ANNUAL INFORMATION FORM | 2014 - Canadian … INFORMATION TECHNOLOGY 18 4.12 BUSINESS RISKS AND...

ANNUAL INFORMATION FORM | 2014FEBRUARY 23, 2015

TABLE OF CONTENTS

1. CORPORATE STRUCTURE1.1 NAME, ADDRESS AND

INCORPORATION INFORMATION1

2. INTERCORPORATE RELATIONSHIPS2.1 PRINCIPAL SUBSIDIARIES 2

3. GENERAL DEVELOPMENTS OF THE BUSINESS3.1 RECENT DEVELOPMENTS 3

4. DESCRIPTION OF THE BUSINESS4.1 BACKGROUND AND NETWORK 74.2 STRATEGY 74.3 PARTNERSHIPS, ALLIANCES AND

NETWORK EFFICIENCY8

4.4 NETWORK AND RIGHT-OF-WAY 84.5 QUARTERLY TRENDS 114.6 BUSINESS CATEGORIES 114.7 REVENUES 124.8 RAILWAY PERFORMANCE 164.9 FRANCHISE INVESTMENT 174.10 OPERATING PLAN (“OP”) 184.11 INFORMATION TECHNOLOGY 184.12 BUSINESS RISKS AND ENTERPRISE RISK

MANAGEMENT18

4.13 INDEMNIFICATIONS 184.14 SAFETY 194.15 ENVIRONMENTAL PROTECTION 194.16 INSURANCE 204.17 COMPETITIVE CONDITIONS 20

5. DIVIDENDS5.1 DECLARED DIVIDENDS AND DIVIDEND

POLICY21

6. CAPITAL STRUCTURE6.1 DESCRIPTION OF CAPITAL STRUCTURE 22

6.2 SECURITY RATINGS 23

7. MARKET FOR SECURITIES7.1 STOCK EXCHANGE LISTINGS 267.2 TRADING PRICE AND VOLUME 26

8. DIRECTORS AND OFFICERS8.1 DIRECTORS 278.2 CEASE TRADE ORDERS,

BANKRUPTCIES, PENALTIES ORSANCTIONS

28

8.3 SENIOR OFFICERS 288.4 SHAREHOLDINGS OF DIRECTORS AND

OFFICERS28

9. LEGAL PROCEEDINGS AND REGULATORYACTIONS

29

10. TRANSFER AGENTS AND REGISTRARS10.1 TRANSFER AGENT 30

11. INTERESTS OF EXPERTS 31

12. AUDIT COMMITTEE12.1 COMPOSITION OF THE AUDIT

COMMITTEE AND RELEVANTEDUCATION AND EXPERIENCE

32

12.2 PRE-APPROVAL OF POLICIES ANDPROCEDURES

33

12.3 AUDIT COMMITTEE CHARTER 3312.4 AUDIT AND NON-AUDIT FEES AND

SERVICES40

13. FORWARD LOOKING INFORMATION 41

14. ADDITIONAL INFORMATION14.1 ADDITIONAL COMPANY

INFORMATION42

February 23, 2015

C A N A D I A N P A C I F I C

1. CORPORATE STRUCTURE

In this Annual Information Form (“AIF”), “our”, “us”,“we”, “CP” and “the Company” refer to CanadianPacific Railway Limited (“CPRL”), CPRL and itssubsidiaries, CPRL and one or more of itssubsidiaries, or one or more of CPRL’s subsidiaries,as the context may require. All information in thisAIF is stated as at December 31, 2014 and allfinancial statements were prepared in accordancewith United States generally accepted accountingprinciples (“GAAP”) unless otherwise indicated.Except where otherwise indicated, all financialinformation and references to “dollar” or “$”reflected herein are expressed in Canadian dollars.

1.1 Name, Address and Incorporation InformationCanadian Pacific Railway Limited was incorporatedon June 22, 2001, as 3913732 Canada Inc.pursuant to the Canada Business Corporations Act

(“the CBCA”). On July 20, 2001, CP amended itsArticles of Incorporation to change its name toCanadian Pacific Railway Limited. On October 1,2001, Canadian Pacific Limited (“CPL”) completedan arrangement (“the Arrangement”) pursuant tosection 192 of the CBCA whereby it distributed toits common shareholders all of the shares of newlyformed corporations holding the assets of four ofCPL’s five primary operating divisions. The transferof Canadian Pacific Railway Company (“CPRC”),previously a wholly owned subsidiary of CPL, toCPRL was accomplished as part of a series of steps,pursuant to the terms of the Arrangement.

The Company’s registered, executive and headoffice is located at 7550 Ogden Dale Road S.E.,Calgary, Alberta T2C 4X9.

2 0 1 4 A N N U A L I N F O R M A T I O N F O R M 1

2. INTERCORPORATE RELATIONSHIPS

2.1 Principal SubsidiariesThe table below sets out the Company’s principal subsidiaries, including the jurisdiction of incorporation andthe percentage of voting and non-voting securities CP currently own directly or indirectly:

Principal Subsidiary(1)

Incorporatedunder theLaws of

Percentageof VotingSecuritiesHeld Directlyor Indirectly

Percentage ofNon-Voting SecuritiesBeneficially Owned,or over whichControl or Directionis Exercised

Canadian Pacific Railway Company Canada 100% Not applicable

Soo Line Corporation(2) Minnesota 100% Not applicable

Soo Line Railroad Company(3) Minnesota 100% Not applicable

Dakota, Minnesota & Eastern Railroad Corporation(4) Delaware 100% Not applicable

Delaware and Hudson Railway Company, Inc.(3) Delaware 100% Not applicable

Mount Stephen Properties Inc.(5) Canada 100% Not applicable

(1) This table does not include all of the Company’s subsidiaries. The assets and revenues of unnamed subsidiaries did not exceed 10% of the total consolidatedassets or total consolidated revenues of CP individually, or 20% of the total consolidated assets or total consolidated revenues of CP in aggregate.

(2) Indirect wholly owned subsidiary of Canadian Pacific Railway Company.(3) Wholly owned subsidiary of Soo Line Corporation.(4) Indirect wholly owned subsidiary of Soo Line Corporation.(5) Wholly owned subsidiary of Canadian Pacific Railway Company.

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3. GENERAL DEVELOPMENTS OF THE BUSINESS

3.1 Recent Developments

2014 Developments

On May 7, 2014, CP announced Chief ExecutiveOfficer E. Hunter Harrison agreed to a contractextension with the railway for an additional year,and will remain with the Company until 2017. Priorto the Company’s shareholder meeting on May 1,2014, it was announced that Mr. Richard Kellywould not stand for re-election as a member of theCompany’s Board of Directors. On May 1, 2014, theCompany announced that Gary Colter was electedChairman of the Company’s Board of Directors.Effective May 20, 2014, the Hon. Jim Prenticeresigned as a member of the Company’s Board ofDirectors. Mr. Prentice had been appointed to theBoard on June 7, 2013.

On October 1-2, 2014, the Company unveiled newgrowth targets extending to 2018. These financialexpectations include:

• more than doubling diluted earnings per share(“EPS”) over the next four years compared to 2014;

• growing annual revenue to $10 billion in 2018;and

• generating cumulative cash flow before dividendsof $6 billion through 2018.

Over the course of 2014 and in early 2015, CP tooka number of steps to optimize the Company’scapital structure and lower cost of capital. Keyinitiatives included:

• on January 28, 2015, CP issued U.S. $700 million2.900% 10-year Notes due 2025 for net proceedsof U.S.$694 million;

• during the fourth quarter of 2014, the Companyestablished a commercial paper program whichenabled it to issue commercial paper up to amaximum aggregate principal amount of U.S. $1billion in the form of unsecured promissory notes.The commercial paper program is backed by a U.S.$1 billion committed, revolving credit facility,which matures on September 26, 2016. As atDecember 31, 2014, the Company had totalcommercial paper borrowings of U.S. $675 million(CDN $783 million) presented in Long-term debton the Company’s Consolidated Balance Sheets;

• at September 26, 2014, CP terminated its existingrevolving credit facility agreement dated as ofNovember 29, 2013. On the same day CP enteredinto a new revolving credit facility agreement with15 highly rated financial institutions for acommitment amount of U.S. $2 billion. The facilityincludes a U.S. $1 billion five years portion and aU.S. $1 billion one year plus one year term outportion. The facility can accommodate draws ofcash and/or letters of credit at market competitivepricing. At December 31, 2014, the facility wasundrawn; and

• on March 17, 2014 the Company commenced aNormal Course Issuer Bid (“NCIB”) to purchase, forcancellation up to 5.3 million common shares. OnSeptember 29, 2014, the Company announced theamendment of the NCIB to increase the maximumnumber of its Common Shares that could bepurchased from 5.3 million to 12.7 million byMarch 16, 2015. From March 17, 2014 toDecember 31, 2014, the Company repurchased10.5 million Common shares for $2,089 million atan average price of $199.42 per share.

As a result of the Company’s improved financialposition, CP received two ratings upgrades in 2014from all three agencies. Standard & Poor’s (“S&P”),Moody’s Investors Services (“Moody’s”), andDominion Bond Rating Services (“DBRS”) increasedtheir ratings to BBB+, Baa1 and BBB (High),respectively, from BBB-, Baa3, and BBB (Low),respectively. In addition, the Company was assignedshort-term ratings on its newly established U.S.commercial paper program. S&P, Moody’s, andDBRS assigned ratings of A-2, P-2, and R-2 (High),respectively.

On November 17, 2014, the Company announced aproposed agreement with Norfolk SouthernCorporation (“NS”) for the sale of approximately 283miles of the Delaware and Hudson Railway Company,Inc.’s line between Sunbury, Pennsylvania, andSchenectady, New York. The assets expected to besold to NS upon completion of this transaction havebeen classified as Assets held for sale on theCompany’s Consolidated Balance Sheets. The assetscontinue to be reported at their carrying value as thisis lower than their expected fair value. The sale to NS,when agreed, will be subject to regulatory approval


by the U.S. Surface Transportation Board and isexpected to close in 2015.

On January 2, 2014, the Company executed anagreement with Genesee & Wyoming Inc. (“G&W”)for the sale of the Dakota, Minnesota, & Eastern(“DM&E”) West tracks between Tracy, Minnesotaand Rapid City, South Dakota, Colony, Wyomingand Crawford, Nebraska. DM&E West encompassesapproximately 660 miles and the sale closed onMay 30, 2014 for U.S. $218 million (CDN $236million) in gross proceeds.

On January 20, 2015, CP announced it had anagreement to create a joint venture with DREAMUnlimited called DREAM Van Horne Properties. Thejoint venture was created to evaluate theCompany’s real estate, and to explore innovativeways to maximize value, including industrial,commercial and residential development.

2013 Developments

Effective February 5, 2013, Mr. Keith Creel wasappointed as President and Chief Operating Officeras part of the Company’s long-term succession plan.In connection to this appointment, Mr. E. HunterHarrison remains Chief Executive Officer of theCompany. On November 29, 2013, CP furtherannounced the appointment of Mr. Bart W.Demosky as Executive Vice President and ChiefFinancial Officer effective December 28, 2013.Mr. Demosky replaced Mr. Brian Grassby, whoretired from his role as Senior Vice President, ChiefFinancial Officer and Treasurer as announced onOctober 23, 2013. Mr. Grassby remained a key partof the senior management team until the end of2013 to lead a successful transition.

Early in 2014, the Company executed an agreementwith G&W for the sale of a portion of the DM&Eline between Tracy, Minnesota and Rapid City,South Dakota, Colony, Wyoming and Crawford,Nebraska and connecting branch lines as result ofthe Company’s 2012 initiative to assess theopportunities with this 660 mile portion of DM&E.The Company recorded an asset impairment chargeand accruals for future associated costs totaling$435 million ($257 million after tax) which impacteddiluted EPS by $1.46 in 2013.

2012 Highlights

During 2012, the Company experienced a numberof other noteworthy events summarized below:

Proxy Contest

In January 2012, Pershing Square CapitalManagement, L.P. (“Pershing Square”) launched aproxy contest in order to replace a minority of theBoard of Directors of the Company (the “Board”)and to advocate for management change (the“Proxy Contest”). The proxy contest was settled inMay 2012 with changes described below in“Change in Board of Directors” and “Managementtransition”.

Change in Board of Directors

On May 17, 2012, following the Proxy ContestMessrs. John Cleghorn, Tim Faithfull, Fred Green,Edmond Harris, Michael Phelps and Roger Phillipsadvised the Company that they did not intend tostand for re-election to the Board.

At the Company’s annual shareholders meeting heldon May 17, 2012, seven new directors were electedto the Board, namely Messrs. William Ackman, GaryColter, Paul Haggis and Paul Hilal, Ms. RebeccaMacDonald, and Messrs. Anthony Melman andStephen Tobias. In addition, Mr. Richard George,Ms. Krystyna Hoeg, Messrs. Tony Ingram andRichard Kelly, the Hon. John Manley, MesdamesLinda Morgan and Madeleine Paquin, and Messrs.David Raisbeck and Hartley Richardson were all re-elected to the Board at the May 17, 2012 meeting.Following the meeting, the new Board selectedMs. Paquin to serve as acting Chair of the Company.On June 4, 2012, Mr. Haggis was appointedChairman of the Company’s Board.

Subsequent to the May 17, 2012 shareholdersmeeting, Messrs. Raisbeck, George and Ingramresigned from the Board on June 11, June 26 andJuly 5, 2012, respectively. In addition, effectiveJuly 6, 2012, Mr. E. Hunter Harrison was appointedto the Board.

As a result of the aforementioned changes to thecomposition of the Board, certain acceleratedvesting provisions for certain grants under theCompany’s management stock option incentiveplan, performance share unit plan and deferredshare unit plan were triggered effective June 26,2012. The effect of such accelerated vesting on theCompany’s second quarter financial statements wasa credit to Compensation and benefits of $8 millionand the recognition of a related liability under the

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accelerated vesting provisions of these plans of $31million, which liability was settled in full in the thirdquarter of 2012.

Management transition

On May 17, 2012, following the Proxy Contest,Mr. Fred Green left his position as President andChief Executive Officer of the Company. That sameday, Mr. Stephen Tobias, a new Board memberelected at the Company’s annual shareholdersmeeting held on May 17, 2012, was appointed bythe Board as Interim Chief Executive Officer andserved in that role until June 28, 2012. On June 28,2012, Mr. E. Hunter Harrison was appointed by theBoard as President and Chief Executive Officer. As aresult of the appointment of Mr. Harrison, theCompany recorded a charge of $38 million withrespect to compensation and other transition costs,including $2 million of associated costs, in thesecond quarter of 2012. This charge was recordedin the Company’s financial statements inCompensation and benefits and Purchased servicesand other, in the amounts of $16 million and $22million respectively.

