CP 10-K & 10-Q changes, risk factors and insider trading

The information set forth in this Item 1A. Risk Factors should be read in conjunction with the rest of the information included in this annualAnnual report,Report on Form 10-K, including Part II Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 8. Financial Statements and Supplementary Data.

The Company relies on technology and technological improvements to operate its business. Although the Company devotes significant resources to protect its technology systems and proprietary data, there can be no assurance that the systems and processes we have designed to prevent or limit the effects of cyber incidents or attacks will be sufficient in averting such incidents or attacks. (Please see “"Item 1C. Cybersecurity”" for further discussion). The Company continually evaluates attackers’ techniques, tactics and motives, and strives to be diligent in its monitoring, training, planning, and prevention. However, due to the increasing sophistication of cyber-attacks and greater complexity within our ITinformation technology supply chain, the Company may be unable to anticipate or implement appropriate preventive measures to detect and respond to a security breach.

The availability of qualified personnel could adversely affect the Company's operations. Changes in employee demographics, training requirementsrequirements, and the availability of qualified personnel, particularly locomotive engineers and trainpersons, could negatively impact the Company’s ability to meet demand for rail services. Unpredictable increases in the demand for rail services may increase the risk of having insufficient numbers of trained personnel, which could have a material adverse effect on the Company’s results of operations, financial conditioncondition, and liquidity. In addition, changes in operations and other technology improvements may significantly impact the number of employees required to meet the demand for rail services.

The Company is subject to significant governmental legislation and regulation across different jurisdictions over commercial, operating and environmental, climate, sustainability and other matters. The requirements and expectations of regulators and stakeholders continue to evolve and diverge, and our ability to meet these requirements and expectations may have a material adverse impact on our results of operations. The Company’s railway operations are subject to extensive federal laws, regulationsregulations, and rules in the countries it operates. Operations are subject to economic and safety regulations in Canada primarily by the Agency and TC. The Company’s U.S. operations are subject to economic and safety regulation by the STB and the FRA. The Company’s Mexican operations are subject to economic and safety regulations by the SICT and ARTF.ATTRAPI. Any new rules from regulators could have a material adverse effect on the Company's financial condition, results of operationsoperations, and liquidity as well as its ability to invest in enhancing and maintaining vital infrastructure. Various other regulators, including the FRA, and the PHMSA, directly and indirectly affect the Company’s operations in areas such as health, safety, security, environmentalenvironmental, and other matters. Together, the FRA and the PHMSA have broad jurisdiction over railroad operating standards and practices, including track, freight cars, locomotives, and hazardous materials requirements. In addition, the U.S. Environmental Protection Agency (“"EPA”") has regulatory authority with respect to matters that impact the Company's properties and operations. Additional regulation of the rail industry by these regulators or federal and state or provincial legislative bodies, whether under new or existing laws, may result in increased capital expenditures and operating costs and could have a significant negative impact on the Company’s ability to determine prices for rail services and result in a material adverse effect in the future on the Company’s business, financial position, results of operations, and liquidity in a particular year or quarter. This potential material adverse effect could also result in reduced capital spending on the Company’s rail network or in abandonment of lines.

In addition, these laws and regulations are evolving, and may impose differing or inconsistent requirements on us. For example, environmental, social and sustainability-related topics such as climate change and diversity, as well as companies’ actions and initiatives on such issues, have received significant attention from lawmakers, regulators and other stakeholders. Various governments, including the U.S. and Canadian federal governments, as well as local, regionalregional, provincial and state governments, have adopted or are considering legislation, regulation or policies on these topics, which may diverge from, or potentially conflict with, those in other jurisdictions. Compliance with such laws, regulations or policies, including any that may be adopted in the future, could, among other things, increase the costs of operating our businesses, reduce the demand for our products and services and impact the prices we charge our customers, any or all of which could adversely affect our results of operations. Failure to comply with any legislation, regulation or policy, including as a result of making good faith interpretations that may differ from those taken by enforcement authorities in relevant jurisdictions, could potentially result in substantial fines, criminal sanctions, reputational harm or operational changes. Moreover, our customers, shareholders, employeesemployees, and other stakeholders have diverse and evolving expectations, demands and perspectives on various topics, including environmental, socialsocial, and sustainability topics. We may not be able to meet the diverse expectations and demands of all of our stakeholders, which could harm our reputation, reduce customer demand for our products and services, and subject us to legal and operational risks.

Such environmental liabilities may also be raised by adjacent landowners or third parties. In addition, in operating a railway, it is possible that releases of hazardous materials during derailments or other accidents may occur that could cause harm to human health or to the environment. Costs of remediation, damages and changes in regulations could materially affect the Company’s operating results and reputation. The Company has been, and may in the future be, subject to allegations or findings to the effect that it has violated, or is strictly liable under, environmental laws or regulations. The Company currently has obligations at existing sites for investigation, remediationremediation, and monitoring, and will likely have obligations at other sites in the future. The actual costs associated with both current and long-term liabilities may vary from the Company’s estimates due to a number of factors including, but not limited toto, changes in: the content or interpretation of environmental laws and regulations; required remedial actions; technology associated with site investigation or remediation; and the involvement and financial viability of other parties that may be responsible for portions of those liabilities. The Company’s Mexican operations are subject to Mexican federal and state laws and regulations relating to the protection of the environment concerning, among other matters, emissions to the air, land, and water, and the handling of hazardous materials and wastes, and are also subject to the compliance with standards for water discharge, water supply, emissions, noise pollution, hazardous substances and transportation and handling of hazardous and solid waste. The Mexican government may bring administrative and criminal proceedings, impose economic sanctions against companies that violate environmental laws, and temporarily or even permanently close non-complying facilities.

The Company is subject to claims and litigation that could result in significant expenditures. Due to the nature of its operations, the Company is exposed to the potential for claims and litigation arising out of personal injury, property damage or freight damage, employment, labour contract or other commercial disputes, and environmental, climate or sustainability, or other liability. The Company accrues for potential losses in accordance with applicable accounting standards, based on ongoing assessments of the likelihood of an adverse result in a claim or litigation together with the monetary relief or other damages sought or potentially recoverable. Material changes to litigation trends, a significant rail or other incident or series of incidents involving freight damage or loss, property damage, personal injury, or environmental, climate or sustainability, or other liability, and other significant matters could have a material adverse impact to the Company's operations, reputation, financial positionposition, or liquidity.

