of the goodwill is expected to be deductible for income tax purposes.

In relation to certain Mexican tax liabilities identified and recorded through Goodwill during the measurement period, in the first quarter of 2024, the Company also recorded further accruals for liabilities incurred since the Control Date of $10 million, recognized as an expense within "Compensation and benefits".

On a pro forma basis, if the Company had consolidated KCS beginning on January 1, 2022, the revenue and net income attributable to controlling shareholders of the combined entity would be as follows for the three and six months ended June 30, 2023:

Three Months Ended
June 30, 2023		Six Months Ended
June 30, 2023
(in millions of Canadian dollars)
KCS Historical(1)
Pro Forma CPKC
KCS Historical(1)
Pro Forma CPKC
Revenue$164 $3,338 $1,351 $6,794 
Net income attributable to controlling shareholders34 615 280 1,371 
(1) KCS's historical amounts were translated into Canadian dollars at the Bank of Canada daily exchange rate for the period from April 1 to April 13, 2023 and January 1 to April 13, 2023 with effective exchange rates of $1.35 and $1.35, respectively.

For the three and six months ended June 30, 2023, the supplemental pro forma Net income attributable to controlling shareholders for the combined entity were adjusted for:
•the removal of the remeasurement loss of $7,175 million upon the derecognition of CPRL's previously held equity method investment in KCS from the three and six months ended June 30, 2023, which included the reclassification of associated accumulated other comprehensive income to retained earnings;
•depreciation and amortization of differences between the historic carrying value and the preliminary fair value of tangible and intangible assets and investments prior to the Control Date;
•amortization of differences between the carrying amount and the fair value of debt through net interest expense prior to the Control Date;
•the elimination of intercompany transactions prior to the Control Date between the Company and KCS;
•miscellaneous amounts have been reclassified across revenue, operating expenses, and non-operating income or expense, consistent with CPKC's financial statement captions;
•the removal of equity earnings from KCS, previously recognized as an equity method investment prior to the Control Date, of $26 million and $230 million for the three and six months ended June 30, 2023, respectively (see Note 9); and
•income tax adjustments including:
◦the derecognition of a deferred income tax recovery of $7,832 million for the three and six months ended June 30, 2023 related to the elimination of the deferred income tax liability on the outside basis difference of the investment in KCS;
◦the derecognition of a deferred income tax recovery for the three months ended June 30, 2023 on CPKC unitary state apportionment changes; and
◦a deferred income tax recovery prior to the Control Date on amortization of fair value adjustments to investments, properties, intangible assets, and debt.

During the three and six months ended June 30, 2024, the Company incurred $28 million and $54 million, in acquisition-related costs, respectively, of which:
•$2 million and $6 million were recognized in "Compensation and benefits", respectively, primarily related to retention and synergy related incentive compensation costs;
•$2 million and $4 million were recognized in "Materials", respectively; and
•$24 million and $44 million were recognized in "Purchased services and other", respectively, primarily related to system migration, restructuring, and third party purchased services.

During the three and six months ended June 30, 2023, the Company incurred $119 million and $134 million, in acquisition-related costs, respectively, of which:
•$63 million and $63 million were recognized in "Compensation and benefits", respectively;
•$53 million and $65 million were recognized in "Purchased services and other", respectively; and
•$3 million and $6 million were recognized in "Other (income) expense", respectively.

Acquisition-related costs of $1 million and $11 million incurred by KCS during the three and six months ended June 30, 2023 were included within "Equity earnings of Kansas City Southern".

During the three and six months ended June 30, 2024, the Company recognized $86 million ($62 million after deferred income tax recovery of $24 million) and $170 million ($123 million after deferred income tax recovery of $47 million), respectively, of KCS purchase accounting representing incremental depreciation and amortization in relation to fair value adjustments to depreciable property, plant and equipment, intangible assets with definite lives, KCS’s investments, the non-controlling interest, and long-term debt, and amortized over the related assets' remaining useful lives and the remaining terms to maturity of the debt instruments in "Net income", including costs of:
•$82 million and $161 million recognized in "Depreciation and amortization", respectively;
•$1 million and $2 million recognized in "Purchased services and other", respectively;
•$nil and $1 million recognized in "Other (income) expense", respectively;
•$5 million and $10 million recognized in "Net interest expense", respectively; and
•a recovery of $2 million and $4 million recognized in "Net (loss) income attributable to non-controlling interest", respectively.

During the three and six months ended June 30, 2023, the Company recognized $81 million ($61 million after deferred income tax recovery of $20 million) and $123 million ($103 million after deferred income tax recovery of $20 million), respectively, of KCS purchase accounting, including costs of:
•$68 million and $68 million recognized in "Depreciation and amortization", respectively;
•$6 million and $48 million recognized in "Equity earnings of Kansas City Southern", respectively;
•$1 million and $1 million recognized in "Other (income) expense", respectively; and
•$6 million and $6 million recognized in "Net interest expense", respectively.