##### 



FORM 40-F
 o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF
1934
  x
    
    ANNUAL REPORT PURSUANT TO SECTION 13(a) OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  
 CANADIAN PACIFIC RAILWAY LIMITED
 (Commission File No. 1-01342)
 CANADIAN PACIFIC RAILWAY COMPANY
 (Commission File No. 1-15272)
 (Exact name of Registrant as specified in its charter)
 CANADA
    
    4011
    
    98-0355078
(Canadian Pacific Railway Limited)
98-0001377
(Canadian Pacific Railway Company)(Province or other jurisdiction of
incorporation or organization)
    
    (Primary Standard Industrial Classification
Code Number)
    
    (I.R.S. Employer Identification Number)
 Suite 500, Gulf Canada Square, 401-9th Avenue S.W., Calgary, Alberta, Canada T2P 4Z4
(403) 319-7000
 (Address and telephone number of Registrants principal executive offices)
 C T Corporation System, 111 Eighth Avenue, New York, New York 10011, (212) 894-8940
 (Name, address (including zip code) and telephone number
(including area code) of Agent for Service of Registrant in the United States)
  Title of Each Class
    
    Name of Each Exchange on Which RegisteredCommon Shares, without par value, of 
Canadian Pacific Railway Limited
    
    New York Stock ExchangeCommon Share Purchase Rights of 
Canadian Pacific Railway Limited
    
    New York Stock ExchangePerpetual 4% Consolidated Debenture Stock 
of Canadian Pacific Railway Company
    
    New York Stock Exchange
 None
 None




---



##### 



x     Annual information form
    
    x     Audited annual financial statements
    YES     o
    
    NO     x
  YES     x
    
    NO     o
 2




---



##### 



PRIOR FILINGS MODIFIED AND SUPERSEDED
   CONSOLIDATED AUDITED ANNUAL FINANCIAL STATEMENTS AND
MANAGEMENTS DISCUSSION AND ANALYSIS
 A. Audited Annual Financial Statements
  B. Managements Discussion and Analysis
   DISCLOSURE CONTROLS AND PROCEDURES
  MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
  3




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##### 



CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
  CODE OF BUSINESS ETHICS
 www.cpr.ca
 CODE OF ETHICS FOR CHIEF EXECUTIVE OFFICER AND SENIOR FINANCIAL OFFICERS
 www.cpr.ca
 CORPORATE GOVERNANCE PRINCIPLES AND GUIDELINES
  4




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##### 



COMMITTEE TERMS OF REFERENCE
 www.cpr.ca
 DIRECTOR INDEPENDENCE
  EXECUTIVE SESSIONS OF NON-MANAGEMENT DIRECTORS
   th
 AUDIT COMMITTEE FINANCIAL EXPERTS
  
  5




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##### 



FINANCIAL LITERACY OF AUDIT COMMITTEE MEMBERS
  SERVICE ON OTHER PUBLIC COMPANY AUDIT COMMITTEES
   
    
    Two of the public company audit committees on which Ms. Hoeg serves are the Audit
Committees of the Registrants. As Canadian Pacific Railway Company is a wholly-owned
subsidiary of Canadian Pacific Railway Limited, and the latter company carries on no
business operations and has no assets or liabilities of more than nominal value beyond its
100% shareholding in Canadian Pacific Railway Company, the workload of the Audit Committees
is essentially equivalent to the workload of one public company audit committee; and
    
    Ms. Hoeg, 58, is the former chief executive officer of a large public company and the
former chief financial officer of a large public company and has been designated as an
audit committee financial expert for the Registrants. As a result, she no longer has any
day-to-day executive or managerial responsibilities and, in addition, brings to her role on
the Audit Committees of the Registrants considerable business experience and a
highly-focused and effective approach to audit-related matters.
 PRINCIPAL ACCOUNTANT FEES AND SERVICES
  Year ended
    
    
    Year endedDecember 31, 2007
    
    
    December 31, 2006Audit Fees
    
    $
    2,391,600
    
    
    $
    2,118,000Audit-Related Fees
    
    $
    619,780
    
    
    $
    438,900Tax Fees
    
    $
    422,600
    
    
    $
    267,300All Other Fees
    
    $
    0
    
    
    $
    0TOTAL
    
    $
    3,433,980
    
    
    $
    2,824,200
 6




---



##### 



Audit Fees
  Audit-Related Fees
 Sarbanes-Oxley Act
 Tax Fees
  All Other Fees
  PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES PROVIDED BY
INDEPENDENT AUDITORS
  7




---



##### 



OFF-BALANCE SHEET ARRANGEMENTS
  TABLE OF CONTRACTUAL COMMITMENTS
  UNDERTAKING AND CONSENT TO SERVICE OF PROCESS
 A. Undertaking
  B. Consent to Service of Process
  SIGNATURES
  CANADIAN PACIFIC RAILWAY LIMITED
CANADIAN PACIFIC RAILWAY COMPANY
(Registrants)Signed
Donald F. BarnhardtName:
    Donald F. BarnhardtTitle:
    Corporate Secretary  8




---



##### 



DOCUMENTS FILED AS PART OF THIS REPORT
 1.
    
    Annual Information Form of the Registrant for the year ended December 31, 2007.2.
    
    Annual Report of the Registrant for the year ended December 31, 2007, including Managements
Discussion and Analysis, Managements Report on Internal Control over Financial Reporting and
the Audited Consolidated Financial Statements of the Registrant as of December 31, 2007 and
for each of the three years then ended1.
 EXHIBITS
 A.
    
    Consent of PricewaterhouseCoopers, Independent Auditors.B.
    
    Certifications by the Chief Executive Officer and Chief Financial Officer of the Registrants
filed pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.C.
    
    Certifications by the Chief Executive Officer and Chief Financial Officer of the Registrants
furnished pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 
 1
    
    For the purposes of this Annual Report on Form 40-F,
only pages 9 through 109 of the Registrants 2007 Annual Report referred to
above shall be deemed filed, and the balance of such 2007 Annual Report, except
as it may be otherwise specifically incorporated by reference in the
Registrants Annual Information Form, shall be deemed not filed with the
Securities and Exchange Commission as part of this Annual Report on Form 40-F
under the Exchange Act. 9




---



##### 



CANADIAN PACIFIC IN MOTION
2007 ANNUAL INFORMATION FORM




---



##### 



Table Of Contents
 SECTION 1: CORPORATE STRUCTURE1.1 NAME, ADDRESS AND INCORPORATION INFORMATION
    
    
2SECTION 2: INTERCORPORATE RELATIONSHIPS2.1 PRINCIPAL SUBSIDIARIES
    
    
3SECTION 3: GENERAL DEVELOPMENT OF THE BUSINESS3.1 RECENT DEVELOPMENTS
    
    
4SECTION 4: DESCRIPTION OF THE BUSINESS4.1 OUR BACKGROUND AND NETWORK
    
    
54.2 STRATEGY
    
    
54.3 PARTNERSHIPS, ALLIANCES AND NETWORK EFFICIENCY
    
    
54.4 NETWORK AND RIGHT-OF-WAY
    
    
64.5 QUARTERLY TRENDS
    
    
94.6 BUSINESS CATEGORIES
    
    
94.7 REVENUES
    
    
94.8 RAILWAY PERFORMANCE
    
    
124.9 FRANCHISE INVESTMENT
    
    
134.10 INTEGRATED OPERATING PLAN
    
    
134.11 INFORMATION TECHNOLOGY
    
    
144.12 LABOUR PRODUCTIVITY AND EFFICIENCY
    
    
154.13 BUSINESS RISKS & ENTERPRISE RISK MANAGEMENT
    
    
154.14 INDEMNIFICATIONS
    
    
154.15 SAFETY
    
    
154.16 ENVIRONMENTAL PROTECTION
    
    
164.17 INSURANCE
    
    
17SECTION 5: DIVIDENDS5.1 DECLARED DIVIDENDS AND DIVIDEND POLICY
    
    
18SECTION 6: CAPITAL STRUCTURE6.1 DESCRIPTION OF CAPITAL STRUCTURE
    
    
196.2 SECURITY RATINGS
    
    
20SECTION 7: MARKET FOR SECURITIES7.1 STOCK EXCHANGE LISTINGS
    
    
227.2 TRADING PRICE AND VOLUME
    
    
22SECTION 8: DIRECTORS AND OFFICERS8.1 DIRECTORS
    
    
238.2 CEASE TRADE ORDERS
    
    
248.3 SENIOR OFFICERS
    
    
258.4 SHAREHOLDINGS OF DIRECTORS AND OFFICERS
    
    
278.5 ANNOUNCEMENTS
    
    
27SECTION 9: LEGAL PROCEEDINGS
    
    
28SECTION 10: TRANSFER AGENTS
    
    
2910.1 TRANSFER AGENT
    
    
29SECTION 11: INTERESTS OF EXPERTS
    
    
30SECTION 12: AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE12.1 COMPOSITION OF THE AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE AND RELEVANT EDUCATION AND EXPERIENCE
    
    
3112.2 PRE-APPROVAL OF POLICIES AND PROCEDURES
    
    
3212.3 AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE CHARTER
    
    
3212.4 AUDIT AND NON-AUDIT FEES AND SERVICES
    
    
37SECTION 13: ADDITIONAL INFORMATION13.1 ADDITIONAL COMPANY INFORMATION
    
    
39
  February 19, 2008
    1




---



##### 



SECTION 1: CORPORATE STRUCTURE
 In this AIF, our, us, we, CP and the Company refer to Canadian Pacific Railway Limited
(CPRL), CPRL and its subsidiaries, CPRL and one or more of its subsidiaries, or one or more of
CPRLs subsidiaries, as the context may require.
 1.1 Name, Address and Incorporation Information
 Canada Business Corporations Act
    2




---



##### 



SECTION 2: INTERCORPORATE RELATIONSHIPS
 2.1 Principal Subsidiaries
  Percentage of Non-Percentage of
    
    Voting SecuritiesVoting Securities
    
    Beneficially Owned, orIncorporated
    
    
    Held Directly or
    
    over which Control orPrincipal Subsidiary(1)
    
    under the Laws of
    
    
    Indirectly
    
    Direction is ExercisedCanadian Pacific Railway Company
    
    Canada
    
    
    100
    %
    
    Not applicableSoo Line Corporation (2)
    
    Minnesota
    
    
    100
    %
    
    Not applicableSoo Line Railroad Company (3)
    
    Minnesota
    
    
    100
    %
    
    Not applicableDelaware and Hudson Railway Company,
Inc.(2)
    
    Delaware
    
    
    100
    %
    
    Not applicableMount Stephen Properties Inc.(4)
    
    Canada
    
    
    100
    %
    
    Not applicable
 (1)

    This table does not include all of our subsidiaries. The assets and revenues of unnamed subsidiaries did
not exceed 10% of the total consolidated assets 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)
    Wholly owned subsidiary of Canadian Pacific Railway Company.
    3




---



##### 



SECTION 3: GENERAL DEVELOPMENT OF THE BUSINESS
 
 3.1 Recent Developments
       
    
    10 projects between Moose Jaw, Saskatchewan and Calgary, Alberta to extend sidings and
lay sections of double track;
    
    three projects in Alberta, between Edmonton and Calgary, to extend sidings and build a
new siding; and
    
    12 projects between Calgary and the Port of Vancouver to extend sidings and lay sections
of double track.
  4




---



##### 



SECTION 4: DESCRIPTION OF THE BUSINESS
 
 4.1 Our Background and Network
    4.2 Strategy
  
    
    generating quality revenue growth by realizing the benefits of demand growth in our
bulk, intermodal and merchandise business lines with targeted infrastructure capacity
investments linked to global trade opportunities;
    
    improving productivity by leveraging strategic marketing and operating partnerships,
executing a scheduled railway through our Integrated Operating Plan (IOP) and driving
more value from existing assets and resources by improving
fluidity; and
    
    continuing to develop a dedicated, professional and knowledgeable workforce that is
committed to safety and sustainable financial performance through steady improvement in
profitability, increased free cash flow and a competitive return on
investment.
 4.3 Partnerships, Alliances and Network Efficiency
    
    
    a CP-CN directional running agreement over about 100 miles of parallel CP and CN track
in Ontario between Waterfall (near Sudbury) and Parry Sound. The trains of both railways
operate eastbound over CNs line and westbound over our
line;
    
    a CP-CN haulage agreement under which we transport CN freight over about 300 miles of CP
track in Ontario between Thunder Bay and Franz;
    
    CP-CN initiatives in the Port of
Vancouver Terminal and B.C. Lower Mainland;
    
    a CP-NS trackage rights agreement to handle NS traffic over our D&H lines in the US
Northeast; and
    
    a CP-NS track connection at Detroit, Michigan that provides service between eastern
Canada and the US Midwest.
  5




---



##### 



SECTION 4: DESCRIPTION OF THE BUSINESS
 
   4.4 Network and Right-of-Way
  
  4.4.1 The Western Corridor: Vancouver-Moose Jaw
 Overview
 Products
 Feeder Lines
 6




---



##### 



SECTION 4: DESCRIPTION OF THE BUSINESS
 
  Connections
 Yards and Repair Facilities
 Other
 4.4.2 The Southern Corridor: Moose Jaw-Chicago
 Overview
 Products
 Feeder Lines
   Connections
 Yards and Repair Facilities
 4.4.3 The Central Corridor: Moose Jaw-Toronto
 Overview
 Products
 7




---



##### 



SECTION 4: DESCRIPTION OF THE BUSINESS
 
 Feeder Lines
 Connection
 Yards and Repair Facilities
  4.4.4 The Eastern Corridor
 Overview
 Products
 Feeder Lines
 Connections
 Yards and Repair Facilities
 4.4.5 Right-of-Way
    8




---



##### 



SECTION 4: DESCRIPTION OF THE BUSINESS
 
 4.5 Quarterly Trends
  4.6 Business Categories
  Business Category
    
    
    2007
    
    
    2006Bulk
    
    
    44
    %
    
    
    44
    %Merchandise
    
    
    27
    %
    
    
    28
    %Intermodal
    
    
    29
    %
    
    
    28
    %
 4.7 Revenues
  Freight Revenues
    
    
    
    
    
    Fiscal 2007
    
    
    
    
    
    Fiscal 2006(in $ millions, except for percentages)
    
    
    
    
    
    Growth
    
    
    
    
    
    GrowthFiscal
    
    
    Rate as
    
    Fiscal
    
    
    Rate as
    
    Fiscal2007
    
    
    Compared
    
    2006
    
    
    Compared
    
    2005to Fiscal
    
    
    
    
    
    to FiscalBusiness Category
    
    
    
    
    
    2006
    
    
    
    
    
    2005BulkGrain
    
    
    939
    
    
    
    3.8
    %
    
    
    905
    
    
    
    20.0
    %
    
    
    754Coal
    
    
    573
    
    
    
    (3.1)
    %
    
    
    592
    
    
    
    (18.8)
    %
    
    
    729Sulphur and fertilizers
    
    
    502
    
    
    
    14.3
    %
    
    
    439
    
    
    
    (1.8)
    %
    
    
    447Total bulk
    
    
    2,014
    
    
    
    4.0
    %
    
    
    1,936
    
    
    
    0.3
    %
    
    
    1,930MerchandiseForest products
    
    
    276
    
    
    
    (12.8)
    %
    
    
    316
    
    
    
    (5.4)
    %
    
    
    334Industrial and consumer products
    
    
    628
    
    
    
    4.0
    %
    
    
    604
    
    
    
    11.2
    %
    
    
    543Automotive
    
    
    319
    
    
    
    1.5
    %
    
    
    314
    
    
    
    5.4
    %
    
    
    298Total merchandise
    
    
    1,223
    
    
    
    (0.9)
    %
    
    
    1,234
    
    
    
    5.0
    %
    
    
    1,175Intermodal.
    
    
    1,318
    
    
    
    4.9
    %
    
    
    1,257
    
    
    
    8.3
    %
    
    
    1,161Total freight revenues
    
    
    4,555
    
    
    
    2.9
    %
    
    
    4,427
    
    
    
    3.8
    %
    
    
    4,266
 4.7.1 Bulk
  4.7.1.1 Grain
    9




---



##### 



SECTION 4: DESCRIPTION OF THE BUSINESS
 
  Canada Transportation Act www.sedar.com www.sec.gov www.cpr.ca.
 4.7.1.2 Coal
     4.7.1.3 Sulphur and Fertilizers
  Sulphur
  Fertilizers
    10




---



##### 



SECTION 4: DESCRIPTION OF THE BUSINESS
 
 4.7.2 Merchandise
   4.7.2.1 Forest Products
   4.7.2.2 Industrial and Consumer Products
    4.7.2.3 Automotive
   4.7.3 Intermodal
   Domestic Intermodal
 International Intermodal
    11




---



##### 



SECTION 4: DESCRIPTION OF THE BUSINESS
 
   4.7.4 Other Business
  4.7.5 Significant Customers
  4.8 Railway Performance
  4.8.1 Performance Indicators
 Year Ended December 31Performance Indicators(1)(2)
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003Safety indicatorsFRA personal injuries per 200,000 employee-hours(3)
    
    
    2.1
    
    
    
    2.0
    
    
    
    2.4
    
    
    
    2.7
    
    
    
    3.1FRA train accidents per million train-miles(4)
    
    
    2.0
    
    
    
    1.6
    
    
    
    2.3
    
    
    
    2.1
    
    
    
    1.8Efficiency and other indicatorsGross ton-miles (GTM) (millions)(5)
    
    
    246,322
    
    
    
    236,405
    
    
    
    242,100
    
    
    
    236,451
    
    
    
    221,884Car miles per car day(6)
    
    
    142.3
    
    
    
    137.3
    
    
    
    124.0
    
    
    
    119.0
    
    
    
    N/AUS gallons of locomotive fuel per 1,000 GTMs  freight and
yard(7)
    
    
    1.21
    
    
    
    1.20
    
    
    
    1.18
    
    
    
    1.20
    
    
    
    1.24Terminal dwell (hours)(8)
    
    
    22.2
    
    
    
    20.8
    
    
    
    25.8
    
    
    
    24.9
    
    
    
    N/AAverage train speed (miles per hour)(9)
    
    
    23.2
    
    
    
    24.8
    
    
    
    22.0
    
    
    
    22.7
    
    
    
    22.7Number of active employees  end of period(10)
    
    
    15,382
    
    
    
    15,327
    
    
    
    16,295
    
    
    
    15,637
    
    
    
    15,645Freight revenue per RTM (cents)(11)
    
    
    3.52
    
    
    
    3.60
    
    
    
    3.40
    
    
    
    3.06
    
    
    
    3.08
 
 (1)
    
    Revenue ton-miles (RTM) (millions), GTMs per average active employee
(thousands), and GTM per mile of road operated, excluding track on which CP has haulage rights
(thousands) are no longer reported.(2)
    
    Certain prior period figures have been updated to reflect new information.(3)
    
    US Federal Railroad Administration (FRA) personal injuries per 200,000
employee-hours measures the number of personal injuries, multiplied by 200,000 and divided by
total employee-hours. Personal injuries are defined as injuries that require employees to
lose time away from work, modify their normal duties or obtain medical treatment beyond minor
first aid. Employee-hours are the total hours worked, excluding vacation and sick time, by
all employees, excluding contractors.(4)
    
    FRA train accidents per million train-miles measures the number of train accidents,
multiplied by 1,000,000 and divided by total train-miles. Train accidents included in this
metric meet or exceed the FRA reporting threshold of US$8,200 in damage.(5)
    
    Gross ton-miles of freight measure the movement of total train weight over a
distance of one mile. (Total train weight is comprised of the weight of the freight cars,
their contents and any inactive locomotives.)(6)
    
    The total car-miles for a period divided by the total number of active cars. Total
car-miles includes the distance travelled by every car on a revenue-producing train and a
train used in or around our yards. A car-day is assumed to equal one active car. An active
car is a revenue-producing car that is generating costs to CP on an hourly or mileage basis.
Excluded from this count are i) cars that are not on the track or are being stored; ii) cars
that are in need of repair; iii) cars that are used to carry materials for track repair; iv)
cars owned by customers that are on the customers tracks; and v) cars that are idle and
waiting to be reclaimed by CP.(7)
    
    US gallons of locomotive fuel per 1,000 GTMs  freight and yard measures the total
fuel consumed in freight and yard operations for every 1,000 GTMs traveled. This is
calculated by dividing the total amount of fuel issued to our locomotives, excluding commuter
and non-freight activities, by the total freight-related GTMs. The result indicates how
efficiently we are using fuel.(8)
    
    Terminal dwell (hours) measures the average time a freight car resides at a
specified terminal location. The timing starts with a train arriving in the terminal, a
customer releasing the car to us, or a car arriving that is to be transferred to another
railway. The timing ends when the train leaves, a
    12




---



##### 



SECTION 4: DESCRIPTION OF THE BUSINESS
 
 
 customer receives the car from us or the freight car is transferred to another railway. Freight
cars are excluded if: i) a train is moving through the terminal without stopping; ii) they are
being stored at the terminal; iii) they are in need of repair; or iv) they are used in track
repairs.(9)
    
    The average train speed measures average speed attained as a train travels between
terminals, calculated by dividing the total train miles traveled by the total hours operated.
This calculation does not include the travel time or the distance traveled by: i) trains used
in or around CPs yards; ii) passenger trains; and iii) trains used for repairing track. The
calculation also does not include the time trains spend waiting in terminals.(10)
    
    The number of actively employed workers during the last month of the period. This
includes employees who are taking vacation and statutory holidays and other forms of
short-term paid leave, and excludes individuals who have a continuing employment relationship
with us but are not currently working.(11)
    
    Freight revenue per RTM (cents) measures the amount of freight revenue earned for
every RTM moved, calculated by dividing the total freight revenue by the total RTMs in the
period.
 4.9 Franchise Investment
  4.9.1 Locomotive Fleet
   Number of Locomotives
 Road Freight
    
    
    Road
    
    
    YardAge in Years
    
    AC
    
    
    DC
    
    
    Switcher
    
    
    Switcher
    
    
    Total0-5
    
    
    311
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3116-10
    
    
    303
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30311-15
    
    
    83
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8316-20
    
    
    
    
    
    
    67
    
    
    
    
    
    
    
    
    
    
    
    67Over 20
    
    
    
    
    
    
    343
    
    
    
    269
    
    
    
    256
    
    
    
    868Total
    
    
    697
    
    
    
    410
    
    
    
    269
    
    
    
    256
    
    
    
    1,632
 4.9.2 Railcar Fleet
   4.10 Integrated Operating Plan
    13




---



##### 



SECTION 4: DESCRIPTION OF THE BUSINESS
 
    4.11 Information Technology
    14




---



##### 



SECTION 4: DESCRIPTION OF THE BUSINESS
 
   4.12 Labour Productivity and Efficiency
     4.13 Business Risks & Enterprise Risk Management
 www.sedar.com www.sec.gov www.cpr.ca.
 4.14 Indemnifications
   4.15 Safety
    15




---



##### 



SECTION 4: DESCRIPTION OF THE BUSINESS
 
  4.16 Environmental Protection
  4.16.1 Policy
  Ò Ò Ò Ò Ò
 4.16.2 Planning
  4.16.3 Implementation and Operation
   4.16.4 Environmental Contamination
    16




---



##### 



SECTION 4: DESCRIPTION OF THE BUSINESS
 
  4.16.5 Checking and Corrective Action
    4.16.6 Management Review
  4.16.7 Expenditures
  4.17 Insurance
    17




---



##### 



SECTION 5: DIVIDENDS
 
 5.1 Declared Dividends and Dividend Policy
  Dividend Amount
    
    Record Date
    
    Payment Date$0.1325
    
    March 25, 2005
    
    April 25, 2005$0.1500
    
    June 24, 2005
    
    July 25, 2005$0.1500
    
    September 30, 2005
    
    October 31, 2005$0.1500
    
    December 30, 2005
    
    January 30, 2006$0.1875
    
    March 31, 2006
    
    April 24, 2006$0.1875
    
    June 30, 2006
    
    July 31, 2006$0.1875
    
    September 29, 2006
    
    October 30, 2006$0.1875
    
    December 29, 2006
    
    January 29, 2007$0.2250
    
    March 30, 2007
    
    April 30, 2007$0.2250
    
    June 29, 2007
    
    July 30, 2007$0.2250
    
    September 28, 2007
    
    October 29, 2007$0.2250
    
    December 28, 2007
    
    January 28, 2008$0.2475
    
    March 28, 2008
    
    April 28, 2008
    18




---



##### 



SECTION 6: CAPITAL STRUCTURE
 
 6.1 Description of Capital Structure
  1).
    
    The rights, privileges, restrictions and conditions attaching to the Common Shares are as
follows:
 a).
    
    Payment of Dividends: The holders of the Common Shares will be entitled to
receive dividends if, as and when declared by CPs Board of Directors out of the assets
of the Company properly applicable to the payment of dividends in such amounts and
payable in such manner as the Board may from time to time determine. Subject to the
rights of the holders of any other class of shares of the Company entitled to receive
dividends in priority to or rateably with the holders of the Common Shares, the Board
may in its sole discretion declare dividends on the Common Shares to the exclusion of
any other class of shares of the Company.b).
    
    Participation upon Liquidation, Dissolution or Winding Up: In the event of the
liquidation, dissolution or winding up of the Company or other distribution of assets
of the Company among its shareholders for the purpose of winding up its affairs, the
holders of the Common Shares will, subject to the rights of the holders of any other
class of shares of the Company entitled to receive the assets of the Company upon such
a distribution in priority to or rateably with the holders of the Common Shares, be
entitled to participate rateably in any distribution of the assets of the Company.c).
    
    Voting Rights: The holders of the Common Shares will be entitled to receive
notice of and to attend all annual and special meetings of the shareholders of the
Company and to one (1) vote in respect of each Common Share held at all such meetings,
except at separate meetings of or on separate votes by the holders of another class or
series of shares of the Company.
 2).
    
    The rights, privileges, restrictions and conditions attaching to the First Preferred Shares
are as follows:
 a).
    
    Authority to Issue in One or More Series: The First Preferred Shares may at
any time or from time to time be issued in one (1) or more series. Subject to the
following provisions, the Board may by resolution fix from time to time before the
issue thereof the number of shares in, and determine the designation, rights,
privileges, restrictions and conditions attaching to the shares of each series of First
Preferred Shares.b).
    
    Voting Rights: The holders of the First Preferred Shares will not be entitled
to receive notice of or to attend any meeting of the shareholders of the Company and
will not be entitled to vote at any such meeting, except as may be required by law.c).
    
    Limitation on Issue: The Board may not issue any First Preferred Shares if by
so doing the aggregate amount payable to holders of First Preferred Shares as a return
of capital in the event of the liquidation, dissolution or winding up of the Company or
any other distribution of the assets of the Company among its shareholders for the
purpose of winding up its affairs would exceed $500,000,000.d).
    
    Ranking of First Preferred Shares: The First Preferred Shares will be entitled
to priority over the Second Preferred Shares and the Common Shares of the Company and
over any other shares ranking junior to the First Preferred Shares with respect to the
payment of dividends and the distribution of assets of the Company in the event of any
liquidation, dissolution or winding up of the Company or other distribution of the
assets of the Company among its shareholders for the purpose of winding up its affairs.e).
    
    Dividends Preferential:Except with the consent in writing of the holders of
all outstanding First Preferred Shares, no dividend can be declared and paid on or set
apart for payment on the Second Preferred Shares or the Common Shares or on any other
shares ranking junior to the First Preferred Shares unless and until all dividends (if
any) up to and including any dividend payable for the last completed period for which
such dividend is payable on each series of First Preferred Shares outstanding has been
declared and paid or set apart for payment.
    19




---



##### 



SECTION 6: CAPITAL STRUCTURE
 
 3).
    
    The rights, privileges, restrictions and conditions attaching to the Second Preferred
Shares are as follows:
 a).
    
    Authority to Issue in One or More Series: The Second Preferred Shares may at
any time or from time to time be issued in one (1) or more series. Subject to the
following provisions, the Board may by resolution fix from time to time before the
issue thereof the number of shares in, and determine the designation, rights,
privileges, restrictions and conditions attaching to the shares of each series of
Second Preferred Shares.b).
    
    Voting Rights: The holders of the Second Preferred Shares will not be
entitled to receive notice of or to attend any meetings of the shareholders of the
Company and will not be entitled to vote at any such meeting, except as may be required
by law.c).
    
    Limitation on Issue: The Board may not issue any Second Preferred Shares if by
so doing the aggregate amount payable to holders of Second Preferred Shares as a return
of capital in the event of the liquidation, dissolution or winding up of the Company or
any other distribution of the assets of the Company among its shareholders for the
purpose of winding up its affairs would exceed $500,000,000.d).
    
    Ranking of Second Preferred Shares: The Second Preferred Shares will be
entitled to priority over the Common Shares of the Company and over any other shares
ranking junior to the Second Preferred Shares with respect to the payment of dividends
and the distribution of assets of the Company in the event of the liquidation,
dissolution or winding up of the Company or any other distribution of the assets of the
Company among its shareholders for the purpose of winding up of its affairs.e).
    
    Dividends Preferential: Except with the consent in writing of the holders of
all outstanding Second Preferred Shares, no dividend can be declared and paid on or set
apart for payment on the Common Shares or on any other shares ranking junior to the
Second Preferred Shares unless and until all dividends (if any) up to and including any
dividend payable for the last completed period for which such dividend is payable on
each series of Second Preferred Shares outstanding has been declared and paid or set
apart for payment.
 6.2 Security Ratings
  Approved Rating Organization
    
    Long-Term Debt RatingMoodys Investors Service
    
    Baa3Standard & Poors
    
    BBBDominion Bond Rating Service
    
    BBB
    20




---



##### 



SECTION 6: CAPITAL STRUCTURE
 
 DominionMoodys
    
    Standard &

    
    BondInvestors
    
    Poors
    
    RatingService
    
    
    
    ServiceAaa
    
    AAA
    
    AAA
    


    
    HighInvestmentGradeAa1
    
    AA+
    
    AA(high)Aa2
    
    AA
    
    AAAa3
    
    AA-
    
    AA(low)A1
    
    A+
    
    A(high)A2
    
    A
    
    AA3
    
    A-
    
    A(low)Baa1
    
    BBB+
    
    BBB(high)
    
    
    InvestmentBaa2
    
    BBB
    
    BBB
    
    
    GradeBaa3
    
    BBB-
    
    BBB(low)Ba1
    
    BB+
    
    BB(high)Ba2
    
    BB
    
    BBBa3
    
    BB-
    
    BB(low)B1
    
    B+
    
    B(high)
    
    
    BelowB2
    
    B
    
    B
    
    
    InvestmentB3
    
    B-
    
    B(low)
    
    
    GradeCaa
    
    CCC
    
    CCCCa
    
    CC
    
    CCC
    
    C
    
    C
    21




---



##### 



SECTION 7: MARKET FOR SECURITIES
 
 7.1 Stock Exchange Listings
  7.2 Trading Price and Volume
  Opening
    
    High
    
    Low
    
    Closing
    
    Number of
    
    Volume ofMonth
    
    Price per
    
    Price per
    
    Price per
    
    Price per
    
    Trades
    
    SharesShare ($)
    
    Share ($)
    
    Share ($)
    
    Share ($)
    
    Performed
    
    TradedJanuary
    
    
    61.62
    
    
    
    64.99
    
    
    
    60.06
    
    
    
    64.45
    
    
    
    48,063
    
    
    
    13,687,800February
    
    
    63.94
    
    
    
    66.33
    
    
    
    61.25
    
    
    
    62.45
    
    
    
    44,202
    
    
    
    11,770,064March
    
    
    62.00
    
    
    
    65.47
    
    
    
    62.00
    
    
    
    64.95
    
    
    
    45,279
    
    
    
    11,961,990April
    
    
    64.95
    
    
    
    73.48
    
    
    
    63.75
    
    
    
    70.29
    
    
    
    45,116
    
    
    
    10,518,675May
    
    
    70.45
    
    
    
    78.18
    
    
    
    69.30
    
    
    
    76.30
    
    
    
    52,142
    
    
    
    13,389,179June
    
    
    76.30
    
    
    
    78.48
    
    
    
    71.23
    
    
    
    73.57
    
    
    
    51,376
    
    
    
    11,821,049July
    
    
    74.09
    
    
    
    91.00
    
    
    
    73.46
    
    
    
    78.50
    
    
    
    83,495
    
    
    
    29,889,129August
    
    
    77.75
    
    
    
    79.75
    
    
    
    67.50
    
    
    
    74.20
    
    
    
    70,002
    
    
    
    16,211,933September
    
    
    74.00
    
    
    
    74.48
    
    
    
    67.37
    
    
    
    70.00
    
    
    
    55,234
    
    
    
    14,415,927October
    
    
    69.97
    
    
    
    73.00
    
    
    
    64.60
    
    
    
    66.48
    
    
    
    78,263
    
    
    
    18,612,443November
    
    
    66.00
    
    
    
    67.37
    
    
    
    59.48
    
    
    
    66.64
    
    
    
    75,264
    
    
    
    16,350,039December
    
    
    65.54
    
    
    
    69.06
    
    
    
    62.59
    
    
    
    64.22
    
    
    
    61,665
    
    
    
    12,209,864
  Opening
    
    High
    
    Low
    
    Closing
    
    Number of
    
    Volume ofMonth
    
    Price per
    
    Price per
    
    Price per
    
    Price per
    
    Trades
    
    SharesShare ($)
    
    Share ($)
    
    Share ($)
    
    Share ($)
    
    Performed
    
    TradedJanuary
    
    
    53.28
    
    
    
    55.11
    
    
    
    51.23
    
    
    
    54.74
    
    
    
    20,214
    
    
    
    4,049,400February
    
    
    54.87
    
    
    
    56.29
    
    
    
    52.27
    
    
    
    53.41
    
    
    
    21,164
    
    
    
    4,016,500March
    
    
    53.16
    
    
    
    56.61
    
    
    
    52.76
    
    
    
    56.45
    
    
    
    27,384
    
    
    
    5,355,800April
    
    
    56.30
    
    
    
    65.70
    
    
    
    55.36
    
    
    
    63.52
    
    
    
    26,803
    
    
    
    5,502,000May
    
    
    63.88
    
    
    
    72.51
    
    
    
    62.51
    
    
    
    71.47
    
    
    
    27,982
    
    
    
    5,729,100June
    
    
    71.73
    
    
    
    73.95
    
    
    
    66.45
    
    
    
    68.82
    
    
    
    30,311
    
    
    
    5,943,700July
    
    
    69.47
    
    
    
    87.23
    
    
    
    69.26
    
    
    
    73.93
    
    
    
    39,511
    
    
    
    7,727,400August
    
    
    73.30
    
    
    
    75.74
    
    
    
    62.66
    
    
    
    70.48
    
    
    
    32,138
    
    
    
    6,221,200September
    
    
    70.50
    
    
    
    70.79
    
    
    
    64.97
    
    
    
    70.29
    
    
    
    25,783
    
    
    
    4,381,700October
    
    
    70.29
    
    
    
    74.38
    
    
    
    67.36
    
    
    
    70.38
    
    
    
    32,278
    
    
    
    5,346,100November
    
    
    69.35
    
    
    
    70.48
    
    
    
    60.31
    
    
    
    66.92
    
    
    
    31,337
    
    
    
    5,221,600December
    
    
    65.37
    
    
    
    68.64
    
    
    
    61.80
    
    
    
    64.64
    
    
    
    24,839
    
    
    
    4,122,700
    22




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##### 



SECTION 8: DIRECTORS AND OFFICERS
 
  8.1 Directors
 Name and Municipality of Residence
    
    Position Held and Principal Occupation within
    
    Year of Annual Meetingthe Preceding Five Years (1)
    
    at which Term of OfficeExpires (DirectorSince)S.E. Bachand (3)(5)(6)
Ponte Vedra Beach, Florida, U.S.A.
    
    Retired President and Chief Executive Officer,
Canadian Tire Corporation, Limited (hard goods
retailer specializing in automotive, sports and
leisure and home products)
    
    2008
(2001)J.E. Cleghorn, O.C., F.C.A. (3)
Toronto, Ontario, Canada
    
    Chairman, Canadian Pacific Railway Limited and
Canadian Pacific Railway Company; Chairman,
SNC-Lavalin Group Inc., (international
engineering and construction firm)
    
    2008
(2001)T.W. Faithfull (4)(5)
Oxford, Oxfordshire, England
    
    Retired President and Chief Executive Officer
Shell Canada Limited (oil and gas company)
    
    2008
(2003)F.J. Green (4)
Calgary, Alberta, Canada
    
    President and Chief Executive Officer, Canadian
Pacific Railway Company and Canadian Pacific
Railway Limited
    
    2008
(2006)K.T. Hoeg, C.A. (2)(4)
Toronto, Ontario, Canada
    
    Former President and Chief Executive Officer of
Corby Distilleries Limited (spirits and wine)
    
    2008
(2007)The Hon. J.P. Manley (2)(6)
Ottawa, Ontario, Canada
    
    Senior Counsel, McCarthy Tétrault LLP (law firm)
    
    2008
(2006)L.J. Morgan (4)(5)
Bethesda, Maryland, U.S.A.
    
    Partner, Covington & Burling LLP (law firm)
    
    2008
(2006)M. Paquin (2)(5)
Montreal, Quebec, Canada
    
    President and Chief Executive Officer, Logistec
Corporation (international cargo-handling
company)
    
    2008
(2001)M.E.J. Phelps, O.C. (3)(5)(6)
West Vancouver, B.C., Canada
    
    Chairman, Dornoch Capital Inc. (private
investment company)
    
    2008
(2001)R. Phillips, O.C.,S.O.M., F.Inst.P.
(2)(3)(6)
Regina, Saskatchewan, Canada
    
    Retired President and Chief Executive Officer,
IPSCO Inc. (steel manufacturing company)
    
    2008
(2001)H.T. Richardson, O.C. (2)(6)
Winnipeg, Manitoba, Canada
    
    President and Chief Executive Officer, James
Richardson & Sons, Limited (privately owned
corporation)
    
    2008
(2006)M.W. Wright (2)(3)(4)
Longboat Key, Florida, U.S.A.
    
    Retired Chairman of the Board and Chief
Executive Officer, SUPERVALU INC. (food
distributor and grocery retailer)
    
    2008
(2001)
  (1)
    
    T.W. Faithfull was President and Chief Executive Officer of Shell Canada Limited from April
1999 until July 2003. F.J. Green was President and Chief Operating Officer, Canadian Pacific
Railway Company and Canadian Pacific Railway Limited from November 2005 until May 2006,
Executive Vice-President and Chief Operating Officer, Canadian Pacific Railway Company and
Canadian Pacific Railway Limited from October 2004 until November 2005; Executive
Vice-President, Operations and Marketing, Canadian Pacific Railway Company from
January 2004 until October 2004 and Senior Vice-President, Marketing and Sales, Canadian Pacific
Railway Company from April 2002 until January 2004. K. T. Hoeg was President and Chief
Executive Officer of Corby Distilleries Limited from October 1996 to February
    23




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##### 



SECTION 8: DIRECTORS AND OFFICERS
 
 2007. The Hon.
J.P. Manley was the Member of Parliament for Ottawa South from November 1988 until June 2004 and
Chairman of the Ontario Power Generation Review Committee from December 2003 until March 2004.(2)
    
    Member of the Audit, Finance and Risk Management Committee.(3)
    
    Member of the Corporate Governance and Nominating Committee.(4)
    
    Member of the Health, Safety, Security and Environment Committee(5)
    
    Member of the Management Resources and Compensation Committee.(6)
    
    Member of the Pension Committee.
 8.2 Cease Trade Orders
    24




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##### 



SECTION 8: DIRECTORS AND OFFICERS
 
 8.3 Senior Officers
  Name and municipality of residence
    
    Position held
    
    Principal occupation within thepreceding five yearsJ.E. Cleghorn, O.C., F.C.A.
Toronto, Ontario, Canada
    
    Chairman
    
    Chairman, Canadian Pacific
Railway Limited and Canadian
Pacific Railway Company;
Chairman, SNC-Lavalin Group
Inc., (international
engineering and construction
firm)F.J. Green
Calgary, Alberta, Canada
    
    President and Chief
Executive Officer
    
    President and Chief Executive
Officer, Canadian Pacific
Railway Company and Canadian
Pacific Railway Limited;
President and Chief Operating
Officer, Canadian Pacific
Railway Company and Canadian
Pacific Railway Limited;
Executive Vice-President and
Chief Operating Officer,
Canadian Pacific Railway
Company and Canadian Pacific
Railway Limited; Executive
Vice-President, Operations and
Marketing, Canadian Pacific
Railway Company; Senior
Vice-President, Marketing,
Canadian Pacific Railway
Company; Vice-President,
Marketing, Canadian Pacific
Railway CompanyM.R. Lambert
Calgary, Alberta, Canada
    
    Executive Vice-
President and Chief
Financial Officer
    
    Executive Vice-President and
Chief Financial Officer,
Canadian Pacific Railway
Company and Canadian Pacific
Railway Limited; Executive
Vice-President, Canadian Tire
Corporation (retail goods);
Divisional President, Marks
Work Warehouse (retail goods)K. B. McQuade
Mesquite, Nevada, U.S.A.
    
    Executive Vice-
President and Chief
Operating Officer
    
    Executive Vice-President and
Chief Operating Officer,
Canadian Pacific Railway
Company and Canadian Pacific
Railway Limited; Executive
Vice-President and Chief
Information Officer, Norfolk
Southern RailroadM. M. Szel 
Calgary, Alberta, Canada
    
    Senior Vice-
President
    
    Senior Vice-President,
Canadian Pacific Railway
Limited and Senior
Vice-President, Marketing and
Sales, Canadian Pacific
Railway Company; Senior
Vice-President Bulk
Commodities and Government
Affairs, Canadian Pacific
Railway Company;
Vice-President, Marketing and
Sales  Bulk, Canadian
Pacific Railway Company;
Vice-President Strategy and
Law, Corporate Secretary,
Canadian Pacific Railway
Limited and Canadian Pacific
Railway CompanyB. M. Winter
Calgary, Alberta, Canada
    
    Senior Vice-
President
    
    Senior Vice-President,
Canadian Pacific Railway
Limited and Senior
Vice-President, Operations,
Canadian Pacific Railway
Company; Vice-President
Operations, Canadian Pacific
Railway Company;
Vice-President Transportation
and Field Operations, Canadian
Pacific Railway Company;
Vice-President, Customer
Service and Car Management,
Canadian Pacific Railway
Company; Vice-President
Customer Services Team,
Canadian Pacific Railway
Company
    25




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##### 



SECTION 8: DIRECTORS AND OFFICERS
 
 Name and municipality of residence
    
    Position held
    
    Principal occupation within thepreceding five yearsA. Borak 
Calgary, Alberta, Canada
    
    Vice-President
    
    Vice-President, Canadian
Pacific Railway Limited and
Vice- President Business
Information Technology
Services, Canadian Pacific
Railway Company;
Vice-President Information
Services, Canadian Pacific
Railway CompanyD. B. Campbell
Calgary, Alberta, Canada
    
    Vice-President
    
    Vice-President, Corporate
Planning, Canadian Pacific
Railway Company and
Vice-President Business
Planning and Development,
Canadian Pacific Railway
Company; Assistant
Vice-President, Business
Development, Canadian Pacific
Railway Company; Assistant
Vice-President, Operations
Planning, Canadian Pacific
Railway CompanyB. Grassby
Calgary, Alberta, Canada
    
    Vice-President and
Comptroller
    
    Vice-President and
Comptroller, Canadian Pacific
Railway Company and Canadian
Pacific Railway LimitedP.A. Guthrie, Q.C.
Municipal District of Rockyview,
Alberta, Canada
    
    Vice-President, Law
    
    Vice-President, Law, Canadian
Pacific Railway Company and
Canadian Pacific Railway
Limited; Assistant
Vice-President Legal Services
and General Counsel, Canadian
Pacific Railway Company; Chief
Regulatory Counsel, Canadian
Pacific Railway CompanyJ. R. Legg
Calgary, Alberta, Canada
    
    Vice-President
    
    Vice-President, Canadian
Pacific Railway Limited and
Vice-President, Strategic
Initiatives, Canadian Pacific
Railway Company;
Vice-President, Strategic
Sourcing Group, Canadian
Pacific Railway Company;
President, RBC Centura Banks
Inc., Royal Bank of Canada;
Senior Vice-President,
Operations & Service Delivery,
North America, Royal Bank of
Canada; Chairman of the Board,
X.S. Cargo Income TrustJ. A. OHagan 
Calgary, Alberta, Canada
    
    Vice-President
    
    Vice-President, Canadian
Pacific Railway Limited and
Vice-President, Strategy and
External Affairs, Canadian
Pacific Railway Company;
Vice-President, Strategy
Research and New Market
Development, Assistant
Vice-President, Strategy and
Research , Canadian Pacific
Railway CompanyT. A. Robinson 
Calgary, Alberta, Canada
    
    Vice-President and
Treasurer
    
    Vice-President and Treasurer,
Canadian Pacific Railway
Company and Canadian Pacific
Railway Limited; Assistant
Treasurer, Canadian Pacific
Railway Company and Canadian
Pacific Railway Limited;
Assistant Comptroller,
Canadian Pacific Railway
Company; Assistant
Vice-President, Customer
Service, Canadian Pacific
Railway Company; General
Manager Operations, Customer
Service, Canadian Pacific
Railway CompanyR. A. Shields 
Calgary, Alberta, Canada
    
    Vice-President
    
    Vice-President, Canadian
Pacific Railway Limited and
Vice-President, Human
Resources and Industrial
Relations, Canadian Pacific
Railway Company
    26




---



##### 



SECTION 8: DIRECTORS AND OFFICERS
 
 Name and municipality of residence
    
    Position held
    
    Principal occupation within thepreceding five yearsD. F. Barnhardt 
Calgary, Alberta, Canada
    
    Corporate Secretary
    
    Corporate Secretary, Canadian
Pacific Railway Company and
Canadian Pacific Railway
Limited; Lawyer/Commercial
Coordinator, Canadian Pacific
Railway CompanyK. Fleming
Calgary, Alberta, Canada
    
    Associate Corporate
Secretary
    
    Associate Corporate Secretary,
Canadian Pacific Railway
Limited and Canadian Pacific
Railway Company; Legal Counsel
& Employment Coordinator,
Canadian Pacific Railway
Company and Solicitor,
Canadian Pacific Railway
CompanyG.A. Feigel 
Calgary, Alberta, Canada
    
    Assistant Corporate
Secretary
    
    Assistant Corporate Secretary,
Canadian Pacific Railway
Company and Canadian Pacific
Railway Limited
 8.4 Shareholdings of Directors and Officers
  8.5 Announcements
    27




---



##### 



SECTION 9: LEGAL PROCEEDINGS
 
  9.1 Stoney Tribal Council v. Canada, EnCana and CP
  9.2 Derailment  Minot, North Dakota
    28




---



##### 



SECTION 10: TRANSFER AGENTS AND REGISTRARS
 
 10.1 Transfer Agent
    th
    29




---



##### 



SECTION 11: INTERESTS OF EXPERTS
    30




---



##### 



SECTION 12: AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE
 
 12.1 Composition of the Audit, Finance and Risk Management Committee and Relevant Education and
Experience
  Krystyna T. Hoeg
 John P. Manley
 Madeleine Paquin
 Roger Phillips (Chair)
 Hartley T. Richardson
 Michael W. Wright
    31




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##### 



SECTION 12: AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE
 
 12.2 Pre-Approval of Policies and Procedures
  12.3 Audit, Finance and Risk Management Committee Charter
  A. Committee and Procedures
 1.
    
    Purposes
  
    
    the review of the annual and interim financial statements of the Corporation;
    
    the integrity and quality of the Corporations financial reporting and systems
of internal control, and risk management;
    
    the Corporations compliance with legal and regulatory requirements;
    
    the qualifications, independence, engagement, compensation and performance of
the Corporations external auditors; and
    
    the performance of the Corporations internal audit function;
   2.
    
    Composition of Committee
  3.
    
    Appointment of Committee Members
    32




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##### 



SECTION 12: AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE
 
 4.
    
    Committee Chair
  5.
    
    Absence of Committee Chair
  6.
    
    Secretary of Committee
  7.
    
    Meetings
  8.
    
    Quorum
  9.
    
    Notice of Meetings
  10.
    
    Attendance of Others at Meetings
  11.
    
    Procedure, Records and Reporting
  12.
    
    Delegation
  13.
    
    Report to Shareholders
  14.
    
    Guidelines to Exercise of Responsibilities
  15.
    
    Use of Outside Legal, Accounting or Other Advisors; Appropriate Funding
    33




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##### 



SECTION 12: AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE
 
  (i)
    
    compensation of any outside advisers as contemplated by the immediately
preceding paragraph;(ii)
    
    compensation of any independent auditor engaged for the purpose of preparing or
issuing an audit report or performing other audit, review or attest services for the
Corporation; or(iii)
    
    ordinary administrative expenses that are necessary or appropriate in carrying
out the Committees duties.
  16.
    
    Remuneration of Committee Members
  B. Mandate
 17.
    
    The Committees role is one of oversight. Management is responsible for preparing the
interim and annual financial statements of the Corporation and for maintaining a system of
risk assessment and internal controls to provide reasonable assurance that assets are
safeguarded and that transactions are authorized, recorded and reported properly, for
maintaining disclosure controls and procedures to ensure that it is informed on a timely basis
of material developments and the Corporation complies with its public disclosure obligations,
and for ensuring compliance by the Corporation with legal and regulatory requirements. The
external auditors are responsible for auditing the Corporations financial statements. In
carrying out its oversight responsibilities, the Committee does not provide any professional
certification or special assurance as to the Corporations financial statements or the
external auditors work.The Committee shall:Audit MattersExternal Auditors Report on Annual Audit
 a)
    
    obtain and review annually prior to the completion of the external auditors annual
audit of the year-end financial statements a report from the external auditors describing:
 (i)
    
    all critical accounting policies and practices to be used;(ii)
    
    all alternative treatments of financial information within generally
accepted accounting principles that have been discussed with management, the
ramifications of the use of such alternative disclosures and treatments, and the
treatment preferred by the external auditors; and(iii)
    
    other material written communications between the external auditors and
management, such as any management letter or schedule of unadjusted differences;
 Managements and Internal Auditors Reports on External Audit Issues
 b)
    
    review any reports on the above or similar topics prepared by management or the
internal auditors and discuss with the external auditors any material issues raised in
such reports;
 Annual Financial Reporting Documents and External Auditors Report
 c)
    
    meet to review with management, the internal auditors and the external auditors the
Corporations annual financial statements, the report of the external auditors thereon,
the related Managements Discussion and Analysis, and the information derived from the
financial statements, as contained in the Annual Information Form and the Annual Report.
Such review will include obtaining assurance from the external auditors that the audit was
conducted in a manner consistent with applicable law and will include a review of:
 (i)
    
    all major issues regarding accounting principles and financial statement
presentations, including any significant changes in the Corporations selection or
application of accounting policies or principles;(ii)
    
    all significant financial reporting issues and judgments made in
connection with the preparation of the financial statements, including the effects
on the financial statements of alternative methods within generally accepted
accounting principles;
    
 34




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##### 



SECTION 12: AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE
 
 (iii)
    
    the effect of regulatory and accounting issues, as well as off-balance
sheet structures, on the financial statements;(iv)
    
    all major issues as to the adequacy of the Corporations internal
controls and any special steps adopted in light of material control deficiencies;
and(v)
    
    the external auditors judgment about the quality, and not just the
acceptability, of the accounting principles applied in the Corporations financial
reporting;
 d)
    
    following such review with management and the external auditors, recommend to the
Board of Directors whether to approve the audited annual financial statements of the
Corporation and the related Managements Discussion and Analysis, and report to the Board
on the review by the Committee of the information derived from the financial statements
contained in the Annual Information Form and Annual Report;
 Interim Financial Statements and MD&A
 e)
    
    review with management, the internal auditors and the external auditors the
Corporations interim financial statements and its interim Managements Discussion and
Analysis, and if thought fit, approve the interim financial statements and interim
Managements Discussion and Analysis and the public release thereof by management;
 Earnings Releases, Earnings Guidance
 f)
    
    review and discuss earnings press releases, including the use of pro forma or
adjusted information determined other than in accordance with generally accepted
accounting principles, and the disclosure by the Corporation of earnings guidance and
other financial information to the public including analysts and rating agencies, it being
understood that such discussions may, in the discretion of the Committee, be done
generally (i.e., by discussing the types of information to be disclosed and the type of
presentation to be made) and that the Committee need not discuss in advance each earnings
release or each instance in which the Corporation discloses earnings guidance or other
financial information; and be satisfied that adequate procedures are in place for the
review of such public disclosures and periodically assess the adequacy of those
procedures;
 Material Litigation, Tax Assessments, Etc.
 g)
    
    review with management, the external auditors and, if necessary, legal counsel all
legal and regulatory matters and litigation, claims or contingencies, including tax
assessments, that could have a material effect upon the financial position of the
Corporation, and the manner in which these matters may be, or have been, disclosed in the
financial statements; and obtain reports from management and review with the Corporations
chief legal officer, or appropriate delegates, the Corporations compliance with legal and
regulatory requirements;
 Oversight of External Auditors
 h)
    
    subject to applicable law relating to the appointment and removal of the external
auditors, be directly responsible for the appointment, retention, termination,
compensation and oversight of the external auditors; and be responsible for the resolution
of disagreements between management and the external auditors regarding financial
reporting;
 Rotation of External Auditors Audit Partners
 i)
    
    review and evaluate the lead audit partner of the external auditors and assure the
regular rotation of the lead audit partner and the audit partner responsible for reviewing
the audit and other audit partners, as required by applicable law; and consider whether
there should be a regular rotation of the external audit firm itself;
 External Auditors Internal Quality Control
 j)
    
    obtain and review, at least annually, and discuss with the external auditors a report
by the external auditors describing the external auditors internal quality-control
procedures, any material issues raised by the most recent internal quality-control review,
or peer review, of the external auditors, or by any inquiry or investigation by
governmental or professional authorities, within the preceding five years, respecting one
or more independent audits carried out by the external auditors, and any steps taken to
deal with any such issues;
 External Auditors Independence
 k)
    
    review and discuss at least annually with the external auditors all relationships
that the external auditors and their affiliates have with the Corporation and its
affiliates in order to assess the external auditors independence, including, without
limitation:
    35




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##### 



SECTION 12: AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE
 
 (i)
    
    obtaining and reviewing, at least annually, a formal written statement
from the external auditors delineating all relationships that in the external
auditors professional judgment may reasonably be thought to bear on the
independence of the external auditors with respect to the Corporation,(ii)
    
    discussing with the external auditors any disclosed relationships or
services that may affect the objectivity and independence of the external auditors,
and(iii)
    
    recommending that the Board take appropriate action in response to the
external auditors report to satisfy itself as to the external auditors
independence;
 Policies Regarding Hiring of External Auditors Employees and Former Employees
 l)
    
    set clear policies for the hiring by the Corporation of partners, employees and
former partners and employees of the external auditors;
 Pre-Approval of Audit and Non-Audit Services Provided by External Auditors
 m)
    
    be solely responsible for the pre-approval of all audit and non-audit services to be
provided to the Corporation and its subsidiary entities by the external auditors (subject
to any prohibitions provided in applicable law), and of the fees paid for these services;
provided however, that the Committee may delegate to an independent member or members of
the Committee authority to pre-approve such non-audit services, and such member(s) shall
report to the Committee at its next meeting following the granting any pre-approvals
granted pursuant to such delegated authority;n)
    
    review the external auditors annual audit plan (including scope, staffing, reliance
on internal controls and audit approach);o)
    
    review the external auditors engagement letter;
 Oversight of Internal Audit
 p)
    
    oversee the internal audit function by reviewing senior management action with
respect to the appointment or dismissal of the Chief Internal Auditor; afford the Chief
Internal Auditor unrestricted access to the Committee; review the charter, activities,
organizational structure, and the skills and experience of the Internal Audit Department;
discuss with management and the external auditors the competence, performance and
cooperation of the internal auditors; and discuss with management the compensation of the
internal auditors;q)
    
    review and consider, as appropriate, any significant reports and recommendations
issued by the Corporation or by any external party relating to internal audit issues,
together with managements response thereto;
 Internal Controls and Financial Reporting Processes
 r)
    
    review with management, the internal auditors and the external auditors, the
Corporations financial reporting processes and its internal controls;s)
    
    review with the internal auditors the adequacy of internal controls and procedures
related to any corporate transactions in which directors or officers of the Corporation
have a personal interest, including the expense accounts of officers of the Corporation at
the level of Vice-President and above and officers use of corporate assets, and consider
the results of any reviews thereof by the internal or external auditors;
 Complaints Processes
 t)
    
    establish procedures for:
 (i)
    
    the receipt, retention and treatment of complaints received by the
Corporation regarding accounting, internal accounting controls or auditing matters,
and(ii)
    
    the confidential, anonymous submission by employees of the Corporation of
concerns regarding questionable accounting or auditing matters,
  Separate Meetings with External Auditors, Internal Audit, Management
 u)
    
    meet separately with management, the external auditors and the internal auditors
periodically to discuss matters of mutual interest, including any audit problems or
difficulties and managements response thereto, the responsibilities, budget and staffing
of the Internal Audit Department and any matter they recommend bringing to the attention
of the full Board;
    36




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##### 



SECTION 12: AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE
 
 Finance
 v)
    
    review all major financings, including financial statement information contained in
related prospectuses, information circulars, etc., of the Corporation and its subsidiaries
and annually review the Corporations financing plans and strategies;w)
    
    review managements plans with respect to Treasury operations, including such items
as financial derivatives and hedging activities;
 Risk Management
 x)
    
    discuss risk assessment and risk management policies and processes to be implemented
for the Corporation, review with management and the Corporations internal auditors the
effectiveness and efficiency of such policies and processes and their compliance with
other relevant policies of the Corporation, and make recommendations to the Board with
respect to any outcomes, findings and issues arising in connection therewith;y)
    
    review managements program to obtain appropriate insurance to mitigate risks;
 Terms of Reference and Performance Evaluation of Committee
 z)
    
    review and reassess the adequacy of these Terms of Reference at least annually, and
otherwise as it deems appropriate, and recommend changes to the Board. The Committee
shall also undertake an annual evaluation of the Committees performance.
 Other
 aa)
    
    perform such other activities, consistent with these Terms of Reference, the
Corporations articles and by-laws and governing law, as the Committee or the Board deems
appropriate.bb)
    
    report regularly to the Board of Directors on the activities of the Committee.
 12.4 Audit and Non-Audit Fees and Services
  Year ended
    
    Year endedDecember 31, 2007
    
    December 31, 2006Audit Fees
    
    $
    2,391,600
    
    
    $
    2,118,000Audit-Related Fees
    
    $
    619,780
    
    
    $
    438,900Tax Fees
    
    $
    422,600
    
    
    $
    267,300All Other Fees
    
    $
    
    
    
    $
    TOTAL
    
    $
    3,433,980
    
    
    $
    2,824,200
  12.4.1 Audit Fees
  12.4.2 Audit-Related Fees
 the Sarbanes-Oxley Act
    37




---



##### 



SECTION 12: AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE
 
 12.4.3 Tax Fees
  12.4.4 All Other Fees
    38




---



##### 



SECTION 13: ADDITIONAL INFORMATION
 
 13.1 Additional Company Information
 www.sedar.com www.sec.gov
   www.cpr.ca.
 39




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##### 



Suite 500 Gulf Canada Square
401  9th Avenue SW
Calgary Alberta T2P 4Z4
CANADIAN PACIFIC 2007 Annual Information Form




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---



##### 



(PICTURE)(PHOTOS)
    OUR VISION IS TO BE THE SAFEST, MOST FLUID RAILWAY IN NORTH AMERICAAt Canadian Pacific, we are committed to the safety of our
employees and our communities and protecting the environment where
we operate. As part of our protocol, every employee is instructed to
first protect themselves and the safety of their colleagues, next
look to the safety of the community, and then ensure that the
environment is protected. Finally, when each of these criteria has
been met, we turn to continuing train operations. Canadian Pacific
operates through more than 900 communities and through some of the
most incredible landscapes in North America. It is our
responsibility to protect this legacy for future generations.FRED J. GREENPresident and Chief Executive Officer1  Financial Highlights
    
    9
    
    Managements
Discussion and
Analysis
    
    112
    
    Directors & Committees5  Chairmans Letter to Shareholders
    
    60
    
    Financial Statements
    
    ibc
    
    Senior Officers of the Company6  CEOs Letter to Shareholders
    
    110
    
    Shareholder Information




---



##### 



For the year ended December 31(in millions except percentages and per share data)
    
    2007
    
    
    2006Revenues
    
    $
    4,707.6
    
    
    $
    4,583.2Operating income
    
    
    1,164.2
    
    
    
    1,128.6Income, before FX on LTD and other specified items
(1)
    
    
    672.8
    
    
    
    627.5Net income
    
    
    946.2
    
    
    
    796.3Diluted earnings per share, before FX
on LTD and other specified items (1)
    
    
    4.32
    
    
    
    3.95Diluted earnings per share
    
    
    6.08
    
    
    
    5.02Dividends declared per share
    
    
    0.90
    
    
    
    0.75Free cash (1)
    
    
    303.4
    
    
    
    244.9Additions to properties
    
    
    893.2
    
    
    
    793.7Operating ratio, before other specified items (1)
    
    
    75.3
    %
    
    
    75.4
    %Return on capital employed (1)
    
    
    9.5
    %
    
    
    10.2
    %
 (1)
     
 
   2007ANNUALREPORT1




---



##### 



LINES OF BUSINESS
    
    (PHOTO)
  CPs diverse customer and traffic base and a continued
focus on our proven strategy of quality revenue
growth, consisting of a disciplined yield focus and
aggressive market development drove good results in
2007 despite some volatility in some of the markets.
Our destination markets have a healthy diversification
linked to global, cross-border and domestic markets.
Less than 40 % of CPs book of business is directly
linked to North American GDP. With key customer
investments in new capacity, a growing portfolio of
strategic accounts and strong global fundamentals and
markets, CP is in-motion and poised to continue its
strong performance.
    
    (MAP)
 BULK
 INTERMODAL
      
   2007ANNUALREPORT2




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##### 



MERCHANDISE
    2007ANNUALREPORT3




---



##### 



Weve delivered over the past
four years by focusing on
Execution Excellence. Its at
the core of our game plan that
builds on our fundamentals of
quality revenue growth, improved
productivity and our talented
and dedicated people. Its how
weve been successful in the
past and how we are creating
both near term performance
improvement and shareholder
value going forward.
  QUALITY REVENUE GROWTH
 PRODUCTIVITY
 PEOPLE
    (PICTURE)(PICTURE)2007ANNUALREPORT4




---



##### 



2007ANNUALREPORT5




---



##### 



2007ANNUALREPORT6




---



##### 



2007ANNUALREPORT7




---



##### 



1.0
    
    
    Business Profile
    
    
    92.0
    
    
    Strategy
    
    
    93.0
    
    
    Additional Information
    
    
    94.0
    
    
    Financial Highlights
    
    
    105.0
    
    
    Operating Results
    
    
    115.1
    
    
    Income
    
    
    115.2
    
    
    Diluted Earnings per Share
    
    
    125.3
    
    
    Operating Ratio
    
    
    125.4
    
    
    Return on Capital Employed
    
    
    125.5
    
    
    Impact of Foreign Exchange on Earnings
    
    
    126.0
    
    
    Non-GAAP Earnings
    
    
    147.0
    
    
    Lines of Business
    
    
    167.1
    
    
    Volumes
    
    
    167.2
    
    
    Revenues
    
    
    177.2.1
    
    
    Freight Revenues
    
    
    187.2.2
    
    
    Other Revenues
    
    
    207.2.3
    
    
    Freight Revenue per Carload
    
    
    208.0
    
    
    Performance Indicators
    
    
    218.1
    
    
    Safety Indicators
    
    
    218.2
    
    
    Efficiency and Other Indicators
    
    
    219.0
    
    
    Operating Expenses, Before Other Specified Items
    
    
    22
 10.0
    
    
    Other Specified Items
    
    
    2411.0
    
    
    Other Income Statement Items
    
    
    2512.0
    
    
    Quarterly Financial Data
    
    
    2713.0
    
    
    Fourth-quarter Summary
    
    
    2813.1
    
    
    Operating Results
    
    
    2813.2
    
    
    Non-GAAP Earnings
    
    
    2813.3
    
    
    Revenues
    
    
    2813.4
    
    
    Operating Expenses, Before Other Specified Items
    
    
    2913.5
    
    
    Other Income Statement Items
    
    
    3013.6
    
    
    Liquidity and Capital Resources
    
    
    3014.0
    
    
    Changes in Accounting Policy
    
    
    3014.1
    
    
    2007 Accounting Changes
    
    
    3014.2
    
    
    Future Accounting Changes
    
    
    3115.0
    
    
    Liquidity and Capital Resources
    
    
    3115.1
    
    
    Operating Activities
    
    
    3215.2
    
    
    Investing Activities
    
    
    3215.3
    
    
    Financing Activities
    
    
    3215.4
    
    
    Free Cash
    
    
    3316.0
    
    
    Balance Sheet
    
    
    3417.0
    
    
    Financial Instruments
    
    
    36
 18.0
    
    
    Off-balance Sheet Arrangements
    
    
    3919.0
    
    
    Acquisition
    
    
    4020.0
    
    
    Contractual Commitments
    
    
    4121.0
    
    
    Future Trends and Commitments
    
    
    4122.0
    
    
    Business Risks and Enterprise Risk Management
    
    
    4422.1
    
    
    Competition
    
    
    4422.2
    
    
    Liquidity
    
    
    4522.3
    
    
    Environmental Laws and Regulations
    
    
    4522.4
    
    
    Regulatory Authorities
    
    
    4522.5
    
    
    Labour Relations
    
    
    4622.6
    
    
    Network Capacity and Volume
    
    
    4722.7
    
    
    Financial Risks
    
    
    4722.8
    
    
    General and Other Risks
    
    
    4823.0
    
    
    Critical Accounting Estimates
    
    
    4824.0
    
    
    Systems, Procedures and Controls
    
    
    5125.0
    
    
    Forward-looking Information
    
    
    5126.0
    
    
    Glossary of Terms
    
    
    55
    2007ANNUALREPORT8




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##### 



1.0 Business Profile
  2.0 Strategy
 □
    
    generating quality revenue growth by realizing the benefits of demand growth in our bulk,
intermodal and merchandise business lines with targeted infrastructure capacity investments
linked to global trade opportunities;
 □
    
    improving productivity by leveraging strategic marketing and operating partnerships,
executing a scheduled railway through our Integrated Operating Plan (IOP) and driving more
value from existing assets and resources by improving fluidity; and
 □
    
    continuing to develop a dedicated, professional and knowledgeable workforce that is
committed to safety and sustainable financial performance through steady improvement in
profitability, increased free cash flow and a competitive return on investment.
 3.0 Additional Information
    2007ANNUALREPORT9




---



##### 



4.0 Financial Highlights
 For the year ended December 31 (in millions, except percentages and per-share data)
    
    2007
    
    
    2006
    
    
    2005Revenues
    
    $
    4,707.6
    
    
    $
    4,583.2
    
    
    $
    4,391.6Operating income, before other specified items (1)
    
    
    1,164.2
    
    
    
    1,128.6
    
    
    
    1,001.5Operating income
    
    
    1,164.2
    
    
    
    1,128.6
    
    
    
    991.2Income, before FX on LTD and other specified items (1)
    
    
    672.8
    
    
    
    627.5
    
    
    
    528.4Net income
    
    
    946.2
    
    
    
    796.3
    
    
    
    543.0Basic earnings per share
    
    
    6.14
    
    
    
    5.06
    
    
    
    3.43Diluted earnings per share, before FX on LTD and other specified items (1)
    
    
    4.32
    
    
    
    3.95
    
    
    
    3.30Diluted earnings per share
    
    
    6.08
    
    
    
    5.02
    
    
    
    3.39Dividends declared per share
    
    
    0.9000
    
    
    
    0.7500
    
    
    
    0.5825Free cash (1)
    
    
    303.4
    
    
    
    244.9
    
    
    
    92.0Total assets as at December 31
    
    
    13,365.0
    
    
    
    11,415.9
    
    
    
    10,891.1Total long-term financial liabilities as at December 31
    
    
    6,562.3
    
    
    
    5,320.4
    
    
    
    5,390.3Operating ratio, before other specified items (1)
    
    
    75.3
    %
    
    
    75.4
    %
    
    
    77.2
    %Return on capital employed (1)
    
    
    9.5
    %
    
    
    10.2
    %
    
    
    9.4
    %
 Diluted EPS, before FX on LTD
    
    Operating Ratio, before
    
    Return on Capital
    
    Free Cash(1)and other specified items($) (1)
    
    other specified items(%) (1)
    
    Employed(%) (1)
    
    (in millions of dollars)(PIE CHART)
    
    (PIE CHART)
    
    (PIE CHART)
    
    (PIE CHART)
 (1)
    2007ANNUALREPORT10




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##### 



5.0 Operating Results
 5.1 INCOME
   □
    
    record shipments reflecting continued strong growth in bulk and intermodal products;□
    
    import and export growth in intermodal shipments;□
    
    higher revenues resulting from increased freight rates; and□
    
    lower compensation and benefits expenses.
  □
    
    higher fuel prices driven by higher refining charges and West Texas Intermediate (WTI)
prices, net of fuel recoveries;□
    
    higher costs reflecting record volumes in 2007;□
    
    the negative impact of the change in FX of approximately $34 million; and□
    
    higher costs associated with network disruptions, mainly driven by harsh weather
conditions.
 □
    
    FX gains on US dollar-denominated long-term debt (LTD), reflecting a strengthening in the
Canadian dollar;□
    
    higher operating income; and□
    
    the recognition of equity earnings, starting in October 2007, following our acquisition of
the Dakota, Minnesota & Eastern Railroad Corporation (DM&E discussed further in Section
19.0), which reduced Other income and charges.
    □
    
    higher revenues due to increased freight rates across the majority of our business lines;□
    
    strong grain volumes;□
    
    expense reductions from co-production initiatives and operational benefits produced by our
IOP (discussed further in Section 21.3);
 □
    
    reductions in management and administrative positions; and□
    
    the $18 million gain from the sale of our Latta subdivision (discussed further in Section
21.5).
  □
    
    a significant reduction in coal volumes (discussed further in Section 7.2.1.2);□
    
    higher fuel costs;□
    
    higher material costs for freight car and locomotive repairs and train servicing; and□
    
    the net impact of the change in FX on US dollar-denominated revenues and expenses.
    2007ANNUALREPORT11




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##### 



5.2 DILUTED EARNINGS PER SHARE
   5.3 OPERATING RATIO
 5.4 RETURN ON CAPITAL EMPLOYED
  5.5 IMPACT OF FOREIGN  EXCHANGE ON EARNINGS
    2007ANNUALREPORT12




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##### 



EFFECT ON EARNINGS DUE TO THE CHANGE IN FOREIGN EXCHANGE
 For the year ended December 31 (in millions, except foreign exchange rate)
    
    2007 vs. 2006
    
    
    2006 vs. 2005Average annual foreign exchange rates
    
    $1.08 vs. $1.13
    
    $1.13 vs. $1.21Freight revenuesGrain
    
    
    $    (24
    )
    
    
    $    (24
    )Coal
    
    
    (5
    )
    
    
    (7
    )Sulphur and fertilizers
    
    
    (9
    )
    
    
    (10
    )Forest products
    
    
    (10
    )
    
    
    (16
    )Industrial and consumer products
    
    
    (20
    )
    
    
    (25
    )Automotive
    
    
    (8
    )
    
    
    (12
    )Intermodal
    
    
    (13
    )
    
    
    (19
    )Other revenues
    
    
    (2
    )
    
    
    (1
    )Unfavourable effect
    
    
    (91
    )
    
    
    (114
    )Operating expensesCompensation and benefits
    
    
    13
    
    
    
    22Fuel
    
    
    23
    
    
    
    30Materials
    
    
    2
    
    
    
    3Equipment rents
    
    
    7
    
    
    
    12Depreciation and amortization
    
    
    3
    
    
    
    4Purchased services and other
    
    
    9
    
    
    
    15Favourable effect
    
    
    57
    
    
    
    86Unfavourable effect on operating income
    
    
    (34
    )
    
    
    (28
    )Other expensesOther income and charges
    
    
    
    
    
    
    Interest expense
    
    
    7
    
    
    
    11Income tax expense, before FX on LTD and other specified items (1)
    
    
    7
    
    
    
    7Unfavourable effect on income, before FX on LTD and other specified items (1)
    
    
    $    (20
    )
    
    
    $    (10
    )
 (1)
    2007ANNUALREPORT13




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##### 



6.0 Non-GAAP Earnings
    2007ANNUALREPORT14




---



##### 



SUMMARIZED STATEMENT OF CONSOLIDATED INCOME
 For the year ended
    
    
    For the three months ended(reconciliation of non-GAAP earnings to GAAP earnings)
    
    December 31
    
    
    December 31(in millions, except diluted EPS and operating ratio)
    
    2007
    
    
    2006
    
    
    2005
    
    
    2007
    
    
    2006Revenues
    
     $
    4,707.6
    
    
    $
    4,583.2
    
    
    $
    4,391.6
    
    
     $
    1,188.3
    
    
    $
    1,190.4Operating expenses, before other specified items
    
    
    3,543.4
    
    
    
    3,454.6
    
    
    
    3,390.1
    
    
    
    882.8
    
    
    
    870.3Operating income, before other specified items
    
    
    1,164.2
    
    
    
    1,128.6
    
    
    
    1,001.5
    
    
    
    305.5
    
    
    
    320.1Other income and charges
    
    
    17.3
    
    
    
    27.8
    
    
    
    18.1
    
    
    
    (3.8
    )
    
    
    6.4Interest expense
    
    
    204.3
    
    
    
    194.5
    
    
    
    204.2
    
    
    
    63.4
    
    
    
    49.8Income tax expense, before income tax on FX on LTD and other
specified items (1)
    
    
    269.8
    
    
    
    278.8
    
    
    
    250.8
    
    
    
    60.8
    
    
    
    82.9Income, before FX on LTD and other specified
items(1)
    
    
    672.8
    
    
    
    627.5
    
    
    
    528.4
    
    
    
    185.1
    
    
    
    181.0Foreign exchange (gains) losses on long-term debtFX on LTD  (gains) losses
    
    
    (169.8
    )
    
    
    0.1
    
    
    
    (44.7
    )
    
    
    (8.3
    )
    
    
    44.9Income tax expense on FX on LTD
    
    
    44.3
    
    
    
    7.1
    
    
    
    22.4
    
    
    
    (3.1
    )
    
    
    (9.5
    )FX on LTD, net of tax  (gains) losses
    
    
    (125.5
    )
    
    
    7.2
    
    
    
    (22.3
    )
    
    
    (11.4
    )
    
    
    35.4Other specified itemsChange in estimated fair value of ABCP
    
    
    21.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income tax on change in estimated fair value of ABCP
    
    
    (6.5
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Change in estimated fair value of ABCP, net of tax
    
    
    15.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income tax benefits due to tax rate reductions
    
    
    (162.9
    )
    
    
    (176.0
    )
    
    
    
    
    
    
    (145.8
    )
    
    
    Special charge for labour restructuring and asset impairment
    
    
    
    
    
    
    
    
    
    
    44.2
    
    
    
    
    
    
    
    Special credit related to environmental remediation
    
    
    
    
    
    
    
    
    
    
    (33.9
    )
    
    
    
    
    
    
    Income tax on other specified items
    
    
    
    
    
    
    
    
    
    
    (2.6
    )
    
    
    
    
    
    
    Other specified items, net of tax
    
    
    (147.9
    )
    
    
    (176.0
    )
    
    
    7.7
    
    
    
    (145.8
    )
    
    
    Net income
    
     $
    946.2
    
    
    $
    796.3
    
    
    $
    543.0
    
    
     $
    342.3
    
    
    $
    145.6Diluted EPS, before FX on LTD and other specified items
(1)
    
     $
    4.32
    
    
    $
    3.95
    
    
    $
    3.30
    
    
     $
    1.20
    
    
    $
    1.15Diluted EPS, related to FX on LTD, net of tax (1)
    
    
    0.81
    
    
    
    (0.04
    )
    
    
    0.14
    
    
    
    0.07
    
    
    
    (0.23
    )Diluted EPS, related to other specified items, net of tax
(1)
    
    
    0.95
    
    
    
    1.11
    
    
    
    (0.05
    )
    
    
    0.94
    
    
    
    Diluted EPS, as determined by GAAP
    
     $
    6.08
    
    
    $
    5.02
    
    
    $
    3.39
    
    
     $
    2.21
    
    
    $
    0.92Operating ratio, before other specified items (1)
    
    
    75.3
    %
    
    
    75.4
    %
    
    
    77.2
    %
    
    
    74.3
    %
    
    
    73.1
    %Operating ratio, related to other specified items (1)
    
    
    0.3
    %
    
    
    
    
    
    
    0.2
    %
    
    
    
    
    
    
    Operating ratio
    
    
    75.6
    %
    
    
    75.4
    %
    
    
    77.4
    %
    
    
    74.3
    %
    
    
    73.1
    %
 (1)
    2007ANNUALREPORT15




---



##### 



6.1 FOREIGN EXCHANGE GAINS AND LOSSES ON LONG-TERM DEBT
   □
    
    FX gains on LTD of $169.8 million in 2007, as the Canadian dollar exchange rate
strengthened to $0.9913 relative to the US dollar;□
    
    FX losses on LTD of $0.1 million in 2006, as the Canadian dollar exchange rate weakened to
$1.1654 relative to the US dollar; and
 □
    
    FX gains on LTD of $44.7 million in 2005, as the Canadian dollar exchange rate strengthened
to $1.1630 relative to the US dollar.
  7.0 Lines of Business
 7.1 VOLUMES
    □
    
    strong Intermodal growth due to strength in global markets and continued offshore sourcing
trends;□
    
    strong global demand for bulk products; and□
    
    increase in average length of haul.
    2007ANNUALREPORT16




---



##### 



VOLUMES
 For the year ended December 31
    
    2007
    
    
    2006
    
    
    2005Carloads (in thousands)Grain
    
    
    385.0
    
    
    
    382.8
    
    
    
    338.7Coal
    
    
    269.1
    
    
    
    281.7
    
    
    
    352.3Sulphur and fertilizers
    
    
    209.8
    
    
    
    178.3
    
    
    
    201.8Forest products
    
    
    114.1
    
    
    
    135.0
    
    
    
    153.7Industrial and consumer products
    
    
    313.3
    
    
    
    316.0
    
    
    
    322.2Automotive
    
    
    168.5
    
    
    
    165.3
    
    
    
    168.1Intermodal
    
    
    1,238.1
    
    
    
    1,159.0
    
    
    
    1,139.4Total carloads
    
    
    2,697.9
    
    
    
    2,618.1
    
    
    
    2,676.2Revenue ton-miles (in millions)Grain
    
    
    30,690
    
    
    
    30,127
    
    
    
    26,081Coal
    
    
    20,629
    
    
    
    19,650
    
    
    
    23,833Sulphur and fertilizers
    
    
    21,259
    
    
    
    17,401
    
    
    
    20,080Forest products
    
    
    7,559
    
    
    
    8,841
    
    
    
    9,953Industrial and consumer products
    
    
    16,987
    
    
    
    16,844
    
    
    
    15,936Automotive
    
    
    2,471
    
    
    
    2,450
    
    
    
    2,361Intermodal
    
    
    29,757
    
    
    
    27,561
    
    
    
    27,059Total revenue ton-miles
    
    
    129,352
    
    
    
    122,874
    
    
    
    125,303
 7.2 REVENUES
   For the year ended December 31 (in millions)
    
    2007
    
    
    2006
    
    
    2005Grain
    
    $
    938.9
    
    
    $
    904.6
    
    
    $
    754.5Coal
    
    
    573.6
    
    
    
    592.0
    
    
    
    728.8Sulphur and fertilizers
    
    
    502.0
    
    
    
    439.3
    
    
    
    447.1Forest products
    
    
    275.8
    
    
    
    316.4
    
    
    
    333.9Industrial and consumer products
    
    
    627.9
    
    
    
    603.8
    
    
    
    542.9Automotive
    
    
    319.0
    
    
    
    314.4
    
    
    
    298.0Intermodal
    
    
    1,318.0
    
    
    
    1,256.8
    
    
    
    1,161.1Total freight revenues
    
    
    4,555.2
    
    
    
    4,427.3
    
    
    
    4,266.3Other revenues
    
    
    152.4
    
    
    
    155.9
    
    
    
    125.3Total revenues
    
    $
    4,707.6
    
    
    $
    4,583.2
    
    
    $
    4,391.6
    2007ANNUALREPORT17




---



##### 



7.2.1 Freight Revenues
   □
    
    a decrease in coal freight rates;□
    
    continued weakness in Forest products, mainly lumber and panel, and certain Industrial and
consumer products; and□
    
    the negative impact of the change in FX of approximately $89 million.
  □
    
    higher freight rates, including fuel recoveries;□
    
    strong growth in grain shipments; and□
    
    strong growth in the Alberta economy.
  7.2.1.1 Grain
 □
    
    a large carryover from the first half of the 2006/07 crop year benefiting the first two
quarters of 2007;□
    
    a strong export program as a result of strong commodity prices and demand for North
American grain; and□
    
    higher freight rates.
   □
    
    a strong Canadian grain crop reflecting improved quality;□
    
    a large carryover from the 2005/06 crop year;□
    
    increased shipments of western Canadian grain to the US as a result of a trade tariff being
lifted; and□
    
    higher freight rates.
  7.2.1.2 Coal
 □
    
    decreased freight rates;□
    
    decrease in carloads due to the sale of the Latta subdivision in the first half of 2006;
and□
    
    the negative impact of the change in FX of approximately $5 million.
   7.2.1.3 Sulphur and Fertilizers
    2007ANNUALREPORT18




---



##### 



7.2.1.4 Forest Products
   □
    
    continued soft demand for lumber and panel products caused by a significant slowdown in the
US housing market and continued impact from the sub-prime mortgage crisis;□
    
    difficult market conditions for our Forest product customers due to the softwood lumber
agreement with the US which led to reduced volumes and extended plant shut downs;□
    
    the impact of the strengthening of the Canadian dollar, which has led to decreased market
competitiveness for Canadian producers; and□
    
    the negative impact of the change in FX of approximately $10 million.
 □
    
    reduced volumes from a softening demand for lumber and panel caused by a decrease in US
housing starts;□
    
    difficult market conditions for our Forest product customers caused by a strong Canadian
dollar and softwood lumber agreement with the US which led to reduced volumes and extended
plant shut downs; and□
    
    the negative impact of the change in FX of approximately $16 million.
  7.2.1.5 Industrial and Consumer Products
 □
    
    strong demand for steel, energy products and aggregates, largely driven by Alberta oil and
gas activity and a strong Alberta economy;□
    
    strong worldwide demand for base metals; and□
    
    increased freight rates.
  7.2.1.6 Automotive
    2007ANNUALREPORT19




---



##### 



7.2.1.7 Intermodal
 7.2.2 Other Revenues
 7.2.3 Freight Revenue per Carload
      FREIGHT REVENUE PER CARLOAD
 For the year ended December 31 ($)
    
    2007
    
    
    2006
    
    
    2005Freight revenue per carload
    
    
    1,688
    
    
    
    1,691
    
    
    
    1,594Grain
    
    
    2,439
    
    
    
    2,363
    
    
    
    2,228Coal
    
    
    2,132
    
    
    
    2,102
    
    
    
    2,069Sulphur and fertilizers
    
    
    2,393
    
    
    
    2,464
    
    
    
    2,216Forest products
    
    
    2,417
    
    
    
    2,344
    
    
    
    2,172Industrial and consumer products
    
    
    2,004
    
    
    
    1,911
    
    
    
    1,685Automotive
    
    
    1,893
    
    
    
    1,902
    
    
    
    1,773Intermodal
    
    
    1,065
    
    
    
    1,084
    
    
    
    1,019
    2007ANNUALREPORT20




---



##### 



8.0 Performance Indicators
  PERFORMANCE INDICATORS
 For the year ended December 31
    
    2007
    
    
    2006
    
    
    2005Safety indicatorsFRA personal injuries per 200,000 employee-hours
    
    
    2.1
    
    
    
    2.0
    
    
    
    2.4FRA train accidents per million train-miles
    
    
    2.0
    
    
    
    1.6
    
    
    
    2.3Efficiency and other indicatorsGross ton-miles (GTM) of freight (millions)
    
    
    246,322
    
    
    
    236,405
    
    
    
    242,100Car miles per car day
    
    
    142.3
    
    
    
    137.3
    
    
    
    124.0US gallons of locomotive fuel consumed per 1,000 GTMs  freight and yard
    
    
    1.21
    
    
    
    1.20
    
    
    
    1.18Terminal dwell (hours)
    
    
    22.2
    
    
    
    20.8
    
    
    
    25.8Average train speed (miles per hour)
    
    
    23.2
    
    
    
    24.8
    
    
    
    22.0Number of active employees  end of period
    
    
    15,382
    
    
    
    15,327
    
    
    
    16,295Freight revenue per RTM (cents)
    
    
    3.52
    
    
    
    3.60
    
    
    
    3.40
 (1)
    Certain comparative period figures have been updated to reflect new information.
  8.1 SAFETY INDICATORS
    8.2
EFFICIENCY AND OTHER INDICATORS
  □
    
    difficult weather-related operating
conditions, primarily in the first quarter
of 2007 and December 2007;
 □
    
    a change in traffic mix largely driven
by an increase in intermodal trains; and□
    
    the impact of having to compress
required track maintenance programs
into a shorter work season due to the
26-day strike by CPs maintenance of
way employees in Canada during the
second quarter of 2007 (CP strike).
    2007ANNUALREPORT21




---



##### 



□
    
    an increase in the number of bulk trains,
which operate at slower speeds and
experienced more queuing for unloading
in 2007;□
    
    network disruptions, which were primarily related to weather events;□
    
    temporary power and crew shortages; and□
    
    concentrated track maintenance programs
following the end of the CP strike.
 
 
   9.0 Operating Expenses, Before Other Specified Items
 OPERATING EXPENSES, BEFORE OTHER SPECIFIED ITEMS
 For the year ended December 31
    
    2007
    
    
    2006
    
    
    2005(in millions)
    
    Expense(1)
    
    
    % of revenue
    
    
    Expense(1)
    
    
    % of revenue
    
    
    Expense(1)
    
    
    % of revenueCompensation and benefits
    
    $
    1,284.2
    
    
    
    27.3
    
    
    $
    1,327.6
    
    
    
    29.0
    
    
    $
    1,322.1
    
    
    
    30.1Fuel
    
    
    746.8
    
    
    
    15.9
    
    
    
    650.5
    
    
    
    14.2
    
    
    
    588.0
    
    
    
    13.4Materials
    
    
    215.5
    
    
    
    4.6
    
    
    
    212.9
    
    
    
    4.6
    
    
    
    203.3
    
    
    
    4.6Equipment rents
    
    
    207.5
    
    
    
    4.4
    
    
    
    181.2
    
    
    
    4.0
    
    
    
    210.0
    
    
    
    4.8Depreciation and amortization
    
    
    472.0
    
    
    
    10.0
    
    
    
    464.1
    
    
    
    10.1
    
    
    
    445.1
    
    
    
    10.1Purchased services and other
    
    
    617.4
    
    
    
    13.1
    
    
    
    618.3
    
    
    
    13.5
    
    
    
    621.6
    
    
    
    14.2Total
    
    $
    3,543.4
    
    
    
    75.3
    
    
    $
    3,454.6
    
    
    
    75.4
    
    
    $
    3,390.1
    
    
    
    77.2
 (1)
  
 □
    
    higher fuel prices
driven by higher
refining charges and
WTI prices;
 □
    
    record volumes as measured
by GTMs and RTMs in
2007, including change in
traffic mix largely driven
by an increase in
intermodal trains;
 □
    
    increased equipment rent expense; and□
    
    higher costs associated
with network
disruptions,mainly driven
by harsh weather
conditions.
    2007ANNUALREPORT22




---



##### 



□
    
    higher fuel costs;□
    
    the increased price of materials used for freight car repairs, primarily related to the
replacement of wheel sets, and train servicing; and□
    
    increased depreciation and amortization expense.
  9.1 COMPENSATION AND BENEFITS
   □
    
    lower incentive and stock-based compensation;□
    
    lower pension expenses;□
    
    the positive impact of the change in FX of approximately $13 million; and□
    
    a settlement gain in the third quarter of 2007 on the release of certain post-retirement
benefit liabilities due to the assumption of these obligations by a US national multi-employer
benefit plan.
 □
    
    reduced costs as a result of restructuring initiatives (discussed further in Section
21.10);□
    
    savings realized from efficiencies gained through our IOP (discussed further in Section
21.3) as well as other productivity improvements;□
    
    reduced costs as a result of lower freight volumes; and□
    
    the positive impact of the change in FX of approximately $22 million.
 9.2 FUEL
   □
    
    higher refining margins and WTI prices;□
    
    increased consumption driven by increased volumes;□
    
    a lower hedge position in 2007; and□
    
    a higher rate of fuel consumption, driven by harsh weather conditions and change in traffic
mix largely driven by an increase in intermodal trains.
 □
    
    the favourable settlement of prior period recoveries including a fuel excise tax refund;□
    
    reduced workload; and□
    
    the positive impact of the change in FX of approximately $30 million.
 9.3 MATERIALS
    9.4 EQUIPMENT RENTS
    2007ANNUALREPORT23




---



##### 



□
    
    reductions in receipts for the use of our railcars from other railways and customers;□
    
    higher equipment rental payments to other railways as a result of network disruptions,
mainly driven by harsh weather conditions; and□
    
    higher locomotive leasing costs, primarily driven by increased volume.
   9.5 DEPRECIATION AND AMORTIZATION
  9.6 PURCHASED SERVICES AND OTHER
 10.0 Other Specified Items
   □
    
    In the fourth quarter of 2007, the Government of Canada substantially enacted legislation
to reduce corporate income tax rates starting in 2008. We recorded a future income tax benefit
of $145.8 million to reflect the positive impact of these tax rate reductions on our future
income tax balance as at December 31, 2006.□
    
    In the third quarter of 2007, we recorded a charge of $21.5 million ($15.0 million after
tax) to reflect the change in the
 estimated fair value of ABCP (discussed further in Section
11.2).□
    
    In the second quarter of 2007, the Government of Canada substantially enacted legislation
to reduce corporate income tax rates starting in 2011. We recorded a future income tax benefit
of $17.1 million to reflect the positive impact of these tax rate reductions on our future
income tax balance as at December 31, 2006.
  □
    
    In the second quarter of 2006, the Government of Canada and the governments of the
provinces of Alberta, Saskatchewan and Manitoba introduced legislation to reduce corporate
income tax rates over a period of several years. We recorded a future income tax benefit of
$176.0 million to reflect the positive impact of these tax rate reductions on our future
income tax balance as at December 31, 2005.
  □
    
    A new restructuring initiative to reduce management and administrative costs, which
resulted in a special charge of $44.2 million ($28.3 million after tax) in the fourth quarter
of 2005. The restructuring was intended to eliminate more than 400 positions (discussed
further in Section 21.10).□
    
    As a result of a settlement reached in the third quarter of 2005, we recognized a reduction
of $33.9 million ($20.6 million after tax) to a special charge initially taken in the fourth
quarter of 2004 (discussed further in Section 21.7). As part of the settlement we received
$3.6 million in cash and were able to reduce an environmental remediation liability related to
one of our properties by $30.3 million.
    2007ANNUALREPORT24




---



##### 



11.0 Other Income Statement Items
 11.1 OTHER INCOME AND CHARGES
    11.2 CHANGE IN FAIR VALUE OF CANADIAN THIRD PARTY ASSET-BACKED COMMERCIAL PAPER
 □
    
    $12.5 million is represented by traditional securitized assets and the Company will, on
restructuring, receive replacement long-term floating rate notes that are expected to receive
a AAA credit rating;
 □
    
    $119.0 million is represented by a combination of leveraged collaterized debt, synthetic
assets and traditional securitized assets and the Company will, on restructuring, receive
replacement senior and subordinated long-term floating rate notes. The senior notes are
expected to obtain a AAA rating while the subordinated notes are likely to be unrated; and□
    
    $12.1 million is represented by assets that have an exposure to US sub-prime mortgages. On
restructuring, the Company is likely to receive long-term floating rate notes that may be
rated, although at this time the pan-Canadian restructuring committee has provided no
indication of the likely rating these notes may receive.
    2007ANNUALREPORT25




---



##### 



Probability weighted average interest rate
    
    
    4.6 %Weighted average discount rate
    
    
    5.3 %Maturity of long-term floating rate notes
    
    five to seven yearsCredit losses
    
    nil to 25 % on a going concern
basis, 5 % to 50 % on a
liquidation basis
  
 11.3 INTEREST EXPENSE
    11.4 INCOME TAXES
    2007ANNUALREPORT26




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##### 



12.0 Quarterly Financial Data
 For the quarter ended(in millions, except per share data)
    
    2007
    
    
    2006Dec. 31
    
    
    Sep. 30
    
    
    Jun. 30
    
    
    Mar. 31
    
    
    Dec. 31
    
    
    Sept. 30
    
    
    Jun. 30
    
    
    Mar. 31Total revenue
    
    $
    1,188.3
    
    
    $
    1,187.9
    
    
    $
    1,215.5
    
    
    $
    1,115.9
    
    
    $
    1,190.4
    
    
    $
    1,151.3
    
    
    $
    1,131.0
    
    
    $
    1,110.5Operating income
    
    
    305.5
    
    
    
    321.7
    
    
    
    307.7
    
    
    
    229.3
    
    
    
    320.1
    
    
    
    299.1
    
    
    
    282.6
    
    
    
    226.8Net income
    
    
    342.3
    
    
    
    218.6
    
    
    
    256.7
    
    
    
    128.6
    
    
    
    145.6
    
    
    
    163.8
    
    
    
    378.1
    
    
    
    108.8Operating income, before
other specified items (1)
    
    
    305.5
    
    
    
    321.7
    
    
    
    307.7
    
    
    
    229.3
    
    
    
    320.1
    
    
    
    299.1
    
    
    
    282.6
    
    
    
    226.8Income, before FX
on LTD and other
specified items (1)
    
    
    185.1
    
    
    
    190.3
    
    
    
    174.8
    
    
    
    122.6
    
    
    
    181.0
    
    
    
    169.7
    
    
    
    160.7
    
    
    
    116.1Basic earnings per share
    
    $
    2.23
    
    
    $
    1.43
    
    
    $
    1.66
    
    
    $
    0.83
    
    
    $
    0.93
    
    
    $
    1.05
    
    
    $
    2.39
    
    
    $
    0.69Diluted earnings per share
    
    
    2.21
    
    
    
    1.41
    
    
    
    1.64
    
    
    
    0.82
    
    
    
    0.92
    
    
    
    1.04
    
    
    
    2.37
    
    
    
    0.68Diluted earnings per share,
before FX on LTD and
other specified items (1)
    
    
    1.20
    
    
    
    1.23
    
    
    
    1.12
    
    
    
    0.78
    
    
    
    1.15
    
    
    
    1.07
    
    
    
    1.00
    
    
    
    0.72
 (1)
    2007ANNUALREPORT27




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##### 



12.1 QUARTERLY TRENDS
  13.0 Fourth-quarter Summary
 13.1 OPERATING RESULTS
    □
    
    an increase in fuel costs driven by higher WTI prices, net of fuel recoveries;
 □
    
    the negative impact of the change in FX of approximately $23 million;□
    
    harsh weather conditions that affected the entire supply chain in December 2007; and□
    
    higher purchased services and other costs (discussed further in Section 13.4.6).
    □
    
    a future income tax benefit of $145.8 million recorded in the fourth quarter of 2007 as a
result of Canadian rate reductions applied to opening future income tax balances (discussed
further in Section 10.0);□
    
    an increase in FX gains on LTD as a result of a strengthening of the Canadian dollar;□
    
    lower income tax expense; and□
    
    the recognition of equity earnings, starting in October 2007, following our acquisition of
DM&E (discussed further in Section 19.0), which reduced Other income and charges.
   13.2 NON-GAAP EARNINGS
 13.3 REVENUES
  13.3.1 Grain
  □
    
    the negative impact of the change in FX of approximately $17 million;□
    
    weaker Canadian wheat and durum shipments to Thunder Bay and Montreal; and□
    
    harsh weather conditions that affected the entire supply chain in December 2007.
  13.3.2 Coal
  □
    
    the negative impact of the change in FX of approximately $3 million;□
    
    harsh weather conditions that affected the entire supply chain in December 2007, which
pushed some volumes into 2008; and□
    
    a decrease in freight rates.
    2007ANNUALREPORT28




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##### 



13.3.3 Sulphur and Fertilizers
  13.3.4 Forest Products
   □
    
    continued soft demand for lumber and panel products caused by a significant slowdown in the
US housing market and continued impact from the sub-prime mortgage crisis;□
    
    difficult market conditions for our Forest product customers caused by a strong Canadian
dollar and softwood lumber□
    
    trade agreements which have lead to reduced volumes, shipper bankruptcies and extended
plant shut downs; and□
    
    the negative impact of the change in FX of approximately $7 million.
  13.3.5 Industrial and Consumer Products
  □
    
    higher freight rates;□
    
    strong worldwide demand for base metals; and
 □
    
    strong demand for chemical, plastics and energy products largely driven by Alberta oil
activity and a strong Alberta economy.
  13.3.6 Automotive
  13.3.7 Intermodal
  13.3.8 Other Revenues
  13.4 OPERATING EXPENSES, BEFORE OTHER SPECIFIED ITEMS
 13.4.1 Compensation and Benefits
  □
    
    the positive impact of the change in FX of approximately $10 million;□
    
    lower incentive compensation; and□
    
    reduced costs from restructuring initiatives (discussed further in Section 21.10).
  13.4.2 Fuel
  13.4.3 Materials
  13.4.4 Equipment Rents
    2007ANNUALREPORT29




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##### 



13.4.5 Depreciation 
and Amortization
  13.4.6 Purchased Services and Other
  13.5 OTHER INCOME 
STATEMENT ITEMS
 13.6 LIQUIDITY AND 
CAPITAL RESOURCES
  14.0 Changes in Accounting Policy
 14.1 2007 ACCOUNTING CHANGES
 14.1.1 Financial Instruments, Hedging and Comprehensive Income
    2007ANNUALREPORT30




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##### 



14.1.2 Accounting Changes
 14.2 FUTURE ACCOUNTING CHANGES
 14.2.1 Financial Instrument and Capital Disclosures
     14.2.2 Inventories
 14.2.3 Goodwill and intangible assets
  15.0 Liquidity and Capital Resources
    2007ANNUALREPORT31




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##### 



15.1 OPERATING ACTIVITIES
    □
    
    higher income tax payments associated with the sale of our Latta subdivision (discussed
further in Section 21.5);□
    
    higher restructuring payments;□
    
    a higher year-end working capital balance, primarily due to an increase in accounts
receivable from higher freight revenues; and□
    
    increased pension contributions.
  15.2 INVESTING ACTIVITIES
 
 15.3 FINANCING ACTIVITIES
   □
    
    the US$1.27 billion bridge financing to fund the acquisition of DM&E (discussed further in
this section);□
    
    the issuance of US$450 million of 5.95 % 30-year notes, which are unsecured and carry a
negative pledge, for net proceeds of CAD$485.1 million; and□
    
    short-term borrowings of $229.7 million.
    2007ANNUALREPORT32




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##### 



15.3.1 Net-debt to Net-debt-plus-equity Ratio
 □
    
    the bridge financing obtained for the acquisition of DM&E;□
    
    an increase in short-term borrowing of $229.7 million; and□
    
    the investment in ABCP (discussed further in Section 11.2).
 These increases were partially offset by an increase in equity driven by earnings and the impact of
the strengthening of the Canadian dollar.The improvement in 2006 was primarily due to an increase in equity driven by earnings, partially
offset by the impact of the reduced capital stock and contributed surplus as a result of CPs share
repurchase program.
 15.3.2 Security Ratings
  15.4 FREE CASH
    2007ANNUALREPORT33




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##### 



CALCULATION OF FREE CASH
 (reconciliation of free cash to GAAP cash position)For the year ended December 31 (in millions)
    
    2007
    
    
    2006
    
    
    2005Cash provided by operating activities
    
    $
    1,314.6
    
    
    $
    1,051.0
    
    
    $
    1,050.7Cash used in investing activities
    
    
    (2,514.3
    )
    
    
    (693.7
    )
    
    
    (869.2
    )Dividends paid
    
    
    (133.1
    )
    
    
    (112.4
    )
    
    
    (89.5
    )Add back acquisition of DM&E (1)
    
    
    1,492.6
    
    
    
    
    
    
    
    Add back investment in ABCP (2)
    
    
    143.6
    
    
    
    
    
    
    
    Free cash(3)
    
    
    303.4
    
    
    
    244.9
    
    
    
    92.0Cash (used in) provided by financing activities, excluding dividend payment
    
    
    1,586.6
    
    
    
    (242.4
    )
    
    
    (323.2
    )Acquisiton of DM&E (1)
    
    
    (1,492.6
    )
    
    
    
    
    
    
    Investment in ABCP (2)
    
    
    (143.6
    )
    
    
    
    
    
    
    Increase/(decrease) in cash, as shown on the Statement of Consolidated
Cash Flows
    
    
    253.8
    
    
    
    2.5
    
    
    
    (231.2
    )Net cash at beginning of period
    
    
    124.3
    
    
    
    121.8
    
    
    
    353.0Net cash at end of period
    
    $
    378.1
    
    
    $
    124.3
    
    
    $
    121.8
 (1)
 (2)
 (3)
      16.0 Balance Sheet
 16.1 ASSETS
    □
    
    capital additions, most of which were locomotives and track replacement;□
    
    an increase in accounts receivable due to higher freight rates which have increased amounts
billed to customers;□
    
    higher materials and supplies, mainly fuel stock and engineering inventory; and□
    
    pension contributions made in excess of pension expense recognized in income.
 16.2 TOTAL LIABILITIES
   □
    
    an increase in short-term borrowing;□
    
    an increase in long-term debt resulting from the issuance in second-quarter 2007 of US$450
million of 5.95 % 30-year notes (net proceeds of $485.1 million), which are unsecured but
carry a negative pledge; and□
    
    bridge financing to fund the acquisition of DM&E (discussed further in Section 15.3).
 16.3 ACCUMULATED OTHER COMPREHENSIVE INCOME
    2007ANNUALREPORT34




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16.4 EQUITY
  16.5 SHARE CAPITAL
    2007ANNUALREPORT35




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##### 



16.6 DIVIDENDS
  Dividend amount
    
    Record date
    
    Payment date$0.1325
    
    March 25, 2005
    
    April 25, 2005$0.1500
    
    June 24, 2005
    
    July 25, 2005$0.1500
    
    September 30, 2005
    
    October 31, 2005$0.1500
    
    December 30, 2005
    
    January 30, 2006$0.1875
    
    March 31, 2006
    
    April 24, 2006$0.1875
    
    June 30, 2006
    
    July 31, 2006$0.1875
    
    September 29, 2006
    
    October 30, 2006$0.1875
    
    December 29, 2006
    
    January 29, 2007$0.2250
    
    March 30, 2007
    
    April 30, 2007$0.2250
    
    June 29, 2007
    
    July 30, 2007$0.2250
    
    September 28, 2007
    
    October 29, 2007$0.2250
    
    December 28, 2007
    
    January 28, 2008$0.2475
    
    March 28, 2008
    
    April 28, 2008
      17.0 Financial Instruments
  17.1 FAIR VALUE OF NON-DERIVATIVE FINANCIAL INSTRUMENTS
  17.1.1 Loans and Receivables
 17.1.2 Financial Liabilities
   17.1.3 Available for Sale
 17.1.4 Held for Trading
    2007ANNUALREPORT36




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##### 



17.1.5 Carrying Value and Fair Value of Financial Instruments
  17.2 DERIVATIVE FINANCIAL INSTRUMENTS
 
 17.3 CREDIT RISK
  17.4 INTEREST RATE MANAGEMENT
 17.4.1 Interest Rate Swaps
  17.4.2 Interest and 
Treasury Rate Locks
    2007ANNUALREPORT37




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##### 



17.5 FOREIGN EXCHANGE MANAGEMENT
 17.5.1
Foreign Exchange Forward Contracts on Revenue
  17.5.2
Currency Forward on Long-term Debt
  17.6 FUEL PRICE MANAGEMENT
  17.6.1
Crude Oil Swaps
    2007ANNUALREPORT38




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##### 



17.7 STOCK-BASED COMPENSATION EXPENSE MANAGEMENT
 17.7.1
Total Return Swap (TRS)
 18.0 Off-balance Sheet Arrangements
 18.1 SALE OF ACCOUNTS RECEIVABLE
    2007ANNUALREPORT39




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##### 



18.2 GUARANTEES
 19.0 Acquisition
 19.1 DAKOTA, MINNESOTA & EASTERN RAILROAD CORPORATION
    2007ANNUALREPORT40




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##### 



20.0 Contractual Commitments
  PAYMENTS DUE BY PERIOD
 1  3
    
    
    3  5
    
    
    AfterContractual commitments at December 31, 2007 (in millions)
    
    Total
    
    
    < 1 year
    
    
    years
    
    
    years
    
    
    5 yearsLong-term debt
    
    $
    3,944.4
    
    
    $
    22.7
    
    
    $
    1,650.8
    
    
    $
    459.8
    
    
    $
    1,811.1Capital lease obligations
    
    
    277.0
    
    
    
    8.3
    
    
    
    32.9
    
    
    
    13.8
    
    
    
    222.0Operating lease obligations (1)
    
    
    661.1
    
    
    
    129.4
    
    
    
    169.4
    
    
    
    128.8
    
    
    
    233.5Supplier purchase obligations
    
    
    693.5
    
    
    
    171.9
    
    
    
    189.7
    
    
    
    143.4
    
    
    
    188.5Other long-term liabilities reflected
on our Consolidated Balance Sheet (2)
    
    
    2,749.2
    
    
    
    123.4
    
    
    
    206.9
    
    
    
    184.5
    
    
    
    2,234.4Total contractual obligations
    
    $
    8,325.2
    
    
    $
    455.7
    
    
    $
    2,249.7
    
    
    $
    930.3
    
    
    $
    4,689.5
 (1)
 (2)
      21.0 Future Trends and Commitments
 21.1 CHANGE IN EXECUTIVE OFFICERS
   21.2 AGREEMENTS AND RECENT DEVELOPMENT
 21.3 INTEGRATED OPERATING PLAN
    2007ANNUALREPORT41




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##### 



21.4 CANADIAN GOVERNMENT COVERED HOPPER CARS
  21.5 SALE OF LATTA SUBDIVISION
 21.6 STOCK PRICE
  21.7 ENVIRONMENTAL
 21.8 CERTAIN OTHER FINANCIAL COMMITMENTS
    2007ANNUALREPORT42




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##### 



CERTAIN OTHER FINANCIAL COMMITMENTS
 Amount of commitment per period2009 &
    
    
    2011 &
    
    
    2013 &At December 31, 2007 (in millions)
    
    Total
    
    
    2008
    
    
    2010
    
    
    2012
    
    
    beyondLetters of credit
    
    $
    337.3
    
    
    $
    337.3
    
    
    $
    
    
    
    $
    
    
    
    $
    Capital commitments
    
    
    504.2
    
    
    
    278.7
    
    
    
    68.2
    
    
    
    47.3
    
    
    
    110.0Offset financial liability
    
    
    190.3
    
    
    
    190.3
    
    
    
    
    
    
    
    
    
    
    
    Total commitments
    
    $
    1,031.8
    
    
    $
    806.3
    
    
    $
    68.2
    
    
    $
    47.3
    
    
    $
    110.0
      21.8.1
Letters of Credit
  21.8.2
Capital Commitments
  21.8.3
Offset Financial Liability
 21.9 PENSION PLAN DEFICIT
 
   2007ANNUALREPORT43




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##### 



21.10 RESTRUCTURING
    21.11 INDEMNIFICATIONS
 22.0 Business Risks and Enterprise Risk Management
 22.1 COMPETITION
   □
    
    creating long-term value for customers, shareholders and employees by profitably growing
within the reach of our rail franchise and through strategic additions to enhance access to
markets and quality of service;
    2007ANNUALREPORT44




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##### 



□
    
    improving handling through IOP to reduce costs and enhance quality of service; and□
    
    exercising a disciplined yield approach to competitive contract renewals and bids.
 22.2 LIQUIDITY
   □
    
    a five year revolving credit facility of $945 million, with an accordion feature to $1,150
million, of which $408 million was available on December 31, 2007. The facility expires in
December 2012;□
    
    an accounts receivable securitization program that provides up to $200 million in invested
amount. On December 31, 2007, $80 million in available capacity remained. The program expires
in September 2009; and□
    
    an 18 month US$1.8 billion temporary credit facility to acquire the DM&E. On October 4,
2007, US$1.27 billion was drawn to close the transaction. The facility expires in April 2009.
 22.3 ENVIRONMENTAL LAWS 
AND REGULATIONS
 □
    
    protecting the environment;□
    
    ensuring compliance with applicable environmental laws and regulations;□
    
    promoting awareness and training;□
    
    managing emergencies through preparedness; and□
    
    encouraging involvement, consultation and dialogue with communities along our lines.
 22.4 REGULATORY AUTHORITIES
 22.4.1
Regulatory Change
    2007ANNUALREPORT45




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##### 



C-8
 22.4.2
Security
   □
    
    we are a certified carrier with the US Customs and Border Protections (CBP)
 Customs-Trade Partnership Against Terrorism (C-TPAT) and Partners in Protection (PIP)
programs that seek to strengthen overall supply chain and border security;□
    
    we are an approved carrier in Canada Border Services Agency (CBSA) programs to streamline
clearance at the border for imports from the US;□
    
    we have implemented several regulatory security frameworks that focus on the provision of
advanced electronic cargo information and improved security technology at border crossings,
including the implementation of Vehicle and Cargo Inspection System (VACIS) at five of our
border crossings;□
    
    we have also worked with the AAR to develop and put in place an extensive industry-wide
security plan to address terrorism and security-driven efforts seeking to restrict the
routings and operational handlings of certain hazardous materials; and□
    
    we are working with the Transport Security Administration to reduce toxic inhalation risk
in high threat urban areas.
 22.5 LABOUR RELATIONS
    2007ANNUALREPORT46




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##### 



22.5.1
Canada
 □
    
    On January 26, 2008, CP and the Canadian Auto Workers (CAW), representing employees who
maintain and repair locomotives and freight cars, reached a tentative three-year agreement
extending through to the end of 2010. This agreement was ratified on February 15, 2008.□
    
    On December 5, 2007, CP and the Teamsters Canada Rail Conference (TCRC-RTE), which
represents employees who operate trains, reached a tentative five-year agreement extending
through to the end of 2011. This agreement was ratified on February 13, 2008.□
    
    On July 18, 2007, a three-year agreement extending through to December 31, 2009 with the
Teamsters Canada Rail Conference (TCRC-MWED), which represents employees who maintain track
infrastructure and perform capital programs, was ratified.□
    
    A five-year collective agreement with the International Brotherhood of Electrical Workers,
representing signal maintainers, extends to the end of 2009.□
    
    A four-year collective agreement with the Canadian Pacific Police Association, representing
CP Police sergeants and constables, extends to the end of 2009.□
    
    A three-year agreement with the Steelworkers Union, representing intermodal operation and
clerical employees extends to the end of 2009.□
    
    A three-year collective agreements, with the Teamsters Canada Rail Conference, Rail Canada
Traffic Controllers, representing employees who control train traffic, extends to the end of
2008.
 22.5.2
US
    22.6 NETWORK CAPACITY 
AND VOLUME
  22.6.1
Capacity
 22.6.2
Volume
   22.7 FINANCIAL RISKS
 22.7.1 Pension Funding 
Status Volatility
    2007ANNUALREPORT47




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##### 



22.7.2
Fuel Cost Volatility
   22.7.3
Foreign Exchange Risk
 22.7.4
Interest Rate Risk
  22.8 GENERAL AND OTHER RISKS
 23.0 Critical 
Accounting Estimates
   23.1 ENVIRONMENTAL LIABILITIES
    2007ANNUALREPORT48




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##### 



23.2 PENSIONS AND OTHER BENEFITS
    2007ANNUALREPORT49




---



##### 



23.3 PROPERTY, PLANT AND EQUIPMENT
 23.4 FUTURE INCOME TAXES
    2007ANNUALREPORT50




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##### 



23.5 LEGAL AND PERSONAL INJURY LIABILITIES
 23.6 CANADIAN THIRD PARTY ASSET-BACKED COMMERCIAL PAPER
 24.0 Systems, Procedures and Controls
  25.0 Forward-looking Information
    2007ANNUALREPORT51




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##### 



25.1 2007 FINANCIAL OUTLOOK
  2007 financial outlook
    
    Original guidance (2)
    
    Date approved
    
    Key assumptions underlying our original guidanceTotal revenues
    
    Increase of 4 %  6 %
    
    Nov 15, 2006
    
    □   average crude oil prices of US$65 per barrel;Total operating expenses
    
    Increase of 3 %  5 %
    
    Nov 15, 2006
    
    □   average FX rate of $1.10 per US dollar; andAdjusted Diluted EPS (1)
    
    $4.30  $4.45
    
    Nov 15, 2006
    
    □   tax rate of 30 %  32 %Capital expenditures
    
    $885  $895 million
    
    Nov 15, 2006Free Cash (1)
    
    In excess of $200 million
    
    Nov 15, 2006
 (1)
 (2)
  2007 financial outlook
    
    Updated guidance
    
    Date approved
    
    Actual
    
    Variance
    
    Revised key assumptionsTotal revenues
    
    Just below range of
increase of 4 %  6 %
    
    Oct 28, 2007
    
    2.7%
    
    
    
    -130 basis points
    

□   average crude
oil prices of US$69
per barrel;Total operating expenses
    
    Increase of 3 %  5 %
    
    Nov 15, 2006
    
    2.6%
    
    
    
    - 40 basis points
    

□   average FX rate of $1.08 per US
dollar; andAdjusted Diluted EPS (1)
    
    Lower end of or below
$4.30  $4.45
    
    Dec 11, 2007
    
    $4.32
    
    
    
    N/A
    
    tax rate of 30
%  32%Capital expenditures
    
    $885  $895 million
    
    Nov 15, 2006
    
    $902 million
    
    + $7 millionFree Cash (1)
    
    In excess of $300 million
    
    Apr 17, 2007
    
    $303 million
    
    N/A
 (1)
    2007ANNUALREPORT52




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##### 



25.1.1 2007 Guidance Updates
 
 25.1.2 Variance from 2007 Guidance
   25.2 2008 FINANCIAL OUTLOOK
  2008 financial outlook
    
    Guidance
    
    Date approved
    
    Key 2008 assumptionsTotal revenues
    
    Increase of 4 %  6 %
    
    Oct 29, 2007
    
    □   average crude oil prices of US$80 per barrel;Total operating expenses
    
    Increase of 3 %  5 %
    
    Oct 29, 2007
    
    □   average FX rate of $1.00 per US dollar;Adjusted diluted EPS (1)
    
    $4.70  $4.85
    
    Oct 29, 2007
    
    □   North American economic (GDP) growth of 2.5 %; andCapital expenditures
    
    $885  $895 million
    
    Oct 29, 2007
    
    □   tax rate of 29 %  31 %Free Cash (1)
    
    In excess of $250 million
    
    Oct 29, 2007
 (1)
    2007ANNUALREPORT53




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##### 



25.2.1 2008 Guidance Updates
  2008 financial outlook
    
    Guidance
    
    Date approved
    
    Key 2008 assumptionsTotal revenues
    
    Increase of 4%  6%
    
    Oct 29, 2007
    

□   average crude oil prices of US$87 per barrel (2);Total operating expenses
    
    Increase of 3 %  5 %
    
    Oct 29, 2007
    

□   average FX rate of $1.00 per US dollar;Adjusted diluted EPS (1)
    
    $4.65  $4.80
    
    Feb 19, 2008
    

□   North American economic (GDP) growth of 2.5 %; andCapital expenditures
    
    $885  $895 million
    
    Oct 29, 2007
    

□   tax rate of 29%  31%.Free Cash (1)
    
    In excess of $250 million
    
    Oct 29, 2007
 (1)
 (2)
    2007ANNUALREPORT54




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##### 



26.0 Glossary of Terms
 ABCP
 Average
train speed
 Car
miles per car day
 Total
car-miles
 A
car-day
 Carloads
 CICA
 CPRL
 CP, the
Company
 Diluted
EPS
 Diluted
EPS, before FX on LTD and other specified items
 D&H
 DM&E
 EPS
 Fluidity
 Foreign
Exchange or FX
 FRA
 FRA personal injury rate per 200,000 employee-hours
 FRA train accidents rate
 Freight
revenue per carload
 Freight
revenue per RTM
 FX on
LTD
 GAAP
 GTMs or
gross ton-miles
 IOP
    2007ANNUALREPORT55




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##### 



LIBOR
 MD&A
 Number
of active employees
 Operating
ratio
 Return
on capital employed or ROCE
 RTMs or
revenue ton-miles
 Soo
Line
 STB
 Terminal
dwell
 US gallons of locomotive fuel consumed per 1,000 GTMs
 WCB
 WTI
    2007ANNUALREPORT56




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##### 



MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
 
     February 19, 2008
    2007ANNUALREPORT57




---



##### 



TO THE SHAREHOLDERS OF CANADIAN PACIFIC RAILWAY LIMITED
  CONSOLIDATED FINANCIAL STATEMENTS
 
 INTERNAL CONTROL OVER FINANCIAL REPORTING
    2007ANNUALREPORT58




---



##### 



February 19, 2008
    2007ANNUALREPORT59




---



##### 



STATEMENT OF CONSOLIDATED INCOME
 Year ended December 31 (in millions of Canadian dollars, except per share data)
    
    2007
    
    
    2006
    
    
    2005RevenuesFreight (Note 23)
    
    $
    4,555.2
    
    
    $
    4,427.3
    
    
    $
    4,266.3Other
    
    
    152.4
    
    
    
    155.9
    
    
    
    125.34,707.6
    
    
    
    4,583.2
    
    
    
    4,391.6Operating expensesCompensation and benefits
    
    
    1,284.2
    
    
    
    1,327.6
    
    
    
    1,322.1Fuel
    
    
    746.8
    
    
    
    650.5
    
    
    
    588.0Materials
    
    
    215.5
    
    
    
    212.9
    
    
    
    203.3Equipment rents
    
    
    207.5
    
    
    
    181.2
    
    
    
    210.0Depreciation and amortization
    
    
    472.0
    
    
    
    464.1
    
    
    
    445.1Purchased services and other
    
    
    617.4
    
    
    
    618.3
    
    
    
    621.63,543.4
    
    
    
    3,454.6
    
    
    
    3,390.1Operating income, before the following:
    
    
    1,164.2
    
    
    
    1,128.6
    
    
    
    1,001.5Special credit for environmental remediation (Note 18)
    
    
    
    
    
    
    
    
    
    
    (33.9
    )Special charge for labour restructuring (Note 18)
    
    
    
    
    
    
    
    
    
    
    44.2Operating income
    
    
    1,164.2
    
    
    
    1,128.6
    
    
    
    991.2Other income and charges (Note 4)
    
    
    17.3
    
    
    
    27.8
    
    
    
    18.1Change in fair value of Canadian third party asset-backed commercial paper
(Note 11)
    
    
    21.5
    
    
    
    
    
    
    
    Foreign exchange (gain) loss on long-term debt
    
    
    (169.8
    )
    
    
    0.1
    
    
    
    (44.7
    )Net interest expense (Note 5)
    
    
    204.3
    
    
    
    194.5
    
    
    
    204.2Income tax expense (Note 6)
    
    
    144.7
    
    
    
    109.9
    
    
    
    270.6Net income
    
    $
    946.2
    
    
    $
    796.3
    
    
    $
    543.0Basic earnings per share (Note 7)
    
    $
    6.14
    
    
    $
    5.06
    
    
    $
    3.43Diluted earnings per share (Note 7)
    
    $
    6.08
    
    
    $
    5.02
    
    
    $
    3.39
    2007ANNUALREPORT60




---



##### 



CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
 Year ended December 31 (in millions of Canadian dollars)
    
    2007
    
    
    2006
    
    
    2005Comprehensive incomeNet income
    
    $
    946.2
    
    
    $
    796.3
    
    
    $
    543.0Net change in foreign currency translation adjustments, net of
hedging activities
    
    
    (7.4
    )
    
    
    (1.6
    )
    
    
    (7.4
    )Net change in losses on derivatives designated as cash flow hedges
    
    
    (36.8
    )
    
    
    
    
    
    
    Other comprehensive loss before income taxes
    
    
    (44.2
    )
    
    
    (1.6
    )
    
    
    (7.4
    )Income tax recovery (expense)
    
    
    3.4
    
    
    
    0.5
    
    
    
    (2.1
    )Other comprehensive loss (Note 9)
    
    
    (40.8
    )
    
    
    (1.1
    )
    
    
    (9.5
    )Comprehensive income
    
    $
    905.4
    
    
    $
    795.2
    
    
    $
    533.5


2007ANNUALREPORT61




---



##### 



CONSOLIDATED BALANCE SHEET
 As at December 31 (in millions of Canadian dollars)
    
    2007
    
    
    2006AssetsCurrent assetsCash and cash equivalents
    
    $
    378.1
    
    
    $
    124.3Accounts receivable and other current assets (Note 8)
    
    
    542.8
    
    
    
    615.7Materials and supplies
    
    
    179.5
    
    
    
    158.6Future income taxes (Note 6)
    
    
    67.3
    
    
    
    106.31,167.7
    
    
    
    1,004.9Investments (Note 11)
    
    
    1,668.6
    
    
    
    64.9Net properties (Note 12)
    
    
    9,293.1
    
    
    
    9,122.9Other assets and deferred charges (Note 13)
    
    
    1,235.6
    
    
    
    1,223.2Total assets
    
    $
    13,365.0
    
    
    $
    11,415.9Liabilities and shareholders equityCurrent liabilitiesShort-term borrowing
    
    $
    229.7
    
    
    $
    Accounts payable and accrued liabilities
    
    
    980.8
    
    
    
    1,002.6Income and other taxes payable
    
    
    68.8
    
    
    
    16.0Dividends payable
    
    
    34.5
    
    
    
    29.1Long-term debt maturing within one year (Note 14)
    
    
    31.0
    
    
    
    191.31,344.8
    
    
    
    1,239.0Deferred liabilities (Note 16)
    
    
    714.6
    
    
    
    725.7Long-term debt (Note 14)
    
    
    4,146.2
    
    
    
    2,813.5Future income taxes (Note 6)
    
    
    1,701.5
    
    
    
    1,781.2Shareholders equityShare capital (Note 19)
    
    
    1,188.6
    
    
    
    1,175.7Contributed surplus (Note 19)
    
    
    42.4
    
    
    
    32.3Accumulated other comprehensive income (Note 9)
    
    
    39.6
    
    
    
    66.4Retained income
    
    
    4,187.3
    
    
    
    3,582.15,457.9
    
    
    
    4,856.5Total liabilities and shareholders equity
    
    $
    13,365.0
    
    
    $
    11,415.9
 
 -S- J. E. CLEGHORN
    
    -S- R. PHILLIPSApproved on behalf of the Board:
    
    J.E. Cleghorn, Director
    
    R. Phillips, Director


2007ANNUALREPORT62




---



##### 



STATEMENT OF CONSOLIDATED CASH FLOWS
 Year ended December 31 (in millions of Canadian dollars)
    
    2007
    
    
    2006
    
    
    2005Operating activitiesNet income
    
    $
    946.2
    
    
    $
    796.3
    
    
    $
    543.0Add (deduct) items not affecting cashDepreciation and amortization
    
    
    472.0
    
    
    
    464.1
    
    
    
    445.1Future income taxes (Note 6)
    
    
    38.7
    
    
    
    75.3
    
    
    
    258.0Change in fair value of Canadian third party asset-backed commercial paper (Note 11)
    
    
    21.5
    
    
    
    
    
    
    
    Environmental remediation charge (Note 18)
    
    
    
    
    
    
    
    
    
    
    (30.9
    )Restructuring and impairment charge (Note 18)
    
    
    
    
    
    
    
    
    
    
    44.2Foreign exchange (gain) loss on long-term debt
    
    
    (169.8
    )
    
    
    0.1
    
    
    
    (44.7
    )Amortization of deferred charges
    
    
    12.1
    
    
    
    16.5
    
    
    
    19.5Restructuring and environmental payments (Note 18)
    
    
    (61.0
    )
    
    
    (96.3
    )
    
    
    (69.0
    )Other operating activities, net
    
    
    4.6
    
    
    
    (103.4
    )
    
    
    (91.2
    )Change in non-cash working capital balances related to operations (Note 10)
    
    
    50.3
    
    
    
    (101.6
    )
    
    
    (23.3
    )Cash provided by operating activities
    
    
    1,314.6
    
    
    
    1,051.0
    
    
    
    1,050.7Investing activitiesAdditions to properties (Note 12)
    
    
    (893.2
    )
    
    
    (793.7
    )
    
    
    (884.4
    )Reduction in investments and other assets
    
    
    0.2
    
    
    
    2.2
    
    
    
    2.0Net proceeds from disposal of transportation properties
    
    
    14.9
    
    
    
    97.8
    
    
    
    13.2Acquisition of Dakota, Minnesota & Eastern Railroad Corporation (Note 11)
    
    
    (1,492.6
    )
    
    
    
    
    
    
    Investment in Canadian third party asset-backed commercial paper (Note 11)
    
    
    (143.6
    )
    
    
    
    
    
    
    Cash used in investing activities
    
    
    (2,514.3
    )
    
    
    (693.7
    )
    
    
    (869.2
    )Financing activitiesDividends paid
    
    
    (133.1
    )
    
    
    (112.4
    )
    
    
    (89.5
    )Issuance of CP Common Shares
    
    
    30.4
    
    
    
    66.6
    
    
    
    31.8Purchase of CP Common Shares (Note 19)
    
    
    (231.1
    )
    
    
    (286.4
    )
    
    
    (80.6
    )Increase in short-term borrowing
    
    
    229.7
    
    
    
    
    
    
    
    Issuance of long-term debt (Note 14)
    
    
    1,745.3
    
    
    
    2.8
    
    
    
    Repayment of long-term debt
    
    
    (187.7
    )
    
    
    (25.4
    )
    
    
    (274.4
    )Cash provided by (used in) financing activities
    
    
    1,453.5
    
    
    
    (354.8
    )
    
    
    (412.7
    )Cash positionIncrease (decrease) in cash and cash equivalents
    
    
    253.8
    
    
    
    2.5
    
    
    
    (231.2
    )Cash and cash equivalents at beginning of year
    
    
    124.3
    
    
    
    121.8
    
    
    
    353.0Cash and cash equivalents at end of year
    
    $
    378.1
    
    
    $
    124.3
    
    
    $
    121.8


2007ANNUALREPORT63




---



##### 



CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
 Year ended December 31 (in millions of Canadian dollars)
    
    2007
    
    
    2006Share capitalBalance, beginning of year
    
    $
    1,175.7
    
    
    $
    1,141.5Shares issued under stock option plans (Note 19)
    
    
    37.4
    
    
    
    71.0Shares purchased (Note 19)
    
    
    (24.5
    )
    
    
    (36.8
    )Balance, end of year
    
    
    1,188.6
    
    
    
    1,175.7Contributed surplusBalance, beginning of year
    
    
    32.3
    
    
    
    245.1Movement in stock-based compensation
    
    
    10.1
    
    
    
    10.3Shares purchased
    
    
    
    
    
    
    (223.1
    )Balance, end of year
    
    
    42.4
    
    
    
    32.3Accumulated other comprehensive incomeBalance, beginning of year
    
    
    66.4
    
    
    
    67.5Adjustment for change in accounting policy (Note 2)
    
    
    14.0
    
    
    
    Adjusted balance, beginning of year
    
    
    80.4
    
    
    
    67.5Other comprehensive loss (Note 9)
    
    
    (40.8
    )
    
    
    (1.1
    )Balance, end of year
    
    
    39.6
    
    
    
    66.4Retained incomeBalance, beginning of year
    
    
    3,582.1
    
    
    
    2,930.0Adjustment for change in accounting policy (Note 2)
    
    
    4.0
    
    
    
    Adjusted balance, beginning of year
    
    
    3,586.1
    
    
    
    2,930.0Net income for the year
    
    
    946.2
    
    
    
    796.3Shares purchased (Note 19)
    
    
    (206.6
    )
    
    
    (26.5
    )Dividends
    
    
    (138.4
    )
    
    
    (117.7
    )Balance, end of year
    
    
    4,187.3
    
    
    
    3,582.1Total accumulated other comprehensive income and retained income
    
    
    4,226.9
    
    
    
    3,648.5Shareholders equity, end of year
    
    $
    5,457.9
    
    
    $
    4,856.5
    2007ANNUALREPORT64




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  1. Summary of significant accounting policies
 PRINCIPLES OF CONSOLIDATION
   PRINCIPAL SUBSIDIARIES
  Incorporated under
    
    
    Percentage of voting securitiesPrincipal subsidiary
    
    the laws of
    
    
    held directly or indirectly by CPRLCanadian Pacific Railway Company
    
    Canada
    
    
    
    100
    %Soo Line Railroad Company (Soo Line)
    
    Minnesota
    
    
    
    100
    %Delaware and Hudson Railway Company, Inc. (D&H)
    
    Delaware
    
    
    
    100
    %Mount Stephen Properties Inc. (MSP)
    
    Canada
    
    
    
    100
    %
  REVENUE RECOGNITION
  CASH AND CASH EQUIVALENTS
  FOREIGN CURRENCY TRANSLATION
    2007ANNUALREPORT65




---



##### 



PENSIONS AND OTHER BENEFITS
   MATERIALS AND SUPPLIES
  NET PROPERTIES
   2007ANNUALREPORT66




---



##### 



Assets
    
    YearsDiesel locomotives
    
    
    28 to 35Freight cars
    
    
    21 to 46Ties
    
    
    35 to 41Rails  in first position
    
    
    27 to 29 in other than first position
    
    
    55Computer system development costs
    
    
    5 to 15
 DERIVATIVE FINANCIAL AND COMMODITY INSTRUMENTS
    2007ANNUALREPORT67




---



##### 



RESTRUCTURING ACCRUAL AND ENVIRONMENTAL REMEDIATION
  INCOME TAXES
  EARNINGS PER SHARE
  STOCK-BASED COMPENSATION
   2. New accounting policies
 FINANCIAL INSTRUMENTS, HEDGING AND COMPREHENSIVE INCOME
    2007ANNUALREPORT68




---



##### 



ACCOUNTING CHANGES
   3. Future accounting changes
 FINANCIAL INSTRUMENT AND CAPITAL DISCLOSURES
     INVENTORIES
    2007ANNUALREPORT69




---



##### 



GOODWILL AND INTANGIBLE ASSETS
  4. Other income and charges
 (in millions of Canadian dollars)
    

2007
    
    
    2006
    
    
    2005Amortization of discount on accruals recorded at present value
    
    $
    8.1
    
    
    $
    10.0
    
    
    $
    15.4Other exchange losses (gains)
    
    
    5.8
    
    
    
    6.5
    
    
    
    (2.2
    )Loss on sale of accounts receivable (Note 8)
    
    
    5.8
    
    
    
    5.0
    
    
    
    3.5Loss (gain) on non-hedging derivative instruments
    
    
    1.5
    
    
    
    (1.2
    )
    
    
    (6.6
    )Equity income in Dakota, Minnesota & Eastern Railroad
Corporation, net of tax (Note 11)
    
    
    (12.3
    )
    
    
    
    
    
    
    Other
    
    
    8.4
    
    
    
    7.5
    
    
    
    8.0Total other income and charges
    
    $
    17.3
    
    
    $
    27.8
    
    
    $
    18.1
 5. Interest expense
 (in millions of Canadian dollars)
    
    2007
    
    
    2006
    
    
    2005Interest expense
    
    $
    219.6
    
    
    $
    200.5
    
    
    $
    211.8Interest income
    
    
    (15.3
    )
    
    
    (6.0
    )
    
    
    (7.6
    )Net interest expense
    
    $
    204.3
    
    
    $
    194.5
    
    
    $
    204.2Gross cash interest payments
    
    $
    208.9
    
    
    $
    192.8
    
    
    $
    199.6
    2007ANNUALREPORT70




---



##### 



6. Income taxes
  (in millions of Canadian dollars)
    
    2007
    
    
    2006
    
    
    2005Canada (domestic)Current income tax expense
    
    $
    69.8
    
    
    $
    3.3
    
    
    $
    10.3Future income tax expenseOrigination and reversal of temporary differences
    
    
    163.8
    
    
    
    194.7
    
    
    
    213.9Effect of tax rate decreases
    
    
    (162.9
    )
    
    
    (176.0
    )
    
    
    Recognition of previously unrecorded tax losses
    
    
    
    
    
    
    
    
    
    
    (17.2
    )Effect of hedge of net investment in self-sustaining foreign subsidiaries
    
    
    (9.7
    )
    
    
    0.6
    
    
    
    (2.1
    )Other
    
    
    (6.9
    )
    
    
    (2.3
    )
    
    
    (1.0
    )Total future income tax expense
    
    
    (15.7
    )
    
    
    17.0
    
    
    
    193.6Total income taxes (domestic)
    
    $
    54.1
    
    
    $
    20.3
    
    
    $
    203.9Other (foreign)Current income tax expense
    
    $
    36.2
    
    
    $
    31.3
    
    
    $
    2.3Future income tax expenseOrigination and reversal of temporary differences
    
    
    64.7
    
    
    
    62.5
    
    
    
    64.4Other
    
    
    (10.3
    )
    
    
    (4.2
    )
    
    
    Total future income tax expense
    
    
    54.4
    
    
    
    58.3
    
    
    
    64.4Total income taxes (foreign)
    
    $
    90.6
    
    
    $
    89.6
    
    
    $
    66.7TotalCurrent income tax expense
    
    $
    106.0
    
    
    $
    34.6
    
    
    $
    12.6Future income tax expense
    
    
    38.7
    
    
    
    75.3
    
    
    
    258.0Total income taxes (domestic and foreign)
    
    $
    144.7
    
    
    $
    109.9
    
    
    $
    270.6
    2007ANNUALREPORT71




---



##### 



(in millions of Canadian dollars)
    
    2007
    
    
    2006Future income tax assetsRestructuring liability
    
    $
    39.7
    
    
    $
    64.5Amount related to tax losses carried forward
    
    
    53.9
    
    
    
    83.6Liabilities carrying value in excess of tax basis
    
    
    35.6
    
    
    
    84.1Future environmental remediation costs
    
    
    35.1
    
    
    
    42.7Other
    
    
    28.7
    
    
    
    21.4Total future income tax assets
    
    
    193.0
    
    
    
    296.3Future income tax liabilitiesCapital assets carrying value in excess of tax basis
    
    
    1,495.5
    
    
    
    1,567.3Other long-term assets carrying value in excess of tax basis
    
    
    300.0
    
    
    
    338.0Other
    
    
    33.7
    
    
    
    65.9Total future income tax liabilities
    
    
    1,827.2
    
    
    
    1,971.2Total net future income tax liabilities
    
    
    1,634.2
    
    
    
    1,674.9Current future income tax assets
    
    
    67.3
    
    
    
    106.3Long-term future income tax liabilities
    
    $
    1,701.5
    
    
    $
    1,781.2
  (in millions of Canadian dollars)
    
    2007
    
    
    2006
    
    
    2005Expected income tax expense at Canadian enacted statutory tax rates
    
    $
    333.6
    
    
    $
    298.6
    
    
    $
    291.8Increase (decrease) in taxes resulting from:Large corporations tax
    
    
    
    
    
    
    (5.6
    )
    
    
    8.3Gains and equity income not subject to tax
    
    
    (62.5
    )
    
    
    (22.0
    )
    
    
    (22.0
    )Foreign tax rate differentials
    
    
    33.8
    
    
    
    6.6
    
    
    
    2.7Effect of tax rate decreases
    
    
    (162.9
    )
    
    
    (176.0
    )
    
    
    Recognition of previously unrecorded tax losses
    
    
    
    
    
    
    
    
    
    
    (17.2
    )Other
    
    
    2.7
    
    
    
    8.3
    
    
    
    7.0Income tax expense
    
    $
    144.7
    
    
    $
    109.9
    
    
    $
    270.6
    2007ANNUALREPORT72




---



##### 



7. Earnings per share
     (in millions)
    
    2007
    
    
    2006
    
    
    2005Weighted average shares outstanding
    
    
    154.0
    
    
    
    157.3
    
    
    
    158.4Dilutive effect of stock options
    
    
    1.6
    
    
    
    1.5
    
    
    
    1.7Weighted average diluted shares outstanding
    
    
    155.6
    
    
    
    158.8
    
    
    
    160.1(in dollars)
    
    
    2007
    
    
    
    2006
    
    
    
    2005Basic earnings per share
    
    $
    6.14
    
    
    $
    5.06
    
    
    $
    3.43Diluted earnings per share
    
    $
    6.08
    
    
    $
    5.02
    
    
    $
    3.39
  8. Accounts receivable
    2007ANNUALREPORT73




---



##### 



(in millions of Canadian dollars)
    
    2007
    
    
    2006
    
    
    2005Proceeds from collections reinvested
    
    $
    1,478.9
    
    
    $
    1,475.7
    
    
    $
    1,480.6
 9. Other comprehensive loss and accumulated other comprehensive income
  Income taxBefore tax
    
    
    (expense)
    
    
    Net of tax(in millions of Canadian dollars)
    
    amount
    
    
    recovery
    
    
    amountFor the year ended December 31, 2007Unrealized foreign exchange gain on translation of U.S. dollar-denominated
long-term debt designated as a hedge of the net investment in U.S. subsidiaries
    
    $
    71.0
    
    
    $
    (9.7
    )
    
    $
    61.3Unrealized foreign exchange loss on translation of the net investment in U.S.
subsidiaries
    
    
    (78.4
    )
    
    
    
    
    
    
    (78.4
    )Realized gain on cash flow hedges settled in the period
    
    
    (12.8
    )
    
    
    4.8
    
    
    
    (8.0
    )Increase in unrealized holding losses on cash flow hedges
    
    
    (26.2
    )
    
    
    9.1
    
    
    
    (17.1
    )Realized loss on cash flow hedges settled in prior periods
    
    
    2.2
    
    
    
    (0.8
    )
    
    
    1.4Other comprehensive loss
    
    $
    (44.2
    )
    
    $
    3.4
    
    
    $
    (40.8
    )For the year ended December 31, 2006Unrealized foreign exchange loss on translation of U.S. dollar-denominated
long-term debt designated as a hedge of the net investment in U.S. subsidiaries
    
    $
    (3.7
    )
    
    $
    0.5
    
    
    $
    (3.2
    )Unrealized foreign exchange gain on translation of the net investment in U.S.
subsidiaries
    
    
    2.1
    
    
    
    
    
    
    
    2.1Other comprehensive loss
    
    $
    (1.6
    )
    
    $
    0.5
    
    
    $
    (1.1
    )For the year ended December 31, 2005Unrealized foreign exchange gain on translation of U.S. dollar-denominated
long-term debt designated as a hedge of the net investment in U.S. subsidiaries
    
    $
    11.7
    
    
    $
    (2.1
    )
    
    $
    9.6Unrealized foreign exchange loss on translation of the net investment in U.S.
subsidiaries
    
    
    (19.1
    )
    
    
    
    
    
    
    (19.1
    )Other comprehensive loss
    
    $
    (7.4
    )
    
    $
    (2.1
    )
    
    $
    (9.5
    )
    2007ANNUALREPORT74




---



##### 



Adjustment
    
    
    Adjustedfor change in
    
    
    openingOpening
    
    
    accounting
    
    
    balance
    
    
    
    
    
    
    Closingbalance
    
    
    policy
    
    
    Jan. 1
    
    
    Period
    
    
    balance(in millions of Canadian dollars)
    
    Jan. 1
    
    
    (Note 2)
    
    
    (Note 2)
    
    
    change
    
    
    Dec. 31Year ended December 31, 2007Foreign exchange on U.S. dollar debt designated as a
hedge of the net investment in U.S. subsidiaries
    
    $
    234.9
    
    
    $
    0.4
    
    
    $
    235.3
    
    
    $
    61.3
    
    
    $
    296.6Foreign exchange on net investment in U.S. subsidiaries
    
    
    (168.5
    )
    
    
    
    
    
    
    (168.5
    )
    
    
    (78.4
    )
    
    
    (246.9
    )Increase (decrease) in unrealized effective gains
(losses) on cash flow hedges
    
    
    
    
    
    
    18.9
    
    
    
    18.9
    
    
    
    (25.1
    )
    
    
    (6.2
    )Deferred loss on settled hedge instruments
    
    
    
    
    
    
    (5.3
    )
    
    
    (5.3
    )
    
    
    1.4
    
    
    
    (3.9
    )Accumulated other comprehensive income
    
    $
    66.4
    
    
    $
    14.0
    
    
    $
    80.4
    
    
    $
    (40.8
    )
    
    $
    39.6Year ended December 31, 2006Foreign exchange on U.S. dollar debt designated as a
hedge of the net investment in U.S. subsidiaries
    
    $
    238.1
    
    
    
    
    
    
    
    
    
    
    $
    (3.2
    )
    
    $
    234.9Foreign exchange on net investment in U.S. subsidiaries
    
    
    (170.6
    )
    
    
    
    
    
    
    
    
    
    
    2.1
    
    
    
    (168.5
    )Accumulated other comprehensive income
    
    $
    67.5
    
    
    
    
    
    
    
    
    
    
    $
    (1.1
    )
    
    $
    66.4
  10. Change in non-cash working capital balances related to operations
 (in millions of Canadian dollars)
    
    2007
    
    
    2006
    
    
    2005(Use) source of cash:Accounts receivable and other current assets
    
    $
    70.6
    
    
    $
    (101.0
    )
    
    $
    (61.8
    )Materials and supplies
    
    
    (28.7
    )
    
    
    (15.8
    )
    
    
    (14.6
    )Accounts payable and accrued liabilities
    
    
    (45.5
    )
    
    
    (0.4
    )
    
    
    39.1Income and other taxes payable
    
    
    53.9
    
    
    
    15.6
    
    
    
    14.0Change in non-cash working capital
    
    $
    50.3
    
    
    $
    (101.6
    )
    
    $
    (23.3
    )
    2007ANNUALREPORT75




---



##### 



11. Investments
 For the year ended December 31 (in millions of Canadian dollars)
    
    2007
    
    
    2006Rail investments accounted for on an equity basis
    
    $
    1,528.6
    
    
    $
    37.9Other investments
    
    
    140.0
    
    
    
    27.0Total investments
    
    $
    1,668.6
    
    
    $
    64.9
 DAKOTA, MINNESOTA & EASTERN RAILROAD CORPORATION (DM&E)
     October 4, 2007 (in millions of Canadian dollars)
    
    2007Current assets
    
    $
    91Railroad properties
    
    
    1,935Intangible assets
    
    
    50Goodwill
    
    
    163Other assets
    
    
    2Total assets acquired
    
    
    2,241Current liabilities
    
    
    104Future income taxes
    
    
    576Debt and other liabilities
    
    
    68Total liabilities assumed
    
    
    748Investment in net assets of DM&E
    
    $
    1,493
    2007ANNUALREPORT76




---



##### 



ASSET-BACKED COMMERCIAL PAPER (ABCP)
      □
    
    $12.5 million is represented by traditional securitized assets and the Company will, on
restructuring, receive replacement long-term floating rate notes that are expected to receive
a AAA credit rating;□
    
    $119.0 million is represented by a combination of leveraged collaterized debt, synthetic
assets and traditional securitized assets and the Company will, on restructuring, receive
replacement senior and subordinated long-term floating rate notes. The senior notes are
expected to obtain a AAA rating while the subordinated notes are likely to be unrated; and□
    
    $12.1 million is represented by assets that have an exposure to U.S. sub-prime mortgages.
On restructuring, the Company is likely to receive long-term floating rate notes that may be
rated, although at this time the pan-Canadian restructuring committee has provided no
indication of the likely rating these notes may receive.
   Probability weighted average interest rate
    
    
    4.6%Weighted average discount rate
    
    
    5.3%Maturity of long-term floating rate notes
    
    five to seven yearsCredit losses
    
    nil to 25 % on a going concern basis 5 % to 50 % on a liquidation basis
    2007ANNUALREPORT77




---



##### 



OTHER INVESTMENTS
  (in millions of Canadian dollars)
    
    2007
    
    
    2006Current assets
    
    $
    0.8
    
    
    $
    0.9Long-term assets
    
    
    51.0
    
    
    
    48.0Current liabilities
    
    
    2.5
    
    
    
    2.1Long-term liabilities
    
    
    0.5
    
    
    
    0.5Revenues
    
    
    12.9
    
    
    
    12.8Expenses
    
    
    2.4
    
    
    
    1.7Net income
    
    
    10.5
    
    
    
    11.1Cash provided by operating activities
    
    
    9.4
    
    
    
    8.9Cash used in investing activities
    
    
    1.9
    
    
    
    1.4Cash used in financing activities
    
    
    7.7
    
    
    
    7.3
    2007ANNUALREPORT78




---



##### 



12. Net properties
 Accumulated
    
    
    Net book(in millions of Canadian dollars)
    
    Cost
    
    
    depreciation
    
    
    value2007Track and roadway
    
    $
    8,828.0
    
    
    $
    2,852.1
    
    
    $
    5,975.9Buildings
    
    
    342.4
    
    
    
    136.0
    
    
    
    206.4Rolling stock
    
    
    3,593.7
    
    
    
    1,485.4
    
    
    
    2,108.3Other
    
    
    1,632.9
    
    
    
    630.4
    
    
    
    1,002.5Total net properties
    
    $
    14,397.0
    
    
    $
    5,103.9
    
    
    $
    9,293.12006Track and roadway
    
    $
    8,615.1
    
    
    $
    2,770.5
    
    
    $
    5,844.6Buildings
    
    
    344.8
    
    
    
    154.1
    
    
    
    190.7Rolling stock
    
    
    3,548.3
    
    
    
    1,450.9
    
    
    
    2,097.4Other
    
    
    1,625.6
    
    
    
    635.4
    
    
    
    990.2Total net properties
    
    $
    14,133.8
    
    
    $
    5,010.9
    
    
    $
    9,122.9
    13. Other assets and deferred charges
 (in millions of Canadian dollars)
    
    2007
    
    
    2006Prepaid pension costs
    
    $
    1,104.1
    
    
    $
    1,081.2Other (1)
    
    
    131.5
    
    
    
    142.0Total other assets and deferred charges
    
    $
    1,235.6
    
    
    $
    1,223.2
 (1)
    2007ANNUALREPORT79




---



##### 



14. Long-term debt
 (in millions of Canadian dollars)
    
    Currency in which payable
    
    2007
    
    
    20066.250 % Notes due 2011
    
    US$
    
    $
    398.8
    
    
    $
    466.27.125 % Debentures due 2031
    
    US$
    
    
    341.4
    
    
    
    407.99.450 % Debentures due 2021
    
    US$
    
    
    244.4
    
    
    
    291.45.750 % Debentures due 2033
    
    US$
    
    
    235.5
    
    
    
    291.44.90 % Medium Term Notes due 2010
    
    CDN$
    
    
    349.8
    
    
    
    350.05.95 % 30  year Notes
    
    US$
    
    
    432.1
    
    
    
    5.41 % Senior Secured Notes due 2024
    
    US$
    
    
    130.4
    
    
    
    160.36.91 % Secured Equipment Notes due 2008  2024
    
    CDN$
    
    
    212.9
    
    
    
    223.27.49 % Equipment Trust Certificates due 2008  2021
    
    US$
    
    
    111.2
    
    
    
    134.9Secured Equipment Loan due 2007
    
    US$
    
    
    
    
    
    
    141.6Secured Equipment Loan due 2008  2015
    
    CDN$
    
    
    144.2
    
    
    
    149.6Obligations under capital leases due 2008  2022
(5.20 %  6.99 %)
    
    US$
    
    
    263.5
    
    
    
    317.0Obligations under capital leases due 2008  2031
(5.64 %  5.65 %)
    
    CDN$
    
    
    13.5
    
    
    
    21.9Bridge financing due 2009
    
    US$
    
    
    1,256.3
    
    
    
    Bank loan payable on demand due 2010 (5.883 %)
    
    CDN$
    
    
    5.1
    
    
    
    4.74,139.1
    
    
    
    2,960.1Perpetual 4 % Consolidated Debenture Stock
    
    US$
    
    
    30.3
    
    
    
    35.7Perpetual 4 % Consolidated Debenture Stock
    
    GB£
    
    
    7.8
    
    
    
    9.04,177.2
    
    
    
    3,004.8Less: Long-term debt maturing within one year
    
    
    
    
    
    
    31.0
    
    
    
    191.3$
    4,146.2
    
    
    $
    2,813.5
    2007ANNUALREPORT80




---



##### 



(in millions of Canadian dollars)
    
    Year
    
    
    Capital leases2008
    
    
    $
    27.82009
    
    
    
    28.92010
    
    
    
    41.52011
    
    
    
    22.22012
    
    
    
    24.5Thereafter
    
    
    
    302.4Total minimum lease payments
    
    
    
    
    
    
    447.3Less: Imputed interest
    
    
    
    
    
    
    (170.3
    )Present value of minimum lease payments
    
    
    
    
    
    
    277.0Less: Current portion
    
    
    
    
    
    
    (8.3
    )Long-term portion of capital lease obligations
    
    
    
    
    
    $
    268.7
    2007ANNUALREPORT81




---



##### 



15. Financial instruments
 FOREIGN EXCHANGE FORWARD CONTRACTS
  COMMODITY CONTRACTS
  INTEREST RATE CONTRACTS
   Expiration
    
    
    October 15, 2011Notional amount of principal (in CDN$ millions)
    
    
    $        198.3Fixed receiving rate
    
    
    6.250
    %Variable paying rate
    
    
    6.655
    %
    2007ANNUALREPORT82




---



##### 



CREDIT RISK MANAGEMENT
 (1)
 INTEREST RATE EXPOSURE AND FAIR VALUES
 (1)
 Fixed interest rate maturing in2007
    
    At floating
    
    
    
    
    
    
    2009
    
    
    2013
    
    
    Total carrying(in millions of Canadian dollars)
    
    interest rates
    
    
    2008
    
    
    to 2012
    
    
    and after
    
    
    value
    
    
    Fair valueFinancial assets(1)Cash and short-term investments
    
    $
    378.1
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    378.1
    
    
    $
    378.1Crude oil swaps, unrealized gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21.4
    
    
    
    21.4Financial liabilitiesShort-term borrowings
    
    
    229.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    229.7
    
    
    
    229.76.250 % Notes
    
    
    
    
    
    
    
    
    
    
    396.5
    
    
    
    
    
    
    
    396.5
    
    
    
    413.87.125 % Debentures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    347.0
    
    
    
    347.0
    
    
    
    374.09.450 % Debentures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    247.8
    
    
    
    247.8
    
    
    
    300.55.750 % Debentures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    247.8
    
    
    
    247.8
    
    
    
    226.25.950 % 30-year notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    446.1
    
    
    
    446.1
    
    
    
    403.84.90 % Medium Term Notes
    
    
    
    
    
    
    
    
    
    
    350.0
    
    
    
    
    
    
    
    350.0
    
    
    
    351.95.41 % Senior Secured Notes
    
    
    
    
    
    
    2.8
    
    
    
    13.7
    
    
    
    95.6
    
    
    
    112.1
    
    
    
    123.66.91 % Secured Equipment Notes
    
    
    
    
    
    
    7.0
    
    
    
    33.3
    
    
    
    176.3
    
    
    
    216.6
    
    
    
    244.67.49 % Equipment Trust Certificates
    
    
    
    
    
    
    4.4
    
    
    
    42.6
    
    
    
    98.2
    
    
    
    145.2
    
    
    
    124.4Secured Equipment Loan
    
    
    133.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    133.1
    
    
    
    145.24 % Consolidated Debenture Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38.1
    
    
    
    38.1
    
    
    
    33.8Obligations under capital leases
    
    
    
    
    
    
    8.3
    
    
    
    46.7
    
    
    
    222.0
    
    
    
    277.0
    
    
    
    296.8Bridge financing
    
    
    1,259.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,259.0
    
    
    
    1,259.0Bank loan payable on demand
    
    
    
    
    
    
    5.1
    
    
    
    
    
    
    
    
    
    
    
    5.1
    
    
    
    5.0Transaction costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (44.2
    )
    
    
    Total long-term debt
    
    
    1,392.1
    
    
    
    27.6
    
    
    
    882.8
    
    
    
    1,918.9
    
    
    
    4,177.2
    
    
    
    4,302.6Notional amounts
    
    
    Fair valueForeign exchange forward contracts
on fuel, unrealized loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.5
    
    
    
    3.5Interest rate swaps, unrealized loss
    
    
    198.3
    
    
    
    
    
    
    
    (198.3
    )
    
    
    
    
    
    
    5.5
    
    
    
    5.5Total return swap, unrealized loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.8
    
    
    
    3.8Interest rate forward, unrealized loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30.6
    
    
    
    30.6Currency forward, unrealized loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15.7
    
    
    
    15.7
 (1)
    2007ANNUALREPORT83




---



##### 



Fixed interest rate maturing in2006
    
    At floating
    
    
    
    
    
    
    2008
    
    
    2012
    
    
    Total carrying(in millions of Canadian dollars)
    
    interest rates
    
    
    2007
    
    
    to 2011
    
    
    and after
    
    
    value
    
    
    Fair valueFinancial assetsCash and short-term investments
    
    $
    124.3
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    124.3
    
    
    $
    124.3Crude oil swaps, unrealized gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31.7Financial liabilities6.250 % Notes
    
    
    
    
    
    
    
    
    
    
    466.2
    
    
    
    
    
    
    
    466.2
    
    
    
    487.07.125 % Debentures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    407.9
    
    
    
    407.9
    
    
    
    484.39.450 % Debentures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    291.4
    
    
    
    291.4
    
    
    
    381.75.750 % Debentures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    291.4
    
    
    
    291.4
    
    
    
    300.64.90 % Medium Term Notes
    
    
    
    
    
    
    
    
    
    
    350.0
    
    
    
    
    
    
    
    350.0
    
    
    
    355.35.41 % Senior Secured Notes
    
    
    
    
    
    
    3.8
    
    
    
    17.5
    
    
    
    139.0
    
    
    
    160.3
    
    
    
    157.86.91 % Secured Equipment Notes
    
    
    
    
    
    
    6.6
    
    
    
    31.1
    
    
    
    185.5
    
    
    
    223.2
    
    
    
    259.07.49 % Equipment Trust Certificates
    
    
    
    
    
    
    3.1
    
    
    
    14.8
    
    
    
    117.0
    
    
    
    134.9
    
    
    
    155.7Secured Equipment Loan
    
    
    141.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    141.6
    
    
    
    141.6Secured Equipment Loan
    
    
    149.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    149.6
    
    
    
    149.64 % Consolidated Debenture Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44.7
    
    
    
    44.7
    
    
    
    37.4Obligations under capital leases
    
    
    
    
    
    
    27.0
    
    
    
    50.4
    
    
    
    261.5
    
    
    
    338.9
    
    
    
    358.2Bank loan payable on demand
    
    
    
    
    
    
    4.7
    
    
    
    
    
    
    
    
    
    
    
    4.7
    
    
    
    4.7Total long-term debt
    
    
    291.2
    
    
    
    45.2
    
    
    
    930.0
    
    
    
    1,738.4
    
    
    
    3,004.8
    
    
    
    3,272.9Notional amounts
    
    Fair valueForeign exchange forward contracts
on fuel, unrealized loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.1Interest rate swaps, unrealized loss
    
    
    233.1
    
    
    
    
    
    
    
    (233.1
    )
    
    
    
    
    
    
    
    
    
    
    2.8Total return swap
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.2
    
    
    
    1.2
   □
    
    Short-term financial assets and liabilities are valued at their carrying amounts as
presented on the Consolidated Balance Sheet, which are reasonable estimates of fair value due
to the relatively short period to maturity of these instruments.□
    
    The fair value of publicly traded long-term debt is determined based on market prices at
December 31, 2007 and 2006. The fair value of other long-term debt is estimated based on rates
currently available to the Company for long-term borrowings, with terms and conditions similar
to those borrowings in place at the applicable Consolidated Balance Sheet date.□
    
    The fair value of derivative instruments is calculated based on market prices or rates at
December 31, 2007 and 2006, which generally reflects the estimated amount the Company would
receive or pay to terminate the contracts at the applicable Consolidated Balance Sheet date.
    2007ANNUALREPORT84




---



##### 



STOCK-BASED COMPENSATION EXPENSE MANAGEMENT
  FAIR VALUE OF FINANCIAL INSTRUMENTS
  Loans and Receivables
 Accounts receivable and other current assets
 Investments
 Financial Liabilities
 Accounts payable and accrued liabilities and short-term borrowings
 Long-term debt
 Available for Sale
 Investments
 Held for Trading
 Other assets and deferred charges and deferred liabilities
 Cash and cash equivalents
 Investments
 Carrying Value and Fair Value of Financial Instruments
    2007ANNUALREPORT85




---



##### 



16. Deferred liabilities
 (in millions of Canadian dollars)
    
    2007
    
    
    2006Provision for restructuring and environmental remediation (Note 18)
    
    $
    234.0
    
    
    $
    309.0Deferred workers compensation and personal injury accruals
    
    
    161.4
    
    
    
    162.5Accrued employee benefits
    
    
    222.0
    
    
    
    208.4Asset retirement obligations (Note 17)
    
    
    29.1
    
    
    
    30.9Deferred revenue on rights-of-way license agreements
    
    
    48.0
    
    
    
    45.8Deferred income credits
    
    
    32.0
    
    
    
    27.3Stock-based compensation liabilities
    
    
    75.0
    
    
    
    76.6Financial instruments
    
    
    13.7
    
    
    
    Other
    
    
    92.1
    
    
    
    54.1907.3
    
    
    
    914.6Less: Amount payable/realizable within one year
    
    
    192.7
    
    
    
    188.9Total deferred liabilities
    
    $
    714.6
    
    
    $
    725.7
  17. Asset retirement obligations
    18. Restructuring accrual and environmental remediation
    2007ANNUALREPORT86




---



##### 



Opening
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Foreign
    
    
    Closingbalance
    
    
    Accrued
    
    
    
    
    
    
    Amortization
    
    
    exchange
    
    
    balance(in millions of Canadian dollars)
    
    Jan. 1
    
    
    (reduced
    )
    
    Payments
    
    
    of discount
    (1)
    
    impact
    
    
    Dec. 31Year ended December 31, 2007Labour liability for terminations and severances
    
    $
    187.4
    
    
    $
    (12.8
    )
    
    $
    (46.8
    )
    
    $
    6.1
    
    
    $
    (4.7
    )
    
    $
    129.2Other non-labour liabilities for exit plans
    
    
    1.4
    
    
    
    (0.2
    )
    
    
    (0.2
    )
    
    
    
    
    
    
    (0.2
    )
    
    
    0.8Total restructuring liability
    
    
    188.8
    
    
    
    (13.0
    )
    
    
    (47.0
    )
    
    
    6.1
    
    
    
    (4.9
    )
    
    
    130.0Environmental remediation program
    
    
    120.2
    
    
    
    7.5
    
    
    
    (14.0
    )
    
    
    
    
    
    
    (9.7
    )
    
    
    104.0Total restructuring and environmental
remediation liability
    
    $
    309.0
    
    
    $
    (5.5
    )
    
    $
    (61.0
    )
    
    $
    6.1
    
    
    $
    (14.6
    )
    
    $
    234.0Year ended December 31, 2006Labour liability for terminations and severances
    
    $
    263.6
    
    
    $
    (14.1
    )
    
    $
    (71.8
    )
    
    $
    9.8
    
    
    $
    (0.1
    )
    
    $
    187.4Other non-labour liabilities for exit plans
    
    
    5.8
    
    
    
    0.7
    
    
    
    (5.0
    )
    
    
    0.1
    
    
    
    (0.2
    )
    
    
    1.4Total restructuring liability
    
    
    269.4
    
    
    
    (13.4
    )
    
    
    (76.8
    )
    
    
    9.9
    
    
    
    (0.3
    )
    
    
    188.8Environmental remediation program
    
    
    129.4
    
    
    
    10.5
    
    
    
    (19.5
    )
    
    
    
    
    
    
    (0.2
    )
    
    
    120.2Total restructuring and environmental
remediation liability
    
    $
    398.8
    
    
    $
    (2.9
    )
    
    $
    (96.3
    )
    
    $
    9.9
    
    
    $
    (0.5
    )
    
    $
    309.0Year ended December 31, 2005Labour liability for terminations and severances
    
    $
    269.7
    
    
    $
    33.6
    
    
    $
    (50.5
    )
    
    $
    12.0
    
    
    $
    (1.2
    )
    
    $
    263.6Other non-labour liabilities for exit plans
    
    
    6.1
    
    
    
    (0.1
    )
    
    
    (0.1
    )
    
    
    0.1
    
    
    
    (0.2
    )
    
    
    5.8Total restructuring liability
    
    
    275.8
    
    
    
    33.5
    
    
    
    (50.6
    )
    
    
    12.1
    
    
    
    (1.4
    )
    
    
    269.4Environmental remediation program
    
    
    172.9
    
    
    
    (22.4
    )
    
    
    (18.4
    )
    
    
    
    
    
    
    (2.7
    )
    
    
    129.4Total restructuring and environmental
remediation liability
    
    $
    448.7
    
    
    $
    11.1
    
    
    $
    (69.0
    )
    
    $
    12.1
    
    
    $
    (4.1
    )
    
    $
    398.8
 (1)
    2007ANNUALREPORT87




---



##### 



19. Shareholders equity
 AUTHORIZED AND ISSUED SHARE CAPITAL
   2007
    
    
    2006(in millions)
    
    Number
    
    
    NumberShare capital, January 1
    
    
    155.5
    
    
    
    158.2Shares issued under stock option plans
    
    
    1.0
    
    
    
    2.3Shares repurchased
    
    
    (3.2
    )
    
    
    (5.0
    )Share capital, December 31
    
    
    153.3
    
    
    
    155.5
    2007ANNUALREPORT88




---



##### 



(in millions of Canadian dollars)
    
    2007
    
    
    2006Share capital
    
    $
    24.5
    
    
    $
    36.8Contributed surplus
    
    
    
    
    
    
    223.1Retained income
    
    
    206.6
    
    
    
    26.5CP Common Shares repurchased
    
    $
    231.1
    
    
    $
    286.4
 20. Pensions and other benefits
    2007ANNUALREPORT89




---



##### 



Pensions
    
    
    Other benefits(in millions of Canadian dollars)
    
    2007
    
    
    2006
    
    
    2005
    
    
    2007
    
    
    2006
    
    
    2005Current service cost (benefits
earned
by employees in the year)
    
    $
    97.6
    
    
    $
    101.9
    
    
    $
    75.7
    
    
    $
    16.8
    
    
    $
    15.1
    
    
    $
    13.8Interest cost on benefit obligation
    
    
    420.0
    
    
    
    400.0
    
    
    
    405.0
    
    
    
    26.7
    
    
    
    26.6
    
    
    
    27.3Actual return on fund assets
    
    
    (275.9
    )
    
    
    (927.4
    )
    
    
    (849.8
    )
    
    
    (1.2
    )
    
    
    (0.6
    )
    
    
    (0.7
    )Actuarial (gain) loss
    
    
    (1.4
    )
    
    
    35.2
    
    
    
    693.7
    (1)
    
    
    (1.1
    )
    
    
    (2.9
    )
    
    
    29.8Plan amendments
    
    
    22.5
    
    
    
    1.3
    
    
    
    56.5
    
    
    
    
    
    
    
    (1.2
    )
    
    
    (6.7
    )Settlement gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10.7
    )(2)
    
    
    
    
    
    
    Elements of employee future benefit
cost, before adjustments to
recognize the long-term nature
of employee future benefit costs
    
    
    262.8
    
    
    
    (389.0
    )
    
    
    381.1
    
    
    
    30.5
    
    
    
    37.0
    
    
    
    63.5Adjustments to recognize the
long-term nature of employee
future benefit costs:Amortization of transitional
(asset) obligation
    
    
    (16.2
    )
    
    
    (16.2
    )
    
    
    (16.2
    )
    
    
    12.4
    
    
    
    12.4
    
    
    
    12.7Difference between expected return
and actual return on fund assets
    
    
    (278.3
    )
    
    
    401.2
    
    
    
    351.2
    
    
    
    0.6
    
    
    
    
    
    
    
    Difference between actuarial
loss (gain) recognized and
actual actuarial loss (gain)
on benefit obligation
    
    
    99.9
    
    
    
    64.9
    
    
    
    (638.1
    )
    
    
    6.8
    
    
    
    9.1
    
    
    
    (25.6
    )Difference between amortization
of prior service costs and actual
plan amendments
    
    
    (5.8
    )
    
    
    14.5
    
    
    
    (41.3
    )
    
    
    (0.2
    )
    
    
    1.0
    
    
    
    6.7Net benefit cost
    
    $
    62.4
    
    
    $
    75.4
    
    
    $
    36.7
    
    
    $
    50.1
    
    
    $
    59.5
    
    
    $
    57.3
 (1)
 (2)
    2007ANNUALREPORT90




---



##### 



Pensions
    
    
    Other benefits(in millions of Canadian dollars)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Change in benefit obligation:Benefit obligation at January 1
    
    $
    7,892.7
    
    
    $
    7,732.2
    
    
    $
    509.5
    
    
    $
    498.9Current service cost
    
    
    97.6
    
    
    
    101.9
    
    
    
    16.8
    
    
    
    15.1Interest cost
    
    
    420.0
    
    
    
    400.0
    
    
    
    26.7
    
    
    
    26.6Employee contributions
    
    
    53.4
    
    
    
    53.9
    
    
    
    0.2
    
    
    
    0.2Benefits paid
    
    
    (436.9
    )
    
    
    (432.1
    )
    
    
    (35.7
    )
    
    
    (33.2
    )Foreign currency changes
    
    
    (22.1
    )
    
    
    0.3
    
    
    
    (9.3
    )
    
    
    0.3Actuarial loss (gain)
    
    
    (1.4
    )
    
    
    35.2
    
    
    
    (1.1
    )
    
    
    (2.9
    )Plan amendments and other
    
    
    22.5
    
    
    
    1.3
    
    
    
    
    
    
    
    4.5Release due to settlement
    
    
    
    
    
    
    
    
    
    
    (15.4
    )
    
    
    Benefit obligation at December 31
    
    $
    8,025.8
    
    
    $
    7,892.7
    
    
    $
    491.7
    
    
    $
    509.5Change in fund assets:Fair value of fund assets at January 1
    
    $
    7,649.2
    
    
    $
    6,890.1
    
    
    $
    11.9
    
    
    $
    11.9Actual return on fund assets
    
    
    275.9
    
    
    
    927.4
    
    
    
    1.2
    
    
    
    0.6Employer contributions
    
    
    86.4
    
    
    
    209.5
    
    
    
    34.9
    
    
    
    32.4Employee contributions
    
    
    53.4
    
    
    
    53.9
    
    
    
    0.2
    
    
    
    0.2Benefits paid
    
    
    (436.9
    )
    
    
    (432.1
    )
    
    
    (35.7
    )
    
    
    (33.2
    )Foreign currency changes
    
    
    (17.5
    )
    
    
    0.4
    
    
    
    
    
    
    
    Fair value of fund assets at December 31
    
    $
    7,610.5
    
    
    $
    7,649.2
    
    
    $
    12.5
    
    
    $
    11.9Funded status  plan deficit
    
    $
    (415.3
    )
    
    $
    (243.5
    )
    
    $
    (479.2
    )
    
    $
    (497.6
    )Unamortized prior service cost
    
    
    132.6
    
    
    
    126.9
    
    
    
    (0.7
    )
    
    
    (1.0
    )Unamortized net transitional (asset) obligation
    
    
    (80.3
    )
    
    
    (96.5
    )
    
    
    61.7
    
    
    
    74.1Unamortized experience losses:Deferred investment losses due to use of market-related value to
determine net benefit cost
    
    
    (181.2
    )
    
    
    (568.9
    )
    
    
    
    
    
    
    Unamortized net actuarial loss
    
    
    1,647.3
    (1)
    
    
    1,861.7
    (1)
    
    
    101.9
    
    
    
    118.9Accrued benefit asset (liability) on the Consolidated Balance Sheet
    
    $
    1,103.1
    
    
    $
    1,079.7
    
    
    $
    (316.3
    )
    
    $
    (305.6
    )
 (1)
 2007ANNUALREPORT91




---



##### 



Pensions
    
    
    Other benefits(in millions of Canadian dollars)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Other assets and deferred charges
    
    $
    1,104.1
    
    
    $
    1,081.2
    
    
    $
    
    
    
    $
    Accounts payable and accrued liabilities
    
    
    (0.2
    )
    
    
    (0.3
    )
    
    
    (38.3
    )
    
    
    (21.5
    )Other long-term liabilities
    
    
    (0.8
    )
    
    
    (1.2
    )
    
    
    (278.0
    )
    
    
    (284.1
    )Accrued benefit asset (liability) on the Consolidated Balance Sheet
    
    $
    1,103.1
    
    
    $
    1,079.7
    
    
    $
    (316.3
    )
    
    $
    (305.6
    )
   Pensions
    
    
    Other benefits(in millions of Canadian dollars)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Benefit obligation
    
    $
    (8,025.8
    )
    
    $
    (7,892.7
    )
    
    $
    (491.7
    )
    
    $
    (509.5
    )Fair value of fund assets
    
    
    7,610.5
    
    
    
    7,649.2
    
    
    
    12.5
    
    
    
    11.9$
    (415.3
    )
    
    $
    (243.5
    )
    
    $
    (479.2
    )
    
    $
    (497.6
    )
  (percentages)
    
    2007
    
    
    2006
    
    
    2005Benefit obligation at December 31:Discount rate
    
    
    5.60
    
    
    
    5.40
    
    
    
    5.25Projected future salary increases
    
    
    3.00
    
    
    
    3.00
    
    
    
    3.00Health care cost trend rate
    
    
    9.50
    (1)
    
    
    10.00
    (1)
    
    
    10.00
    (1)Benefit cost for year ended December 31:Discount rate
    
    
    5.40
    
    
    
    5.25
    
    
    
    6.00Expected rate of return on fund assets
    
    
    8.00
    
    
    
    8.00
    
    
    
    8.00Projected future salary increases
    
    
    3.00
    
    
    
    3.00
    
    
    
    3.00Health care cost trend rate
    
    
    10.00
    (1)
    
    
    10.00
    (1)
    
    
    8.50
    (2)
 (1)
 (2)
    2007ANNUALREPORT92




---



##### 



One percentage
    
    
    One percentageFavourable (unfavourable) (in millions of Canadian dollars)
    
    point increase
    
    
    point decreaseEffect on the total of service and interest costs
    
    $
    (1.2
    )
    
        $
    1.1Effect on post-retirement benefit obligation
    
    $
    (14.8
    )
    
        $
    14.0
 PLAN ASSETS
  Percentage of planassets at December 31Asset allocation (percentage)
    
    Current permissible range
    
    
    2007
    
    
    2006Equity securities
    
    
    47  53
    
    
    
    49.4
    
    
    
    56.3Debt securities
    
    
    37  43
    
    
    
    41.6
    
    
    
    38.1Real estate and infrastructure
    
    
    8  12
    
    
    
    9.0
    
    
    
    5.6Total
    
    
    
    
    
    
    100.0
    
    
    
    100.0
   CASH FLOWS
  DEFINED CONTRIBUTION PLAN
    2007ANNUALREPORT93




---



##### 



POST-EMPLOYMENT RESTRUCTURING BENEFITS
  (in millions of Canadian dollars)
    
    2007
    
    
    2006Change in liability:Restructuring labour liability at January 1
    
    $
    160.8
    
    
    $
    224.8Plan adjustment
    
    
    (12.8
    )
    
    
    (14.1
    )Interest cost
    
    
    8.9
    
    
    
    12.0Benefits paid
    
    
    (36.8
    )
    
    
    (61.8
    )Foreign currency changes
    
    
    (4.7
    )
    
    
    (0.1
    )Restructuring labour liability at December 31
    
    
    115.4
    
    
    
    160.8Unfunded restructuring labour amount
    
    
    (115.4
    )
    
    
    (160.8
    )Unamortized net transitional amount
    
    
    (13.8
    )
    
    
    (26.6
    )Accrued restructuring labour liability on the Consolidated Balance Sheet
    
    $
    (129.2
    )
    
    $
    (187.4
    )
 21. Stock-based compensation
  REPLACEMENT OPTIONS AND SARS
    STOCK OPTION PLANS AND SARS
    2007ANNUALREPORT94




---



##### 



2007
    
    2006Weighted
    
    
    
    
    
    
    WeightedNumber of
    
    
    average
    
    
    Number of
    
    
    averageoptions
    
    
    exercise price
    
    
    options
    
    
    exercise priceOutstanding, January 1
    
    
    6,807,644
    
    
    $
    38.50
    
    
    
    7,971,917
    
    
    $
    32.07New options granted
    
    
    1,304,500
    
    
    
    62.60
    
    
    
    1,467,900
    
    
    
    57.80Exercised
    
    
    (972,281
    )
    
    
    31.99
    
    
    
    (2,330,664
    )
    
    
    28.59Forfeited/cancelled
    
    
    (158,755
    )
    
    
    35.76
    
    
    
    (301,509
    )
    
    
    39.07Outstanding, December 31
    
    
    6,981,108
    
    
    $
    43.97
    
    
    
    6,807,644
    
    
    $
    38.50Options exercisable at December 31
    
    
    4,035,008
    
    
    $
    34.12
    
    
    
    2,918,294
    
    
    $
    29.64
  Options outstanding
    
    Options exercisableWeightedaverage
    
    
    Weighted
    
    
    
    
    
    
    WeightedNumber of
    
    
    years to
    
    
    average
    
    
    Number
    
    
    averageRange of exercise prices
    
    options
    
    
    expiration
    
    
    exercise price
    
    
    of options
    
    
    exercise price$14.07  $18.96
    
    
    184,225
    
    
    
    2
    
    
    $
    14.49
    
    
    
    184,225
    
    
    $
    14.49$27.62  $36.64
    
    
    2,812,483
    
    
    
    4
    
    
    
    31.31
    
    
    
    2,812,483
    
    
    
    31.31$42.05  $74.89
    
    
    3,984,400
    
    
    
    7
    
    
    
    54.21
    
    
    
    1,038,300
    
    
    
    45.21Total
    
    
    6,981,108
    
    
    
    6
    
    
    $
    43.97
    
    
    
    4,035,008
    
    
    $
    34.12
 DEFERRED SHARE UNIT PLAN AND OTHER
    2007ANNUALREPORT95




---



##### 



2007
    
    
    2006
    
    
    2005Expected option life (years)
    
    
    4.00
    
    
    
    4.50
    
    
    
    4.50Risk-free interest rate
    
    
    3.90
    %
    
    
    4.07
    %
    
    
    3.49
    %Expected stock price volatility
    
    
    22
    %
    
    
    22
    %
    
    
    24
    %Expected annual dividends per share
    
    $
    0.90
    
    
    $
    0.75
    
    
    $
    0.53Weighted average fair value of options granted during the year
    
    $
    12.97
    
    
    $
    12.99
    
    
    $
    9.66
 EMPLOYEE SHARE PURCHASE PLAN
   22. Commitments and contingencies
    2007ANNUALREPORT96




---



##### 



GUARANTEES
  □
    
    residual value guarantees on operating lease commitments of $321.7 million at December 31,
2007;□
    
    guarantees to pay other parties in the event of the occurrence of specified events,
including damage to equipment, in relation to assets used in the operation of the railway
through operating leases, rental agreements, easements, trackage and interline agreements;□
    
    indemnifications of certain tax-related payments incurred by lessors and lenders; and□
    
    certain amounts related to the Companys investment in the DM&E. These include minimum
lease payments of $46.2 million, residual value guarantees of $11.0 million, and a line of
credit of US$10 million (see Note 11).
  INDEMNIFICATIONS
   23. Segmented information
 OPERATING SEGMENT
    2007ANNUALREPORT97




---



##### 



GEOGRAPHIC INFORMATION
 (in millions of Canadian dollars)
    
    Canada
    
    
    United States
    
    
    Total2007Revenues
    
    $
    3,716.4
    
    
    $
    991.2
    
    
    $
    4,707.6Net properties
    
    $
    7,745.1
    
    
    $
    1,548.0
    
    
    $
    9,293.12006Revenues
    
    $
    3,575.1
    
    
    $
    1,008.1
    
    
    $
    4,583.2Net properties
    
    $
    7,539.3
    
    
    $
    1,583.6
    
    
    $
    9,122.92005Revenues
    
    $
    3,404.1
    
    
    $
    987.5
    
    
    $
    4,391.6
   CONSOLIDATING INFORMATION  2007
 Other
    
    
    Consolidating(in millions of Canadian dollars)
    
    Canada
    
    
    United States
    
    
    countries
    
    
    entries
    
    
    TotalRevenues
    
    $
    3,715.9
    
    
    $
    991.2
    
    
    $
    
    
    
    $
    0.5
    
    
    $
    4,707.6Operating expenses
    
    
    2,949.9
    
    
    
    688.6
    
    
    
    0.1
    
    
    
    (95.2
    )
    
    
    3,543.4Operating income (loss)
    
    
    766.0
    
    
    
    302.6
    
    
    
    (0.1
    )
    
    
    95.7
    
    
    
    1,164.2Interest and other income and charges
    
    
    230.7
    
    
    
    43.8
    
    
    
    (30.9
    )
    
    
    (0.5
    )
    
    
    243.1Foreign exchange (gain) loss on long-term debt
    
    
    (255.6
    )
    
    
    
    
    
    
    84.4
    
    
    
    1.4
    
    
    
    (169.8
    )Income taxes
    
    
    99.8
    
    
    
    89.5
    
    
    
    0.7
    
    
    
    (45.3
    )
    
    
    144.7Net income (loss)
    
    $
    691.1
    
    
    $
    169.3
    
    
    $
    (54.3
    )
    
    $
    140.1
    
    
    $
    946.2Current assets
    
    $
    1,014.1
    
    
    $
    358.0
    
    
    $
    (89.8
    )
    
    $
    (114.6
    )
    
    $
    1,167.7Net properties
    
    
    5,925.7
    
    
    
    1,487.5
    
    
    
    
    
    
    
    1,879.9
    
    
    
    9,293.1Other long-term assets
    
    
    2,766.7
    
    
    
    1,559.8
    
    
    
    515.1
    
    
    
    (1,937.4
    )
    
    
    2,904.2Total assets
    
    $
    9,706.5
    
    
    $
    3,405.3
    
    
    $
    425.3
    
    
    $
    (172.1
    )
    
    $
    13,365.0Current liabilities
    
    $
    1,158.7
    
    
    $
    232.1
    
    
    $
    0.3
    
    
    $
    (46.3
    )
    
    $
    1,344.8Long-term liabilities
    
    
    5,648.9
    
    
    
    1,809.0
    
    
    
    
    
    
    
    (895.6
    )
    
    
    6,562.3Shareholders equity
    
    
    2,898.9
    
    
    
    1,364.2
    
    
    
    425.0
    
    
    
    769.8
    
    
    
    5,457.9Total liabilities and shareholders equity
    
    $
    9,706.5
    
    
    $
    3,405.3
    
    
    $
    425.3
    
    
    $
    (172.1
    )
    
    $
    13,365.0
    2007ANNUALREPORT98




---



##### 



CONSOLIDATING INFORMATION  2006
 Other
    
    
    Consolidating(in millions of Canadian dollars)
    
    Canada
    
    
    United States
    
    
    countries
    
    
    entries
    
    
    TotalRevenues
    
    $
    3,571.2
    
    
    $
    1,008.1
    
    
    $
    
    
    
    $
    3.9
    
    
    $
    4,583.2Operating expenses
    
    
    2,833.9
    
    
    
    736.5
    
    
    
    
    
    
    
    (115.8
    )
    
    
    3,454.6Operating income
    
    
    737.3
    
    
    
    271.6
    
    
    
    
    
    
    
    119.7
    
    
    
    1,128.6Interest and other income and charges
    
    
    196.5
    
    
    
    42.0
    
    
    
    (25.2
    )
    
    
    9.0
    
    
    
    222.3Foreign exchange (gain) loss on long-term debt
    
    
    1.2
    
    
    
    
    
    
    
    (1.3
    )
    
    
    0.2
    
    
    
    0.1Income taxes
    
    
    69.6
    
    
    
    86.7
    
    
    
    0.5
    
    
    
    (46.9
    )
    
    
    109.9Net income
    
    $
    470.0
    
    
    $
    142.9
    
    
    $
    26.0
    
    
    $
    157.4
    
    
    $
    796.3Current assets
    
    $
    813.5
    
    
    $
    293.2
    
    
    $
    18.1
    
    
    $
    (119.9
    )
    
    $
    1,004.9Net properties
    
    
    5,673.0
    
    
    
    1,569.3
    
    
    
    
    
    
    
    1,880.6
    
    
    
    9,122.9Other long-term assets
    
    
    1,241.7
    
    
    
    67.9
    
    
    
    414.4
    
    
    
    (435.9
    )
    
    
    1,288.1Total assets
    
    $
    7,728.2
    
    
    $
    1,930.4
    
    
    $
    432.5
    
    
    $
    1,324.8
    
    
    $
    11,415.9Current liabilities
    
    $
    924.3
    
    
    $
    227.7
    
    
    $
    0.2
    
    
    $
    86.8
    
    
    $
    1,239.0Long-term liabilities
    
    
    4,299.0
    
    
    
    1,076.2
    
    
    
    
    
    
    
    (54.8
    )
    
    
    5,320.4Shareholders equity
    
    
    2,504.9
    
    
    
    626.5
    
    
    
    432.3
    
    
    
    1,292.8
    
    
    
    4,856.5Total liabilities and shareholders equity
    
    $
    7,728.2
    
    
    $
    1,930.4
    
    
    $
    432.5
    
    
    $
    1,324.8
    
    
    $
    11,415.9
 CONSOLIDATING INFORMATION  2005
 Other
    
    
    Consolidating(in millions of Canadian dollars)
    
    Canada
    
    
    United States
    
    
    countries
    
    
    entries
    
    
    TotalRevenues
    
    $
    3,397.9
    
    
    $
    987.5
    
    
    $
    
    
    
    $
    6.2
    
    
    $
    4,391.6Operating expenses
    
    
    2,731.1
    
    
    
    779.0
    
    
    
    
    
    
    
    (109.7
    )
    
    
    3,400.4Operating income
    
    
    666.8
    
    
    
    208.5
    
    
    
    
    
    
    
    115.9
    
    
    
    991.2Interest and other income and charges
    
    
    194.9
    
    
    
    42.6
    
    
    
    (22.1
    )
    
    
    6.9
    
    
    
    222.3Foreign exchange (gain) loss on long-term debt
    
    
    (53.8
    )
    
    
    
    
    
    
    13.7
    
    
    
    (4.6
    )
    
    
    (44.7
    )Income taxes
    
    
    165.8
    
    
    
    65.0
    
    
    
    0.7
    
    
    
    39.1
    
    
    
    270.6Net income
    
    $
    359.9
    
    
    $
    100.9
    
    
    $
    7.7
    
    
    $
    74.5
    
    
    $
    543.0
 24. Reconciliation of Canadian and United States generally accepted accounting principles
    2007ANNUALREPORT99




---



##### 



ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
   PENSIONS AND POST-RETIREMENT BENEFITS
    2007ANNUALREPORT100




---



##### 



POST-EMPLOYMENT BENEFITS
  TERMINATION AND SEVERANCE BENEFITS
  STOCK-BASED COMPENSATION
     INTERNAL USE SOFTWARE
    2007ANNUALREPORT101




---



##### 



CAPITALIZATION OF INTEREST
  COMPREHENSIVE INCOME
   JOINT VENTURE
  OFFSETTING CONTRACTS
  START-UP COSTS
  UNCERTAINTY IN TAX POSITIONS
    2007ANNUALREPORT102




---



##### 



CAPITAL LEASES
  STATEMENT OF CASH FLOWS
  FUTURE ACCOUNTING CHANGES
 Measurement date of defined benefit pension
  Fair value measurement
  Fair value option for financial assets and financial liabilities
  Business combinations
  Non-controlling interests in consolidated financial statements
    2007ANNUALREPORT103




---



##### 



COMPARATIVE INCOME STATEMENT
  (in millions of Canadian dollars, except per share data)
    
    2007
    
    
    2006
    
    
    2005Net income  Canadian GAAP
    
    $
    946.2
    
    
    $
    796.3
    
    
    $
    543.0Increased (decreased) by:Pension costs
    
    
    5.8
    
    
    
    5.1
    
    
    
    7.7Post-retirement benefits costs
    
    
    9.4
    
    
    
    9.1
    
    
    
    9.2Post-employment benefits costs
    
    
    7.2
    
    
    
    6.7
    
    
    
    (4.0
    )Termination and severance benefits
    
    
    (8.8
    )
    
    
    (8.2
    )
    
    
    (9.4
    )Internal use software  additions
    
    
    (12.0
    )
    
    
    (9.2
    )
    
    
    (9.8
    )Internal use software  depreciation
    
    
    8.0
    
    
    
    7.1
    
    
    
    6.1Stock-based compensation
    
    
    (1.7
    )
    
    
    (3.0
    )
    
    
    (3.4
    )Loss on ineffective portion of hedges
    
    
    (0.4
    )
    
    
    (0.9
    )
    
    
    (6.6
    )Capitalized interest  additions
    
    
    14.0
    
    
    
    4.1
    
    
    
    4.4Capitalized interest  depreciation
    
    
    (4.5
    )
    
    
    (3.9
    )
    
    
    (3.9
    )Start-up costs
    
    
    (0.8
    )
    
    
    (10.8
    )
    
    
    Fair value of financial instruments
    
    
    
    
    
    
    (2.3
    )
    
    
    Future/deferred income tax expense related to net income
    
    
    (40.7
    )
    
    
    (19.0
    )
    
    
    1.7Income before cumulative catch-up adjustment
    
    
    921.7
    
    
    
    771.1
    
    
    
    535.0Cumulative catch-up adjustment on adoption of FASB 123R, net of tax
    
    
    
    
    
    
    (2.0
    )
    
    
    Net income  U.S. GAAP
    
    $
    921.7
    
    
    $
    769.1
    
    
    $
    535.0Other comprehensive loss  Canadian GAAP
    
    
    (40.8
    )
    
    
    (1.1
    )
    
    
    (9.5
    )Increased (decreased) by:Unrealized foreign exchange gain on designated net investment hedge
    
    
    0.4
    
    
    
    0.6
    
    
    
    4.8Unfunded pension and post-retirement liability adjustment
    
    
    (186.6
    )
    
    
    
    
    
    
    Minimum pension liability adjustment
    
    
    
    
    
    
    783.3
    
    
    
    (254.3
    )Change in fair value of derivative instruments
    
    
    
    
    
    
    16.6
    
    
    
    86.5Gain on derivative instruments realized in net income
    
    
    
    
    
    
    (42.5
    )
    
    
    (55.9
    )Future (deferred) income tax recovery (expense) related to other
comprehensive loss
    
    
    35.7
    
    
    
    (210.7
    )
    
    
    76.6Other comprehensive (loss) income  U.S. GAAP
    
    $
    (191.3
    )
    
    $
    546.2
    
    
    $
    (151.8
    )Earnings per share  U.S. GAAPBasic earnings per share before cumulative catch-up
adjustment on adoption of FASB 123R, net of tax
    
    $
    5.98
    
    
    $
    4.90
    
    
    $
    3.38Basic earnings per share after cumulative catch-up
adjustment on adoption of FASB 123R, net of tax
    
    $
    5.98
    
    
    $
    4.89
    
    
    $
    3.38Diluted earnings per share before cumulative catch-up
adjustment on adoption of FASB 123R, net of tax
    
    $
    5.92
    
    
    $
    4.86
    
    
    $
    3.34Diluted earnings per share after cumulative catch-up
adjustment on adoption of FASB 123R, net of tax
    
    $
    5.92
    
    
    $
    4.84
    
    
    $
    3.34
    2007ANNUALREPORT104




---



##### 



(in millions of Canadian dollars)
    
    2007
    
    
    2006
    
    
    2005Comprehensive incomeCanadian GAAP
    
    $
    905.4
    
    
    $
    795.2
    
    
    $
    533.5U.S. GAAP
    
    $
    730.4
    
    
    $
    1,315.3
    
    
    $
    383.2
  (in millions of Canadian dollars)
    
    2007
    
    
    2006
    
    
    2005Operating incomeCanadian GAAP
    
    $

    1,164.2
    
    
    $
    1,128.6
    
    
    $
    991.2U.S. GAAP
    
    $

    1,166.5
    
    
    $
    1,122.3
    
    
    $
    981.5
    2007ANNUALREPORT105




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##### 



CONSOLIDATED BALANCE SHEET
  (in millions of Canadian dollars)
    
    2007
    
    
    2006AssetsCurrent assetsCashInvestment in joint ventures
    
    $
    (0.2
    )
    
    $
    (0.4
    )Accounts receivable and other current assetsInvestment in joint ventures
    
    
    1.4
    
    
    
    1.9Long-term assetsInvestmentsInvestment in joint ventures
    
    
    48.9
    
    
    
    87.8Capital commitments and mortgages
    
    
    
    
    
    
    (2.3
    )Start-up costs
    
    
    (11.6
    )
    
    
    (10.8
    )PropertiesCapitalized interest
    
    
    160.0
    
    
    
    150.4Internal use software
    
    
    (55.2
    )
    
    
    (51.2
    )Investment in joint ventures
    
    
    (36.1
    )
    
    
    (71.5
    )Capital leases
    
    
    (10.4
    )
    
    
    Other assets and deferred chargesPension
    
    
    (1,103.1
    )
    
    
    (1,079.7
    )Long-term receivable (FIN 39)
    
    
    190.3
    
    
    
    179.5Derivative instruments
    
    
    
    
    
    
    31.7Transaction costs on long-term debt
    
    
    36.0
    
    
    
    Investment in joint ventures
    
    
    (14.8
    )
    
    
    (22.2
    )Total assets
    
    $
    (794.8
    )
    
    $
    (786.8
    )
    2007ANNUALREPORT106




---



##### 



CONSOLIDATED BALANCE SHEET
 (in millions of Canadian dollars)
    
    2007
    
    
    2006Liabilities and shareholders equityCurrent liabilitiesAccounts payable and accrued liabilitiesInvestment in joint ventures
    
    $
    (0.4
    )
    
    $
    (1.3
    )Income and other taxes payableInvestment in joint ventures
    
    
    (0.1
    )
    
    
    (0.2
    )Long-term debt maturing within one yearCapital leases
    
    
    (0.7
    )
    
    
    Long-term liabilitiesDeferred liabilitiesTermination and severance benefits
    
    
    (10.2
    )
    
    
    (19.0
    )Post-employment benefit liability
    
    
    5.2
    
    
    
    16.4Under funded status of defined benefit pension and other post-retirement plans
    
    
    573.0
    
    
    
    421.0Derivative instruments
    
    
    
    
    
    
    4.8Investment in joint ventures
    
    
    (0.5
    )
    
    
    (2.7
    )Stock-based compensation
    
    
    0.2
    
    
    
    (0.6
    )Long-term debtMarked-to-market hedged portion of debt
    
    
    
    
    
    
    (2.8
    )Bank loan (FIN 39)
    
    
    190.3
    
    
    
    179.5Capital leases
    
    
    (9.7
    )
    
    
    Transaction costs on long-term debt
    
    
    36.0
    
    
    
    Future/deferred income tax liability
    
    
    (441.2
    )
    
    
    (437.2
    )Total liabilities
    
    
    341.9
    
    
    
    157.9Shareholders equityShare capitalStock-based compensation
    
    
    20.9
    
    
    
    16.9Contributed surplusStock-based compensation
    
    
    5.2
    
    
    
    8.3Retained income
    
    
    (156.8
    )
    
    
    (128.4
    )Accumulated other comprehensive incomeForeign currency translation adjustments
    
    
    
    
    
    
    (2.1
    )Funding status of defined benefit pension and other post-retirement plans
    
    
    (1,010.2
    )
    
    
    (858.8
    )Derivative instruments (FASB 133)
    
    
    4.2
    
    
    
    19.4Total liabilities and shareholders equity
    
    $
    (794.8
    )
    
    $
    (786.8
    )
    2007ANNUALREPORT107




---



##### 



(in millions)
    
    2007
    
    
    2006
    
    
    2005(1)
    
    
    2004(1)
    
    
    2003(1)
    (2)Income StatementRevenuesFreightGrain
    
    $
    938.9
    
    
    $
    904.6
    
    
    $
    754.5
    
    
    $
    668.2
    
    
    $
    644.4Coal
    
    
    573.6
    
    
    
    592.0
    
    
    
    728.8
    
    
    
    530.3
    
    
    
    444.0Sulphur and fertilizers
    
    
    502.0
    
    
    
    439.3
    
    
    
    447.1
    
    
    
    460.0
    
    
    
    417.4Forest products
    
    
    275.8
    
    
    
    316.4
    
    
    
    333.9
    
    
    
    322.0
    
    
    
    328.8Industrial and consumer products (3)
    
    
    627.9
    
    
    
    603.8
    
    
    
    542.9
    
    
    
    481.4
    
    
    
    459.9Intermodal (3)
    
    
    1,318.0
    
    
    
    1,256.8
    
    
    
    1,161.1
    
    
    
    1,034.7
    
    
    
    926.4Automotive
    
    
    319.0
    
    
    
    314.4
    
    
    
    298.0
    
    
    
    288.5
    
    
    
    304.24,555.2
    
    
    
    4,427.3
    
    
    
    4,266.3
    
    
    
    3,785.1
    
    
    
    3,525.1Other (3) (4) (6)
    
    
    152.4
    
    
    
    155.9
    
    
    
    125.3
    
    
    
    117.8
    
    
    
    135.6Total revenues (4) (6)
    
    
    4,707.6
    
    
    
    4,583.2
    
    
    
    4,391.6
    
    
    
    3,902.9
    
    
    
    3,660.7Operating expensesCompensation and benefits
    
    
    1,284.2
    
    
    
    1,327.6
    
    
    
    1,322.1
    
    
    
    1,261.5
    
    
    
    1,166.4Fuel
    
    
    746.8
    
    
    
    650.5
    
    
    
    588.0
    
    
    
    440.0
    
    
    
    393.6Materials
    
    
    215.5
    
    
    
    212.9
    
    
    
    203.3
    
    
    
    178.5
    
    
    
    179.2Equipment rents
    
    
    207.5
    
    
    
    181.2
    
    
    
    210.0
    
    
    
    218.5
    
    
    
    238.5Depreciation
    
    
    472.0
    
    
    
    464.1
    
    
    
    445.1
    
    
    
    407.1
    
    
    
    372.3Purchased services and other
    
    
    617.4
    
    
    
    618.3
    
    
    
    621.6
    
    
    
    610.7
    
    
    
    583.6Total operating expenses, before other specified
items (4) (6)
    
    
    3,543.4
    
    
    
    3,454.6
    
    
    
    3,390.1
    
    
    
    3,116.3
    
    
    
    2,933.6Operating income, before other specified items (4) (6)
    
    
    1,164.2
    
    
    
    1,128.6
    
    
    
    1,001.5
    
    
    
    786.6
    
    
    
    727.1Other income and charges, before foreign exchange gains and losses on
long-term debt and other specified items (4) (5) (6)
    
    
    17.3
    
    
    
    27.8
    
    
    
    18.1
    
    
    
    36.1
    
    
    
    33.5Interest expense
    
    
    204.3
    
    
    
    194.5
    
    
    
    204.2
    
    
    
    218.6
    
    
    
    218.7Income tax expense, before foreign exchange gains and losses on
long-term debt and income tax on other specified items (4) (5)
(6)
    
    
    269.8
    
    
    
    278.8
    
    
    
    250.8
    
    
    
    172.4
    
    
    
    147.0Income, before foreign exchange gains and losses
on long-term debt and other specified items (4) (5) (6)
    
    
    672.8
    
    
    
    627.5
    
    
    
    528.4
    
    
    
    359.5
    
    
    
    327.9Foreign exchange gain (loss) on long-term debt (net of income tax)
(5)
    
    
    125.5
    
    
    
    (7.2
    )
    
    
    22.3
    
    
    
    94.4
    
    
    
    224.4Other specified items (net of income tax) (4)
    
    
    147.9
    
    
    
    176.0
    
    
    
    (7.7
    )
    
    
    (42.8
    )
    
    
    (153.2
    )Net income
    
    $
    946.2
    
    
    $
    796.3
    
    
    $
    543.0
    
    
    $
    411.1
    
    
    $
    399.1
    2007ANNUALREPORT108




---



##### 



(1)
 (2)
 (3)
 (4)
 (5)
 (6)
    2007ANNUALREPORT109




---



##### 



COMMON SHARE MARKET PRICES
 2007
    
    
    2006Toronto Stock Exchange (Canadian dollars)
    
    High
    
    
    Low
    
    
    High
    
    
    LowFirst Quarter
    
    
    66.33
    
    
    
    60.06
    
    
    
    60.85
    
    
    
    45.55Second Quarter
    
    
    78.48
    
    
    
    63.75
    
    
    
    65.17
    
    
    
    52.55Third Quarter
    
    
    91.00
    
    
    
    67.37
    
    
    
    57.97
    
    
    
    51.05Fourth Quarter
    
    
    73.00
    
    
    
    59.48
    
    
    
    65.29
    
    
    
    54.95Year
    
    
    91.00
    
    
    
    59.48
    
    
    
    65.29
    
    
    
    45.55New York Stock Exchange(U.S. dollars)
    
    High
    
    
    Low
    
    
    High
    
    
    LowFirst Quarter
    
    
    56.61
    
    
    
    51.23
    
    
    
    53.00
    
    
    
    39.10Second Quarter
    
    
    73.95
    
    
    
    55.36
    
    
    
    57.73
    
    
    
    47.10Third Quarter
    
    
    87.23
    
    
    
    62.66
    
    
    
    52.17
    
    
    
    44.85Fourth Quarter
    
    
    74.38
    
    
    
    60.31
    
    
    
    57.32
    
    
    
    48.75Year
    
    
    87.23
    
    
    
    51.23
    
    
    
    57.73
    
    
    
    39.10Number of registered shareholders at year end
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,152Market prices at year endToronto Stock Exchange
    
    
    
    
    
    
    
    
    
    
    
    
    
    CDN$
    64.22New York Stock Exchange
    
    
    
    
    
    
    
    
    
    
    
    
    
    US$
    64.64
 SHAREHOLDER ADMINISTRATION
 
   2007ANNUALREPORT110




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4 % CONSOLIDATED DEBENTURE STOCK
  
 MARKET FOR SECURITIES
  TRADING SYMBOL
  DUPLICATE ANNUAL REPORTS
  DIRECT DEPOSIT OF DIVIDENDS
  CORPORATE GOVERNANCE
   GOVERNANCE STANDARDS
  CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER CERTIFICATION
 
   2007ANNUALREPORT111




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##### 



Stephen E. Bachand (2) (4) * (5)
 
 John E. Cleghorn, O.C., F.C.A. (2) *
 
 Tim W. Faithfull (3) (4)
 
 Frederic J. Green (3)
 
 Krystyna T. Hoeg, C.A. (1) (3)
 The Honourable John P. Manley (1) (5)
 
 Linda J. Morgan (3) (4)
 
 Madeleine Paquin (1) (4)
 
 Michael E.J. Phelps, O.C. (2) (4) (5) *
 
 Roger Phillips, O.C., S.O.M., F.Inst.P. (1) * (2) (5)
 Hartley T. Richardson (1) (5)
 
 Michael W. Wright (1) (2) (3) *
 
 (1)
 (2)
 (3)
 (4)
 (5)
    2007ANNUALREPORT112




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John E. Cleghorn, O.C., F.C.A.
 
 Frederic J. Green (1)
 
 Michael R. Lambert (1)
 
 Kathryn B. McQuade (1)
 
 Marcella M. Szel (1)
 
 Brock M. Winter (1)
 Allen H. Borak
 
 Donald B. Campbell (1)
 
 Brian W. Grassby
 
 Paul A. Guthrie, Q.C. (1)
 
 Jonathan Legg
 
 Jane A. OHagan (1)
 Tracy A. Robinson
 
 R. Andrew Shields (1)
 
 Donald F. Barnhardt
 
 Karen Fleming
 
 (1)
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