The Company is dependent on certain key suppliers of core railway equipment and materials that could result in increased price volatility or significant shortages of materials, which could adversely affect results of operations, financial condition, and liquidity. Due to the complexity and specialized nature of core railway equipment and infrastructure (including rolling stock equipment, locomotives, railrail, and ties), there are a limited number of suppliers of rail equipment and materials available. Should these specialized suppliers cease production or experience capacity or supply shortages, this concentration of suppliers could result in the Company experiencing cost increases or difficulty in obtaining rail equipment and materials, which could have a material adverse effect on the Company's results of operations, financial condition, and liquidity. Additionally, the Company’s operations are dependent on the availability of diesel fuel. A significant fuel supply shortage arising from production decreases, increased demand in existing or emerging foreign markets, disruption of oil imports, disruption of domestic refinery production, damage to refinery or pipeline infrastructure, political unrest, war or other factors could have a material adverse effect on the Company's results of operations, financial position, and liquidity in a particular year or quarter.

The Company may fail to realize the anticipated cost savings, growth opportunities and synergiessynergies, and other benefits anticipated from the recent acquisition of KCS and is subject to continuing obligations under the STB’s final decision, which could adversely affect the Company’s business. On April 14, 2023, the Company assumed control of KCS. The success of the KCS acquisition will depend on, among other things, the Company’s ability to successfully integrate the business of KCS with the Company's other U.S. rail carrier subsidiaries in a manner that facilitates growth opportunities, realizes anticipated synergies, and achieves the projected cost savings, revenue growth and profitability targets of the combined businesses without adversely affecting current revenues and investments in future growth. There is a significant degree of difficulty and management distraction inherent in the process of integrating an acquisition, which may involve delays or additional and unforeseen expenses. Integration and other disruptions from the KCS acquisition may also disrupt the Company’s ongoing businesses. In connection with the integration of the CPKC 2024 ANNUAL REPORT / 19 KCS business, the Company has incurred and expects to continue to incur significant costs. These costs may exceed the savings and efficiencies the Company expects to achieve from the integration of the businesses.

In connection with the STB's March 15, 2023 final decision, the STB imposed a number of conditions, including among others (i) commitments by the combined company to keep gateways open on commercially reasonable terms and create no new bottlenecks, (ii) environmental-related conditions, (iii) data reporting and retention requirements, and (iv) a seven-year oversight period for the STB to monitor adherence to these conditions. In addition, the Company inherited conditions previously imposed by the STB on KCS in connection with various prior KCS acquisitions, including in relation to KCS’s commitment to keep the Laredo gateway open on commercially reasonable terms in connection with its prior acquisition of The Texas Mexican Railway. Furthermore, the STB has the authority to issue supplemental orders to address issues or concerns that may arise in the future. In addition, the final decision is subject to a pending petition for review in the U.S. Court of Appeals for the District of Colombia Circuit by a coalition of communities in the Chicago area. Compliance with these conditions and orders, or revisions or additions to the conditions imposed by the STB, could impact the Company’s operations and cause the Company to incur significant expenses. If the Company is not able to successfully achieve its objectives from the KCS acquisition within the anticipated time frame, or at all, the anticipated benefits may not be realized fully or at all, or may take longer to realize than expected, which may adversely affect the Company’s business.

The Concession granted to CPKCM from the Mexican concession of CPKCMgovernment is subject to revocation or termination in certain circumstances, which would prevent CPKCM from conducting rail operations under the Concession and would have a material adverse effect on the Company’s results of operations. CPKCM operates under the Concession granted by the Mexican government for a period of 50 years which is renewable under certain conditions, for additional periods, each up to 50 years. The Concession gives CPKCM exclusive rights to provide freight transportation services over its rail lines through 2037 (the first 40 years of the 50-year Concession), subject to certain trackage and haulage rights granted to other freight rail concessionaires, and subject to trackage and haulage rights afforded to concessionaires of concessions that may be granted by the SICT to provide passenger rail service in the future.

The SICT and ARTF,ATTRAPI, which are principally responsible for regulating railroad services in Mexico, have broad powers to monitor CPKCM’s compliance with the Concession, and they can require CPKCM to supply them with any technical, administrativeadministrative, and financial information they request. Among other obligations, CPKCM must comply with the investment commitments established in its business plan, which forms an integral part of the Concession, and must update the plan every three years. The SICT treats CPKCM’s business plans confidentially. The SICT and ARTFATTRAPI also monitor CPKCM’s compliance with efficiency and safety standards established in the Concession. The SICT and ARTFATTRAPI review, and may amend, these standards from time to time. COFECEThe CNA also has the authority to regulate railroad service in Mexico, having powers to monitor compliance with the antitrust laws as well as to investigate and determine remedies for anticompetitive practices.

Under the Concession, CPKCM has the right to operate its rail lines, but it does not own the land, roadwayroadway, or associated structures. If the Mexican government legally terminates the Concession, it would own, control, and manage such public domain assets used in the operation of CPKCM’s rail lines. All other property not covered by the Concession, including all locomotives and railcars otherwise acquired, would remain CPKCM’s property. In the event of early termination, or total or partial revocation of the Concession, the Mexican government would have the right to cause the Company to lease all service related assets to it for a term of at least one year, automatically renewable for additional one-year terms for up to five years. The amount of rent would be determined by experts appointed by CPKCM and the Mexican government. The Mexican government must exercise this right within four months after early termination or revocation of the Concession.

