8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934

February 16, 2018

Date of Report (Date of earliest event reported) 

Canadian Pacific Railway Limited

(Exact name of registrant as specified in its charter)

Canada	001-01342	98-0355078
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

7550 Ogden Dale Road S.E., Calgary, Alberta,

Canada, T2C 4X9

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code (403) 319-7000

Not Applicable

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 8.01. Other Events

Beginning January 1, 2018, Canadian Pacific Railway Limited (“CP” or the "Company") adopted the new accounting standard for presentation of net periodic pension cost and net periodic post-retirement benefit cost. CP is filing this Form 8-K to present the Company’s previously reported financial information on a basis consistent with the standard. Beginning with the quarter ending March 31, 2018, CP’s financial information will reflect adoption of the standard with prior periods adjusted accordingly.

In March 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post-retirement Benefit Cost under Accounting Standards Codification ("ASC") Topic 715. The amendments clarify presentation requirements for net periodic pension cost and net periodic post-retirement benefit cost and require that an employer report the current service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net periodic benefit cost are required to be presented in the Consolidated Statement of Income separately from the current service cost component and outside a subtotal of income from operations. The amendments also restrict capitalization to the current service cost component when applicable. The amendments are effective for CP beginning on January 1, 2018. The amendments related to presentation are required to be applied retrospectively and the restrictions on capitalization of the current service cost component are applicable prospectively on the date of adoption.

There were no changes to Net income or earnings per share as a result of adoption of this new standard. The new guidance restricting capitalization of pensions to the current service cost component of net periodic benefit cost had no impact to operating income or amounts capitalized because the Company already only capitalized an appropriate portion of current service cost for self-constructed properties.

Refer to Exhibit 99.1 for unaudited financial information on a basis consistent with the new standard.

Item 9.01. Financial Statements and Exhibits

(d) Exhibits

Exhibit No.	Exhibit Description
Exhibit 99.1	CP’s Unaudited Financial Information Restated for the New Standard

SIGNATURES

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

Dated: February 16, 2018
	CANADIAN PACIFIC RAILWAY LIMITED
	By:	/s/ Scott Cedergren
		Name:	Scott Cedergren
		Title:	Assistant Corporate Secretary

EX-99.1

Consolidated statements of income (Unaudited)

	Restated for New Standard									Previously Reported									Change
Year ended December 31 (in millions of Canadian dollars, except per share data)	2017			2016			2015			2017			2016			2015			2017			2016			2015
Revenues
Freight	$	6,375		$	6,060		$	6,552		$	6,375		$	6,060		$	6,552		$	—		$	—		$	—
Non-freight	179			172			160			179			172			160			—			—			—
Total revenues	6,554			6,232			6,712			6,554			6,232			6,712			—			—			—
Operating expenses
Compensation and benefits	1,309			1,356			1,441			1,035			1,189			1,371			274			167			70
Fuel	677			567			708			677			567			708			—			—			—
Materials	190			180			184			190			180			184			—			—			—
Equipment rents	142			173			174			142			173			174			—			—			—
Depreciation and amortization	661			640			595			661			640			595			—			—			—
Purchased services and other	1,056			905			1,060			1,056			905			1,060			—			—			—
Gain on sale of Delaware & Hudson South	—			—			(68		)	—			—			(68		)	—			—			—
Total operating expenses	4,035			3,821			4,094			3,761			3,654			4,024			274			167			70
Operating income	2,519			2,411			2,618			2,793			2,578			2,688			(274		)	(167		)	(70		)
Less:
Other income and charges	(178		)	(45		)	335			(178		)	(45		)	335			—			—			—
Other components of net periodic benefit recovery	(274		)	(167		)	(70		)	—			—			—			(274		)	(167		)	(70		)
Net interest expense	473			471			394			473			471			394			—			—			—
Income before income tax expense	2,498			2,152			1,959			2,498			2,152			1,959			—			—			—
Income tax expense	93			553			607			93			553			607			—			—			—
Net income	$	2,405		$	1,599		$	1,352		$	2,405		$	1,599		$	1,352		$	—		$	—		$	—
Earnings per share
Basic earnings per share	$	16.49		$	10.69		$	8.47		$	16.49		$	10.69		$	8.47		$	—		$	—		$	—
Diluted earnings per share	$	16.44		$	10.63		$	8.40		$	16.44		$	10.63		$	8.40		$	—		$	—		$	—
Weighted-average number of shares (millions)
Basic	145.9			149.6			159.7			145.9			149.6			159.7			—			—			—
Diluted	146.3			150.5			161.0			146.3			150.5			161.0			—			—			—

Restated results reflect the adoption of the new accounting standard for presentation of net periodic pension cost and net periodic post-retirement benefit cost. Previously reported results were derived from audited financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2017.

