CANADIAN PACIFIC KANSAS CITY LTD/CN

Previous wording

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 months ended March 31, 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.

Current wording

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 June 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.

Previous wording

•Total revenues were $3,701 million, a decrease of 2% compared to $3,795 million in 2025.

Current wording

•Total revenues were $4,164 million, an increase of 13% compared to $3,699 million in 2025.

Previous wording

•Diluted earnings per share ("EPS") was $0.94, a decrease of 3% compared to $0.97 in 2025.

Current wording

•Diluted earnings per share ("EPS") was $1.15, a decrease of 14% compared to $1.33 in 2025.

Previous wording

•Operating ratio was 66.0%, a 70 basis point increase from 65.3% in 2025.

Current wording

•Operating ratio was 64.6%, a 90 basis point increase from 63.7% in 2025.

Previous wording

•Core adjusted operating ratio was 63.0%, a 50 basis point increase from 62.5% in 2025.

Current wording

•Core adjusted operating ratio was 61.6%, a 90 basis point increase from 60.7% in 2025.

Previous wording

AGTM 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 first quarter of 2026 was primarily due to higher volumes of Grain and Intermodal, partially offset by lower volumes of Coal and Energy, chemicals and plastics.

Current wording

AGTM 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 second quarter of 2026 was primarily due to higher volumes of Grain, Energy, chemicals and plastics, and Metals, minerals and consumer products, partially offset by lower volumes of Coal.

Previous wording

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 decrease in train miles in the first quarter of 2026 reflected the impact of a 2% increase in workload (GTMs), partially offset by a 4% 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.

Current wording

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 Revenue ton-miles ("RTMs"), and/or workload, as measured by GTMs, indicates improved train productivity. The increase in train miles in the second quarter of 2026 reflected the impact of a 6% increase in workload (GTMs), partially offset by a 1% increase in average train weights, which was primarily due to an improvement in operating plan efficiency.

Previous wording

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 improvement in fuel efficiency in the first quarter of 2026 was due to an increase in locomotive productivity as measured by GTMs / operating horsepower.

Current wording

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 improvements in Fuel efficiency in the second quarter and in the first six months of 2026 were due to the improvements in locomotive productivity as measured by GTMs / operating horsepower.

Previous wording

Anemployee 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 decrease in the average number of total employees in the first quarter of 2026 was primarily due to the completion of systems integration in 2025 and efficient resource planning.

Current wording

Anemployee 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 decreases in the average number of total employees in the second quarter and in the first six months of 2026 were primarily due to the completion of systems integrationin 2025 and efficient resource planning.

Previous wording

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

Current wording

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

Previous wording

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 first quarter of 2026 was primarily due to higher volumes of Grain and Intermodal, partially offset by lower volumes of Coal and Energy, chemicals and plastics.

Current wording

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 second quarter of 2026 was primarily due to higher volumes of Grain, Energy, chemicals and plastics, and Metals, minerals and consumer products, partially offset by lower volumes of Coal.

Previous wording

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 decrease in freight revenue per RTM in the first quarter of 2026 was primarily due to the unfavourable impact of the change in FX rates of $81 million and the unfavourable impact of lower fuel prices on fuel surcharge revenue of $40 million, which includes lower carbon levy surcharge revenue due to the elimination of the Canadian federal carbon tax program effective April 1, 2025, partially offset by higher freight rates.

Current wording

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 freight revenue per RTM in the second quarter of 2026 was primarily due to the favourable impact of higher fuel prices on fuel surcharge revenue of $257 million, higher freight rates, and the favourable impact of the change in foreign exchange ("FX") rates of $21 million.

Previous wording

The decrease in Freight revenues in the first quarter of 2026 was primarily due to lower freight revenue per RTM, partially offset by higher volumes as measured by RTMs. The increase in Non-freight revenues was primarily due to higher revenue related to subsurface fibre optic agreements.

Current wording

The increase in Freight revenues in the first six months of 2026 was primarily due to higher volumes as measured by RTMs and an increase in freight revenue per RTM. The increase in Non-freight revenues was primarily due to higher revenues from subsurface fibre optic agreements.