In addition, the Mexican government would also have a right of first refusal with respect to certain transfers by CPKCM of railroad equipment within 90 days after revocation of the Concession. The Mexican government may also temporarily seize control of CPKCM’s rail lines and its assets in the event of a natural disaster, war, significant public disturbancedisturbance, or imminent danger to the domestic peace or economy. In such a case, the SICT may restrict CPKCM’s ability to operate under the Concession in such manner as the SICT deems necessary under the circumstances, but only for the duration of any of the foregoing events. Mexican law requires that the Mexican government pay compensation if it effects a statutory appropriation for reasons of the public interest. With respect to a temporary seizure due to any cause other than international war, the Mexican Regulatory Railroad Service Law and regulations provide that the Mexican government will indemnify an affected concessionaire for an amount equal to damages caused and losses suffered. However, these payments may not be sufficient to compensate CPKCM for its losses and may not be made timely.

The Company’s ownership of CPKCM and operations in Mexico subject it to Mexican economic and political risks. The Mexican government has exercised, and continues to exercise, significant influence over the Mexican economy. Accordingly, Mexican governmental actions and policies concerning the economy and state-owned enterprises, including with respect to taxes, salaries, pension, transporttransport, and similar services, as well as other political events in Mexico could have a significant impact on Mexican private sector entities in general and on CPKCM’s operations in particular. For example, CPKCMCPKCM's operations could be impacted with the introduction of new legislation or policies to regulate the railway industry, the energy market, or labour and tax conditions. The Company cannot predict the impact that the political landscape, including multiparty rule, social unrest and civil disobedience, will have on the Mexican economy or CPKCM’s operations. For example, from time to time, teachers' protests in Mexico have resulted in service interruptions on CPKCM’s rightrights of ways.way. The Company’s consolidated financial statements and prospects may be adversely affected by currency fluctuations, inflation, interest rates, regulation, taxationtaxation, and other political, social and economic developments in or affecting Mexico. For example, Mexican tax reforms effective January 1, 2026, requiring cash deposits to contest tax assessments may adversely affect our liquidity and ability to challenge such assessments. Additionally, the Company has a tax contingency related to an audit assessment, which is currently in litigation, foras thewell CPKCMas 2014audit Mexicoassessments taxthat return.are in administrative appeals. An adverse resolution of these matters could have a material adverse effect on the Company’s consolidated financial statements in a particular quarter or period. Tax contingencies are further discussed in Notes 67 and 2526 of Part II Item 8. Financial Statements and Supplementary Data.

The social and political situation in Mexico could adversely affect the Mexican economy and CPKCM’s operations, and changes in laws, public policies, regulationsregulations, and government programs, including measures related to new or increased taxes, could be enacted, each of which could also have a material adverse effect on the Company’s consolidated financial statements.

The Mexican economy in the past has suffered balance of payment deficits and shortages in FX reserves. Although Mexico has imposed foreign exchangeFX controls in the past, there are currently no exchangeFX controls in Mexico. Any restrictive exchangeFX control policy could adversely affect the Company’s ability to obtain U.S. dollars or to convert Mexican pesos into dollars for purposes of making payments. This could have a material adverse effect on the Company’s consolidated financial statements.

Additionally, fluctuations in the peso-dollar exchange ratesrate could lead to shifts in the types and volumes of Mexican imports and exports. Although a decrease in the level of exports of some of the commodities that CPKCM transports to the United States may be offset by a subsequent increase in imports of other commodities CPKCM hauls into Mexico and vice versa, any offsetting increase might not occur on a timely basis, if at all. Future developments in United States-Mexican trade beyond the Company’s control may result in a reduction of freight volumes or in an unfavourable shift in the mix of products and commodities CPKCM carries.

Climate change presents both physical and transition risks to our business. A summary of climate-related risks that could adversely affect our business, operations and financial results isare discussed below.

Changing climate conditions, severeextreme weather events or natural disasters could result in significant business interruptions and costs to the Company. The Company is exposed to severeextreme weather conditionsevents andsuch natural disasters, including earthquakes, volcanism,as hurricanes, tropical storms, tornadoes, floods, fires, avalanches, mudslides,wildfires, extreme temperatures, anddrought, significant precipitationprecipitation, and natural disasters including earthquakes, volcanism, avalanches, and mudslides that have caused and in the future can cause track outages, severe damage to infrastructure,infrastructure and business interruptions that have adversely affectedaffect the Company’s entire rail network. These events have resulted and canmay in the future result in substantial costs to respond during the event and recover following the event. Costs have and in the future can include modifications to existing infrastructure or implementation of new infrastructure to prevent future impacts toon our business.

Insurance maintained by the Company to protect against loss of business and other related consequences resulting from theseextreme weather events and natural occurrencesdisasters is subject to coverage limitations, depending on the nature of the risk insured. This insurance may not be sufficient to cover all of the Company's damages or damages to others, and may not continue to be available at commercially reasonable rates. Even with insurance, if any extreme weather event or natural occurrencedisaster leads to a catastrophic interruption of services, the Company may not be able to restore services without a significant interruption in operations.

The Company has established a GHG emissions reduction target, and may establish updated or new targets in the future to guide the implementation of the Company's carbon reduction efforts. The Company's inability to achieve our sustainability goals, including the current GHG emissions reduction target or any future targets we may establish could negatively impact the Company, including both our reputation and financial results. The Company has established a science-based GHG emissions reduction target (please see “Sustainability-RelatedSustainability Related Laws, Regulations and Strategies—Climate Change” in Item 1. Business for further discussion). Our current GHG emissions reduction target and any future GHG emissions reduction targets we may establish are subject to a number of risks, assumptionsassumptions, and uncertainties that include, but are not limited to: changes in carbon markets; evolving sustainability strategies and scientific, methodologicalmethodological, or technological developments, including future investments in and the availability of GHG emissions-reduction tools and technologies, shifts in the science, data, methodologymethodology, and legal and financial considerations underlying our climate and sustainability-related analysis and strategy, including those developed and used by organizations such as SBTi, the ability of the Company to successfully implement its climate and sustainability-related strategies and initiatives (including actions and plans undertaken by the Company to reduce GHG emissions), significant changes in the Company's GHG emissions profile as a result of changes to its railway asset base, the Company's ability to work with governments and third parties to mitigate the impacts of climate change, domestic and international economic conditions, including exchangeFX rates, the effects of competition and regulation, shifting climate-related policy, regulations and stakeholder expectations, uncertainties in the financial markets, capital spending, actions of vendors, the willingness of customers to acquire our services, cost of network expansion, maintenance and retrofits, and physical impact of climate change on our business. In addition, the accuracy, consistencyconsistency, and usefulness of climate or sustainability-related data (including data underlying our current or future targets and their baselines) could be impacted by a number of factors, including the accuracy of the assumptions in the science-based methodology used to calculate this data, improvementthe inquality ourof the data collectionwe rely on (including data collected by third parties) and our measuring systems, activities such as joint ventures, mergers and acquisitions or divestitures, and industry-driven changes to methodologies. Further, as we continue to integrate KCS, we are conducting additional data-gathering and intend to further assess the climate and sustainability strategies and initiatives for the combined company, and may make changes to our existing strategies and initiatives as a result.