Additional annual and quarterly financial information (Unaudited)

The following tables provide additional unaudited annual and quarterly information on the impact of the restatement on CP's operating income and operating ratio. Operating ratio is defined as operating expenses divided by revenues. Net income and earnings per share have not been impacted. Previously reported results were derived from financial information included in the Annual Reports on Form 10-K for the years ended December 31, 2017 and 2016.

The tables further reconcile the restated operating income and operating ratio to the restated Adjusted operating income and Adjusted operating ratio, respectively. Adjusted operating income and Adjusted operating ratio have no standardized meanings prescribed by accounting principles generally accepted in the United States of America ("GAAP") and, therefore may not be comparable to similar measures presented by other companies. These measures are defined and the reconciling significant items are explained under Non-GAAP measures.

	For the year ended December 31
(in millions)	2017		2016		2015		2014		2013			2012
Operating income as previously reported	$	2,793	$	2,578	$	2,688	$	2,339	$	1,420		$	949
Less:
Other components of net periodic benefit recovery	274		167		70		137		82			63
Operating income as restated	2,519		2,411		2,618		2,202		1,338			886
Less significant items:
Gain on sale of D&H South	—		—		68		—		—			—
Labour restructuring	—		—		—		4		7			(53		)
Asset impairments	—		—		—		—		(435		)	(265		)
Management transition recovery (costs)	51		—		—		—		4			(42		)
Adjusted operating income as restated	$	2,468	$	2,411	$	2,550	$	2,198	$	1,762		$	1,246

	For the period ended
	2017								2016								2015
(in millions)	Q4		Q3		Q2		Q1		Q4		Q3		Q2		Q1		Q4		Q3		Q2		Q1
Operating income as previously reported	$	753	$	690	$	679	$	671	$	717	$	657	$	551	$	653	$	677	$	753	$	646	$	612
Less:
Other components of net periodic benefit recovery	71		68		68		67		40		41		43		43		14		15		26		15
Operating income as restated	682		622		611		604		677		616		508		610		663		738		620		597
Less significant items:
Gain on sale of D&H South	—		—		—		—		—		—		—		—		—		68		—		—
Management transition recovery	—		—		—		51		—		—		—		—		—		—		—		—
Adjusted operating income as restated	$	682	$	622	$	611	$	553	$	677	$	616	$	508	$	610	$	663	$	670	$	620	$	597

	For the period ended
	2014								2013									2012
(in millions)	Q4		Q3		Q2		Q1		Q4			Q3		Q2		Q1		Q4			Q3		Q2			Q1
Operating income as previously reported	$	708	$	621	$	587	$	423	$	114		$	524	$	420	$	362	$	60		$	376	$	239		$	274
Less:
Other components of net periodic benefit recovery	37		34		33		33		33			24		17		8		16			16		15			16
Operating income as restated	671		587		554		390		81			500		403		354		44			360		224			258
Less significant items:
Labour restructuring	—		—		—		4		7			—		—		—		(53		)	—		—			—
Asset impairments	—		—		—		—		(435		)	—		—		—		(265		)	—		—			—
Management transition (costs) recovery	—		—		—		—		(5		)	—		—		9		—			—		(42		)	—
Adjusted operating income as restated	$	671	$	587	$	554	$	386	$	514		$	500	$	403	$	345	$	362		$	360	$	266		$	258

	For the year ended December 31
	2017		2016		2015		2014		2013		2012
Operating ratio as previously reported	57.4	%	58.6	%	60.0	%	64.7	%	76.8	%	83.3	%
Add:
Other components of net periodic benefit recovery	4.2		2.7		1.0		2.0		1.4		1.1
Operating ratio as restated	61.6		61.3		61.0		66.7		78.2		84.4
Less significant items:
Gain on sale of D&H South	—		—		(1.0	)	—		—		—
Labour restructuring	—		—		—		—		(0.1	)	0.9
Asset impairments	—		—		—		—		7.1		4.7
Management transition (recovery) costs	(0.8	)	—		—		—		(0.1	)	0.7
Adjusted operating ratio as restated	62.4	%	61.3	%	62.0	%	66.7	%	71.3	%	78.1	%