Included in this charge were amounts totaling $16million in respect of deferred retirementcompensation for Mr. Harrison and $20 million toPershing Square and related entities. PershingSquare and related entities owned or controlledapproximately 14% of the Company’s outstandingshares as at December 31, 2012 and two Boardmembers, Mr. William Ackman and Mr. Paul Hilal,are partners of Pershing Square. The amount paid toPershing Square and related entities was toreimburse them, on behalf of Mr. Harrison, forcertain amounts they had previously paid to, orincurred on behalf of, Mr. Harrison pursuant to anindemnity in favour of Mr. Harrison in connectionwith losses suffered in legal proceedingscommenced against Mr. Harrison by his formeremployer. The terms of Pershing Square’s indemnityrequired Mr. Harrison to return any funds advancedunder the indemnity in the event he acceptedemployment at CP. As a result, Mr. Harrison made ita precondition of accepting the Company’s offer ofemployment that CP assumes the indemnityobligations and returns the funds advanced byPershing Square. As a result of the payment, theCompany would have been entitled to enforce

Mr. Harrison’s rights in the aforementioned legalproceedings, allowing the Company to recover tothe extent of Mr. Harrison’s success in thoseproceedings; however, on February 3, 2013, theCompany and Mr. Harrison settled the legalproceedings with Mr. Harrison’s former employer,providing the Company with partial recovery (U.S.$9 million) of the amounts in dispute. The Companymay receive repayment in other circumstances in theevent of certain breaches by Mr. Harrison of hisobligations under an employment agreement withthe Company. In addition, the Company agreed toindemnify Mr. Harrison for certain other amountssought for repayment by Mr. Harrison’s formeremployer, to a maximum of $3 million plus legalfees, but as a result of the settlement of theaforementioned legal proceedings, such indemnity isno longer applicable.

The Company also recorded a charge of $4 millionin the second quarter of 2012 with respect to aretirement allowance for Mr. Green.

Strike

On May 23, 2012, the Teamsters Canada RailConference Running Trade Employees (“TCRC-RTE”)and the Rail Canada Traffic Controllers (“TCRC-RCTC”), representing 4,800 engineers, conductorsand rail traffic controllers in Canada, commenced astrike that caused a nine-day Canadian workstoppage (“the strike”). Bill C-39, the Restoring RailService Act, was passed by the Parliament ofCanada on May 31, 2012 and employees returnedto work on June 1, 2012.

The strike caused a significant loss of revenue duringthe second quarter. Partly offsetting this revenueloss were cost savings in Compensation andbenefits, Fuel, and Equipment rents. During thestrike, CP took the opportunity to advance track andother maintenance including mechanical andengineering work.

Once the unions returned to work the Companyquickly re-established service and reset the network.

Strategic update

On December 4-5, 2012, CP’s Chief ExecutiveOfficer E. Hunter Harrison outlined the Company’splan for change to improve service, increase therailway’s efficiency, lower cost and grow thebusiness.


Under the leadership of new management, thesecond half of 2012 included a rapid changeagenda where progress was made on this plan.Highlights of CP’s evolution to a more competitiverailway include:

• a new executive leadership team in place,including a new Senior Operations lead team, witha mandate for centralized planning anddecentralized execution, that eliminatesbureaucracy to make service decisions faster andcloser to the customer;

• revamped intermodal and merchandise trainservices which provide faster transit times forcustomers, such as the new intermodal servicesconnecting Vancouver to Chicago or Toronto;

• the closure of hump-switching yards in Toronto,Winnipeg, Calgary and Chicago which providessignificant cost savings and more efficientoperating practices;

• the closure of intermodal terminals in Milwaukee,Obico (Toronto), and Schiller Park (Chicago) whichreduced CP’s footprint and operating expenseswhile also facilitating efficient operating practicesand reduced end-to-end transit times;

• network design changes made after July 2012allowed CP to reduce operating plan train miles by39,000 per week, a 7 percent improvement, andcrew starts by approximately 30 per day, a

5 percent improvement over previous designsfrom the first half of the year. Together, thesedesign changes reduced annual operating costs,while increasing capacity; and

• a reduction of the Company’s active locomotivefleet by more than 195 engines in the second halfof 2012, with more than 460 locomotives stored,returned or declared surplus year-to-date. Overthe course of 2012, CP provided returnnotification on 5,400 rail cars.

Asset impairment and labour restructuring charges

During the fourth quarter of 2012, the Companyrecorded a number of significant charges in part dueto on-going efforts to improve the efficiency of theCompany. These significant charges, included:

• $53 million labour restructuring charge ($39million after tax), which unfavourably impacteddiluted EPS by 22 cents;

• $185 million impairment of Powder River Basin(“PRB”) and other investment ($111 million aftertax), which unfavourably impacted diluted EPS by64 cents; and

• $80 million asset impairment of certainlocomotives ($59 million after tax), whichunfavourably impacted diluted EPS by 34 cents.

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4. DESCRIPTION OF THE BUSINESS

4.1 Background and NetworkCPRC was incorporated by Letters Patent in 1881pursuant to an Act of the Parliament of Canada.CPRC is one of Canada’s oldest corporations. Fromthe Company’s inception 134 years ago, CP hasdeveloped into a fully integrated and technologicallyadvanced Class I railway (a railroad earning aminimum of U.S. $452.7 million in revenuesannually as defined by the Surface TransportationBoard in the U.S.) providing rail and intermodalfreight transportation services over a 13,700 milenetwork serving the principal business centres ofCanada, from Montreal, Quebec to Vancouver,British Columbia (“B.C.”), and the U.S. Midwest andNortheast regions.

CP owns approximately 9,900 miles of track. Anadditional 3,800 miles of track are owned jointly,leased or operated under trackage rights. Of thetotal mileage operated, approximately 5,800 milesare located in western Canada, 2,300 miles ineastern Canada, 4,500 miles in the U.S. Midwestand 1,100 miles in the U.S. Northeast. TheCompany’s business is based on funnelling railwaytraffic from feeder lines and connectors, includingsecondary and branch lines, onto the Company’shigh-density mainline railway network. CP hasextended its network reach by establishing alliancesand connections with other major Class I railways inNorth America, which allow the Company toprovide competitive services and access to marketsacross North America beyond CP’s own railnetwork. The Company also provides service tomarkets in Europe and the Pacific Rim throughdirect access to the Port of Montreal and the PortMetro Vancouver in Vancouver, B.C., respectively.

CP’s network accesses the U.S. market directlythrough three wholly owned subsidiaries: Soo LineRailroad Company (“Soo Line”), a Class I railwayoperating in the U.S. Midwest; DM&E, a whollyowned subsidiary of the Soo Line, which operates inthe U.S. Midwest; and the Delaware and HudsonRailway Company, Inc. (“D&H”), which operatesbetween eastern Canada and major U.S. Northeastmarkets, including New York City, New York;Philadelphia, Pennsylvania; and Washington, D.C.

4.2 StrategyCanadian Pacific is driving change as it movesthrough its transformational journey to become thebest railroad in North America, while creating long-term value for shareholders. The Company isfocused on providing customers with industryleading rail service; driving sustainable, profitablegrowth; optimizing our assets; and reducing costs,while remaining a leader in rail safety.

Looking forward, CP is executing its strategic plan tobecome the lowest cost rail carrier centred on fivekey foundations, which are the Company’sperformance drivers.

Provide Service: Providing efficient and consistenttransportation solutions for the Company’scustomers. “Doing what we say we are going todo” is what drives CP by providing a reliable productwith a lower cost operating model. Centralizedplanning aligned with local execution is bringing theCompany closer to the customer and acceleratingdecision-making.

Control Costs: Controlling and removingunnecessary costs from the organization, eliminatingbureaucracy and continuing to identify productivityenhancements are the keys to success.

Optimize Assets: Through longer sidings, improvedasset utilization, and increased train lengths, theCompany is moving increased volumes with fewerlocomotives and cars while unlocking capacity forfuture growth potential.

Operate Safely: Each year, CP safely moves millionsof carloads of freight across North America whileensuring the safety of our people and thecommunities through which we operate. Safety isnever to be compromised. Continuous research anddevelopment in state-of-the-art safety technologyand highly focused employees ensure our trains arebuilt for safe, efficient operations across our network.

Develop People: CP recognizes that none of theother foundations can be achieved without itspeople. Every CP employee is a railroader and theCompany is shaping a new culture focused on apassion for service with integrity in everything itdoes. Coaching and mentoring managers intobecoming leaders will help drive CP forward.


4.3 Partnerships, Alliances and Network EfficiencySome customers’ goods may have to travel on morethan one railway to reach their final destination. Thetransfer of goods between railways can cause delaysand service interruptions. The Company’s railnetwork connects to other North American railcarriers and, through partnerships, the Companycontinues to co-develop processes and productsdesigned to provide seamless and efficientscheduled train service to these customers.

CP continues to increase the capacity and efficiencyof the Company’s core franchise throughinfrastructure-sharing and joint-service programs withother railways and third parties, strategic capitalinvestment programs, and operating plan strategies.Combined with the continued improvement of CPlocomotive and rail car fleets, these strategies enablethe Company to achieve more predictable and fluidtrain operations between major terminals.

Over the past few years, Class I railway initiativeshave included:

• Co-operation initiatives with the Canadian NationalRailway Company (“CN”) in the Port MetroVancouver Terminal and B.C. Lower Mainland;

• Working very closely with all the Class I and othercarriers that serve Chicago, Illinois under theChicago Region Environmental and TransportationEfficiency (“CREATE”) program. Class I’s, Amtrak,Metra and switching carriers Indiana Harbor BeltRailroad (“IHB”) and Belt Railway of Chicago(“BRC”) have partnered in CREATE to constructoperating and structural changes that will improveoperating efficiency and fluidity in and aroundChicago, the largest railroad hub in NorthAmerica; and

• CP, working with the State Departments ofTransportation of New York, Illinois, Wisconsinand Minnesota, to develop plans for improvedtrack and road infrastructure to support intercitypassenger rail. This infrastructure will support thefluidity of passenger and freight traffic on sharedCP track.

CP also develops mutually beneficial arrangementswith smaller railways, including shortline andregional carriers.

4.4 Network and Right-of-WayThe Company’s 13,700-mile network extends from the Port Metro Vancouver on Canada’s Pacific Coast to thePort of Montreal in eastern Canada, and to the U.S. industrial centres of Chicago; Detroit, Michigan; Newark,New Jersey; and Buffalo, New York; Kansas City, Missouri; and Minneapolis, Minnesota.

SUDBURY

VANCOUVERKINGSGATE

COUTTS

CALGARY

EDMONTONLLOYDMINISTER

SASKATOON

REGINA WINNIPEG

DULUTH

THUNDER BAY

TORONTO

BUFFALODETROIT

PHILADELPHIANEW YORK

ALBANY

MONTREAL

CHICAGO

MILWAUKEE

KANSAS CITY

MINNEAPOLIS/ST. PAUL

TRACY

The Company’s network is composed of four primary corridors: Western, Eastern, Central and the Northeast U.S.

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4.4.1 The Western Corridor: Vancouver toThunder BayOverview – The Western Corridor links Vancouverwith Thunder Bay, Ontario, which is the westernCanadian terminus of the Company’s Easterncorridor. With service through Calgary, Alberta theWestern Corridor is an important part of theCompany’s routes between Vancouver and the U.S.Midwest, and between Vancouver and EasternCanada. The Western Corridor provides access tothe Port of Thunder Bay, Canada’s primary GreatLakes bulk terminal.

Products – The Western Corridor is the Company’sprimary route for bulk and resource products trafficfrom western Canada to the Port Metro Vancouverfor export. CP also handles significant volumes ofinternational intermodal containers and domesticgeneral merchandise traffic.

Feeder Lines – CP supports its Western Corridorwith four significant feeder lines: the “Coal Route”,which links southeastern B.C. coal deposits to theWestern Corridor and to coal terminals at the PortMetro Vancouver; the “Edmonton-Calgary Route”,which provides rail access to Alberta’s IndustrialHeartland in addition to the petrochemical facilitiesin central Alberta; the “Pacific CanAm Route”,which connects Calgary and Medicine Hat, Alberta,with Pacific Northwest rail routes at Kingsgate, B.C.via the Crowsnest Pass; and the “North Main LineRoute” that provides rail service to customersbetween Portage La Prairie, Manitoba andWetaskiwin, Alberta, including intermediate pointsYorkton and Saskatoon in Saskatchewan. This line isan important collector of Canadian grain andfertilizer, serving the potash mines located east andwest of Saskatoon and many high-throughput grainelevator, processing and crude facilities. In addition,this line provides direct access to refining andupgrading facilities at Lloydminster, Alberta andwestern Canada’s largest pipeline terminal atHardisty, Alberta.

Connections – The Company’s Western Corridorconnects with the Union Pacific Railroad (“UP”) atKingsgate and with Burlington Northern Santa Fe,LLC (“BNSF”) at Coutts, Alberta, and at NewWestminster and Huntingdon in B.C. This corridoralso connects with CN at many locations includingThunder Bay, Winnipeg, Regina and Saskatoon inSaskatchewan, Red Deer, Camrose, Calgary and

Edmonton in Alberta and several locations in theGreater Vancouver area.

Yards and Repair Facilities – CP supports railoperations on the Western Corridor with main railyards at Vancouver, Calgary, Edmonton, Moose Jawin Saskatchewan, Winnipeg and Thunder Bay. CPalso has major intermodal terminals at Vancouver,Calgary, Edmonton, Regina and Winnipeg. TheCompany has locomotive and rail car repair facilitiesat Golden, B.C., Vancouver, Calgary, Moose Jawand Winnipeg.

4.4.2 The Central Corridor: Moose Jaw or Winnipegto Chicago and Kansas CityOverview – The Central Corridor connects with theWestern Corridor at Moose Jaw and Winnipeg. Byrunning south to Chicago and Kansas City throughthe Twin Cities of Minneapolis and St. Paul,Minnesota and Milwaukee, Wisconsin, CP providesa direct, single-carrier route between westernCanada and the U.S. Midwest, providing access toGreat Lakes and Mississippi River ports. From LaCrosse, Wisconsin, the Central Corridor continuessouth towards Kansas City via the Quad Cities,providing an efficient route for traffic destined forsouthern U.S. and Mexican markets. CP’s KansasCity line also has a direct connection into Chicagoand by extension to points east on CP’s networksuch as Toronto, Ontario and the Port of Montreal.

Products – Traffic transported on the CentralCorridor include intermodal containers from the PortMetro Vancouver, fertilizers, chemicals, crude, grain,automotive and other agricultural products.