As a result of these and other factors, we may not achieve our current GHG emissions reduction target or any future GHG emissions reduction targets we may establish or do so in a manner that meets standards and expectations developed by third parties such as SBTi.SBTi or the expectations of our key stakeholders. We cannot assure that the Company's current or future plans to reduce GHG emissions will be viable or successful. In addition, there can be no assurance that our shareholders and other stakeholdersstakeholders, who hold increasingly diverging views on these topics, will agree with our goals and strategies or be satisfied with our efforts to attain such goals.goals or with our other sustainability-related efforts or commitments. Moreover, any perception, whether or not valid, that we have failed to act responsibly with respect to such matters, failed (or may fail) to achieve our goals or to effectively respond to new or additional market developments or legal or regulatory requirements, could adversely affect our business, reputation, and exposure to legal risks. As a result, there is no assurance that we will be able to successfully achieve our sustainability goals,goals or that our sustainability strategy will satisfy the diverging expectations of our stakeholders, which could damage our reputation and customercustomer, and other stakeholder relationships and have an adverse effect on our business, results of operations, and financial condition.

An escalating price on carbon emissions could materially increase direct costs related to fuelenergy purchases and indirect expenses related to purchased goods, materials,goods and electricitymaterials, required to operate our business. As aan fuel-intensiveenergy-intensive operation, the Company is exposed to bothevolving emergingclimate-focused policy and escalatingregulations, including carbon pricingpricing, regulations.clean Thefuel Company is regulated under multiple carbon taxation systemsstandards and capemissions trading regulations, which may vary significantly across jurisdictions and tradeincrease marketcompliance mechanisms in the Canadian provinces in which we operate. The Company's Scope 1 and Scope 2 GHG emissions generated through our operations in Canada and Mexico are impacted by carbon pricing mechanisms.complexity.

The Company is further exposed to carbon pricing through electricity purchases, where electric utilities pass on carbon costs to customers. Introduction of, or changes to, regulations by government bodies in response to climate change that increase the cost of carbon emissions could result in a significant increase in expenses and could adversely affect our business performance, results of operations, financial position, and liquidity. Please see “Sustainability-Related Laws, Regulations and Strategies” in Item 1. Business for further discussion of climate- and other sustainability-related laws and regulations that could materially affect the Company’s operating results, financial condition, and reputation.

Shifting consumer demand to lower-carbon products and increased climate-focused regulations, such as carbon pricing and fuel regulations, may instigatelead to a broadbroader transition in the energy sector. If such a transition occurs, demand for certain commodities, such as crude oil and petroleum, may decline, while demand for alternatives such as renewable fuels may increase, creating potential volatility in future revenue streams. Programs that place a price on carbon emissions or other government restrictions on certain market sectors may further impact current and potential freight rail customers in the energy sector. A comprehensive transition in the energy sector could significantly impact the markets of the Company's energy customers or lead to market differentiation through geographic variation in policies and demand trends. A portion of the Company’s business could be materially affected by potential future changes and instability that may be related to such a transition.

Please see “"Sustainability-Related Laws, Regulations and Strategies”" in Item 1. Business for further discussion of climate- and other sustainability-related laws, regulationsregulations, and other legal developments that could materially affect the preferences, activities, and financial conditions of our customers and other stakeholders, as well as the Company’s operating results, financial condition, and reputation.

Changes in global economic conditions, international trade policies, and public health conditions could negatively affect demand for commodities and other freight transported by the Company. A decline or disruption in domestic, cross-border, or global economic conditions, including fluctuations in interest rates and changes to international trade policies and tariffs, that affect the supply or demand for commodities that the Company transports may decrease the Company’s freight volumes. ThisIn particular, the imposition, expansion, or modification of tariffs, quotas or other trade restrictions affecting goods moving between the United States, Mexico, and Canada could result in a material adverse effect on the Company's freight volumes. In addition, trade agreement reviews, including the scheduled 2026 joint review of the United States-Mexico-Canada Agreement, and any resulting changes to or non-renewal of these agreements could disrupt North American supply chains and adversely affect cross-border customer demand, pricing dynamics, and long-term capital investment patterns. These factors could result in a material adverse effect on the Company’s financial or operating results and liquidity. Economic conditions resulting in bankruptcies of one or more large customers could have a significant impact on the Company's financial position, results of operations, and liquidity in a particular year or quarter.

Our ability to make payments of principal and interest on our indebtedness depends upon our future performance, which will be subject to general economic, financial and business conditions, and other factors affecting our operations, many of which are beyond our control. In addition, we may be required to redeem all of the outstanding 2.450% notes due 2031 and 3.000% notes due 2041 pursuant to a special mandatory redemption requirement of those notes, which could have a significant adverse impact on the business and financial condition of the Company.

Moreover, we may be required to raise substantial additional financing to fund working capital, capital expenditures, acquisitionsacquisitions, or other general corporate requirements. Our ability to arrange additional financing or refinancing will depend on, among other factors, our financial position and performance, as well as prevailing market conditions and other factors beyond our control. There can be no assurance that we will be able to obtain additional financing or refinancing on terms acceptable to us or at all.