Previous wording

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 million in the first quarter of 2026, a decrease of $50 million, or 12%, from $402 million in the same period of 2025. This decrease was primarily due to lower fuel prices, arising from the unfavourable impact of 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.

Current wording

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 $608 million in the second quarter of 2026, an increase of $258 million, or 74%, from $350 million in the same period of 2025. This increase was primarily due to higher fuel prices and the favourable impact of the change in FX rates, partially offset by the unfavourable impact from the timing of recoveries under the Company's fuel cost adjustment program.

Previous wording

The increase in Grain revenue in the first quarter of 2026 was primarily due to higher volumes of Canadian grain to Vancouver, British Columbia ("B.C.") and eastern Canada and higher volumes of U.S. grain to Mexico and the U.S. Pacific Northwest, partially offset by 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, partially offset by higher freight rates.

Current wording

The increase in Grain revenue in the first six months of 2026 was primarily due to higher volumes of Canadian grain to Vancouver, eastern Canada, Mexico, and the U.S. Midwest, higher volumes of U.S. grain to Mexico and the U.S. Pacific Northwest, and an increase in freight revenue per RTM. Freight revenue per RTM increased due to higher freight rates and higher fuel surcharge revenue, partially offset by the unfavourable impact of the change in FX rates.

Previous wording

The decrease in Coal revenue in the first quarter of 2026 was primarily due to lower volumes of Canadian coal to Kamloops, B.C., Thunder Bay, Ontario, and Vancouver, lower volumes of U.S. coal, and a decrease in freight revenue per RTM. Freight revenue per RTM decreased due to lower fuel surcharge revenue and the unfavourable impact of the change in FX rates, partially offset by higher freight rates.

Current wording

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

Previous wording

The decrease in Potash revenue in the first quarter of 2026 was primarily due to a decrease in freight revenue per RTM, lower volumes of export potash to Vancouver, and lower volumes of domestic potash. This decrease was partially offset by higher volumes of export potash to Texas, Kamloops, and Chicago, Illinois. Freight revenue per RTM decreased due to lower 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.

Current wording

The increase in Potash revenue in the first six months of 2026 was primarily due to an increase in freight revenue per RTM and higher volumes of export potash to Kansas City and Kamloops, partially offset by lower volumes of export potash to the U.S. Pacific Northwest and Vancouver and lower volumes of domestic potash. Freight revenue per RTM increased due to higher fuel surcharge revenue and higher freight rates, partially offset by the unfavourable impact of the change in FX rates.

Previous wording

The decrease in Fertilizers and sulphur revenue in the first quarter of 2026 was primarily due to lower volumes of sulphur, partially offset by higher volumes of dry and wet fertilizers and an increase in freight revenue per RTM. 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.

Current wording

The increase in Fertilizers and sulphur revenue in the first six months of 2026 was primarily due to an increase in freight revenue per RTM and higher volumes of dry and wet fertilizers, partially offset by lower volumes of sulphur. Freight revenue per RTM increased due to higher freight rates and higher fuel surcharge revenue, partially offset by the unfavourable impact of the change in FX rates.

Previous wording

The decrease in Forest products revenue in the first quarter of 2026 was primarily due to lower volumes of wood pulp, paperboard, lumber, and newsprint 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, partially offset by higher freight rates.

Current wording

The decrease in Forest products revenue in the first six months of 2026 was primarily due to lower volumesof wood pulp, newsprint, and paperboard and adecrease in freight revenue per RTM. Freight revenue per RTM decreased due to the unfavourable impact of the change in FX 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.

Previous wording

The decrease in Energy, chemicals and plastics revenue in the first quarter of 2026 was primarily due to lower volumes of fuel oil, liquefied petroleum gas, and plastics and a decrease in freight revenue per RTM, partially offset by higher volumes of crude. Freight revenue per RTM decreased due to the unfavourable impact of the change in FX rates and lower fuel surcharge revenue, partially offset by higher freight rates.