	For the period ended
	2017								2016								2015
	Q4		Q3		Q2		Q1		Q4		Q3		Q2		Q1		Q4		Q3		Q2		Q1
Operating ratio as previously reported	56.1	%	56.7	%	58.7	%	58.1	%	56.2	%	57.7	%	62.0	%	58.9	%	59.8	%	55.9	%	60.9	%	63.2	%
Add:
Other components of net periodic benefit recovery	4.1		4.3		4.1		4.3		2.5		2.7		3.0		2.8		0.9		1.0		1.5		0.9
Operating ratio as restated	60.2		61.0		62.8		62.4		58.7		60.4		65.0		61.7		60.7		56.9		62.4		64.1
Less significant items:
Gain on sale of D&H South	—		—		—		—		—		—		—		—		—		(4.0	)	—		—
Management transition recovery	—		—		—		(3.2	)	—		—		—		—		—		—		—		—
Adjusted operating ratio as restated	60.2	%	61.0	%	62.8	%	65.6	%	58.7	%	60.4	%	65.0	%	61.7	%	60.7	%	60.9	%	62.4	%	64.1	%

	For the period ended
	2014								2013								2012
	Q4		Q3		Q2		Q1		Q4		Q3		Q2		Q1		Q4		Q3		Q2		Q1
Operating ratio as previously reported	59.8	%	62.8	%	65.1	%	72.0	%	92.9	%	65.9	%	71.9	%	75.8	%	96.0	%	74.1	%	82.5	%	80.1	%
Add:
Other components of net periodic benefit recovery	2.2		2.0		1.9		2.2		2.0		1.4		1.2		0.5		1.2		1.1		1.1		1.1
Operating ratio as restated	62.0		64.8		67.0		74.2		94.9		67.3		73.1		76.3		97.2		75.2		83.6		81.2
Less significant items:
Labour restructuring	—		—		—		(0.2	)	(0.4	)	—		—		—		3.5		—		—		—
Asset impairments	—		—		—		—		27.1		—		—		—		17.7		—		—		—
Management transition costs	—		—		—		—		0.3		—		—		(0.6)		—		—		3.1		—
Adjusted operating ratio as restated	62.0	%	64.8	%	67.0	%	74.4	%	67.9	%	67.3	%	73.1	%	76.9	%	76.0	%	75.2	%	80.5	%	81.2	%

Non-GAAP Measures (Unaudited)

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

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

The Company uses Adjusted operating income and Adjusted operating ratio to evaluate the Company’s operating performance and for planning and forecasting future business operations and future profitability. Adjusted operating income is calculated as Operating income reported on a GAAP basis less significant items. Adjusted operating ratio also excludes those significant items that are reported within Operating income. These non-GAAP measures provide meaningful supplemental information regarding operating results because they exclude certain significant items that are not considered indicative of future financial trends either by nature or amount. As a result, these items are excluded for management assessment of operational performance, allocation of resources and preparation of annual budgets. These significant items may include, but are not limited to, restructuring and asset impairment charges, individually significant gains and losses from sales of assets, and certain items outside the control of management. These items may not be non-recurring. However, excluding these significant items from GAAP results allows for a consistent understanding of the Company's consolidated financial performance when performing a multi-period assessment including assessing the likelihood of future results. Accordingly, these non-GAAP financial measures may provide insight to investors and other external users of the Company's consolidated financial information.

In the first quarter of 2017, there was one significant item included in operating income: a management transition recovery of $51 million related to the retirement of Mr. E. Hunter Harrison as CEO of CP.

In the third quarter of 2015, there was one significant item included in operating income: a $68 million gain related to the sale of the Delaware and Hudson Railway Company, Inc. ("D&H") South.

In the first quarter of 2014, there was one significant item included in operating income: a recovery of $4 million was recorded for the Company's 2012 labour restructuring initiative due to favourable experience gains, recorded in Compensation and benefits.

In 2013, there were three significant items included in operating income as follows:

• in the fourth quarter, an asset impairment charge and accruals for future costs totalling $435 million relating to the sale of Dakota, Minnesota & Eastern Railroad – West, which closed in the second quarter of 2014;

• in the fourth quarter, management transition costs related to the retirement of the Company’s CFO and the appointment of the new CFO of $5 million;

• in the fourth quarter, a recovery of $7 million of the Company’s 2012 labour restructuring initiative due to favourable experience gains; and

• in the first quarter, a recovery of U.S. $9 million related to settlement of certain management transition amounts, which had been subject to legal proceedings.

In 2012, there were four significant items included in operating income as follows:

• in the fourth quarter, an asset impairment charge of $185 million with respect to the option to build into the Powder River Basin and another investment;

• in the fourth quarter, an asset impairment charge of $80 million related to a certain series of locomotives;

• in the fourth quarter, a labour restructuring charge of $53 million as part of a restructuring initiative; and

• in the second quarter, a charge of $42 million with respect to compensation and other management transition costs.