36 / CPKC 20242025 ANNUAL REPORT / 35

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“"MD&A”") is intended to enhance a reader’s understanding of the Company’s results of operations and financial condition. The MD&A is provided as a supplement to, and should be read in conjunction with, the Company’s Consolidated Financial Statements and the related notes in Item 8. Financial Statements and Supplementary Data, and other information in this annualAnnual report.Report on Form 10-K. Except where otherwise indicated, all financial information reflected herein is expressed in Canadian dollars. The following section generally discusses 2025 and 2024 items and includes comparisons between 2025 and 2024. Discussions of 2023 items and comparisons between 2024 and 2023. Discussions of 2022 items and comparisons between 2023 and 2022 that are not included in this Form 10-K can be found in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7, of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2023.2024.

For purposes of this report, unless the context indicates otherwise, all references herein to “"CPKC”", “"the Company”," “we”,or “"our” and “us”" refer to Canadian Pacific Kansas City Limited ("CPKC") and its subsidiaries, which includes Kansas City Southern ("KCS") as a consolidated subsidiary on and from April 14, 2023 (the "Control Date"). Prior to the Control Date, the Company's 100% interest in KCS was accounted for and reported as an equity-method investment.subsidiaries.

•Total revenues were $14,546$15,078 million, an increase of 16%4% compared to $12,555$14,546 million in 2023.2024. The increase was primarily due to the impact of the KCS acquisition, higher volumes as measured by revenue ton-miles ("RTMs"), and higher freight revenue per RTM..

•Diluted earnings per share ("EPS") was $3.98,$4.51, aan decreaseincrease of 5%13% compared to $4.21$3.98 in 2023.2024.

•Core adjusted combined diluted EPS was $4.25,$4.61, an increase of 11%8% compared to $3.84$4.25 in 2023.2024.

•Core adjusted combined operating ratio was 61.3%,59.9%, a 70140 basis point improvement from 62.0%61.3% in 2023.2024.

Core adjusted combined diluted EPS and Core adjusted combined operating ratio are defined and reconciled in the "Non-GAAP Measures" section of this Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

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. The increase in GTMs was primarily due to the impact of the KCS acquisition and higher volumes of Intermodal, Grain, Energy,Potash, chemicalsCoal, and plastics, Potash, Automotive, and Intermodal. This increase was partially offset by lower volumes of Metals, minerals and consumer products and Coal.crude.

Train miles are defined as the sum of the distance moved by all trains operated on the network. Train miles provide a measure of the productive utilization of our network. A smaller increase in train miles relative to increases in volumes, as measured by RTMs, and/or workload, as measured by GTMs, indicates improved train productivity. The increase in train miles reflected the impact of a 12%4% increase in workload (GTMs), andpartially offset by a 2%3% decreaseincrease in average train weights, which was primarily due to thean impactimprovement ofin theoperating KCSplan acquisition.efficiency and moving longer and heavier Grain and Potash trains.

Fuel efficiency is defined as United States ("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. TheFuel decreaseefficiency in 20242025 fuelremained efficiencyflat was primarily duecompared to the impact of the KCS acquisition.2024.

36 / CPKC 20242025 ANNUAL REPORT / 37

An employee is defined as an individual currently engaged in full-time, part-time, or seasonal employment with the Company. 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 increasedecrease in the average number of total employees was primarily due to the acquisitioncompletion of KCS.systems integration in 2025 and efficient resource planning.

The increase in Freight revenues was primarily due to the impact of the KCS acquisition of $1,375 million, higher volumes as measured by RTMs, and higher freight revenue per RTM.RTMs. The increasedecrease in Non-freight revenues was primarily relateddue to a subsurface fibre optic agreement, the impact of the KCS acquisition of $21 million, and higherlower leasing revenues.

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. The increase in RTMs was primarily due to the impact of the KCS acquisition and higher volumes of Intermodal, Grain, Energy,Potash, chemicalsCoal, and plastics, Potash, Automotive, and Intermodal, partially offset by lower volumes of Metals, minerals and consumer products and Coal.crude.

Freight revenue per RTM is defined as freight revenue per revenue-producing ton of freight over a distance of one mile. This is an indicator of yield. The increase in freightFreight revenue per RTM was flat primarily due to higher freight rates and the favourable impact of the change in foreign exchange ("FX") rates of $94$154 million, partially offset by the unfavourable impact of lower fuel prices on fuel surcharge revenues of $184$205 million.

The increase in Grain revenue was primarily due to thehigher impactvolumes of theCanadian KCSgrain acquisition,to Vancouver, British Columbia ("B.C.") and Thunder Bay, Ontario, higher volumes of U.S. corngrain to Mexico and the U.S. Pacific Northwest, higher volumes of U.S. soybeans and wheat and Canadian grain to Mexico, and an increase in freight revenue per RTM. This increase wasRTM, partially offset by the unfavourable impact of lower fuel prices on fuel surcharge revenue. Freight revenue per RTM increased due to higher freight rates and the favourable impact of the change in FX.FX RTMs increased more than carloads due to moving higher volumes of U.S. grain from the U.S. Midwest to the U.S. Pacific Northwest and Mexico, which have longer lengths of haul.rates.

The increase in Coal revenue was primarily due to thehigher impactvolumes of theCanadian KCScoal acquisition,to Kamloops, B.C. and Vancouver, higher volumes of U.S. coal, and an increase in freight revenue per RTM, and higher volumes of Canadian coal to Thunder Bay, Ontario and Vancouver, British Columbia ("B.C.").RTM. This increase was partially offset by lower volumes of U.S. coal, lower volumes of Canadian coal to Kamloops,Thunder B.C.,Bay and the unfavourable impact of lower fuel prices on fuel surcharge revenue. Freight revenue per RTM increased due to higher freight rates and the favourable impact of the change in FX.FX RTMsrates. Carloads increased more than carloadsRTMs due to moving higher volumes of U.S. coal within the U.S. Gulf Coast and moving higher volumes of Canadian coal to Thunder Bay and Vancouver,Kamloops, which have longershorter lengths of haul.