Feeder Lines – The Company has operating rightsover the BNSF line between Minneapolis and thetwin ports of Duluth, Minnesota and Superior,Wisconsin. CP maintains its own yard facilities at theTwin Ports that provide an outlet for grain from theU.S. Midwest to the grain terminals at these ports,and a strategic entry point for large dimensionalshipments that can be routed via CP’s network tolocations such as Alberta’s Industrial Heartland toserve the needs of the oil sands and energy industry.The DM&E route from Winona, Minnesota to Tracy,Minnesota provides access to key agricultural andindustrial commodities. CP’s feeder line betweenDrake and Newtown in North Dakota isgeographically situated in a highly-strategic regionfor Bakken oil production. CP also owns twosignificant feeder lines in North Dakota and western


Minnesota operated by the Dakota Missouri Valleyand Western Railroad, and the Northern PlainsRailroad respectively. Both of these short lines arealso active in providing service to agricultural andBakken-oil related customers.

Connections – The Company’s Central Corridorconnects with all major railways at Chicago. Outsideof Chicago, CP has major connections with BNSF atMinneapolis and at Minot, North Dakota and withUP at St. Paul. CP connects with CN at Milwaukeeand Chicago. At Kansas City, CP connects withKansas City Southern (“KCS”), BNSF, NorfolkSouthern Corporation (“NS”), and UP. CP’s CentralCorridor also links to several shortline railways thatprimarily serve grain and coal producing areas in theU.S., and extend CP’s market reach in the richagricultural areas of the U.S. Midwest.

Yards and Repair Facilities – The Companysupports rail operations on the Central Corridor withmain rail yards in Chicago, Milwaukee, Wisconsin,St. Paul and Glenwood in Minnesota, and MasonCity and Nahant in Iowa. CP owns 49% of the IHB,a switching railway serving Greater Chicago andnorthwest Indiana, and has a major intermodalterminal in Chicago and one in Minneapolis. Inaddition, CP has a major locomotive repair facility atSt. Paul and car repair facilities at St. Paul andChicago. CP shares a yard with KCS in Kansas City.

4.4.3 The Eastern Corridor: Thunder Bay to Montrealand DetroitOverview – The Eastern Corridor extends fromThunder Bay through to its eastern terminus atMontreal and from Toronto to Chicago via Windsor/Detroit. The Company’s Eastern Corridor providesshippers direct rail service from Toronto andMontreal to Calgary and Vancouver via theCompany’s Western Corridor and to the U.S. via theCentral Corridor. This is a key element of theCompany’s transcontinental intermodal and otherservices, as well as truck trailers moving in drive-on/drive-off Expressway service between Montreal andToronto. The corridor also supports the Company’smarket position at the Port of Montreal by providingone of the shortest rail routes for European cargodestined to the U.S. Midwest, using the CP-ownedroute between Montreal and Detroit, coupled with atrackage rights arrangement on NS tracks betweenDetroit and Chicago.

Products – Major traffic categories transported inthe Eastern Corridor include forest, chemicals andplastics, crude, metals, minerals and consumerproducts, intermodal containers, automotiveproducts and general merchandise.

Feeder Lines – A major feeder line that serves thesteel industry at Hamilton, Ontario providesconnections to both the Company’s Northeast U.S.corridor and both CSXT Corporation (“CSXT”) andNS at Buffalo.

Connections – The Eastern Corridor connects witha number of shortline railways including routes fromMontreal to Quebec City, Quebec and Montreal toSt. John, New Brunswick and Searsport, Maine. CPowns a route to Temiscaming, Quebec via NorthBay, Ontario operated by short line Ottawa ValleyRailway, where connections are made with theOntario Northland Railway. Connections are alsomade with CN at a number of locations, includingSudbury, North Bay, Windsor, London, Hamilton,and Toronto in Ontario and Montreal and at Detroitand Buffalo with NS and CSXT.

Yards and Repair Facilities – CP supports its railoperations in the Eastern Corridor with major railyards at Sudbury, Toronto, London and Montreal.The Company’s largest intermodal facility is locatedin the northern Toronto suburb of Vaughan andserves the Greater Toronto and southwesternOntario areas. CP also operates intermodal terminalsat Montreal and Detroit. Terminals for theCompany’s Expressway service are located inMontreal and at Milton, Ontario in the GreaterToronto area.

The Company has locomotive repair facilities atMontreal and Toronto and car repair facilities atThunder Bay, Toronto and Montreal.

4.4.4 The Northeast U.S. Corridor: Buffalo andMontreal to New YorkOverview – The Northeast U.S. Corridor provides animportant link between the major population centresof eastern Canada, the U.S. Midwest and the U.S.Northeast. The corridor extends from Montreal toHarrisburg, Pennsylvania and Buffalo, New York toAllentown, Pennsylvania and to Albany/Schenectadyin New York’s Capital District Region.

Products – Major traffic categories transported inthe Northeast U.S. Corridor include lumber, ethanol,crude oil and consumer products.

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Feeder Lines – The Northeast U.S. Corridorconnects with important feeder lines. TheCompany’s route between Montreal and Harrisburg,Pennsylvania, in combination with trackage rightsover other railways, provides the Company withdirect access to Allentown, Pennsylvania.Agreements with NS provide CP with access toshippers and receivers in the Conrail “shared asset”regions of New Jersey. The “southern tier” routebetween Buffalo, New York and Binghamton, NewYork includes haulage rights over NS lines, linksindustrial southern Ontario with key U.S. connectingrail carriers at Buffalo and provides access to CP forshort line carriers along the Buffalo to Binghamton,New York route.

Connections – CP has major connections with NSat Binghamton, and Harrisburg and Allentown,Pennsylvania, with CSXT at Albany, New York andwith Pan Am Southern at Mechanicville, New York.Shortline connections exist with multiple playersthroughout the corridor.

Yards and Repair Facilities – CP supports itsNortheast U.S. Corridor with a major rail yard inBinghamton. CP has locomotive and car repairfacilities in Montreal and Binghamton.

4.4.5 Right-of-WayThe Company’s rail network is standard gauge,which is used by all major railways in Canada, theU.S. and Mexico. Continuous welded rail is used onthe core main line network.

CP uses different train control systems on portionsof the Company’s owned track, depending on thevolume of rail traffic. Remotely controlledcentralized traffic control signals are used toauthorize the movement of trains. CP is currently inthe development stage of its Positive Train Controlstrategy for portions of its U.S. network.

In other corridors, train movements are directed bywritten instructions transmitted electronically and byradio from rail traffic controllers to train crews. Insome specific areas of intermediate traffic density,CP uses an automatic block signalling system inconjunction with written instructions from rail trafficcontrollers.

4.5 Quarterly TrendsVolumes and revenues from certain goods arestronger during different periods of the year. First-quarter revenues are typically lower mainly due towinter weather conditions, closure of the GreatLakes ports and reduced transportation of retailgoods. Second and third-quarter revenues generallyimprove over the first quarter as fertilizer volumesare typically highest during the second quarter anddemand for construction-related goods are generallyhighest in the third quarter. Revenues are typicallystrongest in the fourth quarter, primarily as a resultof the transportation of grain after the harvest, fallfertilizer programs and increased demand for retailgoods moved by rail. Operating income is alsoaffected by seasonal fluctuations. Operating incomeis typically lowest in the first quarter due to lowerfreight revenue and higher operating costsassociated with winter conditions. Net income isalso influenced by seasonal fluctuations in customerdemand and weather-related issues.

4.6 Business CategoriesThe following table compares the percentage of theCompany’s total freight revenue derived from eachof the major business lines in 2014 compared with2013 and 2012:

Business Category 2014 2013 2012

Bulk 42% 42% 41%

Merchandise 37% 36% 34%

Intermodal 21% 22% 25%

2 0 1 4 A N N U A L I N F O R M A T I O N F O R M 1 1

4.7 RevenuesFreight revenues are earned from transporting bulk, merchandise and intermodal goods, and include fuelrecoveries billed to CP customers. The following table summarizes the Company’s annual freight revenuesbetween 2012 and 2014:

Freight Revenues % Change(in $ millions, except for percentages) 2014 2013Business Category 2014 2013 2012 vs. 2013 vs. 2012

BulkCanadian grain $ 988 $ 869 $ 767 14 13U.S. grain 503 431 405 17 6Coal 621 627 602 (1) 4Potash 347 312 281 11 11Fertilizers and sulphur 234 258 239 (9) 8

Total bulk 2,693 2,497 2,294 8 9Merchandise

Forest products 206 206 193 – 7Chemicals and plastics 637 565 512 13 10Crude 484 375 206 29 82Metals, minerals, and consumer products 712 608 550 17 11Automotive 357 403 425 (11) (5)

Total merchandise 2,396 2,157 1,886 11 14Intermodal

Domestic intermodal 787 684 653 15 5International intermodal 588 644 717 (9) (10)

Total intermodal 1,375 1,328 1,370 4 (3)

Total freight revenues $6,464 $5,982 $5,550 8 8

4.7.1 BulkThe Company’s bulk business representedapproximately 42% of total freight revenues in 2014.

4.7.1.1 Canadian GrainThe Company’s Canadian grain business accountedfor approximately 15% of total freight revenues in2014.

Canadian grain transported by CP consists of bothwhole grains, such as wheat, corn, soybeans, andcanola, and processed products such as meals, oils,and flour.

This business is centred in the Canadian prairies(Alberta, Saskatchewan and Manitoba), with grainshipped primarily west to the Port Metro Vancouverand east to the Port of Thunder Bay for export.Grain is also shipped to the U.S., Mexico and toeastern Canada for domestic consumption.

Canadian grain includes a segment of business thatis regulated by the Canadian government and setout in the Canadian Transportation Act (“CTA”).This regulated business is subject to a maximumrevenue entitlement (“MRE”). Under this regulation,

railroads can set their own rates for individualmovements. However, the MRE governs aggregaterevenue earned by the railroad based on a formulathat factors in the total volumes, length of haul,average revenue per tonne and inflationaryadjustments. The regulation applies to WesternCanadian export grain shipments to the ports ofVancouver and Thunder Bay.

4.7.1.2 U.S. GrainCP’s U.S. grain business accounted forapproximately 8% of total freight revenues in 2014.

U.S. grain transported by CP consists of both wholegrains, such as wheat, corn, and soybeans, andprocessed products such as meals, oils, and flour.

This business is centred in the states of NorthDakota, Minnesota, Iowa and South Dakota. Exportgrain traffic from this producing region is shipped toports at Duluth and Superior. In partnership withother railways, CP also moves grain to exportterminals in the U.S. Pacific Northwest and the Gulfof Mexico. Grain destined for domestic consumptionmoves east via Chicago to the U.S. Northeast or is

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interchanged with other carriers to the U.S.Southeast, Pacific Northwest and California markets.

4.7.1.3 CoalThe Company’s coal business representedapproximately 10% of total freight revenues in2014.

CP handles mostly metallurgical coal destined forexport through the Port Metro Vancouver for use inthe steel-making process in the Pacific Rim, Europeand South America.

CP’s Canadian coal traffic originates mainly fromTeck Resource Limited’s mines in southeasternB.C. They are considered to be among the mostproductive, highest-quality metallurgical coal minesin the world. CP moves coal west from these minesto port terminals for export to world markets, andeast for the U.S. Midwest markets and forconsumption in steel-making mills along the GreatLakes.

In the U.S., CP moves primarily thermal coal fromconnecting railways serving the thermal coal fields inthe PRB in Montana and Wyoming. It is thendelivered to power generating facilities in theMidwest U.S. CP also serves petroleum cokeoperations in Canada and the U.S. where theproduct is used for power generation and aluminumproduction.

4.7.1.4 PotashPotash represented approximately 5% of totalfreight revenues in 2014.

The Company’s potash traffic moves mainly fromSaskatchewan to offshore markets through theports of Vancouver, Thunder Bay and Portland,Oregon and to markets in the U.S. All potashshipments for export beyond Canada and the U.S.are marketed by Canpotex, a joint venture amongSaskatchewan’s potash producers. Independently,these producers move domestic potash with CPprimarily to the U.S. Midwest for local application.

4.7.1.5 Fertilizers and sulphurFertilizers and sulphur business representedapproximately 4% of total freight revenues in 2014.

Chemical fertilizers are transported to markets inCanada and the U.S. from key production areas inthe Canadian prairies. Phosphate fertilizer is alsotransported from U.S. and Canadian producers tomarkets in Canada and the northern U.S. CPprovides transportation services from major nitrogen

production facilities in western Canada and haveefficient routes to the major U.S. markets. CP alsohas direct service to key fertilizer distributionterminals, such as the barge facilities on theMississippi River system at Minneapolis-St. Paul, aswell as access to Great Lakes vessels at Thunder Bay.

Most sulphur is produced in Alberta as a by-productof processing sour natural gas, refining crude oil andupgrading bitumen produced in the Alberta oilsands. Sulphur is a raw material used primarily in themanufacturing of sulphuric acid, which is used mostextensively in the production of phosphatefertilizers. Demand for elemental sulphur rises withdemand for fertilizers. Sulphuric acid is also a keyingredient in industrial processes ranging fromsmelting and nickel leaching to paper production.

4.7.2 MerchandiseCP’s merchandise business represented approximately37% of total freight revenues in 2014.

Merchandise products move in trains of mixedfreight and in a variety of car types. Service involvesdelivering products to many different customers anddestinations. In addition to traditional rail service, CPmoves merchandise traffic through a network oftruck-rail transload facilities and provides logisticsservices.

4.7.2.1 Forest ProductsThe Company’s forest products businessrepresented approximately 3% of total freightrevenues in 2014.

Forest products traffic includes wood pulp, paper,paperboard, newsprint, lumber, panel and orientedstrand board shipped from key producing areas inB.C., northern Alberta, northern Saskatchewan,Ontario and Quebec to destinations throughoutNorth America.

4.7.2.2 Chemicals and PlasticsThe Company’s chemicals and plastics businessrepresented approximately 10% of total freightrevenues in 2014.

Petroleum products represent the largest segmentof this business, followed by chemicals and plastics,respectively.

Petroleum products consist of commodities such asliquid petroleum gas (“LPG”), gasoline, diesel,condensate, asphalt and lubricant oils. The majorityof the Company’s Western Canadian petroleum


products traffic originates in Saskatchewan and inthe Alberta Industrial Heartland, Canada’s largesthydrocarbon processing region. The Bakkenformation region in Saskatchewan and NorthDakota is another source of condensate, LPG andnatural gas liquids. Connectivity to several railinterline partners gives the Company access torefineries and export facilities in the PacificNorthwest, Northeast U.S. and Gulf Coast, as wellas the Texas and Louisiana petrochemical corridorand port connections.

The Company’s chemical traffic includes productssuch as ethylene glycol, styrene, sulphuric acid,methanol, sodium chlorate, caustic soda and sodaash. These shipments originate from EasternCanada, Alberta, the U.S. Midwest and the Gulf ofMexico and move to end markets in Canada, theU.S. and overseas.

The most commonly shipped plastics products arepolyethylene and polypropylene. Almost half of theCompany’s plastics originate in central and northernAlberta and move to various North Americandestinations.

4.7.2.3 CrudeThe Company’s crude business representedapproximately 7% of total freight revenues in 2014.

Crude moves from origin facilities throughoutAlberta, Saskatchewan and North Dakota. CPconnects at these origin facilities with directproduction as well as pipeline access. Oil sandsproducts originating in Northern Alberta aredelivered by pipeline systems to hub terminals inEdmonton, Hardisty and the Alberta IndustrialHeartland, where rail and pipeline are the optionsfor further transport. CP connects to numerousSaskatchewan oil plays, including Shaunavon,Lloydminster, Kerrobert and the Bakken, and CP hasnumerous facilities in the North Dakota Bakken oilproducing zone.

CP’s main crude unloading destination terminal islocated in Albany, New York. This terminal is a rail-to-vessel operation that can reach refineries alongthe Canadian and U.S. East Coast, and the U.S. GulfCoast. CP also accesses other refineries andterminals on the U.S. East Coast, Gulf Coast andWest Coast through established foreign linepartnerships.

4.7.2.4 Metals, Minerals and Consumer ProductsThe Company’s metals, minerals and consumerproducts business represented approximately 11%of total freight revenues in 2014.

Metals, minerals and consumer products trafficinclude a wide array of commodities grouped underaggregates, steel, consumer products and non-ferrous metals.

Frac sand and cement are the dominant aggregates.Frac sand originates at mines located along theCompany’s network in Wisconsin and moves to adiverse set of shale plays across North America. Themajority of the Company’s cement traffic is shippeddirectly from production facilities in Alberta, Iowaand Ontario to energy and construction projects inNorth Dakota, Alberta, Manitoba and the U.S.Midwest.

CP transports steel in various forms from mills inOntario, Saskatchewan and Iowa to a variety ofindustrial users. The Company carries base metalssuch as copper, lead, zinc and aluminum. CP alsomoves ores from mines to smelters and refineries forprocessing, and the processed metal to automobileand consumer products manufacturers.

Consumer products traffic consists of a diverse mixof goods, including food products, buildingmaterials, packaging products and waste products.

4.7.2.5 AutomotiveThe Company’s automotive business representedapproximately 6% of total freight revenues in 2014.

CP’s automotive portfolio consists of four finishedvehicle traffic segments: import vehicles that movethrough Port Metro Vancouver to Eastern Canadianmarkets; Canadian-produced vehicles that ship to theU.S. from Ontario production facilities; U.S.-producedvehicles that ship within the U.S. as well as cross-border into Canadian markets; and, Mexican-produced vehicles that ship to the U.S. and Canada.In addition to finished vehicles, CP ships automotiveparts, machinery and pre-owned vehicles. Acomprehensive network of automotive compounds isutilized to facilitate final delivery of vehicles to dealersthroughout Canada and in the U.S.

4.7.3 IntermodalThe Company’s intermodal business accounted forapproximately 21% of total freight revenues in2014.

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Domestic intermodal freight consists primarily ofmanufactured consumer products moving in fiftythree foot containers within NorthAmerica. International intermodal freight moves inmarine containers to and from ports and NorthAmerican inland markets.

4.7.3.1 Domestic IntermodalThe Company’s domestic intermodal businessrepresented approximately 12% of total freightrevenues in 2014.

CP’s domestic intermodal business covers a broadspectrum of industries including food, retail, less-than truckload shipping, trucking, forest productsand various other consumer-related products. Keyservice factors in domestic intermodal includeconsistent on-time delivery, the ability to providedoor-to-door service and the availability of value-added services. The majority of the Company’sdomestic intermodal business originates in Canadawhere CP markets its services directly to retailers,providing complete door-to-door service andmaintaining direct relationships with itscustomers. In the U.S., the Company’s service isdelivered mainly through wholesalers.

4.7.3.2 International IntermodalThe Company’s international intermodal businessrepresented approximately 9% of total freightrevenues in 2014.

CP’s international intermodal business consistsprimarily of containerized traffic moving betweenthe ports of Vancouver, Montreal and New Yorkand inland points across Canada and the U.S.

CP is a major carrier of containers moving via theports of Montreal and Vancouver. Import trafficfrom the Port Metro Vancouver is mainly long-haulbusiness destined for eastern Canada and the U.S.Midwest and Northeast. The Company’s trans-Pacific service offers the shortest route between thePort Metro Vancouver and Chicago. CP worksclosely with the Port of Montreal, a major year-round East Coast gateway to Europe, to servemarkets primarily in Canada and the U.S.Midwest. The Company’s U.S. Northeast serviceconnects eastern Canada with the ports of NewYork, offering a competitive alternative to trucks.

4.7.4 Fuel Cost Recovery ProgramThe short-term volatility in fuel prices may adverselyor positively impact expenses and revenues. CPemploys a fuel cost recovery program designed toautomatically respond to fluctuations in fuel pricesand help reduce volatility to changing fuel prices.Fuel surcharge revenue is earned on individualshipments primarily based on On Highway Diesel(“OHD”); as such, fuel surcharge revenue is afunction of freight volumes.

4.7.5 Other RevenueOther revenue is generated from leasing certainassets, switching fees, other arrangements includinglogistical services and contracts with passengerservice operators.

4.7.6 Significant CustomersFor each of the twelve months ended December 31,2014, 2013 and 2012, no customer comprised morethan 10% of total revenues and accountsreceivable.


4.8 Railway PerformanceCP focuses on safety, train operation productivity, increasing network efficiency and improving assetutilization. The following table summarizes the effect of the Company’s Operating Plan based on industry-recognized performance indicators. Detailed definitions of the performance indicators listed below areincluded in Section 26, Glossary of Terms of the 2014 MD&A which is incorporated by reference herein.

% Change

For the year ended December 31(1) 2014 2013 2012

2014vs.

2013

2013vs.

2012

Operations PerformanceFreight gross ton-miles (“GTMs”) (millions) 273,276 267,629 254,354 2 5Revenue ton-miles (“RTMs”) (millions) 149,849 144,249 135,032 4 7Train miles (thousands) 36,625 37,817 40,270 (3) (6)Average train weight - excluding local traffic (tons) 8,046 7,573 6,709 6 13Average train length - excluding local traffic (feet) 6,683 6,530 5,981 2 9Average terminal dwell (hours) 8.7 7.1 7.5 23 (5)Average train speed (mph)(2)(3) 18.1 18.4 N/A (2) N/AFuel efficiency (U.S. gallons of locomotive fuel consumed /1,000 GTMs)(4) 1.03 1.06 1.15 (3) (8)Total employees (average)(5)(6) 14,575 15,011 16,999 (3) (12)Workforce (end of period)(7) 14,698 14,977 16,907 (2) (11)

Safety indicatorsFRA personal injuries per 200,000 employee-hours 1.67 1.71 1.56 (2) 10FRA train accidents per million train-miles 1.26 1.80 1.69 (30) 7

(1) Certain prior period figures have been revised to conform with current presentation or have been updated to reflect new information.(2) Incorporates a new reporting definition where average train speed measures the line-haul movement from origin to destination including terminal dwell hours,

and excluding foreign railroad and customer delays.(3) 2012 Average train speed information is not available for new reporting definition.(4) Includes gallons of fuel consumed from freight, yard and commuter service but excludes fuel used in capital projects and other non-freight activities.(5) An employee is defined as an individual, including trainees, who has worked more than 40 hours in a standard biweekly pay period. This excludes part time

employees, contractors, and consultants.(6) 2012 average number of employees has been adjusted for a strike.(7) Workforce is defined as total employees plus part time employees, contractors, and consultants.

GTMs for 2014 were 273,276 million, a 2%increase compared with 267,629 million in 2013.This improvement was primarily due to highershipments in Canadian grain, Crude, Domesticintermodal, and Metals, minerals and consumerproducts.

RTMs for 2014 were 149,849 million, an increase of4% compared with 144,249 million in 2013. RTMsare discussed further in Section 8, Lines of Businessof the 2014 MD&A.

Train miles for 2014 decreased by 3% comparedwith 2013, reflecting improvements in operatingefficiency from longer, heavier trains.

Average train weight increased in 2014 by 473 tons,or 6%, from 2013. Average train length increased in2014 by 153 feet, or 2%, from 2013. Average trainweight and length benefited significantly fromimprovements in operating plan efficiency andincreased volumes of bulk traffic conveyed in longer,

heavier trains. Both of these improvements leveragethe siding extensions completed in 2013 and 2014.

Average terminal dwell, the average time a freightcar resides in a terminal, increased by 23% in 2014to 8.7 hours from 7.1 hours in 2013. Theunfavourable increase was primarily due tooperational challenges in the U.S. Midwest.

Average train speed was 18.1 miles per hour in2014, a decrease of 2%, from 18.4 miles per hourin 2013. The unfavourable decrease was primarilydue to operational challenges in the U.S. Midwest.This decrease was partially offset by speedimprovements in the fourth quarter of 2014through improved asset velocity, decreased terminaldwell, and successful execution of the Company’soperating plan.

Fuel efficiency improved by 3% in 2014 comparedto 2013. This improvement is primarily due to thecontinued execution of the Company’s fuel

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conservation strategy and increased locomotiveproductivity from higher average train weights.

The average number of total employees for 2014decreased by 436, or 3%, compared with 2013.This improvement was primarily due to jobreductions as a result of continuing strongoperational performance and natural attrition,partially offset by additional information technology(“IT”) employees as a part of the Company’sinsourcing strategy.

The workforce on December 31, 2014 decreased by279, or 2%, compared with December 31, 2013.This improvement was primarily due to jobreductions as a result of continuing strongoperational performance, natural attrition and fewercontractors.

Safety is discussed in Section 4.14, Safety.

4.9 Franchise InvestmentFranchise investment is an integral part of theCompany’s multi-year capital program and supportsgrowth initiatives. The Company’s annual capitalprogram typically includes investments in track andfacilities (including rail yards and intermodalterminals); locomotives; IT; and freight cars and

other equipment. On an accrual basis, CP investedapproximately $3.9 billion in core assets from 2012to 2014, with annual capital spending over thisperiod averaging approximately 21% of revenues.This included approximately $2.6 billion invested intrack and roadway, $500 million in rolling stock,$300 million in IT and $500 million in buildings andother.

4.9.1 Locomotive FleetThe Company’s locomotive fleet is comprised largelyof high-adhesion alternating current (“AC”)locomotives, which are more fuel efficient andreliable and have superior hauling capacitycompared with standard direct current (“DC”)locomotives. The Company’s locomotive fleet nowincludes 827 AC locomotives. While AC locomotivesrepresent approximately 70% of the Company’sroad-freight locomotive fleet, they handleapproximately 89% of the workload. TheCompany’s investment in AC locomotives hashelped to improve service reliability and generatecost savings in fuel, equipment rents andmaintenance. There was a reduction of theCompany’s active locomotive fleet by 24locomotives during 2014.

Following is a synopsis of the Company’s owned and leased locomotive fleet:

Number of Locomotives(owned and long-term leased) Road Freight Road YardAge in Years AC DC Switcher Switcher Total

0-5 91 20 125 – 236

6-10 319 – – – 319

11-15 234 – – – 234

16-20 183 – – – 183

Over 20 – 328 235 43 606

Total 827 348 360 43 1,578

4.9.2 Railcar FleetCP owns, leases or manages approximately 45,700freight cars. Approximately 20,800 are owned byCP, approximately 6,600 are hopper cars owned byCanadian federal and provincial governmentagencies, approximately 8,700 are leased on ashort-term basis, 5,100 are held under long-termleases, and 4,500 in a railcar pool allocation. Short-term leases on approximately 1,700 cars arescheduled to expire during 2015, and the leases onapproximately 11,300 additional cars are scheduledto expire before the end of 2019.

The Company’s covered hopper car fleet, used fortransporting grain for export, consists of owned,leased and managed cars. A portion of the fleetused to transport export grain is leased from theGovernment of Canada, with whom CP completedan operating agreement in 2007.

4.10 Operating Plan (“OP”)The Company’s OP is the foundation for itsscheduled railway operations, through which CPstrives to provide quality service for customers andimprove asset utilization to achieve high levels ofefficiency. The key principles upon which the


Company’s OP is built include moving freight carsacross the network with as few handlings aspossible, creating balance in directional flow oftrains in CP corridors by day of week, andminimizing the time that locomotives and freightcars are idle.

Under the Company’s OP, trains are scheduled torun consistently at times agreed upon withcustomers. To accomplish this, CP establishes a planfor each rail car that covers its entire trip from pointof origin to final destination. Cars with similardestinations are consolidated into blocks. Thisreduces delays at intermediate locations bysimplifying processes for employees, eliminating theduplication of work and helping to ensure trafficmoves fluidly through rail yards and terminals. Thesemeasures improve transit times for shipmentsthroughout CP’s network and increase caravailability for customers. The Company’s OP alsoincreases efficiency by more effectively schedulingemployee shifts, locomotive maintenance, trackrepair, track renewal and material supply.

CP has capitalized on the new capabilities of itsnetwork and upgraded locomotive fleet to safelyoperate longer and heavier trains. This has reducedassociated expenses, simplified the departure ofshipments from points of origin and provided lower-cost capacity for growth.

The Company is committed to continuously improvescheduled railway operations as a means to achieveadditional efficiencies that will avoid significantcapital expenditures to accommodate growth.

4.11 Information TechnologyAs a 24-hour-a-day, 7-day-a-week business, CPrelies heavily on IT systems to schedule and manageplanning and operational components safely andefficiently. IT applications map out complexinterconnections of freight cars, locomotives,facilities, tracks and train crews to meet more than10,000 individual customer service commitmentsevery day. Across the network, CP’s suite ofoperating systems manages the overall movementof customers’ shipments and provides railwayemployees with reliable data on shipmentperformance, transit times, connections with othertrains, train and yard capacities, and locomotiverequirements. Within the yards, individual shipmentsare matched to freight car blocks, which in turn are

matched to trains that are scheduled according toCP’s operating plan. The Company’s IT applicationsprovide the information needed to ensure thatshipments are handled according to commercialagreements while meeting all regulatoryrequirements to ensure the safe movement offreight throughout North America.

4.12 Business Risks and Enterprise Risk ManagementIn the normal course of operations, CP is exposed tovarious business risks and uncertainties that canhave an effect on the Company’s financialcondition. CP’s Enterprise Risk Management(“ERM”) program targets strategic risk areas todetermine additional prevention or mitigation plansthat can be undertaken to either reduce risk orenable opportunities to be realized. The ERMprocess instils discipline in the approach tomanaging risk at CP and has been a contributingfactor in providing focus on key areas. CP hasmanaged to mitigate a number of strategic businessrisks using this focused approach.

The risks and enterprise risk management arediscussed in more detail in Section 22, Business Risksof the Company’s 2014 MD&A.

4.13 IndemnificationsPursuant to a trust and custodial services agreementwith the trustee of the Canadian Pacific RailwayCompany Pension Plan, CP has undertaken toindemnify and save harmless the trustee, to theextent not paid by the fund, from any and all taxes,claims, liabilities, damages, costs and expensesarising out of the performance of the trustee’sobligations under the agreement, except as a resultof misconduct by the trustee. The indemnityincludes liabilities, costs or expenses relating to anylegal reporting or notification obligations of thetrustee with respect to the defined contributionoption of the pension plans or otherwise withrespect to the assets of the pension plans that arenot part of the fund. The indemnity survives thetermination or expiry of the agreement with respectto claims and liabilities arising prior to thetermination or expiry. At December 31, 2014, CPhad not recorded a liability associated with thisindemnification, as the Company does not expect tomake any payments pertaining to it.

Pursuant to the Company’s by-laws, CP indemnifiesall of its current and former directors and officers. In

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addition to the indemnity provided by the by-laws,CP also indemnifies its directors and officerspursuant to indemnity agreements. CP carries aliability insurance policy for directors and officers,subject to a maximum coverage limit and certaindeductibles in cases where a director or officer isreimbursed for any loss covered by the policy.

4.14 SafetySafety is a key priority and core strategy for theCompany’s management and Board of Directors.The Company’s two main safety indicators –personal injuries and train accidents – follow strictU.S. Federal Railroad Administration (“FRA”)reporting guidelines. Detailed definition of thesafety indicators discussed below is included inSection 26, Glossary of Terms in the 2014 MD&A.

The FRA personal injury rate per 200,000 employee-hours for CP was 1.67 in 2014, compared with 1.71in 2013 and 1.56 in 2012. The FRA train accidentrate for CP in 2014 was 1.26 accidents per milliontrain-miles, compared with 1.80 in 2013 and 1.69 in2012. CP strives to continually improve its safetyperformance through the Company’s key strategiesand activities such as training and technology.

The Company’s senior leaders in operations provideongoing focus, leadership, commitment and supportfor efforts to improve the safety of the Company’soperations as well as the safety and health of CPemployees. The leadership team includes all of theCompany’s most senior representatives inoperations from senior officers to leaders ofdifferent operation departments and is a keycomponent of safety governance at CP. TheCompany’s Safety Framework governs the safetymanagement process, which involves more than1,000 employees in planning and implementingsafety-related activities. This management process,combined with planning that encompasses alloperational functions, ensures a continuous andconsistent focus on safety.

4.15 Environmental ProtectionCP has implemented a comprehensiveEnvironmental Management System, which uses thefive elements of the ISO 14001 standard – policy,planning, implementation and operation, checkingand corrective action, and management review – asdescribed below. Further details are discussed inSection 22, Business Risks of the 2014 MD&A.

4.15.1 PolicyCP has adopted an Environmental Protection Policyand continues to develop and implement policiesand procedures to address specific environmentalissues and reduce environmental risk. Each policy isimplemented with training for employees and aclear identification of roles and responsibilities.

CP is a partner in Responsible Care©, an initiative ofthe Chemistry Industry Association of Canada andthe American Chemistry Council (“ACC”) in theU.S., an ethic for the safe and environmentallysound management of chemicals throughout theirlife cycle. Partnership in Responsible Care© involvesa public commitment to continually improve theindustry’s environmental, health and safetyperformance. CP completed its first ResponsibleCare© external verification in June 2002 and wasgranted “Responsible Care© practice-in-place”status. CP was successfully re-verified in 2005, 2008and again in October of 2012. The next re-verification is planned for 2015.

4.15.2 PlanningCP prepares an annual Operations EnvironmentalPlan, which include details of the Company’senvironmental goals and targets as well as high-levelstrategies. These plans are used by variousdepartments to integrate key corporateenvironmental strategies into their business plans.

The Company also conducts comprehensive RiskAssessments on proposed new operations on CPproperty that have inherent environmental risk. TheRisk Assessments identify appropriate mitigations tominimize risk and support the planning process.

4.15.3 Implementation and OperationCP has developed specific environmental programsto address areas such as air emissions, wastewater,


management of vegetation, chemicals and waste,storage tanks and fuelling facilities, andenvironmental impact assessment. The Company’senvironmental specialists and consultants lead theseprograms.

The Company’s focus is on preventing spills andother incidents that have a negative impact on theenvironment. As a precaution, CP has established aStrategic Emergency Response Contractor networkand located spill equipment kits across Canada andthe U.S. to ensure a rapid and efficient response inthe event of an environmental incident. In addition,CP regularly updates and test emergencypreparedness and response plans.

4.15.4 Environmental ContaminationThe Company continues to be responsible forremediation work on portions of a property in theState of Minnesota and continues to retain liabilityaccruals for remaining future anticipated costs. Thecosts are expected to be incurred over a period ofapproximately 10 years. The state’s voluntaryinvestigation and remediation program will overseethe work to ensure it is completed in accordancewith applicable standards. CP currently estimatesthe remaining liability associated with these areas tobe U.S. $20 million.

4.15.5 Checking and Corrective ActionThe Company’s environmental auditscomprehensively, systematically and regularly assessCP facilities for compliance with legal and regulatoryrequirements and conformance to the Company’spolicies, which are based on legal requirements andaccepted industry standards. Audits are scheduledbased on risk assessment for each facility and areled by third-party environmental audit specialistssupported by the Company’s environmental staff.

Audits are followed by a formal Corrective ActionPlanning process that ensures findings are addressedin a timely manner. Progress is monitored againstcompletion targets and reported quarterly to seniormanagement.

4.15.6 Management ReviewThe Environmental Accrual Lead Team, whichincludes members of the Company’s senior officersand leaders of CP environmental teams, completesquarterly reviews of changes to and the progress ofthe Environmental Accrual program. Seniormanagement leaders provide oversight of health,safety, security and environment issues on anongoing basis throughout the year. The CP Board ofDirectors’ Safety, Operations and EnvironmentCommittee meets five times per year and conducts areview of environmental issues.

4.15.7 ExpendituresThe Company spent $34 million in 2014 forenvironmental management, including amountsspent on ongoing operations, fuel conservation,capital upgrades and remediation. The Companyspent $36 million for environmental management in2013.

4.16 InsuranceCP maintains insurance policies to protect theCompany’s assets and to protect against liabilities.The Company’s insurance policies include, but arenot limited to, liability insurance, director and officerliability insurance, automobile insurance andproperty insurance. The property insurance programincludes business interruption coverage andcontingent business interruption coverage, whichwould apply in the event of catastrophic damage tothe Company’s infrastructure and specified strategicassets in the transportation network. CP believes itsinsurance is adequate to protect it from known andunknown liabilities. However, in certaincircumstances, certain losses may not be covered orcompletely covered by insurance and the Companymay suffer losses, which could be material.

4.17 Competitive ConditionsFor a discussion of CP’s competitive conditions inwhich the Company operates, please refer toSection 22, Business Risks included in theCompany’s 2014 MD&A.

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5. DIVIDENDS

5.1 Declared Dividends and Dividend Policy

Dividends

Dividends declared by the Board of Directors in the last three years are as follows:

Dividend amount Record date Payment date

$0.3500 March 27, 2015 April 27, 2015

$0.3500 December 31, 2014 January 26, 2015

$0.3500 September 26, 2014 October 27, 2014

$0.3500 June 27, 2014 July 28, 2014

$0.3500 March 28, 2014 April 28, 2014



$0.3500 June 28, 2013 July 29, 2013

$0.3500 March 28, 2013 April 29, 2013



$0.3500 June 22, 2012 July 30, 2012

$0.3000 March 30, 2012 April 30, 2012

The Company’s Board of Directors is expected to give consideration on a quarterly basis to the payment offuture dividends. The amount of any future quarterly dividends will be determined based on a number offactors that may include the results of operations, financial condition, cash requirements and future prospectsof the Company. The Board of Directors is, however, under no obligation to declare dividends and thedeclaration of dividends is wholly within their discretion. Further, the Company’s Board of Directors may ceasedeclaring dividends or may declare dividends in amounts that are different from those previously declared.Restrictions in the credit or financing agreements entered into by the Company or the provisions of applicablelaw may preclude the payment of dividends in certain circumstances.


6. CAPITAL STRUCTURE

6.1 Description of Capital StructureThe Company is authorized to issue an unlimitednumber of Common Shares, an unlimited numberof First Preferred Shares and an unlimited number ofSecond Preferred Shares. At December 31, 2014, noFirst or Second Preferred Shares had been issued.

1) The rights, privileges, restrictions and conditionsattached to the Common Shares are as follows:

a) Payment of Dividends: The holders ofthe Common Shares will be entitled toreceive dividends if, as and when declaredby CP’s Board of Directors out of the assetsof the Company properly applicable to thepayment of dividends in such amounts andpayable in such manner as the Board mayfrom time to time determine. Subject tothe rights of the holders of any other classof shares of the Company entitled toreceive dividends in priority to or rateablywith the holders of the Common Shares,the Board may in its sole discretion declaredividends on the Common Shares to theexclusion of any other class of shares ofthe Company.

b) Participation upon Liquidation,Dissolution or Winding Up: In the eventof the liquidation, dissolution or windingup of the Company or other distribution ofassets of the Company among itsshareholders for the purpose of windingup its affairs, the holders of the CommonShares will, subject to the rights of theholders of any other class of shares of theCompany entitled to receive the assets ofthe Company upon such a distribution inpriority to or rateably with the holders ofthe Common Shares, be entitled toparticipate rateably in any distribution ofthe assets of the Company.

c) Voting Rights: The holders of theCommon Shares will be entitled to receivenotice of and to attend all annual andspecial meetings of the shareholders of theCompany and to one (1) vote in respect ofeach Common Share held at all suchmeetings, except at separate meetings of

or on separate votes by the holders ofanother class or series of shares of theCompany.

2) The rights, privileges, restrictions and conditionsattaching to the First Preferred Shares are asfollows:

a) Authority to Issue in One or MoreSeries: The First Preferred Shares may atany time or from time to time be issued inone (1) or more series. Subject to thefollowing provisions, the Board may byresolution fix from time to time before theissue thereof the number of shares in, anddetermine the designation, rights,privileges, restrictions and conditionsattaching to the shares of each series ofFirst Preferred Shares.

b) Voting Rights: The holders of the FirstPreferred Shares will not be entitled toreceive notice of or to attend any meetingof the shareholders of the Company andwill not be entitled to vote at any suchmeeting, except as may be required by law.

c) Limitation on Issue: The Board may notissue any First Preferred Shares if by sodoing the aggregate amount payable toholders of First Preferred Shares as a returnof capital in the event of the liquidation,dissolution or winding up of the Companyor any other distribution of the assets ofthe Company among its shareholders forthe purpose of winding up its affairs wouldexceed $500,000,000.

d) Ranking of First Preferred Shares: TheFirst Preferred Shares will be entitled topriority over the Second Preferred Sharesand the Common Shares of the Companyand over any other shares ranking junior tothe First Preferred Shares with respect tothe payment of dividends and thedistribution of assets of the Company inthe event of any liquidation, dissolution orwinding up of the Company or otherdistribution of the assets of the Companyamong its shareholders for the purpose ofwinding up its affairs.

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e) Dividends Preferential: Except with theconsent in writing of the holders of alloutstanding First Preferred Shares, nodividend can be declared and paid on orset apart for payment on the SecondPreferred Shares or the Common Shares oron any other shares ranking junior to theFirst Preferred Shares unless and until alldividends (if any) up to and including anydividend payable for the last completedperiod for which such dividend is payableon each series of First Preferred Sharesoutstanding has been declared and paid orset apart for payment.

3) The rights, privileges, restrictions and conditionsattaching to the Second Preferred Shares are asfollows:

a) Authority to Issue in One or MoreSeries: The Second Preferred Shares mayat any time or from time to time be issuedin one (1) or more series. Subject to thefollowing provisions, the Board may byresolution fix from time to time before theissue thereof the number of shares in, anddetermine the designation, rights,privileges, restrictions and conditionsattaching to the shares of each series ofSecond Preferred Shares.

b) Voting Rights: The holders of the SecondPreferred Shares will not be entitled toreceive notice of or to attend any meetingsof the shareholders of the Company andwill not be entitled to vote at any suchmeeting, except as may be required bylaw.

c) Limitation on Issue: The Board may notissue any Second Preferred Shares if by sodoing the aggregate amount payable toholders of Second Preferred Shares as areturn of capital in the event of theliquidation, dissolution or winding up ofthe Company or any other distribution ofthe assets of the Company among itsshareholders for the purpose of windingup its affairs would exceed $500,000,000.

d) Ranking of Second Preferred Shares:The Second Preferred Shares will beentitled to priority over the Common

Shares of the Company and over any othershares ranking junior to the SecondPreferred Shares with respect to thepayment of dividends and the distributionof assets of the Company in the event ofthe liquidation, dissolution or winding upof the Company or any other distributionof the assets of the Company among itsshareholders for the purpose of windingup of its affairs.

e) Dividends Preferential: Except with theconsent in writing of the holders of alloutstanding Second Preferred Shares, nodividend can be declared and paid on orset apart for payment on the CommonShares or on any other shares rankingjunior to the Second Preferred Sharesunless and until all dividends (if any) up toand including any dividend payable for thelast completed period for which suchdividend is payable on each series ofSecond Preferred Shares outstanding hasbeen declared and paid or set apart forpayment.

6.2 Security RatingsThe following information relating to theCompany’s credit ratings is provided as it may relateto the Company’s financing costs, liquidity andoperations. Specifically, credit ratings affect theCompany’s ability to obtain short-term and long-term financing and/or the cost of such financing.Additionally, the ability of the Company to engagein certain collateralized business activities on a costeffective basis depends on the Company’s creditratings. A reduction in the current rating on theCompany’s debt by its rating agencies, particularly adowngrade below investment grade ratings, or anegative change in the Company’s ratings outlookcould adversely affect the Company’s cost offinancing and/or its access to sources of liquidity andcapital. In addition, changes in credit ratings mayaffect the Company’s ability to, and/or theassociated costs of: (i) entering into ordinary coursederivative or hedging transactions and may requirethe Company to post additional collateral undercertain of its contracts, and (ii) entering into andmaintaining ordinary course contracts withcustomers and suppliers on acceptable terms and(iii) ability to self-insure certain leased or financedrolling stock assets as per common industry practice.


The Company’s debt securities are rated by threeapproved rating organizations – Moody’s, S&P andDBRS. The Company received two ratings upgradesin 2014 from all three agencies. In addition short-term ratings were assigned in 2014 to support anewly established U.S. commercial paper program.All ratings are shown in the table below:

Approved Rating Organization

Long-TermDebt

Rating

Short-TermDebt

Rating

Moody’s Investors Service Baa1 P-2

Standard & Poor’s Corporation BBB+ A-2

Dominion Bond Rating Service BBB(High) R-2(High)

As at December 31, 2014, the ratings provided byeach of S&P, Moody’s and DBRS have a stableoutlook.

Credit ratings are intended to provide investors withan independent measure of the credit quality of anissue of securities and are indicators of thelikelihood of payment and of the capacity andwillingness of a company to meet its financialcommitment on an obligation in accordance with

the terms of the obligation. A description of therating categories of each of the rating agencies inthe table above is set out below.

Credit ratings are not recommendations topurchase, hold or sell securities and do not addressthe market price or suitability of a specific securityfor a particular investor and may be subject torevision or withdrawal at any time by the ratingagencies. Credit ratings may not reflect the potentialimpact of all risks on the value of securities. Inaddition, real or anticipated changes in the ratingassigned to a security will generally affect themarket value of that security. There can be noassurance that a rating will remain in effect for anygiven period of time or that a rating will not berevised or withdrawn entirely by a rating agency inthe future.

In the last two years, the Company has paid thecustomary fees, including annual surveillance feescovering its long-term debt securities, to theaforementioned credit rating agencies for theirrating services.

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The following table summarizes rating categories for respective rating agencies:

Moody’s S&P DBRS

LongTerm

ShortTerm

LongTerm

ShortTerm

LongTerm

ShortTerm

Aaa AAA AAA

Aa1 AA+ AA(high)Aa2 AA AA HighAa3 AA- AA(low) Investment

GradeA1 A+ A(high)A2 A AA3 A- A(low)

Baa1 BBB+ BBB(high)Baa2 BBB BBB InvestmentBaa3 BBB- BBB(low) -3 Grade

Ba1 BB+ BB(high)Ba2 BB BBBa3 BB- BB(low)

B1 B+ B(high) BelowB2 B B InvestmentB3 B- B(low) Grade

Caa CCC CCC

Ca CC CC

C C C R-5

R-1 (high)

R-1 (high)R-1 (mid)R-1 (mid)

R-1 (low)R-1 (low)R-1 (low)

R-2 (high)R-2 (mid)R-2 (low) or R

R-4

R-4R-4

R-4R-5R-5

R-5

R-5

A-1+

A-1+A-1+A-1+

A-1A-1A-2

A-2A-2A-3

BBB

CCC

C

C

C

P-1

P-1 P-1 P-1

P-1P-1P-2

P-2P-2P-3

NPNPNP

NPNPNP

NP

NP

NP


7. MARKET FOR SECURITIES

7.1 Stock Exchange ListingsThe Common Shares of CP are listed on the Toronto Stock Exchange and the New York Stock Exchange underthe symbol “CP”.

7.2 Trading Price and VolumeThe following table provides the monthly trading information for the Company’s Common Shares on theToronto Stock Exchange during 2014:

Toronto Stock ExchangeMonth

OpeningPrice perShare ($)

HighPrice perShare ($)

LowPrice perShare ($)

ClosingPrice perShare ($)

Volume ofSharesTraded

January 159.52 171.90 155.02 168.84 7,150,036

February 168.85 176.72 161.00 173.75 5,890,685

March 172.41 176.62 162.55 165.65 5,288,801

April 165.98 174.05 156.64 171.14 6,105,136

May 171.02 182.17 169.57 181.48 4,835,334

June 182.35 202.08 182.35 193.31 7,531,938

July 195.79 214.52 192.79 207.33 7,573,651

August 206.76 220.62 203.16 217.79 4,475,137

September 218.80 236.04 218.72 232.43 6,577,677

October 231.02 247.56 202.39 234.43 12,464,601

November 233.07 239.92 219.21 220.56 6,496,419

December 220.71 229.78 197.14 223.75 12,037,347

The following table provides the monthly composite trading information for the Company’s Common Shareson the New York Stock Exchange during 2014:

New York Stock ExchangeMonth

OpeningPrice perShare ($)

HighPrice perShare ($)

LowPrice perShare ($)

ClosingPrice perShare ($)

Volume ofSharesTraded

January 150.23 153.86 139.37 151.48 16,400,279

February 151.47 159.05 145.01 157.00 12,589,533

March 155.40 159.77 147.15 150.43 12,382,110

April 150.64 158.47 142.73 155.97 16,853,845

May 155.29 167.90 155.20 167.52 13,605,727

June 168.24 186.00 167.81 181.14 21,736,548

July 181.20 199.65 179.90 189.95 15,360,040

August 189.32 201.23 186.09 200.60 11,123,289

September 200.84 210.87 198.42 207.47 14,124,063

October 205.51 220.20 180.13 207.68 32,875,428

November 207.30 212.19 192.09 193.16 14,191,326

December 193.76 198.50 170.51 192.69 27,334,064

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8. DIRECTORS AND OFFICERS

Following are the names and municipalities of residence of the directors and officers of the Company, theirpositions and principal occupations within the past five years, the period during which each director has servedas director of the Company, and the date on which each director’s term of office expires.

8.1 Directors

Name and Municipality of ResidencePosition Held and Principal Occupation withinthe Preceding Five Years(1)

Year of Annual Meetingat which Term of OfficeExpires (DirectorSince)

Gary F. Colter Chairman, Canadian Pacific Railway Company and 2015Mississauga, Ontario, Canada Canadian Pacific Railway Limited; President, CRS Inc. (Corporate

restructuring and strategy consulting company) (2012)

William A. Ackman(3)(4) Founder, Chief Executive Officer 2015New York, New York, U.S.A. Pershing Square Capital Management, L.P. (investment advisor) (2012)

Isabelle Courville(2)(6) Corporate Director 2015Rosemere, Quebec, Canada (2013)

Paul G. Haggis(2)(4) Chairman, Alberta Enterprise Corporation 2015Canmore, Alberta, Canada (investment in venture capital funds) (2012)

E. Hunter Harrison(6) Chief Executive Officer, Canadian Pacific Railway 2015Wellington, Florida, U.S.A. Company and Canadian Pacific Railway Limited (2012)

Paul C. Hilal(4)(5) Partner, Pershing Square Capital Management, L.P. 2015New York, New York, U.S.A. (investment advisor) (2012)

Krystyna T. Hoeg, C.A.(3)(5) Corporate Director 2015Toronto, Ontario, Canada (2007)

Rebecca MacDonald(3)(5) Founder, Executive Chair, Just Energy Group Inc. 2015Toronto, Ontario, Canada (independent marketer of deregulated gas and electricity) (2012)

Dr. Anthony R. Melman(4)(6) President and Chief Executive Officer, Acasta 2015Toronto, Ontario, Canada Capital (strategic and financial advisor) (2012)

Linda J. Morgan(2)(6) Partner, Nossaman LLP (law firm) 2015Bethesda, Maryland, U.S.A. (2006)

Andrew F. Reardon(2)(5) Attorney, Reardon and Chasar LLP (law firm) 2015Marco Island, Florida, U.S.A. Retired Chairman and CEO, TTX Company (2013)

Stephen C. Tobias(5)(6) Former Vice-Chairman and Chief Operating Officer, 2015Garnett, South Carolina, U.S.A. Norfolk Southern Corporation (U.S. Class I railroad) (2012)

(1) G. Colter has been President of CRS Inc. since 2002. I. Courville has been Chair of the Laurentian Bank of Canada since March 2013 and was President, HydroQuebec Distribution from 2011 to 2013 and President, Hydro Quebec TransEnergie from 2007 to 2011. P.G. Haggis was Chairman of Canadian Pacific RailwayCompany and Canadian Pacific Railway Limited from May 2012 to May 2014 and was Chairman of the Board of C.A. Bancorp Inc. (now known as CrosswindsHoldings Inc.) from July 2011 to March 2013. E.H. Harrison was President and Chief Executive Officer of Canadian National Railway from 2003 to 2009. L.J.Morgan was Partner from 2003 to 2012 at Covington & Burling LLP. A.F. Reardon was Chairman and Chief Executive Officer in 2008 and President and ChiefExecutive Officer from 2001 to 2008 of TTX Company. S.C. Tobias was Vice-Chairman and Chief Operating Officer of Norfolk Southern Corporation from 1998to 2009.

(2) Member of the Audit Committee.(3) Member of the Corporate Governance and Nominating Committee.(4) Member of the Finance Committee.(5) Member of the Management Resources and Compensation Committee.(6) Member of the Safety, Operations and Environment Committee.


8.2 Cease Trade Orders, Bankruptcies, Penalties orSanctionsMr. Harrison was a director of Dynegy Inc.(“Dynegy”) from March 9 to December 16, 2011(Chairman from July 11 to December 16, 2011), aswell as its Interim President and Chief ExecutiveOfficer from April 9 to July 11, 2011. On July 6,

2012, Dynegy filed a voluntary petition for reliefunder Chapter 11 of the U.S. Bankruptcy Code,such filing being primarily a technical step necessaryto facilitate the restructuring of one or more Dynegysubsidiaries. Dynegy exited bankruptcy onOctober 1, 2012.

8.3 Senior OfficersAs at February 23, 2015, the following were executive officers of CP:

Name and municipality ofresidence Position held Principal occupation within the preceding five years

E.H. HarrisonWellington, Florida, U.S.A.

Chief ExecutiveOfficer

Chief Executive Officer; President and Chief Executive Officer, Canadian PacificRailway Company and Canadian Pacific Railway Limited; Chairman of theBoard, Dynegy Inc.; Interim President and Chief Executive Officer, Dynegy Inc.;President and Chief Executive Officer, Canadian National Railway Company

K.E. CreelChicago, Illinois, U.S.A.

President and ChiefOperating Officer

President and Chief Operating Officer, Canadian Pacific Railway Company andCanadian Pacific Railway Limited; Executive Vice-President and Chief OperatingOfficer; Executive Vice-President, Operations, Canadian National RailwayCompany

B.W. DemoskyCalgary, Alberta, Canada

Executive Vice-President and ChiefFinancial Officer

Executive Vice-President and Chief Financial Officer, Canadian Pacific RailwayCompany and Canadian Pacific Railway Limited; Chief Financial Officer, SuncorEnergy Inc.; Senior Vice-President of Business Services, Suncor Energy Inc.

P. J. EdwardsCalgary, Alberta, Canada

Vice-President,Human Resourcesand LabourRelations

Vice-President, Human Resources and Labour Relations; Vice-President HumanResources, Canadian Pacific Railway Company and Canadian Pacific RailwayLimited; Vice-President Human Resources, Canadian National Railway Company

T.E. MarshCalgary, Alberta, Canada

Senior Vice-President Sales andMarketing

Senior Vice-President Sales and Marketing; Executive Vice-President NorthAmerica Trade Division, COSCO Container Lines Americas, Inc.

P. A. Guthrie, Q.C.Municipal District ofRockyview, Alberta, Canada

Chief Legal Officerand CorporateSecretary

Chief Legal Officer and Corporate Secretary; Vice-President, Law and RiskManagement; Vice-President Law, Canadian Pacific Railway Company andCanadian Pacific Railway Limited

L. J. PitzMcLean, Virginia, U.S.A

Vice-President andChief Risk Officer

Vice-President and Chief Risk Officer; Vice-President Security and RiskManagement, Canadian Pacific Railway Company; Vice-President RiskMitigation, Canadian National Railway Company

M. RedekerSt. Albert, Alberta, Canada

Vice-President andChief InformationOfficer

Vice-President and Chief Information Officer, Canadian Pacific RailwayCompany and Canadian Pacific Railway Limited; Chief Information Officer;Chief Technology Officer, ATB Financial

M. WallaceCalgary, Alberta, Canada

Vice-President,Corporate Affairsand Chief of Staff

Vice-President, Corporate Affairs and Chief of Staff; Canadian Pacific RailwayCompany and Canadian Pacific Railway Limited; Chief of Staff – Office of thePresident and CEO, Canadian Pacific Railway Company; Client Partner,Longview Communications Inc.; Head of Investor Relations, Husky InjectionMolding Systems Inc.; Assistant Vice-President Public Affairs, Canadian NationalRailway Company

8.4 Shareholdings of Directors and OfficersAs at December 31, 2014, the directors andexecutive officers of CPRL owned or controlled atotal of 14,173,510 shares representingapproximately 8.53% of the outstanding shares at

that date (166,120,981). Mr. Ackman exercisescontrol over the voting and disposition of13,940,890 of such shares which are beneficiallyowned by Pershing Square Capital Management,L.P. and its affiliates.

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9. LEGAL PROCEEDINGS AND REGULATORY ACTIONS

On July 6, 2013, a train carrying crude oil operatedby Montreal Maine and Atlantic Railway (“MM&A”)derailed and exploded in Lac-Mégantic, Quebec ona section of railway line owned by MM&A. Theprevious day CP had interchanged the train toMM&A, and after that interchange MM&A exercisedexclusive control over the train.

Following this incident, the Minister of SustainableDevelopment, Environment, Wildlife and Parks ofQuebec issued an order directing certain namedparties to recover the contaminants and to clean upand decontaminate the derailment site. CP wasadded as a named party on August 14, 2013. CP isa party to an administrative appeal with respect tothis order. No hearing date on the merits of CP’sappeal has been scheduled.

A class action lawsuit has also been filed in theSuperior Court of Quebec on behalf of a class ofpersons and entities residing in, owning or leasingproperty in, operating a business in or physicallypresent in Lac-Mégantic. The lawsuit seeks damagescaused by the derailment including for wrongfuldeaths, personal injuries, and property damages. CPwas added as a defendant on August 16, 2013. TheSuperior Court of Quebec is not expected to releaseits judgment on the authorization of the class actionbefore the end of February 2015.

In the wake of the derailment and ensuing litigation,MM&A filed for bankruptcy in Canada and the

United States. In an Adversary Proceeding filed bythe MM&A U.S. bankruptcy trustee against CP,Irving Oil and the World Fuel entities, CP has beenaccused of failing to ensure that World Fuel or Irvingproperly classified the oil lading and of not refusingto ship the oil in DOT-111 tank cars. CP intends tomove to withdraw the bankruptcy court referenceand will thereafter seek to have the claim against CPdismissed as federally preempted.

In addition, CP has received two damage to cargonotices of claims from the shipper of the oil on thederailed train, Western Petroleum. WesternPetroleum has submitted U.S. and Canadian noticesof claims for the same damages and, under theCarmack Amendment (the U.S. damage to cargostatute), seeks to recover for all injuries associatedwith, and indemnification for all claims arising from,the derailment. Both jurisdictions permit a shipper torecover the value of damaged lading against anycarrier in the delivery chain, subject to limitations inthe carrier’s tariffs. CP’s tariffs significantly restrictshipper damage claim rights.

At this early stage in the legal proceedings, anypotential liability and the quantum of potential losscannot be determined. Nevertheless, CP deniesliability for MM&A’s derailment and will vigorouslydefend itself in the proceedings described aboveand in any proceeding that may be commenced inthe future.


10. TRANSFER AGENTS AND REGISTRARS

10.1 Transfer AgentComputershare Investor Services Inc., with transferfacilities in Montreal, Toronto, Calgary andVancouver, serves as transfer agent and registrar forCP’s Common Shares in Canada.

Computershare Trust Company NA, Canton,Massachusetts, serves as co-transfer agent and co-registrar for CP’s Common Shares in the U.S.

Requests for information should be directed to:

Computershare Investor Services Inc.100 University Avenue, 8th FloorToronto, Ontario CanadaM5J 2Y1

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11. INTERESTS OF EXPERTS

Deloitte LLP, Chartered Accountants, Calgary,Alberta, have issued their audit opinion datedFebruary 23, 2015, in respect of the Company’sconsolidated financial statements as atDecember 31, 2014 and 2013 and for each of theyears in the three-year period ended December 31,2014. Deloitte LLP is independent with respect to

the Company within the meaning of the Rules ofProfessional Conduct of the Institute of CharteredAccountants of Alberta and is independent withinthe meaning of the applicable rules and regulationsadopted by the U.S. Securities and ExchangeCommission and the Public Company AccountingOversight Board (United States).


12. AUDIT COMMITTEE

12.1 Composition of the Audit Committee andRelevant Education and ExperienceThe following individuals comprise the entiremembership of the Audit Committee (“theCommittee”). All of the members of the Committeeare independent.

I. Courville – Ms. Courville is a Corporate Director.From 2011 to 2013 she served as President ofHydro-Québec Distribution and from 2006 to 2011she was President of Hydro-Québec TransÉnergie,both divisions of Hydro-Québec. Previously, sheserved as President of the Enterprise Group of BellCanada and as President and Chief Executive Officerof Bell Nordiq Group (Télébec NorthernTel), asubsidiary of Bell Canada. Ms. Courville is currentlyChair of the Board of Laurentian Bank of Canada, adirector of Group TVA Inc. and a director of ÉcolePolytechnique de Montréal. Prior boardmemberships include Miranda Technologies Inc.,Chamber of Commerce of Metropolitan Montreal,NPCC (Northeast Power Coordinating Council) andSt. Justine Hospital Foundation. Ms. Courville holdsa Bachelor’s degree in Engineering Physics from theÉcole Polytechnique de Montréal and a Bachelor’sdegree in Civil Law from McGill University.

P.G. Haggis – Mr. Haggis is Chairman of theAlberta Enterprise Corporation, and served asChairman of C.A. Bancorp Inc. until March 2013. Heserves as a director of Advantage Oil & Gas Ltd. andas an advisor to the Insurance Corporation of BritishColumbia (ICBC) since retiring as a director.Previously, Mr. Haggis was President and CEO ofOntario Municipal Employees Retirement System(OMERS) and President and CEO of Alberta TreasuryBranches. Mr. Haggis graduated from the Universityof Western Ontario and is certified as a CharteredDirector through McMaster University.

L.J. Morgan – Ms. Morgan is a Partner atNossaman LLP, a premier transportationinfrastructure law firm based in the United States.Prior to joining Nossaman in September of 2011,she was a Partner at Covington & Burling LLP, aUnited States based international law firm, whereshe chaired its transportation and governmentaffairs practices. She also serves on the Board ofVisitors for the Georgetown University Law Centreand the Business Advisory Committee for

Northwestern University’s Transportation Centre.Ms. Morgan was previously Chairman of the UnitedStates Surface Transportation Board, and itspredecessor the Interstate Commerce Commission,from March 1995 to December 2002. Prior tojoining the Interstate Commerce Commission,Ms. Morgan served as General Counsel to theSenate Committee on Commerce, Science andTransportation. She graduated from Vassar Collegewith an A.B. and the Georgetown University LawCentre with a J.D., and is an alumna of the Programfor Senior Managers in Government at HarvardUniversity’s John F. Kennedy School of Government.

A. F. Reardon – Mr. Reardon was an attorney at thelaw firm of Reardon & Chasar, LPA, which he co-founded in 2009 until he retired in December 2011.Prior to that, Mr. Reardon served as Chairman andChief Executive Officer, and President and ChiefExecutive Officer from 2001 to 2008, and VicePresident, Law and Human Resources from 1992 to2000 of TTX Company, the leading railcar leasingcompany in North America. Previously, he was aPresidential Appointee to the Railroad RetirementBoard and was the Senior Vice President, Law andAdministration for Illinois Central Railroad. He iscurrently a director of Appvion Inc., a globalmanufacturer of thermal and carbonless paper.Mr. Reardon was a Presidential Appointee confirmedby the U.S. Senate from 1990-1992. He has alsoserved on various railroad industry boards includingTTX, Terminal Railroad Association of St. Louis, andthe Peoria and Pekin Union Railway. Mr. Reardonholds a Bachelor’s Degree from the University ofNotre Dame, a Juris Doctor Degree from theUniversity of Cincinnati and a Master’s Degree inTaxation from Washington University Law School. Heserved as an officer in the United States Navy from1967 to 1971.

12.2 Pre-Approval of Policies and ProceduresThe Committee has adopted a written policygoverning the pre-approval of audit and non-auditservices to be provided to CP by the Company’sindependent auditors. The policy is reviewedannually and the audit and non-audit services to beprovided by the Company’s independent auditors,as well as the budgeted amounts for such services,are pre-approved at that time. The Company’s

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Comptroller must submit to the Committee at leastquarterly a report of all services performed or to beperformed by the Company’s independent auditorspursuant to the policy. Any additional audit or non-audit services to be provided by the independentauditors either not included among the pre-approved services or exceeding the budgetedamount for such pre-approved services by morethan 10% must be individually pre-approved by theCommittee or its Chairman, who must report allsuch additional pre-approvals to the Committee atits next meeting following the granting thereof. TheCompany’s independent auditors’ annual auditservices engagement terms and fees are subject tothe specific pre-approval of the Committee. Inaddition, prior to the granting of any pre-approval,the Committee or its Chairman, as the case may be,must be satisfied that the performance of theservices in question will not compromise theindependence of the Company’s independentauditors. The Company’s Chief Internal Auditormonitors compliance with this policy.

12.3 Audit Committee CharterThe term “Corporation” herein shall refer to each ofCanadian Pacific Railway Limited (“CPRL”) andCanadian Pacific Railway Company (“CPRC”), andthe terms “Board”, “Directors”, “Board ofDirectors” and “Committee” shall refer to theBoard, Directors, Board of Directors, or Committeeof CPRL or CPRC, as applicable.

A. Committee and Procedures

1. Purpose

The purposes of the Audit Committee (the“Committee”) of the Board of Directors of theCorporation are to fulfill applicable publiccompany audit committee legal obligations andto assist the Board of Directors in fulfilling itsoversight responsibilities in relation to thedisclosure of financial statements andinformation derived from financial statements,including:

• the review of the annual and interim financialstatements of the Corporation;

• the integrity and quality of the Corporation’sfinancial reporting and systems of internalcontrol;

• the Corporation’s compliance with applicablelegal and regulatory requirements;

• the qualifications, independence, engagement,compensation and performance of theCorporation’s external auditors; and

• the performance of the Corporation’s internalaudit function;

and to prepare, if required, an audit committeereport for inclusion in the Corporation’s annualmanagement proxy circular, in accordance withapplicable rules and regulations. In addition, theCommittee will assist the Board with theidentification of the principal risks of theCorporation’s business and ensure theimplementation of appropriate risk assessmentand risk management policies and processes tomanage these risks.

The Corporation’s external auditors shall reportdirectly to the Committee.

2. Composition of Committee

The members of the Committee of each ofCPRL and CPRC shall be identical and shall beDirectors of CPRL and CPRC, respectively. TheCommittee shall consist of not less than threeand not more than the number of Directorswho are not officers or employees of theCorporation, none of whom is either an officeror employee of the Corporation or any of itssubsidiaries. Members of the Committee shallmeet applicable requirements and guidelinesfor audit committee service, includingrequirements and guidelines with respect tobeing independent and unrelated to theCorporation and to having accounting orrelated financial management expertise andfinancial literacy, as set forth in applicablesecurities laws or the rules of any stockexchange on which the Corporation’s securitiesare listed for trading. No Director shall beeligible to serve on the Committee if suchDirector currently serves on the auditcommittees of three public companies otherthan the Corporation, unless the Board ofDirectors has determined that suchsimultaneous service would not impair theability of such member to effectively serve onthe Committee. Determinations as to whether a


particular Director satisfies the requirements formembership on the Committee shall beaffirmatively made by the full Board, uponrecommendation from the CorporateGovernance and Nominating Committee.

3. Appointment of Committee Members

Members of the Committee shall be appointedfrom time to time by the Board and shall holdoffice at the pleasure of the Board.

4. Vacancies

Where a vacancy occurs at any time in themembership of the Committee, it may be filledby the Board. The Board shall fill a vacancywhenever necessary to maintain a Committeemembership of at least three Directors.

5. Committee Chair

The Board shall appoint a Chair for theCommittee.

6. Absence of Committee Chair

If the Chair of the Committee is not present atany meeting of the Committee, one of theother members of the Committee who ispresent at the meeting shall be chosen by theCommittee to preside at the meeting.

7. Secretary of Committee

The Committee shall appoint a Secretary whoneed not be a Director of the Corporation.

8. Meetings

The Committee shall meet at regularlyscheduled meetings at least once every quarterand shall meet at such other times during eachyear as it deems appropriate, and as part ofsuch meetings, shall meet in executive sessionwithout management being present. Inaddition, the Chair of the Committee or theChairman of the Board or any two of its othermembers may call a meeting of the Committeeat any time.

9. Quorum

Three members of the Committee shallconstitute a quorum.

10. Notice of Meetings

Notice of the time and place of every meetingshall be given in writing by any means oftransmitted or recorded communication,including facsimile, telex, telegram or otherelectronic means that produces a written copy,to each member of the Committee at least 24hours prior to the time fixed for such meeting;provided however, that a member may in anymanner waive a notice of a meeting.Attendance of a member at a meetingconstitutes a waiver of notice of the meeting,except where a member attends a meeting forthe express purpose of objecting to thetransaction of any business on the grounds thatthe meeting is not lawfully called.

11. Attendance of Others at Meetings

At the invitation of the Chair of the Committee,other individuals who are not members of theCommittee may attend any meeting of theCommittee.

12. Procedure, Records and Reporting

Subject to any statute or the articles and by-laws of the Corporation, the Committee shallfix its own procedures at meetings, keeprecords of its proceedings and report to theBoard when the Committee may deemappropriate (but not later than the nextregularly scheduled meeting of the Board).

13. Delegation

The Committee may delegate from time to timeto any person or committee of persons any ofthe Committee’s responsibilities that may belawfully delegated.

14. Report to Shareholders

The Committee shall prepare a report toshareholders or others, concerning theCommittee’s activities in the discharge of its

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responsibilities, when and as required byapplicable laws or regulations.

15. Guidelines to Exercise ofResponsibilities

The Board recognizes that meeting theresponsibilities of the Committee in a dynamicbusiness environment requires a degree offlexibility. Accordingly, the procedures outlinedin these Terms of Reference are meant to serveas guidelines rather than inflexible rules, andthe Committee may adopt such different oradditional procedures as it deems necessaryfrom time to time.

16. Use of Outside Legal, Accounting orOther Advisers; Appropriate Funding

The Committee may retain, at its discretion,outside legal, accounting or other advisors, atthe expense of the Corporation, to obtainadvice and assistance in respect of any mattersrelating to its duties, responsibilities and powersas provided for or imposed by these Terms ofReference or otherwise by law.

The Committee shall be provided by theCorporation with appropriate funding, asdetermined by the Committee, for payment of:

(i) compensation of any outside advisers ascontemplated by the immediatelypreceding paragraph;

(ii) compensation of any independent auditorengaged for the purpose of preparing orissuing an audit report or performing otheraudit, review or attest services for theCorporation; or

(iii) ordinary administrative expenses that arenecessary or appropriate in carrying outthe Committee’s duties.

All outside legal, accounting or other advisorsretained to assist the Committee shall beaccountable ultimately to the Committee.

17. Remuneration of Committee Members

No member of the Committee shall receivefrom the Corporation or any of its affiliates anycompensation other than the fees to which he

or she is entitled as a Director of theCorporation or a member of a committee ofthe Board. Such fees may be paid in cash and/or shares, options or other in-kindconsideration ordinarily available to Directors.

B. Mandate of Committee

1. Committee Role:

The Committee’s role is one of oversight.Management is responsible for preparing theinterim and annual financial statements of theCorporation and for maintaining a system ofrisk assessment and internal controls to providereasonable assurance that assets aresafeguarded and that transactions areauthorized, recorded and reported properly, formaintaining disclosure controls and proceduresto ensure that it is informed on a timely basis ofmaterial developments and the Corporationcomplies with its public disclosure obligations,and for ensuring compliance by theCorporation with applicable legal andregulatory requirements. The external auditorsare responsible for auditing the Corporation’sfinancial statements.

In carrying out its oversight responsibilities:(i) each member of the Committee is entitledto, absent knowledge to the contrary, rely uponthe accuracy and completeness of theCorporation’s records and upon information,opinions, reports or statements presented byany of the Corporation’s officers or employees,or consultants of the Corporation which themember reasonably believes are within suchother person’s professional or expertcompetence and who has been selected withreasonable care by or on behalf of theCorporation; and (ii) the Committee and itsmembers do not provide any professionalcertification or special assurance as to theCorporation’s financial statements or theexternal auditors’ work.

The Committee shall:

External Auditors’ Report on Annual Audit

a) obtain and review annually prior to thecompletion of the external auditors’ annual


audit of the year-end financial statements areport from the external auditors describing:

(i) all critical accounting policies andpractices to be used;

(ii) all alternative treatments of financialinformation within generally acceptedaccounting principles that have beendiscussed with management, theramifications of the use of suchalternative disclosures and treatments,and the treatment preferred by theexternal auditors; and

(iii) other material writtencommunications between the externalauditors and management, such asany management letter or schedule ofunadjusted differences;

Management’s/Internal Auditors’ Reports onExternal Audit Issues

b) review any reports on the above or similartopics prepared by management or theinternal auditors and discuss with theexternal auditors any material issues raisedin such reports;

Annual Financial Reporting Documents andExternal Auditors’ Report

c) meet to review with management, theinternal auditors and the external auditorsthe Corporation’s annual financialstatements, the report of the externalauditors thereon, the relatedManagement’s Discussion and Analysis,and the information derived from thefinancial statements, as contained in theAnnual Information Form and the AnnualReport. Such review will include obtainingassurance from the external auditors thatthe audit was conducted in a mannerconsistent with applicable law and willinclude a review of:

(i) all major issues regarding accountingprinciples and financial statementpresentations, including any significant

changes in the Corporation’s selectionor application of accounting policies orprinciples;

(ii) all significant financial reporting issuesand judgments made in connectionwith the preparation of the financialstatements, including the effects onthe financial statements of alternativemethods within generally acceptedaccounting principles;

(iii) the effect of regulatory andaccounting issues, as well as off-balance sheet structures, on thefinancial statements;

(iv) all major issues as to the adequacyand effectiveness of the Corporation’sinternal controls and any special stepsadopted in light of material controldeficiencies and any consideration bythe external auditors of fraud duringthe performance of the audit of theCorporation’s annual financialstatements; and

(v) the external auditors’ judgment aboutthe appropriateness and quality, notjust the acceptability, of theaccounting principles applied in theCorporation’s financial reporting;

d) following such review with managementand the external auditors, recommend tothe Board whether to approve the auditedannual financial statements of theCorporation and the related Management’sDiscussion and Analysis, and report to theBoard on the review by the Committee ofthe information derived from the financialstatements contained in the AnnualInformation Form and Annual Report;

Interim Financial Statements and MD&A

e) review with management, the internalauditors and the external auditors theCorporation’s interim financial statementsand its interim Management’s Discussionand Analysis, and if thought fit, approvethe interim financial statements and

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interim Management’s Discussion andAnalysis and the public release thereof bymanagement;

Earnings Releases, Earnings Guidance

f) review and discuss earnings press releases,including the use of “pro forma” or“adjusted” information determined otherthan in accordance with generallyaccepted accounting principles, and thedisclosure by the Corporation of earningsguidance and other financial informationto the public including analysts and ratingagencies, it being understood that suchdiscussions may, in the discretion of theCommittee, be done generally (i.e., bydiscussing the types of information to bedisclosed and the type of presentation tobe made) and be satisfied that adequateprocedures are in place for the review ofsuch public disclosures and periodicallyassess the adequacy of those procedures;

Material Litigation, Tax Assessments, Etc.

g) review with management, the externalauditors and, if necessary, legal counsel alllegal and regulatory matters and litigation,claims or contingencies, including taxassessments, that could have a materialeffect upon the financial position of theCorporation, and the manner in whichthese matters may be, or have been,disclosed in the financial statements; andobtain reports from management andreview with the Corporation’s chief legalofficer, or appropriate delegates, theCorporation’s compliance with applicablelegal and regulatory requirements;

Oversight of External Auditors

h) subject to applicable law relating to theappointment and removal of the externalauditors, be directly responsible for theappointment, retention, termination andoversight of the external auditors;recommend to the Board the approval ofcompensation of the external auditors assuch compensation relates to the provision

of audit services; and be responsible forthe resolution of disagreements betweenmanagement and the external auditorsregarding financial reporting;

Rotation of External Auditors’ Audit Partners

i) review and evaluate the lead audit partnerof the external auditors and assure theregular rotation of the lead audit partnerand the audit partner responsible forreviewing the audit and other auditpartners, as required by applicable law;

External Auditors’ Internal Quality Control

j) obtain and review, at least annually, anddiscuss with the external auditors a reportby the external auditors describing theexternal auditors’ internal quality-controlprocedures, any material issues raised bythe most recent internal quality-controlreview, or peer review, of the externalauditors, or by any inquiry or investigationby governmental or professional authorities,within the preceding five years, respectingone or more independent audits carried outby the external auditors, and any stepstaken to deal with any such issues;

External Auditors’ Independence

k) review and discuss, at least annually (andprior to the engagement of any newexternal auditors), with the externalauditors all relationships that the externalauditors and their affiliates have with theCorporation and its affiliates in order toassess the external auditors’ independence,including, without limitation:

(i) obtaining and reviewing, at leastannually, a formal written statementfrom the external auditors delineatingall relationships that in the externalauditors’ professional judgment mayreasonably be thought to bear on theindependence of the external auditorswith respect to the Corporation;

(ii) discussing with the external auditorsany disclosed relationships or services


that may affect the objectivity andindependence of the externalauditors; and

(iii) recommending that the Board takeappropriate action in response to theexternal auditors’ report to satisfyitself as to the external auditors’independence;

Policies Regarding Hiring of External Auditors’Employees, Former Employees

l) set clear policies for the hiring by theCorporation of partners, employees andformer partners and employees of theexternal auditors;

Pre-Approval of Audit and Non-Audit ServicesProvided by External Auditors

m) be solely responsible for the pre-approvalof all audit and non-audit services to beprovided to the Corporation and itssubsidiary entities by the external auditors(subject to any prohibitions provided inapplicable law), and of the fees paid forthe non-audit services; provided however,that the Committee may delegate, to anindependent member or members of theCommittee, authority to pre-approve suchnon-audit services, and such member(s)shall report to the Committee at its nextscheduled meeting following the grantingany pre-approvals granted pursuant tosuch delegated authority;

n) review the external auditors’ annual auditplan (including scope, staffing, location,reliance on management and internalcontrols and audit approach);

o) review the external auditors’ engagementletter;

Oversight of Internal Audit

p) oversee the internal audit function bybeing directly responsible for theappointment or dismissal of the ChiefInternal Auditor, who shall report directlyto the Committee and administratively to

the Chief Legal Officer and CorporateSecretary; afford the Chief Internal Auditorunrestricted access to the Committee;review the charter, activities, internal auditplan, organizational structure, and theskills and experience of the Internal AuditDepartment; discuss with managementand the external auditors the competence,performance, resources, and cooperationof the internal auditors; and approve, afterdiscussion with management and properperformance evaluation, the compensationof the Chief Internal Auditor;

q) review and consider, as appropriate, anysignificant reports and recommendationsissued by the Corporation or by anyexternal party relating to internal auditissues, together with management’sresponse thereto;

Internal Controls and Financial ReportingProcesses

r) review with management, the internalauditors and the external auditors, theCorporation’s financial reporting processesand its internal controls;

s) review with the internal auditors theadequacy of internal controls andprocedures related to any corporatetransactions in which Directors or officersof the Corporation have a personalinterest, including the expense accounts ofofficers of the Corporation at the level ofVice-President and above and officers’ useof corporate assets, and consider theresults of any reviews thereof by theinternal or external auditors;

CEO and Chairman Expenses

t) review, at least annually, a report on theexpense claims of the Chief ExecutiveOfficer, as approved by the Chairman ofthe Board, and the expense claims of theChairman of the Board, as approved by theChair of the Audit Committee;

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Complaints Processes

u) establish procedures for:

(i) the receipt, retention and treatmentof complaints received by theCorporation regarding accounting,internal accounting controls orauditing matters; and

(ii) the confidential, anonymoussubmission by employees of theCorporation of concerns regardingquestionable accounting or auditingmatters;

and review periodically with managementand the internal auditors these proceduresand any significant complaints received;

Separate Meetings with External Auditors,Internal Audit, Management

v) meet separately with management, theexternal auditors and the internal auditorsperiodically to discuss matters of mutualinterest, including any audit problems ordifficulties and management’s responsethereto, the responsibilities, budget andstaffing of the Internal Audit Departmentand any matter that they recommendbringing to the attention of the full Board;

Enterprise Risk Management

w) discuss risk assessment and riskmanagement policies and processes to beimplemented for the Corporation, reviewwith management and the Corporation’sinternal auditors the effectiveness andefficiency of such policies and processesand their compliance with other relevantpolicies of the Corporation, and makerecommendations to the Board withrespect to any outcomes, findings andissues arising in connection therewith;

x) review management’s program to obtainappropriate insurance to mitigate risks;

y) oversee risks that may have a materialimpact on the Corporation’s financialstatements;

Tax

z) review the Corporation’s tax status andmonitor its approach to tax strategy thatmay have a material impact on theCorporation’s financial statements,including tax reserves and potentialreassessments and audits;

Codes of Ethics

aa) monitor compliance with the Corporation’scode of business ethics and the code ofethics applicable to the Chief ExecutiveOfficer and senior financial officers of theCorporation, as well as waivers fromcompliance therefrom, and ensure that anyissues relating to financial governancewhich are identified by the Directors areraised with management;

Review of Terms of Reference

bb) review and reassess the adequacy of theseTerms of Reference annually or otherwiseas it deems appropriate and recommendchanges to the Board;

Other

cc) perform such other activities, consistentwith these Terms of Reference, theCorporation’s articles and by-laws andgoverning law, as the Committee or theBoard deems appropriate; and

dd) report regularly to the Board of Directorson the activities of the Committee.

December 16, 2014


12.4 Audit and Non-Audit Fees and ServicesDeloitte LLP (“Deloitte”) was appointed as the independent auditor of the Company in May 2011 commencingfiscal year 2011.

In accordance with applicable laws and the requirements of stock exchanges and securities regulatoryauthorities, the Audit Committee of the Company must pre-approve all audit and non-audit services to beprovided by the independent auditors. Fees payable to Deloitte LLP for the years ended December 31, 2014,and December 31, 2013, totaled $2,885,400 and $2,213,000, respectively, as detailed in the following table:

Year endedDecember 31, 2014

Year endedDecember 31, 2013

Audit Fees $2,184,800 $1,943,000

Audit-Related Fees 155,000 228,500

Tax Fees 295,600 41,500

All Other Fees 250,000 –

TOTAL $2,885,400 $2,213,000

The nature of the services provided under each of the categories indicated in the table is described below:

12.4.1 Audit FeesAudit fees were for professional services renderedfor the audit and interim reviews of the Registrants’annual financial statements and services provided inconnection with statutory and regulatory filings orengagements, including the attestation engagementfor the report from the independent registeredpublic accounting firm on the effectiveness ofinternal controls over financial reporting, the auditor interim reviews of financial statements of certainsubsidiaries and of various pension and benefitsplans of the Registrants; special attestation servicesas may be required by various government entities;and general advice and assistance related toaccounting and/or disclosure matters with respect tonew and proposed U.S. accounting standards,securities regulations, and/or laws.

12.4.2 Audit-Related FeesAudit-related fees were for assurance and relatedservices reasonably related to the performance ofthe audit or review of the annual financialstatements, but which are not reported under

“Audit Fees” above. These services consisted ofaudit work related to securities filings; refinancing ofsubsidiary companies; and accounting training.

12.4.3 Tax FeesTax fees were for professional services related to taxcompliance, tax planning and tax advice. Theseservices consisted of: tax compliance including thereview of tax returns; assistance with questionsregarding corporate tax audits; tax planning andadvisory services relating to common forms ofdomestic and international taxation (i.e. income tax,capital tax, goods and services tax, and value addedtax); and access fees for taxation databaseresources.

12.4.4 All Other FeesFees disclosed under this category would be forproducts and services other than those describedunder “Audit Fees”, “Audit-Related Fees” and “TaxFees” above. These finance services consisted ofadvice with respect to an internal reorganizationinitiative. There were no such services in 2013.

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13. FORWARD-LOOKING INFORMATION

This AIF contains certain forward-looking statementswithin the meaning of the Private SecuritiesLitigation Reform Act of 1995 (U.S.) and otherrelevant securities legislation relating, but notlimited to expected improvements in operatingefficiency and fluidity, the ability of informationtechnology to improve service and providesophisticated billing options, the benefits of leanprocess and continuous improvement principles, thecost of environmental remediation and anticipatedcapital expenditures. Forward-looking informationtypically contains statements with words such as“anticipate”, “believe”, “expect”, “plan” or similarwords suggesting future outcomes.

Readers are cautioned not to place undue relianceon forward-looking information because it ispossible that the Company will not achievepredictions, forecasts, projections and other formsof forward-looking information. Current economicconditions render assumptions, although reasonablewhen made, subject to greater uncertainty. Inaddition, except as required by law, CP undertakesno obligation to update publicly or otherwise reviseany forward-looking information, whether as aresult of new information, future events orotherwise.

By its nature, the Company’s forward-lookinginformation involves numerous assumptions,inherent risks and uncertainties, including but not

limited to the following factors: changes in businessstrategies; general North American and globaleconomic, credit and business conditions; risks inagricultural production such as weather conditionsand insect populations; the availability and price ofenergy commodities; the effects of competition andpricing pressures; industry capacity; shifts in marketdemand; inflation; changes in laws and regulations,including regulation of rates; changes in taxes andtax rates; potential increases in maintenance andoperating costs; uncertainties of investigations,proceedings or other types of claims and litigation;labour disputes; risks and liabilities arising fromderailments; transportation of dangerous goods;timing of completion of capital and maintenanceprojects; currency and interest rate fluctuations;effects of changes in market conditions on thefinancial position of pension plans and investments;and various events that could disrupt operations,including severe weather, droughts, floods,avalanches and earthquakes as well as securitythreats and the governmental response to them,and technological changes.

There are more specific factors that could causeactual results to differ materially from thosedescribed in the forward-looking statementscontained in this AIF. These more specific factors areidentified and discussed in Section 22, Business Risksand elsewhere in the Company’s 2014 MD&A.


14. ADDITIONAL INFORMATION

14.1 Additional Company InformationAdditional information, including the Company’sConsolidated Financial Statements, press releasesand other required filing documents, are availableon SEDAR at www.sedar.com in Canada, on EDGARat www.sec.gov in the U.S. and on the Companywebsite at www.cpr.ca. Copies of such documents,as well as the Company’s Notice of Intention toMake a NCIB, may be obtained by contacting theCorporate Secretary’s Office. The aforementionedinformation is issued and made available inaccordance with legal requirements and is notincorporated by reference into this AIF except asspecifically stated.

Additional information, including directors’ andofficers’ remuneration and indebtedness, principalholders of CP securities and securities authorized forissuance under equity compensation plans, whereapplicable, is contained in the information circularfor the Company’s most recent annual meeting ofshareholders at which directors were elected.

Additional financial information is provided in theCompany’s Consolidated Financial Statements andMD&A for the most recently completed financialyear.

This information is also available on the Company’swebsite at www.cpr.ca.

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Canadian Pacific7550 Ogden Dale Road SECalgary AlbertaCanada T2C 4X9

TSX/NYSE: CPwww.cpr.ca

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