Current wording

The increase in Energy, chemicals and plastics revenue in the second quarter of 2026 was primarily due to higher volumes of crude, styrene, and asphalt and an increase in freight revenue per RTM, partially offset by lower volumes of fuel oil. Freight revenue per RTM increased due to higher fuel surcharge revenue, higher freight rates, and the favourable impact of the change in FX rates. 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 oil from the southern U.S. to Mexico and within Mexico, which have shorter lengths of haul.

Previous wording

The decrease in Metals, minerals and consumer products revenue in the first quarter of 2026 was primarily due to a decrease in freight revenue per RTM and lower volumes of steel, partially offset by higher volumes of sand and stone and lead and zinc ores. Freight revenue per RTM decreased due to the unfavourable 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.

Current wording

The increase in Metals, minerals and consumer products revenue in the first six months of 2026 was primarily due to higher volumes of sand and stone and steel and an increase in freight revenue per RTM due to higher freight rates and higher fuel surcharge revenue. RTMs increased while carloads remained flat due to moving higher volumes of sand and stone from Wisconsin to Mexico, which has a longer length of haul.

Previous wording

The decrease in Automotive revenue in the first quarter 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. Freight revenue per RTM decreased due to lower fuel surcharge revenue, partially offset by higher freight rates. Carloads decreased while RTMs increased 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.

Current wording

The increase in Automotive revenue in the first six months of 2026 was primarily due to higher volumes from Mexico to Canada, and an increase in freight revenue per RTM, partially offset by lower volumes from the U.S. Midwest. Freight revenue per RTM increased due to higher fuel surcharge revenue, higher freight rates, and the favourable impact of the change in FX rates. RTMs increased while carloads decreased due to moving 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.

Previous wording

The decrease in Intermodal revenue in the first quarter of 2026 was primarily due to a decrease in freight revenue per RTM, lower international intermodal volumes to and from the Port of Saint John and the Port of Montréal, and lower domestic intermodal retail volumes, partially offset by higher international intermodal volumes to and from the Port of Vancouver. Freight revenue per RTM decreased due to lower 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.

Current wording

The increase in Intermodal revenue in the first six months of 2026 was primarily due to an increase in freight revenue per RTM, higher international intermodal volumes to and from the Port of Vancouver, and higher domestic intermodal wholesale volumes, partially offset by lower international intermodal volumes to and from the Port of Saint John and the Port of Montréal. Freight revenue per RTM increased due to higher fuel surcharge revenue and higher freight rates, partially offset by the unfavourable impact of the change in FX 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 international intermodal volumes to and from the Port of Saint John and the Port of Montréal, which have shorter lengths of haul.

Previous wording

Compensation and benefits expense includes employee wages, salaries, fringe benefits, and stock-based compensation. The increase in Compensation and benefits expense in the first 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:

Current wording

Compensation and benefits expense includes employee wages, salaries, fringe benefits, and stock-based compensation. The increase in Compensation and benefits expense in the second quarter of 2026 was primarily due to:

Previous wording

•efficiencies gained by a reduction in headcount due to the completion of systems integration in 2025 and efficient resource planning;

Current wording

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, including the impacts of increased train weights.

Previous wording

Fuel expense consists primarily of fuel used by locomotives and includes provincial, state, and federal fuel taxes. The decrease in Fuel expense in the first 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.

Current wording

•the impact of higher fuel prices of $179 million due to higher diesel benchmark prices net of purchasing discounts, partially offset by lower carbon tax expense following the elimination of the Canadian federal carbon tax program effective April 1, 2025;

Previous wording

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 in the first quarter of 2026 was primarily driven by the unfavourable impact of inflation.

Current wording

Materials expense includes the cost of materials used for the maintenance of track, locomotives, freight cars, and buildings, as well as software sustainment. The increases in Materials expense in the second quarter and in the first six months of 2026 were primarily due to cost inflation and increased locomotive maintenance. These increases were partially offset by reduced safety materials costs.

Previous wording

Equipment rents expense includes the cost associated with using other railways' freight cars, intermodal equipment, and locomotives, net of recoveries received from other railways for the use of the Company’s equipment. The decrease in Equipment rents expense in the first quarter of 2026 was primarily due to the favourable impact of the change in FX rates of $4 million and lower use of other railway's freight cars due to improved cycle times, partially offset by lower usage of the company’s cars by other railways.

Current wording

Equipment rents expense includes the cost associated with using other railways' freight cars, intermodal equipment, and locomotives, net of recoveries received from other railways for the use of the Company’s equipment. The decrease in Equipment rents expense in the second quarter of 2026 was primarily due to the lower use of other railways' freight cars due to improved cycle times and higher usage of the Company's freight cars by other railways, partially offset by higher expenses related to leased freight cars.

Previous wording

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 the Company's concession granted by the Mexican government, as well as amortization of finite life intangible assets. The increase in Depreciation and amortization expense in the first quarter of 2026, compared to the same period in 2025, was primarily due to a larger depreciable asset base as a result of capital program spending, partially offset by the favourable impact of the change in FX rates of $14 million.

Current wording

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 the Company's concession granted by the Mexican government, as well as amortization of finite life intangible assets. The increase in Depreciation and amortization expense in the second quarter of 2026 was primarily due to a larger depreciable asset base as a result of capital program spending.

Previous wording

Purchased services and other expense encompasses a wide range of third-party costs, including expenses for joint facilities, personal injury and damage claims, environmental remediation, property taxes, contractor and consulting fees, and insurance premiums. The decrease in Purchased services and other expense in the first quarter of 2026 was primarily due to:

Current wording

Purchased services and other expense encompasses a wide range of third-party costs, including expenses for joint facilities, personal injury and damage claims, environmental remediation, property taxes, contractor and consulting fees, and insurance premiums. The increase in Purchased services and other expense in the second quarter of 2026 was primarily due to:

Previous wording

The decrease was partially offset by advisory costs related to the analysis and advocacy in connection with the U.S. Surface Transportation Board's review of the proposed merger between Union Pacific Corporation and Norfolk Southern Corporation of $13 million and the impact of cost inflation.

Current wording

•advisory costs related to the analysis and advocacy in connection with the U.S. Surface Transportation Board's (the "STB") review of the proposed merger between Union Pacific Corporation and Norfolk Southern Corporation of $14 million;

Previous wording

Other expense consists of gains and losses from the change in FX rates on cash and working capital, financing costs, shareholder costs, equity earnings, and other non-operating expenditures. Other expense was $20 million in the first quarter of 2026, an increase of $13 million, or 186%, compared to the same period of 2025. This change was primarily due to net FX losses on working capital and cash denominated in U.S. dollars and Mexican pesos.

Current wording

Other (income) expense consists of gains and losses from the change in FX rates on cash and working capital, financing costs, shareholder costs, equity earnings, and other non-operating expenditures. Other income was $14 million in the second quarter of 2026, a decrease of $2 million, or 13%, from Other income of $16 million in the same period of 2025. This decrease was primarily due to net FX losses from the re-measurement of working capital denominated in U.S. dollars and Mexican pesos of $13 million, partially offset by higher equity income.

Previous wording

Other components of net periodic benefit recovery are related to the Company's defined benefit pension and other post-retirement and post-employment benefit plans. It includes interest cost on benefit obligation, expected return on plan assets, recognized net actuarial gain, and amortization of prior service costs. Other components of net periodic benefit recovery was $110 million in the first quarter of 2026, an increase of $3 million, or 3%, compared to the same period of 2025. The increase was primarily due to an increase in recognized net actuarial gain of $3 million.

Current wording

Other components of net periodic benefit recovery is related to the Company's defined benefit pension and other post-retirement and post-employment benefit plans. It includes interest cost on benefit obligation, expected return on plan assets, recognized net actuarial gain, and amortization of prior service costs. Other components of net periodic benefit recovery was $110 million and $220 million for the three and six months ended June 30, 2026, an increase of $3 million or 3%, and $6 million or 3%, respectively, compared to the same periods of 2025. These increases were primarily due to an increase in the expected return on plan assets for the three and six months ended June 30, 2026 of $3 million and $5 million, respectively, and an increase in the recognized net actuarial gain of $2 million and $5 million, respectively.

Previous wording

Net interest expense includes interest on long-term debt, short-term debt, and finance leases. Net interest expense was $228 million in the first quarter of 2026, an increase of $12 million, or 6%, from $216 million in the same period of 2025. The increase was primarily due to interest of $38 million incurred on long-term notes issued in 2025 and 2026. This increase was partially offset by lower interest costs of $18 million due to no short-term borrowings in the first quarter of 2026 compared to the interest incurred on short-term borrowings in the same period of 2025 and lower outstanding commercial paper borrowings, along with the favourable impact of the change in FX rates of $9 million.

Current wording

Net interest expense was $465 million in the first six months of 2026, an increase of $41 million, or 10%, from $424 million in the same period of 2025. The increase was primarily due to interest of $70 million incurred on long-term notes issued in 2025 and 2026. This increase was partially offset by lower interest costs of $22 million due to there beingno short-term borrowings in 2026 compared to interest incurred on short-term borrowings in the same period of 2025 and a reduction in outstanding commercial paper borrowings, along with thefavourable impactof the change in FX of $9 million.

Previous wording

The effective income tax rate in the first quarter of 2026 was 24.60% compared to 24.32% in the same period of 2025. The Core adjusted effective tax rate in the first quarter of 2026 was 24.75%, compared to 24.50% in the same period of 2025. The Company's 2026 Core adjusted effective tax rate is expected to be approximately 24.75%. The Core adjusted effective tax rate is a Non-GAAP measure, calculated as the effective tax rate adjusted for significant items as they are not considered indicative of future or past financial trends either by nature or amount. The Company uses the Core adjusted effective tax rate to evaluate CPKC’s operating performance and for planning and forecasting future profitability. Core adjusted effective tax rate also excludes Kansas City Southern ("KCS") purchase accounting to provide financial statement users with additional transparency by isolating the impact of KCS purchase accounting. This Non-GAAP measure does not have a standardized meaning and is not defined by GAAP and, therefore, may not be comparable to similar measures presented by other companies. Significant items and KCS purchase accounting are discussed further in Non-GAAP Measures of this Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The outlook for the Company’s 2026 Core adjusted effective 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 the Company's 2025 Annual Report on Form 10-K. Refer also to "Forward-Looking Statements" below for further details.

Current wording

The effective income tax rates for the second quarter and first six months of 2026 were 24.65% and 24.63%, respectively, compared to 22.45% and 23.26% for the same periods in 2025. The Core adjusted effective tax rate for the second quarter and first six months of 2026 was 24.75%, compared to 24.50% for the same periods in 2025. The Company's 2026 Core adjusted effective tax rate is expected to be approximately 24.75%. The Core adjusted effective tax rate is a Non-GAAP measure, calculated as the effective tax rate adjusted for significant items as they are not considered indicative of future or past financial trends either by nature or amount. The Company uses the Core adjusted effective tax rate to evaluate CPKC’s operating performance and for planning and forecasting future profitability. Core adjusted effective tax rate also excludes Kansas City Southern ("KCS") purchase accounting to provide financial statement users with additional transparency by isolating the impact of KCS purchase accounting. This Non-GAAP measure does not have a standardized meaning and is not defined by GAAP and, therefore, may not be comparable to similar measures presented by other companies. Significant items and KCS purchase accounting are discussed further in Non-GAAP Measures of this Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The outlook for the Company’s 2026 Core adjusted effective 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 the Company's 2025 Annual Report on Form 10-K. Refer also to "Forward-Looking Statements" below for further details.

Previous wording

In the first quarter of 2026, the U.S. dollar weakened to an average rate of $1.37 Canadian/U.S. dollar and the Mexican Peso strengthened to an average rate of Ps. 12.79 Mexican Peso/Canadian dollar, compared to $1.44 Canadian/U.S. dollar and Ps. 14.23 Mexican Peso/Canadian dollar in the first quarter of 2025, resulting in a decrease in Total revenues of $82 million, a decrease in Total operating expenses of $35 million, and a decrease in "Net interest expense" of $9 million.

Current wording

In the first six months of 2026, the U.S. dollar weakened to an average rate of $1.38 Canadian/U.S. dollar and the Mexican peso strengthened to an average rate of Ps. 12.67 Mexican Peso/Canadian dollar, compared to $1.41 Canadian/U.S. dollar and Ps. 14.16 Mexican Peso/Canadian dollar in the first six months of 2025, resulting in a decrease in "Total revenues" of $61 million, a decrease in "Total operating expenses" of $7 million, and a decrease in "Net interest expense" of $9 million from the same period of 2025.

Previous wording

On an annualized basis, the Company expects that every $0.01 weakening (or strengthening) of the Canadian dollar relative to the U.S. dollar, positively (or negatively) impacts Total revenues by approximately $78 million (December 31, 2025 – approximately $78 million), negatively (or positively) impacts Operating expenses by approximately $48 million (December 31, 2025 – approximately $45 million), and negatively (or positively) impacts "Net interest expense" by approximately $6 million (December 31, 2025 – approximately $6 million).

Current wording

On an annualized basis, the Company expects that every $0.01 weakening (or strengthening) of the Canadian dollar relative to the U.S. dollar, positively (or negatively) impacts Total revenues by approximately $79 million (December 31, 2025 – approximately $78 million), negatively (or positively) impacts Operating expenses by approximately $49 million (December 31, 2025 – approximately $45 million), and negatively (or positively) impacts "Net interest expense" by approximately $6 million (December 31, 2025 – approximately $6 million).

Previous wording

On an annualized basis, the Company expects that every Ps.0.10 strengthening (or weakening) of the Mexican peso relative to the Canadian dollar, positively (or negatively) impacts Total revenues by approximately $7 million (December 31, 2025 – approximately $7 million) and negatively (or positively) impacts Operating expenses by approximately $8 million (December 31, 2025 – approximately $8 million).

Current wording

On an annualized basis, the Company expects that every Ps.0.10 strengthening (or weakening) of the Mexican peso relative to the Canadian dollar, positively (or negatively) impacts Total revenues by approximately $8 million (December 31, 2025 – approximately $7 million) and negatively (or positively) impacts Operating expenses by approximately $9 million (December 31, 2025 – approximately $8 million).

Previous wording

In the first quarter of 2026, the unfavourable impact of fuel prices on Operating income was $19 million. Lower fuel prices, primarily due to the unfavourable impact from the timing of recoveries under the Company's fuel cost adjustment program and lower carbon levy surcharge revenue following the elimination of the Canadian federal carbon tax program effective April 1, 2025, partially offset by higher on-highway diesel prices, resulted in a decrease in "Total revenues" of $40 million from the same period of 2025. Lower fuel prices, primarily 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, resulted in a decrease in "Total operating expenses" of $21 million from the same period of 2025.

Current wording

In the first six months of 2026, the favourable impact of fuel prices on "Operating income" was $38 million compared to the same period of 2025. Higher fuel prices, partially offset by the unfavourable impact from the timing of recoveries under the Company's fuel cost adjustment program and lower carbon levy surcharge revenue following the elimination of the Canadian federal carbon tax program effective April 1, 2025, resulted in an increase in "Total revenues" of $217 million. Higher fuel prices net of purchasing discounts, partially offset by lower carbon tax expense due to the elimination of the Canadian federal carbon tax program effective April 1, 2025, resulted in an increase in "Total operating expenses" of $179 million.

Previous wording

Fluctuations in the Common Share price affect the Company's Operating expenses because stock-based compensation 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".

Current wording

Fluctuations in the Common Share price affect the Company's Operating expenses because stock-based compensation 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 the ticker symbol "CP".