The increase in Potash revenue was primarily due to higher volumes of export potash to Vancouver, higher freight rates, and the U.S.favourable Pacific Northwest due to recoveryimpact of operations following an equipment failure at the Port of Portlandchange in 2023,FX higher volumes of export potash to Thunder Bay, and an increase in freight revenue per RTM.rates. This increase was partially offset by lower volumes of export potash to VancouverThunder asBay, aTexas, result ofand the InternationalU.S. LongshorePacific and Warehouse Union's work stoppage in November 2024,Northwest, lower volumes of domestic potash, lowerand volumesa ofdecrease exportin potashfreight revenue per RTM due to Chicago, Illinois, and the unfavourable impact of lower fuel prices on fuel surcharge revenue. Freight revenue per RTM increased due to higher freight rates and the favourable impact of the change in FX. CarloadsRTMs increased more than RTMscarloads due to moving higher volumes of export potash to the U.S. Pacific Northwest,Vancouver, which has a shorterlonger length of haul.

The increase in Fertilizers and sulphur revenue was primarily due to higher volumes of dry fertilizers and sulphur moving between Chicago and Alberta, higher volumes of wet fertilizers,fertilizers theand impact of the KCS acquisition,sulphur and an increase in freight revenue per RTM. This increase wasRTM, partially offset by thelower unfavourable impactvolumes of dry fertilizers and lower fuel prices on fuel surcharge revenue. Freight revenue per RTM increased due to higher freight rates and the favourable impact of the change in FX.FX RTMs increased more than carloads due to moving higher volumes of dry fertilizers and sulphur between Chicago and Alberta, which have longer lengths of haul.rates.

The increasedecrease in Forest products revenue was primarily due to the impact of the KCS acquisition, higherlower volumes of lumberlumber, from B.C.newsprint, and Albertawood to Texaspulp and thelower U.S.fuel Midwest,surcharge revenue. This decrease was partially offset by higher freight rates,rates and the favourable impact of the change in FX.FX Thisrates. increaseCarloads wasdecreased partiallymore offsetthan byRTMs due to moving lower volumes of wood pulp and paperboard andfrom Louisiana to other destinations within the unfavourablesouthern impactU.S., which have shorter lengths of lower fuel prices on fuel surcharge revenue.haul.

The increase in Energy, chemicals and plastics revenue was primarily due to the impact of the KCS acquisition, higher volumes of fuel oil, conventional crude from Alberta to Chicago, plastics, and ethylene glycol, and an increase in freight revenue per RTM.RTM and higher volumes of liquefied petroleum gas ("L.P.G.") from western Canada to Mexico and Texas. This increase was partially offset by the unfavourable impact of lower fuel prices on fuel surcharge revenue and lower volumes of DRUbitTMcrude, crudeplastics, todiluents, Portand Arthur,fuel Texas.oil and lower fuel surcharge revenue. Freight revenue per RTM increased due to higher freight rates and the favourable impact of the change in FX.FX rates.

The increase in Metals, minerals and consumer products revenue was primarily due to thehigher impactvolumes of thefrac KCSsand, acquisitioncement, and sand and stone and an increase in freight revenue per RTM. This increase wasRTM, partially offset by lower volumes of steel, frac sand to the Bakkensteel and Permian Basin shale formations, and aggregates, and the unfavourable impact of lower fuel prices on fuel surcharge revenue. Freight revenue per RTM increased due to higher freight rates and the favourable impact of the change in FX.FX rates. Carloads increaseddecreased more thanwhile RTMs remained flat due to the impact of the KCS acquisition, as the KCS network has a shorter average length of haul, and moving lower volumes of fracsteel sandwithin to the Bakken shale formation,Mexico, which has a longershorter length of haul.

The increase in Automotive revenue was primarily due to higher volumes from Mexico to various locations in North America, from Vancouver to eastern Canada, and from Ontario to the U.S. Midwest, the impact of the KCS acquisition,Canada and higher freight rates. This increase wasrates, partially offset by a decrease in freight revenue per RTM due to the unfavourable impact of lower fuel prices on fuel surcharge revenue. RTMs increased more thanwhile carloads decreased due to moving higher volumes from Mexico to the U.S. Midwest and from Vancouver to eastern Canada, which havehas a longer lengthslength of haul, and moving lower volumes from Mexico to Laredo, Texas, which has a shorter length of haul.

The increase in Intermodal revenue was primarily due to the impact of the KCS acquisition, higher international intermodal volumes to and from the Port of Vancouver, including onboarding a new customer,Vancouver and to and from the Port of Saint John, including with the new Gemini Cooperation shipping alliance, higher domestic intermodal wholesale and retail volumes, higher freight rates, and the favourable impact of the change in FX.FX rates. This increase was partially offset by a decrease in freight revenue per RTM, lower domestic intermodal volumes between Mexico and Texas,RTM and lower international intermodal volumes to and from the Port of Montréal. Freight revenue per RTM decreased due to the unfavourable impact of lower fuel prices on fuel surcharge revenue. RTMs increased more than carloads due to moving higher international intermodal volumes to and from the Port of Vancouver, which has a longer length of haul, and moving lower domestic intermodal volumes between Mexico and Texas, which has a shorter length of haul.

Compensation and benefits expense includes employee wages, salaries, fringe benefits, and stock-based compensation. The increase in Compensation and benefits expense was primarily due to: the impact of wage and benefit inflation and increased volume variable expenses as a result of increased workload as measured by GTMs.

•a decrease indecreased stock-based compensation (excluding amounts included in the impact of the KCS acquisition, and acquisition-related costs) of $28$49 million drivenprimarily bydue to changes in payout ratesrates, net of impacts from share price; and the Common Share price.

Fuel expense consists mainlyprimarily of fuel used by locomotives and includes provincial, state, and federal fuel taxes. The increasedecrease in Fuel expense in 2024 was primarily due to the impact of thelower KCSfuel acquisitionprice of $179$159 millionmillion, andwhich includes lower carbon tax expense due to the elimination of the Canadian federal carbon tax program effective April 1, 2025. This decrease was partially offset by an increase in workload, as measured by GTMs.GTMs This was partially offset byand the unfavourable impact of lowerthe fuelchange pricesin FX rates of $86$16 million.

Materials expense includes the cost of materials used for the maintenance of track, locomotives, freight cars, and buildings, as well as software sustainment. The increase in Materials expense was primarily due to the impact of the KCS acquisition of $33 million and higher locomotive material costs due to a new parts agreement insourcing a subset of maintenance work with favorable offset in purchased services and other effective in the fourth quarter of 2024.:

•the unfavourable impact of the KCSchange acquisitionin FX rates of $37$7 million;million.

Depreciation and amortization expense is the charge associated with the use of track and roadway, rolling stock, buildings, and other depreciable assets, including assets related to athe Company's concession granted by the Mexican government,government (see further discussion on the Concession in the "Liquidity and Capital Resources" section), as well as amortization of finite life intangible assets. The increase in Depreciation and amortization expense was primarily due to: a higher depreciable asset base as a result of capital program spending in 2025 and 2024, and the unfavourable impact of the change in FX rates of $22 million.

Purchased services and other expense encompasses a wide range of third-party costs, including expenses for joint facilities, personal injury and damage claims, provisions for environmental remediation, property taxes, contractor and consulting fees, and insurance premiums. The increasedecrease in Purchased services and other expense was primarily due to:

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to enhance a reader’s understanding of the Company’s results of operations and financial condition. The MD&A is provided as a supplement to, and should be read in conjunction with, the Company's Interim Consolidated Financial Statements and the related notes as at and for the three and six months ended MarchJune 31,30, 2026 in Item 1. Financial Statements, other information in this report, and Item 8. Financial Statements and Supplementary Data of the Company's 2025 Annual Report on Form 10-K. Except where otherwise indicated, all financial information reflected herein is expressed in Canadian dollars.

FirstSecond Quarter of 2026 Results

•Total revenues were $3,701$4,164 million, aan decreaseincrease of 2%13% compared to $3,795$3,699 million in 2025.

•Core adjusted diluted EPS was $1.04,$1.27, aan decreaseincrease of 2%13% compared to $1.06$1.12 in 2025.

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. The increase in GTMs in the firstsecond quarter of 2026 was primarily due to higher volumes of GrainGrain, Energy, chemicals and Intermodal,plastics, and Metals, minerals and consumer products, partially offset by lower volumes of Coal and Energy, chemicals and plastics.Coal.

Train miles are defined as the sum of the distance moved by all trains operated on the network. Train miles provide a measure of the productive utilization of our network. A smaller increase in train miles relative to increases in volumes, as measured by RTMs,Revenue ton-miles ("RTMs"), and/or workload, as measured by GTMs, indicates improved train productivity. The decreaseincrease in train miles in the firstsecond quarter of 2026 reflected the impact of a 2%6% increase in workload (GTMs), partially offset by a 4%1% increase in average train weights, which was primarily due to an improvement in operating plan efficiency as well as moving proportionally higher volumes of Grain, which is a heavier commodity.efficiency.

Fuel efficiency is defined as United States ("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. The improvementimprovements in fuelFuel efficiency in the second quarter and in the first quartersix months of 2026 waswere due to anthe increaseimprovements in locomotive productivity as measured by GTMs / operating horsepower.

An employee is defined as an individual currently engaged in full-time, part-time, or seasonal employment with the Company. The Company monitors employment and workforce levels in order to efficiently meet service and strategic requirements. The number of employees is a key driver of total compensation and benefits costs. The decreasedecreases in the average number of total employees in the second quarter and in the first quartersix months of 2026 waswere primarily due to the completion of systems integration in 2025 and efficient resource planning.

The following table presents selected financial data related to the Company’s financial results for the three and six months ended MarchJune 31,30, 2026 and the comparative periodperiods in 2025:

The decreaseincrease in Freight revenues in the firstsecond quarter of 2026 was primarily due to loweran increase in freight revenue per RTM,RTM partially offset byand higher volumes as measured by RTMs. The increase in Non-freight revenues was primarily due to higher revenuerevenues relatedfrom tologistical services and subsurface fibre optic agreements.

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. The increase in RTMs in the firstsecond quarter of 2026 was primarily due to higher volumes of GrainGrain, Energy, chemicals and Intermodal,plastics, and Metals, minerals and consumer products, partially offset by lower volumes of Coal and Energy, chemicals and plastics.Coal.

Freight revenue per RTM is defined as freight revenue per revenue-producing ton of freight over a distance of one mile. This is an indicator of yield. The decreaseincrease in freight revenue per RTM in the firstsecond quarter of 2026 was primarily due to the unfavourablefavourable impact of the change in FX rates of $81 million and the unfavourable impact of lowerhigher fuel prices on fuel surcharge revenue of $40$257 million, whichhigher includesfreight lowerrates, carbon levy surcharge revenue due toand the eliminationfavourable impact of the Canadianchange federalin carbonforeign taxexchange program("FX") effectiverates Aprilof 1,$21 2025, partially offset by higher freight rates.million.

Freight revenues include fuel surcharge revenues associated with the Company's fuel cost adjustment program, which is designed to respond to fluctuations in fuel prices and reduce exposure to changes in 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 $352$608 million in the firstsecond quarter of 2026, aan decreaseincrease of $50$258 million, or 12%,74%, from $402$350 million in the same period of 2025. This decreaseincrease was primarily due to lowerhigher fuel prices,prices arisingand fromthe favourable impact of the change in FX rates, partially offset by the unfavourable impact offrom the timing of recoveries under the Company's fuel cost adjustment program and lower carbon levy surcharge revenue due to the elimination of the Canadian federal carbon tax program effective April 1, 2025, partially offset by higher on-highway diesel prices, and the unfavourable impact of the change in FX rates.program.

The increase in Grain revenue in the firstsecond quarter of 2026 was primarily due to higher volumes of Canadian grain to Vancouver, British Columbia ("B.C."), Mexico, eastern Canada, and easternthe CanadaU.S. andMidwest, higher volumes of U.S. grain to Mexico and the U.S. Pacific Northwest, partiallyand offsetan by a decreaseincrease in freight revenue per RTM. Freight revenue per RTM decreased due to the unfavourable impact of the change in FX rates and lowerhigher fuel surcharge revenue,revenue partially offset byand higher freight rates.

The decrease in Coal revenue in the firstsecond quarter of 2026 was primarily due to lower volumes of Canadian coal to Vancouver, Kamloops, B.C., and Thunder Bay, Ontario,Ontario due to lower production and Vancouver,maintenance at both the mines and the ports, as well as lower volumes of U.S. coal, andpartially aoffset decreaseby an increase in freight revenue per RTM. Freight revenue per RTM decreased due to lowerhigher fuel surcharge revenue and the unfavourable impact of the change in FX rates, partially offset by higher freight rates. RTMs decreased more than carloads due to moving proportionately lower volumes of Canadian coal, which has a longer length of haul.

The decreaseincrease in Potash revenue in the firstsecond quarter of 2026 was primarily due to aan decreaseincrease in freight revenue per RTM,RTM and higher volumes of export potash to Kansas City, Missouri, partially offset by lower volumes of export potash to Vancouver,the andU.S. lowerPacific volumes of domestic potash. This decrease was partially offset by higher volumes of export potash to Texas, Kamloops,Northwest and Chicago, Illinois. Freight revenue per RTM decreasedincreased due to lowerhigher fuel surcharge revenue and the unfavourable impact of the change in FX rates, partially offset by higher freight rates. Carloads increased more than RTMs due to moving higher volumes of potash within Saskatchewan, which has a shorter length of haul.

The decreaseincrease in Fertilizers and sulphur revenue in the firstsecond quarter of 2026 was primarily due to loweran volumesincrease ofin sulphur,freight partiallyrevenue offsetper byRTM and higher volumes of dry and wet fertilizersfertilizers, andpartially anoffset increaseby inlower freightvolumes revenueof per RTM.sulphur. Freight revenue per RTM increased due to higher freight rates, partially offset by the unfavourable impact of the change in FX rates and lower fuel surcharge revenue.revenue and higher freight rates.

The decrease in Forest products revenue in the first quartersix months of 2026 was primarily due to lower volumes of wood pulp, paperboard, lumber,newsprint, and newsprintpaperboard and a decrease in freight revenue per RTM. Freight revenue per RTM decreased due to the unfavourable impact of the change in FX rates and lower fuel surcharge revenue,rates, partially offset by higher fuel surcharge revenue and higher freight rates. Carloads decreased more than RTMs due to moving lower volumes of paperboard from Louisiana to the U.S. Midwest, which has a shorter length of haul.

The decreaseincrease in Energy, chemicals and plastics revenue in the firstsecond quarter of 2026 was primarily due to lowerhigher volumes of fuelcrude, oil, liquefied petroleum gas,styrene, and plasticsasphalt and aan decreaseincrease in freight revenue per RTM, partially offset by higherlower volumes of crude.fuel oil. Freight revenue per RTM decreasedincreased due to higher fuel surcharge revenue, higher freight rates, and the unfavourablefavourable impact of the change in FX ratesrates. RTMs increased while carloads decreased due to moving higher volumes of crude, which has a longer length of haul, and moving lower volumes of fuel surchargeoil revenue,from partiallythe offsetsouthern byU.S. higherto freightMexico rates.and within Mexico, which have shorter lengths of haul.

The decreaseincrease in Metals, minerals and consumer products revenue in the firstsecond quarter of 2026 was primarily due to aan decreaseincrease in freight revenue per RTM and lower volumes of steel, partially offset by higher volumes of steel and sand and stone and lead and zinc ores.stone. Freight revenue per RTM decreasedincreased due to higher fuel surcharge revenue, higher freight rates, and the unfavourablefavourable impact of the change in FX rates and lower fuel surcharge revenue, partially offset by higher freight rates. Carloads decreased while RTMs increased due to moving lower volumes of steel within Mexico and from Mexico to Texas, which have shorter lengths of haul, and moving higher volumes of sand and stone from Wisconsin to Mexico and lead and zinc ores from Illinois to Mexico, which have longer lengths of haul.

The decreaseincrease in Automotive revenue in the first quartersix months of 2026 was primarily due to a decrease in freight revenue per RTM and lower volumes from Ontario, partially offset by higher volumes from Mexico to Canada.Canada, and an increase in freight revenue per RTM, partially offset by lower volumes from the U.S. Midwest. Freight revenue per RTM decreasedincreased due to lowerhigher fuel surcharge revenue, partially offset by higher freight rates, and the favourable impact of the change in FX rates. Carloads decreased while RTMs increased while carloads decreased due to moving lower volumes from Ontario to Chicago, New York, and Detroit, Michigan, which have shorter lengths of haul, and higher volumes from Mexico to Canada, which has a longer length of haul, and moving lower volumes from Ontario to Chicago and New York, which have shorter lengths of haul.

The decreaseincrease in Intermodal revenue in the firstsecond quarter of 2026 was primarily due to aan decreaseincrease in freight revenue per RTM,RTM and higher domestic intermodal wholesale and cross-border volumes, partially offset by lower international intermodal volumes to and from the Port of Saint JohnVancouver and the Port of Montréal,Saint and lower domestic intermodal retail volumes, partially offset by higher international intermodal volumes to and from the Port of Vancouver.John. Freight revenue per RTM decreasedincreased due to lowerhigher fuel surcharge revenue and the unfavourable impact of the change in FX rates, partially offset by higher freight rates. RTMs increased while carloads decreased due to moving higher international intermodal volumes to and from the Port of Vancouver, which has a longer length of haul, and moving lower domestic intermodal volumes between Calgary and Vancouver and between Mexico and Laredo, Texas, which have shorter lengths of haul.

Compensation and benefits expense includes employee wages, salaries, fringe benefits, and stock-based compensation. The increase in Compensation and benefits expense in the firstsecond quarter of 2026 was primarily due to the impact of wage and benefit inflation, and the impact of stock-based compensation of $15 million, primarily due to the impact from share price. This increase was partially offset by:

•This increase was partially offset by efficiencies gained by a reduction in headcount due to the completion of systems integration in 2025 and efficient resource planning;planning, including the impacts of increased train weights.

Fuel expense consists primarily of fuel used by locomotives and includes provincial, state, and federal fuel taxes. The decreaseincrease in Fuel expense in the firstsecond quarter of 2026 was primarily the result of lower fuel prices of $21 million due to lower carbon tax expense following the elimination of the Canadian federal carbon tax program effective April 1, 2025 and a purchasing contract discount, partially offset by higher diesel benchmark prices.: