##### Table of Contents



FORM 40-F
 o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934ORx
    
    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
    
    (Primary Standard Industrial Classification
    
    (I.R.S. Employer Identification Number)incorporation or organization)
    
    Code 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)
 CT Corporation System, 111-8th 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 Canadian Pacific Railway Limited in the
United States)
 The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street
Wilmington, Delaware 19801, (302) 658-7581
 (Name, address (including zip code) and telephone number (including area code) of Agent for Service of Canadian Pacific Railway Company in the
United States)
  Title of Each Class
    
    Name of Each Exchange on Which RegisteredCommon Shares, without par value, of
    
    New York Stock ExchangeCanadian Pacific Railway LimitedCommon Share Purchase Rights of
    
    New York Stock ExchangeCanadian Pacific Railway LimitedPerpetual 4% Consolidated Debenture Stock
    
    New York Stock Exchangeof Canadian Pacific Railway Company
 None
 None




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




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PRIOR FILINGS MODIFIED AND SUPERSEDED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
 4




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CORPORATE GOVERNANCE PRINCIPLES AND GUIDELINES
  COMMITTEE TERMS OF REFERENCE
 www.cpr.ca
 DIRECTOR INDEPENDENCE
  EXECUTIVE SESSIONS OF NON-MANAGEMENT DIRECTORS
  th
 5




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AUDIT COMMITTEE FINANCIAL EXPERTS
  
   FINANCIAL LITERACY OF AUDIT COMMITTEE MEMBERS
  SERVICE ON OTHER PUBLIC COMPANY AUDIT COMMITTEES
  6




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PRINCIPAL ACCOUNTING FEES AND SERVICES  INDEPENDENT AUDITORS
  Year ended December 31, 2006
    
    Year ended December 31, 2005Audit Fees
    
    $2,118,000
    
    $1,086,000Audit-Related Fees
    
    $   438,900
    
    $   812,540Tax Fees
    
    $   267,300
    
    $   243,600All Other Fees
    
    $       0
    
    $       0TOTAL
    
    $2,824,200
    
    $2,142,140
  Audit Fees
  Audit-Related Fees
 Sarbanes-Oxley Act of 2002
 Tax Fees
  All Other Fees
  7




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PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES PROVIDED BY
INDEPENDENT AUDITORS
  OFF-BALANCE SHEET ARRANGEMENTS
  TABLE OF CONTRACTUAL COMMITMENTS
  8




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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:  Date:
    Corporate SecretaryMarch 30, 2007 9




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DOCUMENTS FILED AS PART OF THIS REPORT
 1.
    
    Annual Information Form of the Registrants for the year ended December 31, 2006.2.
    
    Annual Report of the Registrants for the year ended December 31, 2006, including Managements
Discussion and Analysis, Managements Report on Internal Control over Financial Reporting and
the Audited Consolidated Financial Statements of the Registrants as of December 31, 2006 and
for each of the three years then ended1.
 EXHIBITS
 A.
    
    Consent of PricewaterhouseCoopers, Independent Accountants.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
 10




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(FRONT COVER) ANNUAL INFORMATION FORM MARCH 2, 2007 SAFEST, MOST FLUID RAILWAY Canadian Pacifics vision is
to become the safest, most fluid railway in North America. We are achieving this through the
ingenuity of our people, and their relentless focus on Execution Excellence, Together, we are
transforming this railway continue to build shareholder value.




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##### 



TABLE OF CONTENTS
 COVER PAGETABLE OF CONTENTSCORPORATE STRUCTUREName, Address and Incorporation Information
    
    
    2INTERCORPORATE RELATIONSHIPSPrincipal Subsidiaries
    
    
    3GENERAL DEVELOPMENT OF THE BUSINESSRecent Developments
    
    
    4DESCRIPTION OF THE BUSINESSOur Background and Network
    
    
    6Strategy
    
    
    6Partnerships, Alliances and Network Efficiency
    
    
    6Network and Right-of-Way
    
    
    7Business Categories
    
    
    10Freight Revenues
    
    
    10Railway Performance
    
    
    14Performance Indicators
    
    
    14Franchise Investment
    
    
    14Integrated Operating Plan
    
    
    15Information Technology
    
    
    15Labour Productivity and Efficiency
    
    
    16Risk Factors
    
    
    16Safety
    
    
    18Border Security
    
    
    19Labour Relations
    
    
    19Environmental Protection
    
    
    20Regulation and Other Issues
    
    
    21Insurance
    
    
    22Related-party Transactions
    
    
    22DIVIDENDSDeclared Dividends and Dividend Policy
    
    
    23CAPITAL STRUCTUREDescription of Capital Structure
    
    
    24Security Ratings
    
    
    26MARKET FOR SECURITIESStock Exchange Listings
    
    
    27Trading Price and Volume
    
    
    27DIRECTORS AND OFFICERSDirectors
    
    
    28Cease Trade Orders
    
    
    29Senior Officers
    
    
    30Shareholdings of Directors and Officers
    
    
    31LEGAL PROCEEDINGS
    
    
    32TRANSFER AGENTS AND REGISTRARSTransfer Agents
    
    
    33INTERESTS OF EXPERTS
    
    
    34AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEEComposition of the Audit, Finance and Risk Management Committee and Relevant Education and Experience
    
    
    35Pre-Approval of Policies and Procedures
    
    
    35Audit, Finance and Risk Management Committee Charter
    
    
    36Audit and Non-Audit Fees and Services
    
    
    41ADDITIONAL INFORMATIONAdditional Company Information
    
    
    43Consent of Pricewaterhouse CoopersCERTIFICATIONS OF CEO AND CFO PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACTCERTIFICATIONS OF CEO AND CFO PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT




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CORPORATE STRUCTURE
 
 In this Annual Information Form (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.
 
 Name, Address and Incorporation Information
 Canada Business Corporations Act .
  2




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




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GENERAL DEVELOPMENT OF THE BUSINESS
 
 
 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;
    
    12 projects between Calgary and the Port of Vancouver to extend sidings and lay sections of double track.
   
    
    CN traffic destined for the eastern U.S. will move in our trains on the D&H line in New
York between Rouses Point and Saratoga Springs under our freight haulage arrangement with
NS;
    
    this CN traffic will then move in NS trains over the D&H line between Saratoga Springs
and the NS connection near Harrisburg, Pennsylvania, under our trackage rights agreements
with NS.
   
    
    NS provides yard services for CP at Buffalo, New York;
    
    NS hauls CP traffic between Buffalo and Binghamton in New York;
    
    CP grants trackage rights to NS between Binghamton and Saratoga Springs;
    
    CP hauls NS traffic between Rouses Point and Saratoga Springs;
    
    CP provides yard services for NS at Binghamton;
    
    NS grants CP trackage rights over certain NS lines in the vicinity of Buffalo; and
    
    NS grants CP trackage rights between Detroit, Michigan and Chicago, Illinois.
 4




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GENERAL DEVELOPMENT OF THE BUSINESS
 
  5




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DESCRIPTION OF THE BUSINESS
 
 
 Our Background and Network
    
 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.
 
 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 U.S. Northeast; and
    
    a CP-NS track connection at Detroit, Michigan that provides service between eastern
Canada and the U.S. Midwest.
 6




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DESCRIPTION OF THE BUSINESS
 
    
 Network and Right-of-Way
  
  The Western Corridor: Vancouver-Moose Jaw
 Overview
 Products
 Feeder Lines
 7




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DESCRIPTION OF THE BUSINESS
 
  Connections
 Yards and Repair Facilities
 Other
 The Southern Corridor: Moose Jaw-Chicago
 Overview
 Products
 Feeder Lines
   Connections
 Yards and Repair Facilities
 The Central Corridor: Moose Jaw-Toronto
 Overview
 Products
 Feeder Lines
 8




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##### Table of Contents



DESCRIPTION OF THE BUSINESS
 
 Connection
 Yards and Repair Facilities
   The Eastern Corridor
 Overview
 Products
 Feeder Lines
 Connections
 Yards and Repair Facilities
 Other
 Right-of-Way
    9




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DESCRIPTION OF THE BUSINESS
 
 
 Business Categories
  Business Category
    
    
    2006
    
    2005Bulk
    
    
    
    44
    %
    
    
    45
    %Merchandise
    
    
    
    28
    %
    
    
    28
    %Intermodal
    
    
    
    28
    %
    
    
    27
    %
 
 Freight Revenues
  Freight Revenues
    
    
    
    
    
    Fiscal 2006
    
    
    
    
    
    Fiscal 2005(in $ millions, except for percentages)
    
    
    
    
    
    Growth
    
    
    
    
    
    GrowthRate as
    
    
    
    
    
    Rate asCompared
    
    
    
    
    
    ComparedFiscal
    
    to Fiscal
    
    Fiscal
    
    to Fiscal
    
    FiscalBusiness Category
    
    2006
    
    2005
    
    2005
    
    2004
    
    2004BulkGrain
    
    
    905
    
    
    
    20.0
    %
    
    
    754
    
    
    
    12.9
    %
    
    
    668Coal
    
    
    592
    
    
    
    (18.8
    )%
    
    
    729
    
    
    
    37.5
    %
    
    
    530Sulphur and fertilizers
    
    
    439
    
    
    
    (1.8
    )%
    
    
    447
    
    
    
    (2.8
    )%
    
    
    460Total bulk
    
    
    1,936
    
    
    
    0.3
    %
    
    
    1,930
    
    
    
    16.4
    %
    
    
    1,658MerchandiseForest products
    
    
    316
    
    
    
    (5.4
    )%
    
    
    334
    
    
    
    3.7
    %
    
    
    322Industrial and consumer products
    
    
    604
    
    
    
    11.2
    %
    
    
    543
    
    
    
    12.9
    %
    
    
    481Automotive
    
    
    314
    
    
    
    5.4
    %
    
    
    298
    
    
    
    3.1
    %
    
    
    289Total merchandise
    
    
    1,234
    
    
    
    5.0
    %
    
    
    1,175
    
    
    
    7.6
    %
    
    
    1,092Intermodal
    
    
    1,257
    
    
    
    8.3
    %
    
    
    1,161
    
    
    
    12.2
    %
    
    
    1,035Total freight revenues
    
    
    4,427
    
    
    
    3.8
    %
    
    
    4,266
    
    
    
    12.7
    %
    
    
    3,785
 Bulk
  Grain
    Canada Transportation Act
 10




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DESCRIPTION OF THE BUSINESS
 
  Coal
     Sulphur and Fertilizers
  
    
    Sulphur
   
    
    Fertilizers
   Merchandise
    11




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DESCRIPTION OF THE BUSINESS
 
 Forest Products
   Industrial and Consumer Products
    Automotive
   Intermodal
    Domestic Intermodal
  International Intermodal
    12




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##### Table of Contents



DESCRIPTION OF THE BUSINESS
 
 Other Business
  Significant Customers
  13




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##### Table of Contents



DESCRIPTION OF THE BUSINESS
 
 
 Railway Performance
  
 Year Ended December 31Performance Indicators(1)
    
    2006
    
    2005
    
    2004
    
    2003
    
    2002Gross ton-miles (GTM) (millions)(2)
    
    
    236,405
    
    
    
    242,100
    
    
    
    236,451
    
    
    
    221,884
    
    
    
    209,596Revenue ton-miles (RTM) (millions)(3)
    
    
    122,874
    
    
    
    125,303
    
    
    
    123,627
    
    
    
    114,599
    
    
    
    107,689Number of active employees  end of period(4)
    
    
    15,327
    
    
    
    16,295
    
    
    
    15,637
    
    
    
    15,645
    
    
    
    15,860Employee productivity
(GTMs per average active employee (thousands))
    
    
    14,824
    
    
    
    14,719
    
    
    
    14,727
    
    
    
    13,759
    
    
    
    13,005Traffic density
(GTMs per mile of road operated, excluding track on which
CP has haulage rights (thousands))(5)
    
    
    17,828
    
    
    
    17,681
    
    
    
    17,113
    
    
    
    16,023
    
    
    
    15,107Fuel efficiency
(U.S. gallons of locomotive fuel per 1,000 GTMs 
freight and yard)
    
    
    1.20
    
    
    
    1.18
    
    
    
    1.20
    
    
    
    1.24
    
    
    
    1.24
 (1)
    
    Train-miles and average train weights are no longer reported as we no longer
consider these to be the main drivers for managing our operating costs.(2)
    
    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.)(3)
    
    Revenue ton-miles of freight measure the distance traveled by the head locomotive
on each train operating over our track.(4)
    
    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.(5)
    
    Certain prior period figures have been revised to conform with current presentation
or have been updated to reflect new information.
 
 Franchise Investment
   Locomotive Fleet
  14




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DESCRIPTION OF THE BUSINESS
 
  Number of Locomotives
 Road Freight
    
    Road
    
    YardAge in Years
    
    AC
    
    DC
    
    Switcher
    
    Switcher
    
    Total0-5
    
    
    347
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3476-10
    
    
    247
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24711-15
    
    
    83
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8316-20
    
    
    
    
    
    
    67
    
    
    
    2
    
    
    
    
    
    
    
    69Over 20
    
    
    
    
    
    
    370
    
    
    
    267
    
    
    
    252
    
    
    
    889Total
    
    
    677
    
    
    
    437
    
    
    
    269
    
    
    
    252
    
    
    
    1,635
 Railcar Fleet
   
 Integrated Operating Plan
      
 Information Technology
   15




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##### Table of Contents



DESCRIPTION OF THE BUSINESS
 
     
 Labour Productivity and Efficiency
      
 Risk Factors
 Competition
   Economic and Other Conditions
  16




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##### Table of Contents



DESCRIPTION OF THE BUSINESS
 
  Fuel Prices
  Foreign Exchange Risk
  Interest Rate Risk
  Regulatory Authorities
 Railway Safety Act
  Environmental Laws and Regulations
   17




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##### Table of Contents



DESCRIPTION OF THE BUSINESS
 
   Labour Relations
   Pension Plans
  Indemnifications
   
 Safety
     
 18




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##### Table of Contents



DESCRIPTION OF THE BUSINESS
 
 Border Security
      
 Labour Relations
  Labour Relations  Canada
  
    
    A three-year collective agreement with the Canadian Auto Workers, representing employees
who maintain and repair locomotives and freight cars, extends to the end of 2007.
    
    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 collective agreement, with the Teamsters Canada Rail Conference, Rail
Canada Traffic Controllers, representing employees who control train traffic. The
agreement, which extends to the end of 2008, was ratified on March 7, 2006.
    
    A three-year agreement with Steelworkers Union, representing intermodal operation and
clerical employees extends to the end of 2009.
    
    A three-year collective agreement with the Teamsters Canada Rail Conference (TCRC-MWED),
which represents maintenance of way employees and was certified as bargaining agent by
track maintenance employees in July 2004. The agreement, which extended to the end of
2006, was ratified on March 18, 2005. Our collective agreement with the former bargaining
agent expired on December 31, 2003. Negotiations for a new agreement commenced in the
second half of 2006. On January 23, 2007, both CP and TCRC-MWED applied jointly for
conciliation, which commenced in February of 2007.
    
    A four-year collective agreement with the Teamsters Canada Rail Conference (TCRC-RTE),
which represents running trade employees and was elected as bargaining agent by train crew
employees in June 2004. The agreement, which extended to the end of 2006, was ratified on
January 17, 2005. Our collective agreement with the previous bargaining
 19




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##### Table of Contents



DESCRIPTION OF THE BUSINESS
 
 agent expired on December 31, 2002. Negotiations for a new agreement, which commenced in
the second half of 2006, continue in 2007.
 Labour Relations  U.S.
      
 Environmental Protection
  Policy
  Ò Ò Ò Ò Ò
  Planning
  Implementation and Operation
   20




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##### Table of Contents



DESCRIPTION OF THE BUSINESS
 
  Environmental Contamination
     Checking and Corrective Action
   Management Review
  Expenditures
  
 Regulation and Other Issues
 Railway Safety Act
 Canadian Regulation
   Bill Bill Bill
 21




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##### Table of Contents



DESCRIPTION OF THE BUSINESS
 
 Bill Bill Bill
 Bill Bill Bill
 Railway Safety Act Canadian Transportation Accident
Investigation and Safety Board Act
 U.S. Regulation
 Staggers Rail Act of 1980
    
 Insurance
  
 Related-party Transactions
  22




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##### Table of Contents



DIVIDENDS
 
 
 Declared Dividends and Dividend Policy
  DividendAmount
    
    
    Record Date
    
    
    Payment Date$0.1275
$0.1275
$0.1325
$0.1325
$0.1325
$0.1500
$0.1500
$0.1500
$0.1875
$0.1875
$0.1875
$0.1875
$0.2250
    
    
    March 26, 2004
June 25, 2004
September 24, 2004
December 31, 2004
March 25, 2005
June 24, 2005
September 30, 2005
December 30, 2005
March 31, 2006
June 30, 2006
September 29, 2006
December 29, 2006
March 30, 2007
    
    
    April 26, 2004
July 26, 2004
October 25, 2004
January 31, 2005
April 25, 2005
July 25, 2005
October 31, 2005
January 30, 2006
April 24, 2006
July 31, 2006
October 30,2006
January 29, 2007
April 30, 2007
  23




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##### Table of Contents



CAPITAL STRUCTURE
 
 
 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.
 24




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##### Table of Contents



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.
 25




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##### Table of Contents



CAPITAL STRUCTURE
 
 
 Security Ratings
  Long-TermApproved Rating
    
    
    DebtOrganization
    
    
    RatingMoodys Investors Service
    
    
    Baa2Standard & Poors
    
    
    BBBDominion Bond Rating Service
    
    
    BBB(high)
   Moodys Investors Service
    
    
    Standard &Poors
    
    
    DominionBondRatingServiceAaa
    
    
    AAA
    
    
    AAA
    
    
    
    
    HighInvestmentGradeAa1
    
    
    AA+
    
    
    AA(high)Aa2
    
    
    AA
    
    
    AAAa3
    
    
    AA-
    
    
    AA(low)A1
    
    
    A+
    
    
    A(high)A2
    
    
    A
    
    
    AA3
    
    
    A-
    
    
    A(low)InvestmentGradeBaa1
    
    
    BBB+
    
    
    BBB(high)Baa2
    
    
    BBB
    
    
    BBBBaa3
    
    
    BBB-
    
    
    BBB(low)Ba1
    
    
    BB+
    
    
    BB(high)
    
    
    
    
    BelowInvestmentGradeBa2
    
    
    BB
    
    
    BBBa3
    
    
    BB-
    
    
    BB(low)B1
    
    
    B+
    
    
    B(high)B2
    
    
    B
    
    
    BB3
    
    
    B-
    
    
    B(low)Caa
    
    
    CCC
    
    
    CCCCa
    
    
    CC
    
    
    CCC
    
    
    C
    
    
    C
 26




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##### Table of Contents



MARKET FOR SECURITIES
 
 
 Stock Exchange Listings
  
 Trading Price and Volume
  Opening
    
    
    High
    
    
    Low
    
    
    Closing
    
    
    Number of
    
    
    Volume ofPrice per
    
    
    Price per
    
    
    Price per
    
    
    Price per
    
    
    Trades
    
    
    SharesMonth
    
    
    Share ($)
    
    
    Share ($)
    
    
    Share ($)
    
    
    Share ($)
    
    
    Performed
    
    
    TradedJanuary 
February 
March 
April 
May 
June 
July 
August 
September 
October 
November 
December
    
    
    48.44
54.50
58.15
58.53
60.15
57.00
57.90
54.42
54.56
55.50
62.80
63.89
    
    
    56.16
60.85
59.99
65.17
63.43
57.90
57.97
55.44
55.81
64.15
65.29
64.46
    
    
    45.55
53.70
55.88
58.52
55.07
52.55
51.05
51.86
51.91
54.95
60.86
60.43
    
    
    54.71
58.20
58.26
59.43
56.60
56.91
54.00
54.30
55.56
63.40
63.51
61.40
    
    
    65,551
47,409
45,476
44,142
38,597
42,444
39,772
48,407
33,482
50,664
42,720
29,770
    
    
    27,331,083
15,144,307
16,157,785
12,160,447
12,373,511
15,724,333
11,720,333
13,896,160
10,896,140
15,710,416
10,110,242
7,725,259
  Opening
    
    
    High
    
    
    Low
    
    
    Closing
    
    
    Number of
    
    
    Volume ofPrice per
    
    
    Price per
    
    
    Price per
    
    
    Price per
    
    
    Trades
    
    
    SharesMonth
    
    
    Share ($)
    
    
    Share ($)
    
    
    Share ($)
    
    
    Share ($)
    
    
    Performed
    
    
    TradedJanuary 
February 
March 
April 
May 
June 
July 
August 
September 
October 
November 
December
    
    
    41.00
47.85
51.19
50.00
53.80
51.30
51.20
47.83
49.48
49.71
54.70
55.70
    
    
    49.12
52.89
53.00
57.12
57.73
52.59
52.17
49.39
49.91
57.32
57.31
56.49
    
    
    39.10
46.71
47.64
50.00
49.00
47.10
44.85
46.19
46.36
48.75
54.65
52.34
    
    
    48.24
51.19
49.97
53.14
52.30
51.14
47.87
49.09
49.74
56.49
55.73
52.76
    
    
    27,672
20,597
22,882
21,467
22,918
25,492
24,296
22,347
18,685
29,270
19,587
14,342
    
    
    8,272,200
5,359,400
6,604,200
5,832,600
6,244,500
7,016,600
6,679,100
5,758,600
4,471,000
7,405,000
4,224,600
3,205,400
 27




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##### Table of Contents



DIRECTORS AND OFFICERS
 
  
 Directors
 Year of Annual MeetingPosition Held and Principal Occupation within
    
    at which Term of OfficeName and Municipality of Residence
    
    the Preceding Five Years(1)
    
    Expires (Director Since)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)
    
    2007
(2001)J.E. Cleghorn, O.C., F.C.A. (3)
Toronto, Ontario, Canada
    
    Chairman, Canadian Pacific Railway Limited
and, Chairman, SNC-Lavalin Group Inc.,
(international engineering and construction
firm)
    
    2007
(2001)T.W. Faithfull (3)(4)(5)
Oxford, England
    
    Retired President and Chief Executive Officer
Shell Canada Limited (oil and gas company)
    
    2007
(2003)F.J. Green
Calgary, Alberta, Canada
    
    President and Chief Executive Officer, Canadian
Pacific Railway Company and Canadian Pacific
Railway Limited
    
    2007
(2006)The Hon. J.P. Manley (2)(3)(6)
Ottawa, Ontario, Canada
    
    Senior Counsel, McCarthy Tétrault LLP (law firm)
    
    2007
(2006)L.J. Morgan (3)(4)(5)
Bethesda, Maryland, U.S.A.
    
    Chair of the Transportation Practice and
Partner, Covington & Burling LLP (law firm)
    
    2007
(2006)Dr. J.R. Nininger (3)(4)(5)
Ottawa, Ontario, Canada
    
    Retired President and Chief Executive Officer,
The Conference Board of Canada (private
not-for-profit research group)
    
    2007
(2001)M. Paquin (2)(3)(4)
Montreal, Quebec, Canada
    
    President and Chief Executive Officer, Logistec
Corporation (international cargo-handling
company)
    
    2007
(2001)M.E.J. Phelps, O.C. (3)(5)(6)
West Vancouver, B.C., Canada
    
    Chairman, Dornoch Capital Inc. (private
investment company)
    
    2007
(2001)R. Phillips, O.C. (2)(3)(6)
Regina, Saskatchewan, Canada
    
    Retired President and Chief Executive Officer,
IPSCO Inc. (steel manufacturing company)
    
    2007
(2001)H.T. Richardson
Winnipeg, Manitoba, Canada
    
    President and Chief Executive Officer, James
Richardson & Sons Limited (privately owned
corporation)
    
    2007
(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)
    
    2007
(2001)
 28




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##### Table of Contents



(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. 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. L.J. Morgan was Chairman of
the United States Surface Transportation Board and its predecessor the Interstate Commerce
Commission from March 1995 until December 2002. M.E.J. Phelps was Chairman and Chief Executive
Officer of Westcoast Energy Inc. from June 1988 until March 2002. M.W. Wright was Chairman
and Chief Executive Officer of SUPERVALU INC. from June 1981 until June 2001 and Chairman
until June 2002.(2)
    
    Member of the Audit, Finance and Risk Management Committee.(3)
    
    Member of the Corporate Governance and Nominating Committee.(4)
    
    Member of the Environmental and Safety Committee.(5)
    
    Member of the Management Resources and Compensation Committee.(6)
    
    Member of the Pension Trust Fund Committee.
 
 Cease Trade Orders
   29




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##### Table of Contents



DIRECTORS AND OFFICERS
 
 
 Senior Officers
  Principal occupation within theName and municipality of residence
    
    Position held
    
    preceding five yearsJ.E. Cleghorn, O.C., F.C.A.
Toronto, Ontario, Canada
    
    Chairman
    
    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);
President, Marks Work
Warehouse (retail goods);
Chief Financial Officer,
Marks Work Warehouse (retail
goods)P. Clark
Calgary, Alberta, Canada
    
    Vice-President,
Communications and
Public Affairs
    
    Vice-President, Communications
and Public Affairs, Canadian
Pacific Railway Company and
Canadian Pacific Railway
LimitedB. 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,
Canadian Pacific Railway
Company; Chief Regulatory
Counsel, 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 CompanyD. F. Barnhardt
Calgary, Alberta, Canada
    
    Corporate Secretary
    
    Corporate Secretary, Canadian
Pacific Railway Company and
Canadian Pacific Railway
Limited; Lawyer/Commercial
Coordinator, Canadian Pacific
Railway CompanyG.A. Feigel
Calgary, Alberta, Canada
    
    Assistant Corporate
Secretary
    
    Assistant Corporate Secretary,
Canadian Pacific Railway
Company and Canadian Pacific
Railway Limited
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DIRECTORS AND OFFICERS
 
 
 Shareholdings of Directors and Officers
  Announcements
  31




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LEGAL PROCEEDINGS
 
  Stoney Tribal Council v. Canada, EnCana and CP
   Derailment  Minot, North Dakota
      32




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TRANSFER AGENTS AND REGISTRARS
 
 
 Transfer Agent
    th
 33




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INTERESTS OF EXPERTS
 
  34




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AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE
 
 
 Composition of the Audit, Finance and Risk Management Committee and Relevant Education and Experience
  John P. Manley
 Madeleine Paquin
 Roger Phillips (Chair)
 Hartley T. Richardson
 Michael W. Wright
  
 Pre-Approval of Policies and Procedures
  35




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AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE
 
  
 Audit, Finance and Risk Management Committee Charter
  A. Committee and Procedures
 1.
    
    Purposes
The purposes of the Audit, Finance and Risk Management Committee (the Committee) of the Board
of Directors of the Corporation are to fulfill applicable public company audit committee legal
obligations and to assist the Board of Directors in fulfilling its oversight responsibilities
in relation to the disclosure of financial statements and information derived from financial
statements, and in relation to risk management matters including:
 
    
    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;
 and to prepare, if required, an audit committee report for inclusion in the Corporations
annual management proxy circular, in accordance with applicable rules and regulations.The Corporations external auditors shall report directly to the Committee.2.
    
    Composition of Committee
The members of the Committee of each of CPRL and CPRC shall be identical and shall be Directors
of CPRL and CPRC, respectively. The Committee shall consist of not less than three and not
more than six Directors, none of whom is either an officer or employee of the Corporation or
any of its subsidiaries. Members of the Committee shall meet applicable requirements and
guidelines for audit committee service, including requirements and guidelines with respect to
being independent and unrelated to the Corporation and to having accounting or related
financial management expertise and financial literacy, set forth in applicable securities laws
or the rules of any stock exchange on which the Corporations securities are listed for
trading. No director who serves on the audit committee of more than two public companies other
than the Corporation shall be eligible to serve as a member of the Committee, unless the Board
of Directors has determined that such simultaneous service would not impair the ability of such
member to effectively serve on the Committee. Determinations as to whether a particular
Director satisfies the requirements for membership on the Committee shall be affirmatively made
by the full Board.3.
    
    Appointment of Committee Members
Members of the Committee shall be appointed from time to time by the Board and shall hold
office at the pleasure of the Board. Where a vacancy occurs at any time in the membership of
the Committee, it may be filled by the Board. The Board shall fill a vacancy whenever
necessary to maintain a Committee membership of at least three Directors.4.
    
    Committee Chair
The Board shall appoint a Chair for the Committee from among the Committee members.5.
    
    Absence of Committee Chair
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AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE
 
 If the Chair of the Committee is not present at any meeting of the Committee, one of the
other members of the Committee who is present at the meeting shall be chosen by the Committee
to preside at the meeting.6.
    
    Secretary of Committee
The Committee shall appoint a Secretary who need not be a director of the Company.7.
    
    Meetings
The Committee shall meet at regularly scheduled meetings at least once every quarter and
shall meet at such other times during each year as it deems appropriate. In addition, the
Chair of the Committee may call a special meeting of the Committee at any time.8.
    
    Quorum
Three members of the Committee shall constitute a quorum.9.
    
    Notice of Meetings
Notice of the time and place of every meeting shall be given in writing by any means of
transmitted or recorded communication, including facsimile, telex, telegram or other
electronic means that produces a written copy, to each member of the Committee at least 24
hours prior to the time fixed for such meeting; provided however, that a member may in any
manner waive a notice of a meeting. Attendance of a member at a meeting constitutes a waiver
of notice of the meeting, except where a member attends a meeting for the express purpose of
objecting to the transaction of any business on the grounds that the meeting is not lawfully
called.10.
    
    Attendance of Others at Meetings
At the invitation of the Chair of the Committee, other individuals who are not members
of the Committee may attend any meeting of the Committee.11.
    
    Procedure, Records and Reporting
Subject to any statute or the articles and by-laws of the Corporation, the Committee
shall fix its own procedures at meetings, keep records of its proceedings and report to the
Board when the Committee may deem appropriate (but not later than the next meeting of the
Board). The minutes of its meetings shall be tabled at the next meeting of the Board.12.
    
    Delegation
The Committee may delegate from time to time to any person or committee of persons any
of the Committees responsibilities that lawfully may be delegated.13.
    
    Report to Shareholders
The Committee shall prepare a report to shareholders or others concerning the
Committees activities in the discharge of its responsibilities, when and as required by
applicable laws or regulations.14.
    
    Guidelines to Exercise of Responsibilities
The Board recognizes that meeting the responsibilities of the Committee in a dynamic
business environment requires a degree of flexibility. Accordingly, the procedures outlined
in these Terms of Reference are meant to serve as guidelines rather than inflexible rules, and
the Committee may adopt such different or additional procedures as it deems necessary from
time to time.15.
    
    Use of Outside Legal, Accounting or Other Advisors; Appropriate Funding
The Committee may retain, at its discretion, outside legal, accounting or other
advisors, at the expense of the Corporation, to obtain advice and assistance in respect of any
matters relating to its duties, responsibilities and powers as provided for or imposed by
these Terms of Reference or otherwise by law.The Committee shall be provided by the Corporation with appropriate funding, as determined by
the Committee, for payment of:
 (i)
    
    compensation of any outside advisors, 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
 37




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AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE
 
 (iii)
    
    ordinary administrative expenses that are necessary or appropriate in carrying
out the Committees duties.
 All outside legal, accounting or other advisors retained to assist the Committee shall be
accountable ultimately to the Committee.
 16.
    
    Remuneration of Committee Members
No member of the Committee shall receive from the Corporation or any of its affiliates any
compensation other than the fees to which he or she is entitled as a Director of the
Corporation or a member of a committee of the Board. Such fees may be paid in cash and/or
shares, options or other in-kind consideration ordinarily available to Directors.B.
    
    Mandate17.
    
    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 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 effect on
the financial statements of alternative methods within generally accepted accounting
principles;(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
 38




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AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE
 
 (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 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 and 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:
 (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,
 39




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AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE
 
 (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 of any pre-approvals
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,
 and review periodically with management and the internal auditors these procedures and any
significant complaints received;
 Separate Meetings with External Auditors, Internal Audit, Management
 u)
    
    meet separately and periodically 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;
 40




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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 Company and its subsidiaries and
annually review the Company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.
 
 Audit and Non-Audit Fees and Services
  Year ended
    
    Year endedDecember 31, 2006
    
    December 31, 2005Audit Fees
    
    $
    2,118,000
    
    
    $
    1,086,000Audit-Related Fees
    
    $
    438,900
    
    
    $
    812,540Tax Fees
    
    $
    267,300
    
    
    $
    243,600All Other Fees
    
    $
    
    
    
    $
    TOTAL
    
    $
    2,824,200
    
    
    $
    2,142,140
  Audit Fees
  Audit-Related Fees
 the Sarbanes-Oxley Act
 Tax Fees
 41




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AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE
 
  All Other Fees
  42




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ADDITIONAL INFORMATION
 
 
 Additional Company Information
 www.cpr.ca www.sedar.com www.sec.gov
   43




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##### Table of Contents



(BACK COVER) Suite 500 Gulf Canada Square 401  9th Avenue SW Calgary Alberta T2P 4Z4 www.cpr.ca TSX/NYSE:CP
Canadian Pacific Responsible Care Beyond whats required. Printed in Canada




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##### Table of Contents



Table of Contents  For the year ended December 31(in millions)
    
    2006
    
    
    2005
    
    
    2004Revenues
    
    
    4,583.2
    
    
    
    4,391.6
    
    
    
    3,902.9Adjusted operating expenses (1)
    
    
    3,154.6
    
    
    
    3,390.1
    
    
    
    3,114.4Adjusted operating income (1)
    
    
    1,128.6
    
    
    
    1,001.5
    
    
    
    786.6Net Income
    
    
    796.3
    
    
    
    543.0
    
    
    
    411.1
 
 (1)
 (2)
 Revenues
increased 4.4 %
 Adjusted diluted
earnings per share (1) (2)
$3.95 up 20 %
 Operating ratio
improved to 75.4 %
 Adjusted return
on capital employed (1)
10.2 % up from 9.4 %
 Free cash (1)
$245 million
   2006 Annual Report     1
    Table of Contents  Bulk
   2     2006 Annual Report
    Table of Contents  Intermodal
 Merchandise
 
   
  2006 Annual Report     3
    Table of Contents  FRA personal injuries
(per 200,000 employee-hours)
down 17 % to 2.0
 FRA train accidents
per million train-miles
down 39 % to 1.4
 Creating shareholder value within
the reach of our franchise
   Quality RevenueGrowth
 Improved Productivity
 People
   
  4     2006 Annual Report
    Table of Contents  CHAIRMANS2006 LETTER TO SHAREHOLDERS
    
 
 
   2006 Annual Report     5
    Table of Contents  CHIEF EXECUTIVE OFFICERS2006 LETTER TO SHAREHOLDERS
 
    
 o
    
    generating quality revenue growth  our guiding principle for all of our product development, capacity utilization, and expansion efforts;o
    
    improving the productivity of every asset, resource and process in the Company; ando
    
    investing in our people. Our skilled, aligned and motivated employees share the common vision of
creating the safest and most fluid railway in North America which will create long-term value for
our shareholders, our customers, and our employees.
 
   6     2006 Annual Report
    Table of Contents  2006 Annual Report     7
    Table of Contents  MANAGEMENTS DISCUSSIONAND ANALYSISMarch 2,
2007
 This Managements Discussion and Analysis (MD&A) supplements the Consolidated Financial
Statements and related notes for the year ended December 31, 2006. Except where otherwise
indicated, all financial information reflected herein is expressed in Canadian dollars. All
information has been prepared in accordance with Canadian generally accepted accounting principles
(GAAP), except as described in the Non-GAAP Earnings section of this MD&A. In this MD&A, 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. Other terms not defined in the body of this MD&A are defined in the
Glossary of Terms.
    
 Business
Profile
  Strategy
 o
    
    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;o
    
    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; ando
    
    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.
 Additional Information
   8     2006 Annual Report
    Table of Contents  Highlights Summary
 For the year ended December 31 (in millions, except percentages and per-share data)
    
    2006
    
    
    2005(1)
    
    
    2004(1)Revenues
    
    $
    4,583.2
    
    
    $
    4,391.6
    
    
    $
    3,902.9Operating income, before other specified items (2)
    
    
    1,128.6
    
    
    
    1,001.5
    
    
    
    786.6Operating income
    
    
    1,128.6
    
    
    
    991.2
    
    
    
    714.7Income, before FX on LTD and other specified items (2)
    
    
    627.5
    
    
    
    528.4
    
    
    
    359.5Net income
    
    $
    796.3
    
    
    $
    543.0
    
    
    $
    411.1Operating ratio, before other specified items (2)
    
    
    75.4
    %
    
    
    77.2
    %
    
    
    79.8
    %Basic earnings per share
    
    $
    5.06
    
    
    $
    3.43
    
    
    $
    2.59Diluted earnings per share, before FX on LTD and other specified items (2)
    
    $
    3.95
    
    
    $
    3.30
    
    
    $
    2.26Diluted earnings per share
    
    $
    5.02
    
    
    $
    3.39
    
    
    $
    2.58Dividends declared per share
    
    $
    0.7500
    
    
    $
    0.5825
    
    
    $
    0.5200Free cash (2)
    
    $
    244.9
    
    
    $
    92.0
    
    
    $
    38.2Return on capital employed (2)
    
    
    10.2
    %
    
    
    9.4
    %
    
    
    7.3
    %Total assets
    
    $
    11,415.9
    
    
    $
    10,891.1
    
    
    $
    10,499.8Total long-term financial liabilities
    
    $
    5,320.4
    
    
    $
    5,390.3
    
    
    $
    5,230.7
 (1)
 (2)
  2006 Annual Report     9
    Table of Contents  Operating Results
 Income
   o
    
    higher revenues due to increased freight rates across the majority of our business lines;o
    
    strong grain volumes;o
    
    expense reductions from co-production initiatives and operational benefits produced by
our IOP (discussed under the sub-heading Integrated Operating Plan in the section Future
Trends, Commitments and Risks);o
    
    reductions in management and administrative positions; ando
    
    $18 million gain from the sale of our Latta subdivision (discussed further in the section Future Trends, Commitments and Risks).
 o
    
    a significant reduction in coal volumes (discussed further in the section Freight Revenues);o
    
    higher fuel costs;o
    
    higher material costs for freight car and locomotive repairs and train servicing; ando
    
    the net impact of the change in the value of the Canadian dollar relative to the U.S.
dollar (Foreign Exchange) on U.S. dollar-denominated revenues and expenses.
 o
    
    higher costs for compensation and benefits, and depreciation and amortization
(discussed further in the section Operating Expenses, Before Other Specified Items);o
    
    the impact of inflation on expenses; ando
    
    the net negative impact of the change in Foreign Exchange.
   10     2006 Annual Report
    Table of Contents  Diluted Earnings Per Share
  Operating Ratio
 Pension Plan Deficit
  Effect of Foreign Exchange on Earnings
 
   2006 Annual Report     11
    Table of Contents  Favourable (Unfavourable) Effect on Earnings Due to the Change in Foreign Exchange
 For the year ended December 31 (in millions, except foreign exchange rate) (unaudited)
    
    2006 vs. 2005
    
    
    2005 vs. 2004Average annual foreign exchange rates
    
    
    $1.13 vs. $1.21
    
    
    
    $1.21 vs. $1.30Freight revenuesGrain
    
    
    $  (24
    )
    
    
    $  (23
    )Coal
    
    
    (7
    )
    
    
    (8
    )Sulphur and fertilizers
    
    
    (10
    )
    
    
    (11
    )Forest products
    
    
    (16
    )
    
    
    (16
    )Industrial and consumer products
    
    
    (25
    )
    
    
    (25
    )Automotive
    
    
    (12
    )
    
    
    (14
    )Intermodal
    
    
    (19
    )
    
    
    (21
    )Other revenues
    
    
    (1
    )
    
    
    (2
    )Total effect
    
    
    (114
    )
    
    
    (120
    )Operating expensesCompensation and benefits
    
    
    22
    
    
    
    23Fuel
    
    
    30
    
    
    
    23Materials
    
    
    3
    
    
    
    3Equipment rents
    
    
    12
    
    
    
    13Depreciation and amortization
    
    
    4
    
    
    
    5Purchased services and other
    
    
    15
    
    
    
    18Total effect
    
    
    86
    
    
    
    85Effect on operating income
    
    
    (28
    )
    
    
    (35
    )Other expensesOther charges
    
    
    0
    
    
    
    1Interest expense
    
    
    11
    
    
    
    12Income tax expense, before FX on LTD (1)
    
    
    7
    
    
    
    6Effect on income, before FX on LTD (1)
    
    
    $  (10
    )
    
    
    $  (16
    )
 (1)
  Non-GAAP Earnings
 
 
   12     2006 Annual Report
    Table of Contents  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) (unaudited)
    
    2006
    
    
    2005
    (1)
    
    2004
    (1)
    
    2006
    
    
    2005
    (1)Revenues
    
    $
    4,583.2
    
    
    $
    4,391.6
    
    
    $
    3,902.9
    
    
    $
    1,190.4
    
    
    $
    1,166.9Operating expenses, before other specified items
    
    
    3,454.6
    
    
    
    3,390.1
    
    
    
    3,116.3
    
    
    
    870.3
    
    
    
    862.7Operating income, before other specified items
    
    
    1,128.6
    
    
    
    1,001.5
    
    
    
    786.6
    
    
    
    320.1
    
    
    
    304.2Other charges
    
    
    27.8
    
    
    
    18.1
    
    
    
    36.1
    
    
    
    6.4
    
    
    
    6.8Interest expense
    
    
    194.5
    
    
    
    204.2
    
    
    
    218.6
    
    
    
    49.8
    
    
    
    49.1Income tax expense, before income tax on FX on LTD
and other specified items (2)
    
    
    278.8
    
    
    
    250.8
    
    
    
    172.4
    
    
    
    82.9
    
    
    
    77.8Income, before FX on LTD and other specified items(2)
    
    
    627.5
    
    
    
    528.4
    
    
    
    359.5
    
    
    
    181.0
    
    
    
    170.5Foreign exchange (gains) losses on long-term debtFX on LTD  (gains) losses
    
    
    0.1
    
    
    
    (44.7
    )
    
    
    (94.4
    )
    
    
    44.9
    
    
    
    0.6Income tax expense on FX on LTD
    
    
    7.1
    
    
    
    22.4
    
    
    
    
    
    
    
    (9.5
    )
    
    
    4.5FX on LTD, net of tax  (gain) loss
    
    
    7.2
    
    
    
    (22.3
    )
    
    
    (94.4
    )
    
    
    35.4
    
    
    
    5.1Other specified itemsIncome tax benefits due to tax rate reductions
    
    
    (176.0
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Special charge for labour restructuring and asset impairment
    
    
    
    
    
    
    44.2
    
    
    
    (19.0
    )
    
    
    
    
    
    
    44.2Special credit related to environmental remediation
    
    
    
    
    
    
    (33.9
    )
    
    
    90.9
    
    
    
    
    
    
    
    Income tax on other specified items
    
    
    
    
    
    
    (2.6
    )
    
    
    (29.1
    )
    
    
    
    
    
    
    (15.9
    )Other specified items, net of tax
    
    
    (176.0
    )
    
    
    7.7
    
    
    
    42.8
    
    
    
    
    
    
    
    28.3Net income
    
    $
    796.3
    
    
    $
    543.0
    
    
    $
    411.1
    
    
    $
    145.6
    
    
    $
    137.1Diluted EPS, before FX on LTD and other specified items (2)
    
    $
    3.95
    
    
    $
    3.30
    
    
    $
    2.26
    
    
    $
    1.15
    
    
    $
    1.07Diluted EPS, related to FX on LTD, net of tax (2)
    
    
    (0.04
    )
    
    
    0.14
    
    
    
    0.59
    
    
    
    (0.23
    )
    
    
    (0.03
    )Diluted EPS, related to other specified items, net of tax (2)
    
    
    1.11
    
    
    
    (0.05
    )
    
    
    (0.27
    )
    
    
    
    
    
    
    (0.18
    )Diluted EPS, as determined by GAAP
    
    $
    5.02
    
    
    $
    3.39
    
    
    $
    2.58
    
    
    $
    0.92
    
    
    $
    0.86Operating ratio, before other specified items (2)
    
    
    75.4
    %
    
    
    77.2
    %
    
    
    79.8
    %
    
    
    73.1
    %
    
    
    73.9
    %Operating ratio, related to other specified items (2)
    
    
    
    
    
    
    0.2
    %
    
    
    1.9
    %
    
    
    
    
    
    
    3.8
    %Operating ratio
    
    
    75.4
    %
    
    
    77.4
    %
    
    
    81.7
    %
    
    
    73.1
    %
    
    
    77.7
    %
 (1)
 (2)
  2006 Annual Report     13
    Table of Contents  Foreign Exchange Gains  and Losses on Long-term Debt
 Other Specified Items
   o
    
    In the second quarter of 2006, the governments of Canada and 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 transactions in prior years for
which future taxes will be paid.
  o
    
    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 under the sub-heading Restructuring in the section Future Trends,
Commitments and Risks).o
    
    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 under the sub-heading Environmental in the
section Future Trends, Commitments and Risks). 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.
 o
    
    A special charge of $90.9 million ($55.2 million after tax) taken in 2004 to reflect
the estimated costs required to remediate environmental contamination at a property in the
U.S. (discussed further under the sub-heading Environmental in the section Future
Trends, Commitments and Risks).o
    
    A favourable adjustment of $19.0 million ($12.4 million after tax) in 2004, reflecting
a reduction of a portion of the labour liability in the special charge we took in 2003. The
labour liability in the special charge in 2003 included original estimates of labour
liabilities to be incurred to restructure our northeastern U.S. operations. In 2004, we
achieved a successful new arrangement with Norfolk Southern Railway that is generating
efficiency improvements to operations in the region. As a result, we did not incur the
expected labour restructuring costs and the liability associated with restructuring our
northeastern U.S. operations was reversed.
 Lines of Business
 Volumes
   14     2006 Annual Report
    Table of Contents  Volumes
 For the year ended December 31 (unaudited)
    
    2006
    
    
    2005
    (1)
    
    2004
    (1)Carloads (in thousands)Grain
    
    
    382.8
    
    
    
    338.7
    
    
    
    321.2Coal
    
    
    281.7
    
    
    
    352.3
    
    
    
    395.2Sulphur and fertilizers
    
    
    178.3
    
    
    
    201.8
    
    
    
    211.8Forest products
    
    
    135.0
    
    
    
    153.7
    
    
    
    160.3Industrial and consumer products
    
    
    316.0
    
    
    
    322.2
    
    
    
    319.0Automotive
    
    
    165.3
    
    
    
    168.1
    
    
    
    171.7Intermodal
    
    
    1,159.0
    
    
    
    1,139.4
    
    
    
    1,119.6Total carloads
    
    
    2,618.1
    
    
    
    2,676.2
    
    
    
    2,698.8Revenue ton-miles (in millions)Grain
    
    
    30,127
    
    
    
    26,081
    
    
    
    23,805Coal
    
    
    19,650
    
    
    
    23,833
    
    
    
    25,241Sulphur and fertilizers
    
    
    17,401
    
    
    
    20,080
    
    
    
    20,418Forest products
    
    
    8,841
    
    
    
    9,953
    
    
    
    10,557Industrial and consumer products
    
    
    16,844
    
    
    
    15,936
    
    
    
    15,566Automotive
    
    
    2,450
    
    
    
    2,361
    
    
    
    2,291Intermodal
    
    
    27,561
    
    
    
    27,059
    
    
    
    25,749Total revenue ton-miles
    
    
    122,874
    
    
    
    125,303
    
    
    
    123,627
 (1)
  2006 Annual Report     15
    Table of Contents  Revenues
   For the year ended December 31 (in millions) (unaudited)
    
    2006
    
    
    2005
    (1)
    
    2004
    (1)Grain
    
    $
    904.6
    
    
    $
    754.5
    
    
    $
    668.2Coal
    
    
    592.0
    
    
    
    728.8
    
    
    
    530.3Sulphur and fertilizers
    
    
    439.3
    
    
    
    447.1
    
    
    
    460.0Forest products
    
    
    316.4
    
    
    
    333.9
    
    
    
    322.0Industrial and consumer products
    
    
    603.8
    
    
    
    542.9
    
    
    
    481.4Automotive
    
    
    314.4
    
    
    
    298.0
    
    
    
    288.5Intermodal
    
    
    1,256.8
    
    
    
    1,161.1
    
    
    
    1,034.7Total freight revenues
    
    $
    4,427.3
    
    
    $
    4,266.3
    
    
    $
    3,785.1Other revenues
    
    
    155.9
    
    
    
    125.3
    
    
    
    117.8Total revenues
    
    $
    4,583.2
    
    
    $
    4,391.6
    
    
    $
    3,902.9
 (1)
  Freight Revenues
    o
    
    higher freight rates, including fuel surcharges;o
    
    strong growth in grain shipments; ando
    
    strong growth in the Alberta economy.
 o
    
    higher freight rates, including fuel surcharges;o
    
    our initiatives to increase high-margin, long-haul traffic and reduce low-margin, short-haul traffic; ando
    
    revenue recorded as a result of an agreement reached with EVC, which related to the
prior year (discussed further in this section under the sub-heading Coal).
 Grain
   16     2006 Annual Report
    Table of Contents  o
    
    a strong Canadian grain crop reflecting improved quality;o
    
    a large carryover from the 2005/06 crop year;o
    
    increased shipments of western Canadian grain to the United States as a result of a trade tariff being lifted; ando
    
    higher freight rates.
   o
    
    higher freight rates, including fuel surcharges;o
    
    higher volumes as a result of a larger harvest in 2005 than in 2004; ando
    
    increased export volumes from both Canada and the U.S. due to strong worldwide demand
for grain and operational improvements that increased car availability to the U.S. Pacific Northwest.
  Coal
 o
    
    higher freight rates;o
    
    revenues recorded as a result of the agreement reached with EVC, which related to the prior year; ando
    
    business from new U.S. customers, which replaced certain low-margin, short-haul traffic.
  o
    
    initiatives to increase high-margin, long-haul traffic and reduce low-margin,
short-haul traffic, which resulted in lower U.S. volumes and a minor decrease in U.S.
revenues;o
    
    a decrease in coal transported to the Port of Vancouver as a result of a customers decline in sales; ando
    
    a decrease in Canadian coal transported to the U.S. Midwest due to a steel mill shutdown.
  Sulphur and Fertilizers
 o
    
    reduced domestic shipments of potash as a result of lower producer inventories in 2005;o
    
    lower domestic shipments of potash in 2005 as a result of high potash prices and reduced farm demand for fertilizers; ando
    
    the negative impact of the change in Foreign Exchange.
  Forest Products
   o
    
    reduced volumes from a softening demand for lumber and panel caused by a decrease in
U.S. housing starts;
   2006 Annual Report     17
    Table of Contents  o
    
    difficult market conditions for our forest product customers caused by a strong
Canadian dollar and softwood lumber trade negotiations which have led to reduced volumes
and extended plant shut downs; ando
    
    the negative impact of the change in Foreign Exchange.
   Industrial and Consumer Products
   o
    
    strong demand for steel, energy products and aggregates, largely driven by Alberta oil and gas activity and a strong Alberta economy;o
    
    strong worldwide demand for base metals; ando
    
    increased freight rates.
 Automotive
    Intermodal
 o
    
    increased freight rates, including fuel surcharges;o
    
    higher volumes at the Port of Vancouver driven by strong global trade; ando
    
    an increase in rates charged for the return of empty containers to port.
  o
    
    lower volumes compared with 2004 when a strike at a competing railway caused an increase in volumes for CP; ando
    
    reduced volumes and revenues due to the elimination of our Expressway trailer-on-flatcar service between Toronto and Detroit.
   18     2006 Annual Report
    Table of Contents  Other Revenues
 o
    
    the reclassification in 2005 of certain proceeds from passenger transportation to
Other Revenues from Operating Expenses, Before Other Specified Items; ando
    
    increased land sale revenues.
 Freight Revenue per Carload
    o
    
    higher freight rates, including fuel surcharges;o
    
    the adjustment for the EVC agreement; ando
    
    a longer average distance of haul.
   Freight Revenue per Carload
 For the year ended December 31 ($) (unaudited)
    
    2006
    
    
    2005
    
    
    2004Freight revenue per carload
    
    
    1,691
    
    
    
    1,594
    
    
    
    1,403Grain
    
    
    2,363
    
    
    
    2,228
    
    
    
    2,080Coal
    
    
    2,102
    
    
    
    2,069
    
    
    
    1,342Sulphur and fertilizers
    
    
    2,464
    
    
    
    2,216
    
    
    
    2,172Forest products
    
    
    2,344
    
    
    
    2,172
    
    
    
    2,009Industrial and consumer products
    
    
    1,911
    
    
    
    1,685
    
    
    
    1,509Automotive
    
    
    1,902
    
    
    
    1,773
    
    
    
    1,680Intermodal
    
    
    1,084
    
    
    
    1,019
    
    
    
    924
  2006 Annual Report     19
    Table of Contents  Performance Indicators
  (1)
 For the year ended December 31 (unaudited)
    
    2006
    
    
    2005
    
    
    2004Safety indicators(2)FRA personal injuries per 200,000 employee-hours
    
    
    2.0
    
    
    
    2.4
    
    
    
    2.7FRA train accidents per million train-miles
    
    
    1.4
    
    
    
    2.3
    
    
    
    2.1Efficiency and other indicatorsGross ton-miles (GTM) of freight (millions)
    
    
    236,405
    
    
    
    242,100
    
    
    
    236,451Car miles per car day
    
    
    137.3
    
    
    
    124.0
    
    
    
    119.0U.S. gallons of locomotive fuel consumed per 1,000 GTMs  freight and yard
    
    
    1.20
    
    
    
    1.18
    
    
    
    1.20Terminal dwell (hours)
    
    
    20.8
    
    
    
    25.8
    
    
    
    24.9Average train speed (miles per hour)
    
    
    24.8
    
    
    
    22.0
    
    
    
    22.7Number of active employees  end of period
    
    
    15,327
    
    
    
    16,295
    
    
    
    15,637Freight revenue per RTM (cents)
    
    
    3.60
    
    
    
    3.40
    
    
    
    3.06
 (1)
 (2)
  Safety Indicators
  o
    
    The FRA personal injury rate per 200,000 employee-hours in 2006 was 2.0, a 17 %
improvement compared with 2005 and a 26 % improvement compared with 2004. Our safety
management processes are designed to provide a continuous and consistent focus on improving
safety.o
    
    The FRA train accident rate in 2006 was 1.4 accidents per million train-miles, a 39 %
improvement compared with 2005 and a 33 % improvement compared with 2004.
 Efficiency and Other Indicators
 o
    
    Terminal dwell, the average time a freight car resides in a terminal, decreased 19 %
in 2006, compared with 2005. The improvement in 2006
 was largely due to better processes within our yards and providing seven-day-a-week outlets
for all our traffic which minimized the number of times freight cars are handled. Reducing
the time freight cars spend waiting in terminals also enabled us to decrease our fleet of
cars used with total cars on line falling 6 % in 2006. Terminal dwell in 2005 increased 4 %
compared with 2004, due in part to a major track capacity expansion program in our western
corridor.o
    
    GTMs declined 2 % in 2006, compared with 2005. The decrease in 2006 was mainly due to
lower coal and potash volumes partially offset by higher grain volume. GTMs increased 2 %
in 2005 compared with 2004. The increase was mainly due to higher grain and industrial and
consumer products volumes partially offset by lower coal volume. Fluctuations in GTMs
normally drive fluctuations in certain variable costs, such as fuel and crew costs.
 o
    
    Car miles per car day increased 11 % in 2006, compared with 2005, and increased 5 % in
2005, compared with 2004. The improvement in both years was due to the success of changes
to our IOP, which resulted in the more efficient movement of traffic over our network, and a
reduction in the size of our freight car fleet.o
    
    U.S. gallons of locomotive fuel consumed per 1,000 GTMs in both freight and yard
activity increased 2 % in 2006, compared with 2005. This was due to transporting more
non-bulk traffic which is less fuel efficient to move. The increases were partially offset
by increased utilization of fuel-efficient locomotives, improved execution of our IOP and
successful fuel-conservation efforts (discussed under the sub-heading Crude Oil Prices in
the section Future Trends, Commitments and Risks). Mild winter weather at the start of
2006 also helped to reduce fuel consumption. A 2 % improvement in 2005, compared with 2004,
was the result of utilizing additional fuel-efficient
   20     2006 Annual Report
    Table of Contents  locomotives, improved IOP design and execution and fuel conservation efforts.o
    
    Average train speed increased 13 % in 2006, compared with 2005. Trains moved at faster
speeds for longer distances as a result of our expanded track capacity in western Canada,
adhering to our IOP, and co-production agreements with other railroads that allow us to
move trains more efficiently. Train speed also increased as a result of transporting less
bulk volumes, which move in heavy trains that travel more slowly. Average train speed in
2005 decreased 3 % compared with 2004, which was largely due to the large construction
program in our western corridor to expand our capacity.
 o
    
    The number of active employees at December 31, 2006 decreased 6 % compared with the
number at December 31, 2005. The decrease was due mainly to job reductions made under
restructuring initiatives (discussed under the sub-heading Restructuring in the section
Future Trends, Commitments and Risks) and fewer capital project employees. Approximately
6 % of employees were assigned to capital projects at December 31, 2006, compared with 9 %
at December 31, 2005.Our year-end number of active employees increased 4 % in 2005, compared with 2004. Additional
employees were hired to handle business growth and increased
 capital program work undertaken in 2005, including a major track expansion of our western
corridor. This hiring more than offset job reductions under restructuring initiatives.o
    
    Freight revenue per RTM increased 6 % in 2006, compared with 2005. The increase was due
to higher freight rates, partially offset by the negative impact of the change in Foreign
Exchange. Freight revenue per RTM increased 11 % in 2005, compared with 2004, primarily due
to increases in freight rates and fuel surcharge revenues. These increases were partially
offset by the negative impact of the change in Foreign Exchange.
   Operating Expenses, Before Other Specified Items
 (1)
 For the year ended December 31
    
    2006
    
    
    2005 (2)
    
    
    2004 (2)(in millions) (unaudited)
    
    Expense
    
    
    % of revenue
    
    
    Expense
    
    
    % of revenue
    
    
    Expense
    
    
    % of revenueCompensation and benefits
    
    $
    1,327.6
    
    
    
    29.0
    
    
    $
    1,322.1
    
    
    
    30.1
    
    
    $
    1,261.5
    
    
    
    32.3Fuel
    
    
    650.5
    
    
    
    14.2
    
    
    
    588.0
    
    
    
    13.4
    
    
    
    440.0
    
    
    
    11.3Materials
    
    
    212.9
    
    
    
    4.6
    
    
    
    203.3
    
    
    
    4.6
    
    
    
    178.5
    
    
    
    4.6Equipment rents
    
    
    181.2
    
    
    
    4.0
    
    
    
    210.0
    
    
    
    4.8
    
    
    
    218.5
    
    
    
    5.6Depreciation and amortization
    
    
    464.1
    
    
    
    10.1
    
    
    
    445.1
    
    
    
    10.1
    
    
    
    407.1
    
    
    
    10.4Purchased services and other
    
    
    618.3
    
    
    
    13.5
    
    
    
    621.6
    
    
    
    14.2
    
    
    
    610.7
    
    
    
    15.6Total
    
    $
    3,454.6
    
    
    
    75.4
    
    
    $
    3,390.1
    
    
    
    77.2
    
    
    $
    3,116.3
    
    
    
    79.8
 (1)
 (2)
  o
    
    higher fuel costs;
 o
    
    increased price of materials used for freight car repairs, primarily related to the replacement of wheel sets, and train servicing; ando
    
    increased depreciation and amortization expense.
 o
    
    higher fuel, depreciation and amortization, and compensation and benefits costs;
   2006 Annual Report     21
    Table of Contents  o
    
    increased GTMs; ando
    
    the effect of inflation.
  Compensation and Benefits
   o
    
    reduced costs as a result of restructuring initiatives (discussed further under the
sub-heading Restructuring in the section Future Trends, Commitments and Risks);o
    
    savings realized from efficiencies gained through our IOP (discussed further under the
sub-heading Integrated Operating Plan in the section Future Trends, Commitments and
Risks) as well as other productivity improvements;o
    
    reduced costs as a result of lower freight volumes; ando
    
    the positive impact of the change in Foreign Exchange.
  o
    
    higher costs associated with employee incentive compensation, due largely to increased share prices affecting stock-based compensation;
 o
    
    the impact of inflation;o
    
    selective hiring to handle increased freight volumes; ando
    
    increased pension costs.
  Fuel
   o
    
    favourable settlement of prior period recoveries including a fuel excise tax refund;o
    
    reduced workload; ando
    
    the positive impact of the change in Foreign Exchange.
 Materials
    o
    
    increased wheel replacements on freight cars, as well as higher consumption of other materials used to repair and service freight cars;o
    
    higher gasoline and heating costs; ando
    
    recoveries received from a supplier in 2004.
  Equipment Rents
   22     2006 Annual Report
    Table of Contents  o
    
    increased charges to customers for loading and unloading delays;o
    
    lower payments to other railways for the use of their freight cars, due to more efficient movement of traffic on our network;o
    
    favourable adjustments in 2005 for freight car rentals pertaining to prior periods; ando
    
    the positive impact of the change in Foreign Exchange.
  Depreciation and Amortization
 Purchased Services and Other
    o
    
    higher outsourced maintenance costs as a result of an increase in the volume of work;o
    
    higher contractor and consulting fees, mainly for strategic and regulatory initiatives;o
    
    certain proceeds from passenger train operators, which are now reflected in Other Revenues; ando
    
    reduced overhead costs allocated to capital projects.
  o
    
    lower costs associated with derailments, mishaps and personal injuries;o
    
    lower joint-facility and inter-railway expenditures; and
 o
    
    the positive impact of the change in Foreign Exchange.
 Other Income Statement Items
 Other Charges
    Interest Expense
   2006 Annual Report     23
    Table of Contents  Income Taxes
 
 Fourth-quarter Summary
 Operating Results
  o
    
    higher revenues from increased freight rates (discussed in this section under the
sub-heading Revenues);o
    
    cost-reduction programs, stemming in particular from operational benefits produced by
our IOP and reductions in management and administrative staff (discussed under the
sub-headings Integrated Operating Plan and Restructuring in the section Future Trends,
Commitments and Risks); ando
    
    benefits of co-production initiatives.
  o
    
    higher costs for fuel and depreciation and amortization (discussed in this section under the sub-heading Operating Expenses, Before Other Specified Items);o
    
    reduced volumes for coal; ando
    
    the negative impact of the change in Foreign Exchange.
  Non-GAAP Earnings
   24     2006 Annual Report
    Table of Contents  Revenues
  Grain
  Coal
 Sulphur and Fertilizers
  Forest Products
   o
    
    a softening demand for lumber and panel caused by a decrease in U.S. housing starts;o
    
    difficult market conditions for our forest product customers caused by a strong
Canadian dollar and softwood lumber trade negotiations which have lead to reduced volumes
and extended plant shut downs; ando
    
    the negative impact of Foreign Exchange.
  Industrial and Consumer Products
  o
    
    higher freight rates;o
    
    strong worldwide demand for base metals; ando
    
    strong demand for chemical, plastics and energy products largely driven by Alberta oil and gas activity and a strong Alberta economy.
 Automotive
  Intermodal
  Operating Expenses,  Before Other Specified Items
  Compensation and Benefits
  o
    
    reduced costs from restructuring initiatives (discussed further under the sub-heading
Restructuring in the section Future Trends, Commitments and Risks);
   2006 Annual Report     25
    Table of Contents  o
    
    savings realized from efficiencies gained through our IOP (discussed further under the
sub-heading Integrated Operating Plan in the section Future Trends, Commitments and
Risks); ando
    
    the positive impact of the change in Foreign Exchange.
  Fuel
  Materials
 Equipment Rents
  o
    
    higher charges to customers for loading and unloading delays;o
    
    lower equipment rental payments to other railways as a result of more efficient
movement of traffic over our network which has reduced the number of cars on line; ando
    
    the positive impact of the change in Foreign Exchange.
  Depreciation and Amortization
  Purchased Services and Other
  Other Income Statement Items
 Liquidity and Capital Resources
   26     2006 Annual Report
    Table of Contents  Quarterly Financial Data
 For the quarter ended(in millions, except per share data)
    
    2006
    
    
    2005(unaudited)
    
    Dec. 31
    
    
    Sept. 30    (2)
    
    June 30    (2)
    
    Mar. 31    (2)
    
    Dec. 31
    (2)
    
    Sept. 30
    (2)
    
    June 30
    (2)
    
    Mar. 31
    (2)Total revenue
    
    $
    1,190.4
    
    
    $     1,151.3    
    
    $     1,131.0    
    
    $     1,110.5    
    
    $
    1,166.9
    
    
    $
    1,104.7
    
    
    $
    1,105.9
    
    
    $
    1,014.1Operating income
    
    
    320.1
    
    
         299.1    
    
         282.6    
    
         226.8    
    
    
    260.0
    
    
    
    283.2
    
    
    
    272.3
    
    
    
    175.7Net income
    
    
    145.6
    
    
         163.8    
    
         378.1    
    
         108.8    
    
    
    137.1
    
    
    
    203.8
    
    
    
    124.1
    
    
    
    78.0Operating income, before
other specified items (1)
    
    
    320.1
    
    
         299.1    
    
         282.6    
    
         226.8    
    
    
    304.2
    
    
    
    249.3
    
    
    
    272.3
    
    
    
    175.7Income, before FX
on LTD and other
specified items (1)
    
    
    181.0
    
    
         169.7    
    
         160.7    
    
         116.1    
    
    
    170.5
    
    
    
    135.1
    
    
    
    140.9
    
    
    
    81.9Basic earnings per share
    
    $
    0.93
    
    
    $     1.05    
    
    $     2.39    
    
    $     0.69    
    
    $
    0.87
    
    
    $
    1.29
    
    
    $
    0.79
    
    
    
    0.49Diluted earnings per share
    
    
    0.92
    
    
         1.04    
    
         2.37    
    
         0.68    
    
    
    0.86
    
    
    
    1.27
    
    
    
    0.78
    
    
    
    0.48Diluted earnings per share,
before FX on LTD and
other specified items (1)
    
    
    1.15
    
    
         1.07    
    
         1.00    
    
         0.72    
    
    
    1.07
    
    
    
    0.84
    
    
    
    0.88
    
    
    
    0.51
 (1)
 (2)
 Quarterly Trends
  
 
 
   2006 Annual Report     27
    Table of Contents  Changes in Accounting Policy
 2006 Accounting Changes
 Stock-Based Compensation for Employees
Eligible to Retire before the Vesting Date
  Non-Monetary Transactions
 Hedging Transactions
 Future Accounting Changes
  Financial Instruments, Hedging
and Other Comprehensive Income
   28     2006 Annual Report
    Table of Contents  Accounting Changes
   Liquidity and Capital Resources
  Operating Activities
 o
    
    higher restructuring payments;o
    
    a higher year-end working capital
balance, primarily due to an
increase in accounts receivable
from higher freight revenues and
a reduction in accounts payable
from lower restructuring
payments; ando
    
    increased pension contributions.
  o
    
    a greater amount of cash being
generated through operations in
2005;o
    
    reduced restructuring payments; ando
    
    lower pension funding contributions.
   Investing Activities
   2006 Annual Report     29
    Table of Contents  Financing Activities
 o
    
    the repayment of $250-million
Medium Term Notes;o
    
    the issuance
in 2004 of US$145-million
Senior Secured Notes, compared
with 2005 when no debt was
issued; ando
    
    payments made to
buy back shares under our share
repurchase program.
 Free Cash
   30     2006 Annual Report
    Table of Contents  Calculation of Free Cash
  For the year ended December 31 (in millions) (unaudited)
    
    2006
    
    
    2005
    (2)
    
    2004
    (2)Cash provided by operating activities
    
    $
    1,051.0
    
    
    $
    1,050.7
    
    
    $
    782.5Cash used in investing activities
    
    
    (693.7
    )
    
    
    (869.2
    )
    
    
    (662.6
    )Dividends paid
    
    
    (112.4
    )
    
    
    (89.5
    )
    
    
    (81.7
    )Free cash(1)
    
    
    244.9
    
    
    
    92.0
    
    
    
    38.2Cash (used in) provided by financing activities,
excluding dividend payment
    
    
    (242.4
    )
    
    
    (323.2
    )
    
    
    180.1Increase / (decrease) in cash, as shown on the
Statement of Consolidated Cash Flows
    
    
    2.5
    
    
    
    (231.2
    )
    
    
    218.3Net cash at beginning of period
    
    
    121.8
    
    
    
    353.0
    
    
    
    134.7Net cash at end of period
    
    $
    124.3
    
    
    $
    121.8
    
    
    $
    353.0
 (1)
 (2)
  Balance Sheet
 Assets
   o
    
    capital additions, most of which were
locomotives and track
replacement;o
    
    an increase in accounts receivable due to higher
freight rates which have
increased amounts billed to
customers;o
    
    higher materials and supplies, mainly fuel stock and
engineering inventory; ando
    
    pension contributions made in excess of pension expense
recognized in income.
 Total Liabilities
    Equity
 Share Capital
   2006 Annual Report     31
    Table of Contents  Dividends
  Dividend amount
    
    
    Record date
    
    
    Payment date$0.1275
    
    March 26, 2004
    
    April 26, 2004$0.1275
    
    June 25, 2004
    
    July 26, 2004$0.1325
    
    September 24, 2004
    
    October 25, 2004$0.1325
    
    December 31, 2004
    
    January 31, 2005$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
 32     2006 Annual Report
    Table of Contents  Financial Instruments
     Interest Rate Management
 Interest Rate Swaps
  Interest and Treasury Rate Locks
 Foreign Exchange Management
  Foreign Exchange Forward Contracts
  Fuel Price Management
  Crude Oil Swaps
   2006 Annual Report     33
    Table of Contents  Stock-based Compensation  Expense Management
 Total Return Swap
  Off-balance Sheet Arrangements
 Sale of Accounts Receivable
 
   34     2006 Annual Report
    Table of Contents  Contractual Commitments
   Payments Due by Period
 Contractual commitments at December 31, 2006
    
    
    
    
    
    
    
    
    13
    
    35
    
    
    After(in millions)
    
    Total
    
    
    < 1 year
    
    
    years
    
    
    years
    
    
    5 yearsLong-term debt
    
    
    2,665.9
    
    
    
    164.3
    
    
    
    38.5
    
    
    
    870.1
    
    
    
    1,593.0Capital lease obligations
    
    
    338.9
    
    
    
    27.0
    
    
    
    18.2
    
    
    
    32.2
    
    
    
    261.5Operating lease obligations (1)
    
    
    634.2
    
    
    
    133.2
    
    
    
    170.6
    
    
    
    106.2
    
    
    
    224.2Supplier purchase obligations
    
    
    739.4
    
    
    
    135.0
    
    
    
    202.8
    
    
    
    142.3
    
    
    
    259.3Other long-term liabilities reflected
on our Consolidated Balance Sheet (2)
    
    
    919.2
    
    
    
    125.2
    
    
    
    218.9
    
    
    
    170.4
    
    
    
    404.7Total contractual obligations
    
    
    5,297.6
    
    
    
    584.7
    
    
    
    649.0
    
    
    
    1,321.2
    
    
    
    2,742.7
 (1)
 (2)
  Future Trends,  Commitments and Risks
 Change in Executive Officers  and Chairman of the Board
 Sale of Latta Subdivision
 
   2006 Annual Report     35
    Table of Contents  Rail Network Capacity
  Integrated Operating Plan
  Canadian Government  Covered Hopper Car Fleet
 Agreements
  General Risks
 Stock Price
   36     2006 Annual Report
    Table of Contents  Crude Oil Prices
  Border Security
  o
    
    We are a certified
carrier with the U.S.
Customs and Border Protections
(CBP) Customs-Trade
Partnership Against Terrorism
(C-TPAT) program and with the
Canada Border Services Agencys
(CBSA) Partners in Protection
(PIP) program. C-TPAT and PIP
are partnership programs that
seek to strengthen overall
supply chain and border
security. We are also an
approved carrier under CBSAs
Customs Self-assessment
program.o
    
    We have implemented several
regulatory security frameworks
that focus on the provision of
advanced electronic cargo
information. We are fully
automated with both CBSA and
CBP and provide
 the requisite shipment
information electronically
well in advance of freight
arrival at the border.o
    
    Based on a joint Declaration of
Principles, a Vehicle and Cargo
Inspection System (VACIS) has
been installed at five of our
border crossings under a
co-operative program with CBSA
and U.S. Customs and Border
Protection. Rail VACIS systems
use non-intrusive gamma ray
technology to scan U.S.-bound
rail shipments.
 Labour Relations
  Canada
  U.S.
 Environmental
   2006 Annual Report     37
    Table of Contents  o
    
    protecting the environment;o
    
    ensuring compliance
with applicable environmental
laws and regulations;o
    
    promoting awareness and training;o
    
    managing emergencies through preparedness; ando
    
    encouraging involvement, consultation and dialogue with
communities along our lines.
 
 
   Certain Other Financial Commitments
 Amount of commitment per period2008 &
    
    
    2010 &
    
    
    2012 &At December 31, 2006 (in millions)(unaudited)
    
    Total
    
    
    2007
    
    
    2009
    
    
    2011
    
    
    beyondLetters of credit
    
    
    354.2
    
    
    
    354.2
    
    
    
    
    
    
    
    
    
    
    
    Capital commitments (1)
    
    
    480.1
    
    
    
    206.1
    
    
    
    75.6
    
    
    
    53.2
    
    
    
    145.2Offset financial liability
    
    
    179.5
    
    
    
    179.5
    
    
    
    
    
    
    
    
    
    
    
    Total commitments
    
    
    1,013.8
    
    
    
    739.8
    
    
    
    75.6
    
    
    
    53.2
    
    
    
    145.2
 (1)We have several contracts outstanding with termination payments ranging from
$nil to $18.9 million per contract, and resulting in a minimum exposure of $3.3 million and a
maximum exposure of $43.6 million, depending on the date of termination. These contracts are not
reflected in the commitments above and expire mainly between 2007 and 2013.
  Financial Commitments
  Letters of Credit
 Capital Commitments
 
   38     2006 Annual Report
    Table of Contents  Offset Financial Liability
  Pension Plan Deficit
 
 Restructuring
   2006 Annual Report     39
    Table of Contents  Critical Accounting Estimates
   Environmental Liabilities
 
 Pensions and Other Benefits
   40     2006 Annual Report
    Table of Contents  Property, Plant and Equipment
 
   2006 Annual Report     41
    Table of Contents  Future Income Taxes
 
 Legal and Personal Injury Liabilities
   42     2006 Annual Report
    Table of Contents  Systems, Procedures and Controls
 Securities Exchange Act of 1934
 Forward-looking Information
 Private
Securities Litigation Reform Act
of 1995
 
   2006 Annual Report     43
    Table of Contents  Bill C-11 Canada
Transportation Act Bill C-11 Bill C-44 Bill C-11 Bill C-11 Bill C-11
 Bill C-44 Bill C-11
 
   44     2006 Annual Report
    Table of Contents  Glossary of Terms
 Average train speed
 Car miles per car day
 Total car-miles
 A car-day
 Carloads
 CICA
 Class 1 railway
 CPRL
 CP, the Company
 Co-production initiatives
 Diluted EPS, before FX on LTD
 D&H
 EPS
 Fluidity
 Foreign Exchange
 FRA
 FRA personal injuries per 200,000
employee-hours
 FRA train accidents per million
train-miles
 Freight revenue per carload
 Freight revenue per RTM
 FX on
LTD
 GAAP
 GTMs or gross ton-miles
 IOP
   2006 Annual Report     45
    Table of Contents  LIBOR
 MD&A
 Number of active employees 
end of period
 Operating ratio
 Return on capital employed
 RTMs or revenue ton-miles
 Soo Line
 STB
 Terminal dwell
 U.S. gallons of locomotive fuel
per 1,000 GTMs consumed 
freight and yard
 WCB
 WTI
   46     2006 Annual Report
    Table of Contents  MANAGEMENTS RESPONSIBILITYFOR FINANCIAL REPORTING
 
 Managements Report on Internal
Control over Financial Reporting
   2006 Annual Report     47
    Table of Contents  AUDITORSREPORT
 To the Shareholders of
Canadian Pacific Railway Limited
  Consolidated
Financial Statements
 Internal
Control Over Financial Reporting
   48     2006 Annual Report
    Table of Contents  Comments by Auditors on
Canada-U.S. Reporting Difference
   2006 Annual Report     49
    Table of Contents  STATEMENT OF CONSOLIDATED INCOME
 Year ended December 31 (in millions, except per share data)
    
    2006
    
    
    2005
    
    
    2004Restated
    
    
    Restated(see Note 2
    )
    
    (see Note 2
    )RevenuesFreight (Note 6)
    
    $
    4,427.3
    
    
    $
    4,266.3
    
    
    $
    3,785.1Other
    
    
    155.9
    
    
    
    125.3
    
    
    
    117.84,583.2
    
    
    
    4,391.6
    
    
    
    3,902.9Operating expensesCompensation and benefits
    
    
    1,327.6
    
    
    
    1,322.1
    
    
    
    1,261.5Fuel
    
    
    650.5
    
    
    
    588.0
    
    
    
    440.0Materials
    
    
    212.9
    
    
    
    203.3
    
    
    
    178.5Equipment rents
    
    
    181.2
    
    
    
    210.0
    
    
    
    218.5Depreciation and amortization
    
    
    464.1
    
    
    
    445.1
    
    
    
    407.1Purchased services and other
    
    
    618.3
    
    
    
    621.6
    
    
    
    610.73,454.6
    
    
    
    3,390.1
    
    
    
    3,116.3Operating income, before the following:
    
    
    1,128.6
    
    
    
    1,001.5
    
    
    
    786.6Special (credit) charge for environmental remediation (Notes 4
and 20)
    
    
    
    
    
    
    (33.9
    )
    
    
    90.9Special charge for (reduction to) labour restructuring (Notes
5 and 20)
    
    
    
    
    
    
    44.2
    
    
    
    (19.0
    )Operating income
    
    
    1,128.6
    
    
    
    991.2
    
    
    
    714.7Other charges (Note 7)
    
    
    27.8
    
    
    
    18.1
    
    
    
    36.1Foreign exchange gain on long-term debt
    
    
    0.1
    
    
    
    (44.7
    )
    
    
    (94.4
    )Interest expense (Note 8)
    
    
    194.5
    
    
    
    204.2
    
    
    
    218.6Income tax expense (Note 9)
    
    
    109.9
    
    
    
    270.6
    
    
    
    143.3Net income
    
    $
    796.3
    
    
    $
    543.0
    
    
    $
    411.1Basic earnings per share (Note 10)
    
    $
    5.06
    
    
    $
    3.43
    
    
    $
    2.59Diluted earnings per share (Note 10)
    
    $
    5.02
    
    
    $
    3.39
    
    
    $
    2.58
   50     2006 Annual Report
    Table of Contents  CONSOLIDATED BALANCE SHEET
 As at December 31 (in millions)
    
    2006
    
    
    2005Restated(see Note 2
    )AssetsCurrent assetsCash and cash equivalents
    
    $
    124.3
    
    
    $
    121.8Accounts receivable and other current assets (Note 11)
    
    
    615.7
    
    
    
    524.0Materials and supplies
    
    
    158.6
    
    
    
    140.1Future income taxes (Note 9)
    
    
    106.3
    
    
    
    108.01,004.9
    
    
    
    893.9Investments (Note 13)
    
    
    64.9
    
    
    
    67.3Net properties (Note 14)
    
    
    9,122.9
    
    
    
    8,790.9Other assets and deferred charges (Note 15)
    
    
    1,223.2
    
    
    
    1,139.0Total assets
    
    $
    11,415.9
    
    
    $
    10,891.1Liabilities and shareholders equityCurrent liabilitiesAccounts payable and accrued liabilities
    
    $
    1,002.6
    
    
    $
    1,032.8Income and other taxes payable
    
    
    16.0
    
    
    
    30.2Dividends payable
    
    
    29.1
    
    
    
    23.7Long-term debt maturing within one year (Note 16)
    
    
    191.3
    
    
    
    30.01,239.0
    
    
    
    1,116.7Deferred liabilities (Note 18)
    
    
    725.7
    
    
    
    745.9Long-term debt (Note 16)
    
    
    2,813.5
    
    
    
    2,970.8Future income taxes (Note 9)
    
    
    1,781.2
    
    
    
    1,673.6Shareholders equityShare capital (Note 21)
    
    
    1,175.7
    
    
    
    1,141.5Contributed surplus (Note 21)
    
    
    32.3
    
    
    
    245.1Foreign currency translation adjustments (Note 21)
    
    
    66.4
    
    
    
    67.5Retained income
    
    
    3,582.1
    
    
    
    2,930.04,856.5
    
    
    
    4,384.1Total liabilities and shareholders equity
    
    $
    11,415.9
    
    
    $
    10,891.1
   (-s- J.E. Cleghorn)
    
    (-s- R. Phillips)Approved on behalf of the Board:
    
    J.E. Cleghorn, Director
    
    R. Phillips, Director
  2006 Annual Report     51
    Table of Contents  STATEMENT OF CONSOLIDATED CASH FLOWS
 Year ended December 31 (in millions)
    
    2006
    
    
    2005
    
    
    2004Restated
    
    
    Restated(see Note 2
    )
    
    (see Note 2
    )Operating activitiesNet income
    
    $
    796.3
    
    
    $
    543.0
    
    
    $
    411.1Add (deduct) items not affecting cashDepreciation and amortization
    
    
    464.1
    
    
    
    445.1
    
    
    
    407.1Future income taxes (Note 9)
    
    
    75.3
    
    
    
    258.0
    
    
    
    131.5Environmental remediation charge (Notes 4 and 20)
    
    
    
    
    
    
    (30.9
    )
    
    
    90.9Restructuring and impairment charge (Notes 5 and 20)
    
    
    
    
    
    
    44.2
    
    
    
    (19.0
    )Foreign exchange gain on long-term debt
    
    
    0.1
    
    
    
    (44.7
    )
    
    
    (94.4
    )Amortization of deferred charges
    
    
    16.5
    
    
    
    19.5
    
    
    
    24.7Restructuring and environmental payments (Note 20)
    
    
    (96.3
    )
    
    
    (69.0
    )
    
    
    (88.8
    )Other operating activities, net
    
    
    (103.4
    )
    
    
    (91.2
    )
    
    
    (113.8
    )Change in non-cash working capital balances related to
operations (Note 12)
    
    
    (101.6
    )
    
    
    (23.3
    )
    
    
    33.2Cash provided by operating activities
    
    
    1,051.0
    
    
    
    1,050.7
    
    
    
    782.5Investing activitiesAdditions to properties (Note 14)
    
    
    (793.7
    )
    
    
    (884.4
    )
    
    
    (673.8
    )Decrease in investments and other assets
    
    
    2.2
    
    
    
    2.0
    
    
    
    1.0Net proceeds from disposal of transportation properties
    
    
    97.8
    
    
    
    13.2
    
    
    
    10.2Cash used in investing activities
    
    
    (693.7
    )
    
    
    (869.2
    )
    
    
    (662.6
    )Financing activitiesDividends paid
    
    
    (112.4
    )
    
    
    (89.5
    )
    
    
    (81.7
    )Issuance of CP Common Shares
    
    
    66.6
    
    
    
    31.8
    
    
    
    2.5Purchase of CP Common Shares
    
    
    (286.4
    )
    
    
    (80.6
    )
    
    
    Issuance of long-term debt
    
    
    2.8
    
    
    
    
    
    
    
    193.7Repayment of long-term debt
    
    
    (25.4
    )
    
    
    (274.4
    )
    
    
    (16.1
    )Cash (used in) provided by financing activities
    
    
    (354.8
    )
    
    
    (412.7
    )
    
    
    98.4Cash position(Decrease) increase in cash and cash equivalents
    
    
    2.5
    
    
    
    (231.2
    )
    
    
    218.3Cash and cash equivalents at beginning of year
    
    
    121.8
    
    
    
    353.0
    
    
    
    134.7Cash and cash equivalents at end of year
    
    $
    124.3
    
    
    $
    121.8
    
    
    $
    353.0
   52     2006 Annual Report
    Table of Contents  STATEMENT OF CONSOLIDATED RETAINED INCOME
 Year ended December 31 (in millions)
    
    2006
    
    
    2005
    
    
    2004Restated
    
    
    Restated(see Note 2
    )
    
    (see Note 2
    )Balance, January 1
    
    $
    2,930.0
    
    
    $
    2,479.2
    
    
    $
    2,153.9Adjustment for change in accounting policy (Note 2)
    
    
    
    
    
    
    
    
    
    
    (3.3
    )2,930.0
    
    
    
    2,479.2
    
    
    
    2,150.6Net income for the year
    
    
    796.3
    
    
    
    543.0
    
    
    
    411.1Dividends
    
    
    (117.7
    )
    
    
    (92.2
    )
    
    
    (82.5
    )Shares repurchased
    
    
    (26.5
    )
    
    
    
    
    
    
    Balance, December 31
    
    $
    3,582.1
    
    
    $
    2,930.0
    
    
    $
    2,479.2
   2006 Annual Report     53
    Table of Contents  NOTES TO CONSOLIDATEDFINANCIAL STATEMENTSDecember 31, 2006
 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
   54     2006 Annual Report
    Table of Contents  Pensions and Other Benefits
   Materials and Supplies
  Net Properties
      2006 Annual Report     55
    Table of Contents  Assets
    
    YearsDiesel locomotives
    
    
    28 to 32Freight cars
    
    
    23 to 47Ties
    
    
    35 to 45Rails  in first position
    
    
    21 to 30 in other than first position
    
    
    54Computer system development costs
    
    
    5 to 15
 Derivative Financial and Commodity Instruments
        Restructuring Accrual and Environmental Remediation
   56     2006 Annual Report
    Table of Contents  Income
Taxes
  Earnings
per Share
  Stock-based
Compensation
   2. New Accounting Policies
 Stock-based
Compensation for Employees Eligible to Retire Before the Vesting
Date
  Non-monetary
Transactions
  Hedging
Transactions
   2006 Annual Report     57
    Table of Contents  3. Future Accounting Changes
 Financial
Instruments, Hedging and Comprehensive Income
       Accounting
Changes
    58     2006 Annual Report
    Table of Contents  4. Special (Credit) Charge for Environmental Remediation
   5. Special Charge for (Reduction to) Labour Restructuring and Asset Impairment
   6. Change in Accounting Estimate
  7. Other Charges
 (in millions)
    
    2006
    
    
    2005
    
    
    2004Amortization of discount on accruals recorded at present value
    
    $
    10.0
    
    
    $
    15.4
    
    
    $
    19.1Other exchange losses (gains)
    
    
    6.5
    
    
    
    (2.2
    )
    
    
    11.7Loss on sale of accounts receivable (Note 11)
    
    
    5.0
    
    
    
    3.5
    
    
    
    2.9Gain on non-hedging derivative instruments
    
    
    (1.2
    )
    
    
    (6.6
    )
    
    
    (1.5
    )Other
    
    
    7.5
    
    
    
    8.0
    
    
    
    3.9Total other charges
    
    $
    27.8
    
    
    $
    18.1
    
    
    $
    36.1
 8. Interest Expense
 (in millions)
    
    2006
    
    
    2005
    
    
    2004Interest expense
    
    $
    200.5
    
    
    $
    211.8
    
    
    $
    223.9Interest income
    
    
    (6.0
    )
    
    
    (7.6
    )
    
    
    (5.3
    )Net interest expense
    
    $
    194.5
    
    
    $
    204.2
    
    
    $
    218.6Gross cash interest payments
    
    $
    192.8
    
    
    $
    199.6
    
    
    $
    219.0
  2006 Annual Report     59
    Table of Contents  9. Income Taxes
  (in millions)
    
    2006
    
    
    2005
    
    
    2004Restated
    
    Restated(see Note 2)
    
    (see Note 2)Canada (domestic)Current income tax expense
    
    $
    3.3
    
    
    $
    10.3
    
    
    $
    10.6Future income tax expenseOrigination and reversal of temporary differences
    
    
    194.7
    
    
    
    213.9
    
    
    
    162.4Effect of tax rate decreases
    
    
    (176.0
    )
    
    
    
    
    
    
    Recognition of previously unrecorded tax losses
    
    
    
    
    
    
    (17.2
    )
    
    
    (29.1
    )Effect of hedge of net investment in self-sustaining foreign subsidiaries
    
    
    0.6
    
    
    
    (2.1
    )
    
    
    (8.7
    )Other
    
    
    (2.3
    )
    
    
    (1.0
    )
    
    
    (14.5
    )Total future income tax expense
    
    
    17.0
    
    
    
    193.6
    
    
    
    110.1Total income taxes (domestic)
    
    $
    20.3
    
    
    $
    203.9
    
    
    $
    120.7Other (foreign)Current income tax expense
    
    $
    31.3
    
    
    $
    2.3
    
    
    $
    1.2Future income tax expenseOrigination and reversal of temporary differences
    
    
    62.5
    
    
    
    64.4
    
    
    
    23.2Other
    
    
    (4.2
    )
    
    
    
    
    
    
    (1.8
    )Total future income tax expense
    
    
    58.3
    
    
    
    64.4
    
    
    
    21.4Total income taxes (foreign)
    
    $
    89.6
    
    
    $
    66.7
    
    
    $
    22.6TotalCurrent income tax expense
    
    $
    34.6
    
    
    $
    12.6
    
    
    $
    11.8Future income tax expense
    
    
    75.3
    
    
    
    258.0
    
    
    
    131.5Total income taxes (domestic and foreign)
    
    $
    109.9
    
    
    $
    270.6
    
    
    $
    143.3
  60     2006 Annual Report
    Table of Contents  (in millions)
    
    2006
    
    
    2005Restated(see Note 2)Future income tax assetsRestructuring liability
    
    $
    64.5
    
    
    $
    97.3Amount related to tax losses carried forward
    
    
    83.6
    
    
    
    132.6Liabilities carrying value in excess of tax basis
    
    
    84.1
    
    
    
    45.2Future environmental remediation costs
    
    
    42.7
    
    
    
    47.7Other
    
    
    21.4
    
    
    
    35.8Total future income tax assets
    
    
    296.3
    
    
    
    358.6Future income tax liabilitiesCapital assets carrying value in excess of tax basis
    
    
    1,567.3
    
    
    
    1,570.6Other long-term assets carrying value in excess of tax basis
    
    
    338.0
    
    
    
    338.6Other
    
    
    65.9
    
    
    
    15.0Total future income tax liabilities
    
    
    1,971.2
    
    
    
    1,924.2Total net future income tax liabilities
    
    
    1,674.9
    
    
    
    1,565.6Net current future income tax assets
    
    
    106.3
    
    
    
    108.0Net long-term future income tax liabilities
    
    $
    1,781.2
    
    
    $
    1,673.6
  (in millions)
    
    2006
    
    
    2005
    
    
    2004Restated
    
    Restated(see Note 2)
    
    (see Note 2)Expected income tax expense at Canadian statutory tax rates
    
    $
    298.6
    
    
    $
    291.8
    
    
    $
    202.4Increase (decrease) in taxes resulting from:Large corporations tax
    
    
    (5.6
    )
    
    
    8.3
    
    
    
    5.9Gains not subject to tax
    
    
    (22.0
    )
    
    
    (22.0
    )
    
    
    (31.8
    )Foreign tax rate differentials
    
    
    6.6
    
    
    
    2.7
    
    
    
    6.8Effect of tax rate decreases
    
    
    (176.0
    )
    
    
    
    
    
    
    Recognition of previously unrecorded tax losses
    
    
    
    
    
    
    (17.2
    )
    
    
    (29.1
    )Other
    
    
    8.3
    
    
    
    7.0
    
    
    
    (10.9
    )Income tax expense
    
    $
    109.9
    
    
    $
    270.6
    
    
    $
    143.3
   2006 Annual Report     61
    Table of Contents  10. Earnings per Share
     (in millions)
    
    2006
    
    
    2005
    
    
    2004Weighted average shares outstanding
    
    
    157.3
    
    
    
    158.4
    
    
    
    158.7Dilutive effect of stock options
    
    
    1.5
    
    
    
    1.7
    
    
    
    0.4Weighted average diluted shares outstanding
    
    
    158.8
    
    
    
    160.1
    
    
    
    159.1(in dollars)
    
    
    2006
    
    
    
    2005
    
    
    
    2004Basic earnings per share
    
    $
    5.06
    
    
    $
    3.43
    (1)
    
    $
    2.59
    (1)Diluted earnings per share
    
    $
    5.02
    
    
    $
    3.39
    (1)
    
    $
    2.58
    (1)
 (1) Restated (see Note 2)  the restatement had no impact to basic or diluted
earnings per share for 2005. For 2004, basic and diluted earnings per share decreased by $0.01 and
$0.02, respectively.
  11. Accounts Receivable
    62     2006 Annual Report
    Table of Contents  2006
    
    
    2005Proceeds from collections reinvested
    
    $
    1,475.7
    
    
    $
    1,480.6
 12. Change in Non-cash Working Capital Balances Related to Operations
 (in millions)
    
    2006
    
    
    2005
    
    
    2004(Use) source of cash:Accounts receivable and other current assets
    
    $
    (101.0
    )
    
    $
    (61.8
    )
    
    $
    (39.0
    )Materials and supplies
    
    
    (15.8
    )
    
    
    (14.6
    )
    
    
    (35.5
    )Accounts payable and accrued liabilities
    
    
    (0.4
    )
    
    
    39.1
    
    
    
    112.3Income and other taxes payable
    
    
    15.6
    
    
    
    14.0
    
    
    
    (4.6
    )Change in non-cash working capital
    
    $
    (101.6
    )
    
    $
    (23.3
    )
    
    $
    33.2
 13. Investments
 (in millions)
    
    2006
    
    
    2005Rail investments accounted for on an equity basis
    
    $
    37.9
    
    
    $
    34.7Other investments accounted for on a cost basis
    
    
    27.0
    
    
    
    32.6Total investments
    
    $
    64.9
    
    
    $
    67.3
  2006 Annual Report     63
    Table of Contents  (in millions)
    
    2006
    
    
    2005Current assets
    
    $
    0.9
    
    
    $
    1.1Long-term assets
    
    
    48.0
    
    
    
    45.8Current liabilities
    
    
    2.1
    
    
    
    2.9Long-term liabilities
    
    
    0.5
    
    
    
    2.1Revenues
    
    
    12.8
    
    
    
    11.2Expenses
    
    
    1.7
    
    
    
    3.0Net income
    
    
    11.1
    
    
    
    8.2Cash provided by operating activities
    
    
    8.9
    
    
    
    9.3Cash used in investing activities
    
    
    1.4
    
    
    
    1.6Cash used in financing activities
    
    
    7.3
    
    
    
    7.6
  14. Net Properties
 Accumulated
    
    
    Net book(in millions)
    
    Cost
    
    
    depreciation
    
    
    value2006Track 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
    
    
    $
    9,122.92005Track and roadway
    
    $
    8,180.0
    
    
    $
    2,614.2
    
    
    $
    5,565.8Buildings
    
    
    329.7
    
    
    
    143.0
    
    
    
    186.7Rolling stock
    
    
    3,448.5
    
    
    
    1,395.7
    
    
    
    2,052.8Other
    
    
    1,610.5
    
    
    
    624.9
    
    
    
    985.6Total net properties
    
    $
    13,568.7
    
    
    $
    4,777.8
    
    
    $
    8,790.9
   64     2006 Annual Report
    Table of Contents  15. Other Assets and Deferred Charges
 (in millions)
    
    2006
    
    
    2005Prepaid pension costs
    
    $
    1,081.2
    
    
    $
    944.8Other (1)
    
    
    142.0
    
    
    
    194.2Total other assets and deferred charges
    
    $
    1,223.2
    
    
    $
    1,139.0
 (1)
    
    At December 31, 2006, the category Other included assets held for sale that
had a carrying value of $1.0 million (2005  $37.1 million) that were reclassified from Net
properties.
 16. Long-term Debt
 (in millions)
    
    Currency in which payable
    
    2006
    
    
    20056.250 % Notes due 2011
    
    US$
    
    $
    466.2
    
    
    $
    465.27.125 % Debentures due 2031
    
    US$
    
    
    407.9
    
    
    
    407.19.450 % Debentures due 2021
    
    US$
    
    
    291.4
    
    
    
    290.75.750 % Debentures due 2033
    
    US$
    
    
    291.4
    
    
    
    290.74.90 % Medium Term Notes due 2010
    
    CDN$
    
    
    350.0
    
    
    
    350.05.41 % Senior Secured Notes due 2024
    
    US$
    
    
    160.3
    
    
    
    163.66.91 % Secured Equipment Notes due 2007  2024
    
    CDN$
    
    
    223.2
    
    
    
    229.37.49 % Equipment Trust Certificates due 2007  2021
    
    US$
    
    
    134.9
    
    
    
    137.6Secured Equipment Loan due 2007
    
    US$
    
    
    141.6
    
    
    
    143.1Secured Equipment Loan due 2007  2015
    
    CDN$
    
    
    149.6
    
    
    
    154.0Obligations under capital leases due 2007  2022 (6.85 % 
7.65 %)
    
    US$
    
    
    317.0
    
    
    
    320.8Obligations under capital leases due 2007 (7.88 %  10.93 %)
    
    CDN$
    
    
    21.9
    
    
    
    0.3Bank loan payable on demand due 2010 (5.883 %)
    
    CDN$
    
    
    4.7
    
    
    
    4.5Other
    
    US$
    
    
    
    
    
    
    0.22,960.1
    
    
    
    2,957.1Perpetual 4 % Consolidated Debenture Stock
    
    US$
    
    
    35.7
    
    
    
    35.6Perpetual 4 % Consolidated Debenture Stock
    
    GB£
    
    
    9.0
    
    
    
    8.13,004.8
    
    
    
    3,000.8Less: Long-term debt maturing within one year
    
    
    
    
    
    
    191.3
    
    
    
    30.0$
    2,813.5
    
    
    $
    2,970.8
  2006 Annual Report     65
    Table of Contents  66     2006 Annual Report
    Table of Contents  (in millions)
    
    Year
    
    
    Capital leasesMinimum lease payments in:
    
    
    2007
    
    
    $
    49.72008
    
    
    
    30.72009
    
    
    
    32.12010
    
    
    
    43.82011
    
    
    
    21.3Thereafter
    
    
    
    380.2Total minimum lease payments
    
    
    
    
    
    
    557.8Less: Imputed interest
    
    
    
    
    
    
    (218.9
    )Present value of minimum lease payments
    
    
    
    
    
    
    338.9Less: Current portion
    
    
    
    
    
    
    (27.0
    )Long-term portion of capital lease obligations
    
    
    
    
    
    $
    311.9
   17. Financial instruments
 Foreign Exchange Forward Contracts
  Commodity Contracts
   2006 Annual Report     67
    Table of Contents  Interest Rate Contracts
    Expiration
    
    October 15, 2011Notional amount of principal (in CDN$ millions)
    
    $ 233.1Fixed receiving rate
    
    6.250
    %Variable paying rate (1)
    
    6.4
    %
 (1)
    
    Based on U.S. three-month LIBOR.
    68     2006 Annual Report
    Table of Contents  Credit Risk Management
  Interest Rate Exposure and Fair Values
  Fixed interest rate maturing in2006
    
    At floating
    
    
    
    
    
    
    2008
    
    
    2012
    
    
    Total carrying(in millions)
    
    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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3,004.8
    
    
    $
    3,272.9Foreign 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
  2006 Annual Report     69
    Table of Contents  Fixed interest rate maturing in2005
    
    At floating
    
    
    
    
    
    
    2007
    
    
    2011
    
    
    Total carrying(in millions)
    
    interest rates
    
    
    2006
    
    
    to 2010
    
    
    and after
    
    
    value
    
    
    Fair valueFinancial assetsCash and short-term investments
    
    $
    121.8
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    121.8
    
    
    $
    121.8Crude oil swaps, unrealized gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    59.2Foreign exchange forward
contracts on future revenue
streams, unrealized gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.5Financial liabilities6.250 % Notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    465.2
    
    
    
    465.2
    
    
    
    494.17.125 % Debentures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    407.1
    
    
    
    407.1
    
    
    
    488.79.450 % Debentures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    290.7
    
    
    
    290.7
    
    
    
    397.65.750 % Debentures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    290.7
    
    
    
    290.7
    
    
    
    303.04.90 % Medium Term Notes
    
    
    
    
    
    
    
    
    
    
    350.0
    
    
    
    
    
    
    
    350.0
    
    
    
    357.25.41 % Senior Secured Notes
    
    
    
    
    
    
    3.6
    
    
    
    16.5
    
    
    
    143.5
    
    
    
    163.6
    
    
    
    165.76.91 % Secured Equipment Notes
    
    
    
    
    
    
    6.1
    
    
    
    29.1
    
    
    
    194.1
    
    
    
    229.3
    
    
    
    268.87.49 % Equipment Trust Certificates
    
    
    
    
    
    
    2.9
    
    
    
    13.8
    
    
    
    120.9
    
    
    
    137.6
    
    
    
    163.5Secured Equipment Loan
    
    
    143.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    143.1
    
    
    
    143.1Secured Equipment Loan
    
    
    154.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    154.0
    
    
    
    154.04 % Consolidated Debenture Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43.7
    
    
    
    43.7
    
    
    
    38.8Obligations under capital leases
    
    
    
    
    
    
    6.5
    
    
    
    51.8
    
    
    
    262.8
    
    
    
    321.1
    
    
    
    369.6Bank loan payable on demand
    
    
    
    
    
    
    4.5
    
    
    
    
    
    
    
    
    
    
    
    4.5
    
    
    
    4.5Other
    
    
    
    
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    0.2
    
    
    
    0.2Total long-term debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3,000.8
    
    
    $
    3,348.8Foreign exchange forward
contracts on fuel, unrealized loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7.2Interest rate swaps, unrealized loss
    
    
    232.6
    
    
    
    
    
    
    
    
    
    
    
    (232.6
    )
    
    
    
    
    
    
    0.2
   o
    
    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.o
    
    The fair value of publicly traded long-term debt is determined based on market prices at December
31, 2006 and 2005. 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.o
    
    The fair value of derivative instruments is estimated as the carrying value plus the unrealized
gain or loss calculated based on market prices or rates at December 31, 2006 and 2005, which
generally reflects the estimated amount the Company would receive or pay to terminate the
contracts at the applicable Consolidated Balance Sheet date.
  70     2006 Annual Report
    Table of Contents  Stock-based Compensation Expense Management
  18. Deferred Liabilities
 (in millions)
    
    2006
    
    
    2005Restated(see Note 2)Provision for restructuring and environmental remediation (Note 20)
    
    $
    309.0
    
    
    $
    398.8Deferred workers compensation and personal injury accruals
    
    
    162.5
    
    
    
    162.8Accrued employee benefits
    
    
    208.4
    
    
    
    177.8Asset retirement obligations (Note 19)
    
    
    30.9
    
    
    
    32.9Deferred revenue on rights-of-way license agreements
    
    
    45.8
    
    
    
    45.1Stock-based compensation liabilities
    
    
    76.6
    
    
    
    48.8Other
    
    
    81.4
    
    
    
    70.8914.6
    
    
    
    937.0Less: Amount payable/realizable within one year
    
    
    188.9
    
    
    
    191.1Total deferred liabilities
    
    $
    725.7
    
    
    $
    745.9
  19. Asset Retirement Obligations
    20. Restructuring Accrual and Environmental Remediation
   2006 Annual Report     71
    Table of Contents  Opening
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Foreign
    
    
    Closingbalance
    
    
    Accrued
    
    
    
    
    
    
    Amortization
    
    
    exchange
    
    
    balance(in millions)
    
    Jan. 1
    
    
    (reduced)
    
    
    Payments
    
    
    of discount
    (1)
    
    impact
    
    
    Dec. 31Year 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
    )
    
    $
    398.8Year ended December 31, 2004Labour liability for terminations
and severances
    
    $
    358.2
    
    
    $
    (36.4
    )
    
    $
    (62.2
    )
    
    $
    16.2
    
    
    $
    (6.1
    )
    
    $
    269.7Other non-labour liabilities for exit plans
    
    
    9.2
    
    
    
    0.9
    
    
    
    (3.3
    )
    
    
    0.4
    
    
    
    (1.1
    )
    
    
    6.1Total restructuring liability
    
    
    367.4
    
    
    
    (35.5
    )
    
    
    (65.5
    )
    
    
    16.6
    
    
    
    (7.2
    )
    
    
    275.8Environmental remediation program
    
    
    94.8
    
    
    
    101.0
    
    
    
    (23.3
    )
    
    
    
    
    
    
    0.4
    
    
    
    172.9Total restructuring and environmental
remediation liability
    
    $
    462.2
    
    
    $
    65.5
    
    
    $
    (88.8
    )
    
    $
    16.6
    
    
    $
    (6.8
    )
    
    $
    448.7
 (1)
    72     2006 Annual Report
    Table of Contents  21. Shareholders Equity
 Authorized and Issued Share Capital
   2006
    
    
    2005(in millions)
    
    Number
    
    
    Amount

    
    Number
    
    
    AmountShare capital, January 1
    
    
    158.2
    
    
    $     1,141.5    
    
    
    158.8
    
    
    $
    1,120.6Shares issued under stock option plans
    
    
    2.3
    
    
         71.0    
    
    
    1.2
    
    
    
    33.4Shares repurchased
    
    
    (5.0
    )
    
         (36.8    )
    
    
    (1.8
    )
    
    
    (12.5
    )Share capital, December 31
    
    
    155.5
    
    
    $     1,175.7    
    
    
    158.2
    
    
    $
    1,141.5
  Contributed Surplus
  (in millions)
    
    2006
    
    
    2005Restated(see Note 2)Contributed surplus, January 1
    
    $
    245.1
    
    
    $
    304.1Stock-based compensation expense related to stock option plans
    
    
    10.3
    
    
    
    9.1Shares repurchased
    
    
    (223.1
    )
    
    
    (68.1
    )Contributed surplus, December 31
    
    $
    32.3
    
    
    $
    245.1
  2006 Annual Report     73
    Table of Contents  (in millions)
    
    2006
    
    
    2005Share capital
    
    $
    36.8
    
    
    $
    12.5Contributed surplus
    
    
    223.1
    
    
    
    68.1Retained earnings
    
    
    26.5
    
    
    
    CP Common Shares repurchased
    
    $
    286.4
    
    
    $
    80.6
 Foreign Currency Translation Adjustments
  (in millions)
    
    2006
    
    
    2005Cumulative foreign currency translation adjustment, January 1
    
    $
    67.5
    
    
    $
    77.0Change in foreign currency translation rates on foreign subsidiaries
    
    
    2.1
    
    
    
    (19.1
    )Cumulative foreign currency translation adjustment, December 31,
before designated hedge
    
    
    69.6
    
    
    
    57.9Designated hedge, net of tax
    
    
    (3.2
    )
    
    
    9.6Cumulative foreign currency translation adjustment, December 31,
including designated hedge
    
    $
    66.4
    
    
    $
    67.5
   74     2006 Annual Report
    Table of Contents  22. Pensions and Other Benefits
     Pensions
    
    Other benefits(in millions)
    
    2006
    
    
    2005
    
    
    2004
    
    
    2006
    
    
    2005
    
    
    2004Current service cost (benefits earned
by employees in the year)
    
    $
    101.9
    
    
    $
    75.7
    
    
    $
    71.7
    
    
    $
    15.1
    
    
    $
    13.8
    
    
    $
    13.0Interest cost on benefit obligation
    
    
    400.0
    
    
    
    405.0
    
    
    
    400.0
    
    
    
    26.6
    
    
    
    27.3
    
    
    
    27.5Actual return on fund assets
    
    
    (927.4
    )
    
    
    (849.8
    )
    
    
    (610.9
    )
    
    
    (0.6
    )
    
    
    (0.7
    )
    
    
    (1.1
    )Actuarial loss
    
    
    35.2
    
    
    
    693.7
    (1)
    
    
    168.1
    
    
    
    (2.9
    )
    
    
    29.8
    
    
    
    18.8Plan amendments
    
    
    1.3
    
    
    
    56.5
    
    
    
    
    
    
    
    (1.2
    )
    
    
    (6.7
    )
    
    
    1.6Elements of employee future benefit
cost, before adjustments to
recognize the long-term nature
of employee future benefit costs
    
    
    (389.0
    )
    
    
    381.1
    
    
    
    28.9
    
    
    
    37.0
    
    
    
    63.5
    
    
    
    59.8Adjustments to recognize the
long-term nature of employee
future benefit costs:Amortization of transitional
(asset) obligation
    
    
    (16.2
    )
    
    
    (16.2
    )
    
    
    (16.2
    )
    
    
    12.4
    
    
    
    12.7
    
    
    
    12.8Difference between expected return
and actual return on fund assets
    
    
    401.2
    
    
    
    351.2
    
    
    
    129.9
    
    
    
    
    
    
    
    
    
    
    
    Difference between actuarial
loss (gain) recognized
and actual actuarial loss (gain)
on benefit obligation
    
    
    64.9
    
    
    
    (638.1
    )
    
    
    (128.6
    )
    
    
    9.1
    
    
    
    (25.6
    )
    
    
    (15.4
    )Difference between amortization
of prior service costs and actual
plan amendments
    
    
    14.5
    
    
    
    (41.3
    )
    
    
    11.1
    
    
    
    1.0
    
    
    
    6.7
    
    
    
    (1.6
    )Net benefit cost
    
    $
    75.4
    
    
    $
    36.7
    
    
    $
    25.1
    
    
    $
    59.5
    
    
    $
    57.3
    
    
    $
    55.6
 (1)
    
    Actuarial loss for 2005 was largely a result of a decrease in the discount
rate.
  2006 Annual Report     75
    Table of Contents  Pensions
    
    Other benefits(in millions)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Change in benefit obligation:Benefit obligation at January 1
    
    $
    7,732.2
    
    
    $
    6,827.0
    
    
    $
    498.9
    
    
    $
    469.4Current service cost
    
    
    101.9
    
    
    
    75.7
    
    
    
    15.1
    
    
    
    13.8Interest cost
    
    
    400.0
    
    
    
    405.0
    
    
    
    26.6
    
    
    
    27.3Employee contributions
    
    
    53.9
    
    
    
    56.7
    
    
    
    0.2
    
    
    
    Benefits paid
    
    
    (432.1
    )
    
    
    (377.3
    )
    
    
    (33.2
    )
    
    
    (32.5
    )Foreign currency changes
    
    
    0.3
    
    
    
    (5.1
    )
    
    
    0.3
    
    
    
    (2.2
    )Plan amendments and other
    
    
    1.3
    
    
    
    56.5
    
    
    
    4.5
    
    
    
    (6.7
    )Actuarial loss (gain)
    
    
    35.2
    
    
    
    693.7
    
    
    
    (2.9
    )
    
    
    29.8Benefit obligation at December 31
    
    $
    7,892.7
    
    
    $
    7,732.2
    
    
    $
    509.5
    
    
    $
    498.9Change in fund assets:Fair value of fund assets at January 1
    
    $
    6,890.1
    
    
    $
    6,222.7
    
    
    $
    11.9
    
    
    $
    12.1Actual return on fund assets
    
    
    927.4
    
    
    
    849.8
    
    
    
    0.6
    
    
    
    0.7Employer contributions
    
    
    209.5
    
    
    
    141.7
    
    
    
    32.4
    
    
    
    31.6Employee contributions
    
    
    53.9
    
    
    
    56.7
    
    
    
    0.2
    
    
    
    Benefits paid
    
    
    (432.1
    )
    
    
    (377.3
    )
    
    
    (33.2
    )
    
    
    (32.5
    )Foreign currency changes
    
    
    0.4
    
    
    
    (3.5
    )
    
    
    
    
    
    
    Fair value of fund assets at December 31
    
    $
    7,649.2
    
    
    $
    6,890.1
    
    
    $
    11.9
    
    
    $
    11.9Funded status  plan deficit
    
    $
    (243.5
    )
    
    $
    (842.1
    )
    
    $
    (497.6
    )
    
    $
    (487.0
    )Unamortized prior service cost
    
    
    126.9
    
    
    
    141.4
    
    
    
    (1.0
    )
    
    
    Unamortized net transitional (asset) obligation
    
    
    (96.5
    )
    
    
    (112.7
    )
    
    
    74.1
    
    
    
    86.5Unamortized experience losses:Deferred investment losses due to use of market-related
value to determine net benefit cost
    
    
    (568.9
    )
    
    
    (200.1
    )
    
    
    
    
    
    
    Unamortized net actuarial loss
    
    
    1,861.7
    (1)
    
    
    1,959.1
    (1)
    
    
    118.9
    
    
    
    127.9Accrued benefit asset (liability) on the Consolidated Balance Sheet
    
    $
    1,079.7
    
    
    $
    945.6
    
    
    $
    (305.6
    )
    
    $
    (272.6
    )
 (1)
  76     2006 Annual Report
    Table of Contents  Pensions
    
    Other benefits(in millions)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Accounts receivable and other current assets
    
    $
    
    
    
    $
    2.5
    
    
    $
    
    
    
    $
    Other assets and deferred charges
    
    
    1,081.2
    
    
    
    944.8
    
    
    
    
    
    
    
    Accounts payable and accrued liabilities
    
    
    (0.3
    )
    
    
    (0.7
    )
    
    
    (21.5
    )
    
    
    (18.6
    )Other long-term liabilities
    
    
    (1.2
    )
    
    
    (1.0
    )
    
    
    (284.1
    )
    
    
    (254.0
    )Accrued benefit asset (liability) on the Consolidated Balance Sheet
    
    $
    1,079.7
    
    
    $
    945.6
    
    
    $
    (305.6
    )
    
    $
    (272.6
    )
   Pensions
    
    Other benefits(in millions)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Benefit obligation
    
    $
    (7,892.7
    )
    
    $
    (7,732.2
    )
    
    $
    (509.5
    )
    
    $
    (498.9
    )Fair value of fund assets
    
    
    7,649.2
    
    
    
    6,890.1
    
    
    
    11.9
    
    
    
    11.9$
    (243.5
    )
    
    $
    (842.1
    )
    
    $
    (497.6
    )
    
    $
    (487.0
    )
  (percentages)
    
    2006
    
    
    2005
    
    
    2004Benefit obligation at December 31:Discount rate
    
    
    5.40
    
    
    
    5.25
    
    
    
    6.00Projected future salary increases
    
    
    3.00
    
    
    
    3.00
    
    
    
    3.00Health care cost trend rate
    
    
    10.00
    (1)
    
    
    10.00
    (1)
    
    
    8.50
    (2)Benefit cost for year ended December 31:Discount rate
    
    
    5.25
    
    
    
    6.00
    
    
    
    6.25Expected 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)
    
    
    8.50
    (2)
    
    
    9.00
    (2)
 (1)
    
    Beginning in 2008, the health care cost trend rate is projected to decrease by
0.5 % per year to approximately 5.0 % per year in 2017.
 
 (2)
 2006 Annual Report     77
    Table of Contents  One percentage
    
    
    One percentage(in millions) Favourable (unfavourable)
    
    increase
    
    
    decreaseEffect on the total of service and interest costs
    
    $
    (0.9
    )
    
    $
    0.8Effect on post-retirement benefit obligation
    
    $
    (11.2
    )
    
    $
    10.7
 Plan Assets
  Percentage of planCurrent permissible
    
    
    assets at December 31Asset allocation (percentage)
    
    range
    
    
    2006
    
    
    2005Equity securities
    
    
    51  57
    
    
    
    56.3
    
    
    
    55.5Debt securities
    
    
    37  43
    
    
    
    38.1
    
    
    
    40.3Real estate and other
    
    
    4  8
    
    
    
    5.6
    
    
    
    4.2Total
    
    
    
    
    
    
    100.0
    
    
    
    100.0
   Cash Flows
  Defined Contribution Plan
   78     2006 Annual Report
    Table of Contents  Post-employment Restructuring Benefits
  (in millions)
    
    2006
    
    
    2005Change in liability:Restructuring labour liability at January 1
    
    $
    224.8
    
    
    $
    219.7Plan adjustment
    
    
    (14.1
    )
    
    
    33.6Interest cost
    
    
    12.0
    
    
    
    13.2Benefits paid
    
    
    (61.8
    )
    
    
    (40.5
    )Foreign currency changes
    
    
    (0.1
    )
    
    
    (1.2
    )Restructuring labour liability at December 31
    
    
    160.8
    
    
    
    224.8Unfunded restructuring labour amount
    
    
    (160.8
    )
    
    
    (224.8
    )Unamortized net transitional amount
    
    
    (26.6
    )
    
    
    (38.8
    )Accrued restructuring labour liability on the Consolidated Balance Sheet
    
    $
    (187.4
    )
    
    $
    (263.6
    )
 23. Stock-based Compensation
  Replacement Options and SARs
    Stock Option Plans and SARs
     2006 Annual Report     79
    Table of Contents  2006
    
    2005Weighted
    
    
    
    
    
    
    WeightedNumber of
    
    
    average    
    
    Number of
    
    
    averageoptions
    
    
    exercise price    
    
    options
    
    
    exercise priceOutstanding, January 1
    
    
    7,971,917
    
    
    $     32.07    
    
    
    7,752,080
    
    
    $
    29.32New options granted
    
    
    1,467,900
    
    
         57.80    
    
    
    1,556,400
    
    
    
    42.09Exercised
    
    
    (2,330,664
    )
    
         28.59    
    
    
    (1,157,752
    )
    
    
    27.48Forfeited/cancelled
    
    
    (301,509
    )
    
         39.07    
    
    
    (178,811
    )
    
    
    29.80Outstanding, December 31
    
    
    6,807,644
    
    
    $     38.50    
    
    
    7,971,917
    
    
    $
    32.07Options exercisable at December 31
    
    
    2,918,294
    
    
    $     29.64    
    
    
    3,162,807
    
    
    $
    27.37
  Options outstanding
    
    Options exercisableWeightedaverage
    
    
    Weighted
    
    
    
    
    
    
    WeightedNumber of
    
    
    years to
    
    
    average
    
    
    Number of
    
    
    averageRange of exercise prices
    
    options
    
    
    expiration
    
    
    exercise price
    
    
    options
    
    
    exercise price$14.07  $18.96
    
    
    260,316
    
    
    
    2
    
    
    $
    15.02
    
    
    
    260,316
    
    
    $
    15.02$27.62  $36.64
    
    
    3,683,228
    
    
    
    5
    
    
    
    31.33
    
    
    
    2,657,978
    
    
    
    31.07$42.05  $63.82
    
    
    2,864,100
    
    
    
    7
    
    
    
    49.78
    
    
    
    
    
    
    
    Total
    
    
    6,807,644
    
    
    
    6
    
    
    $
    38.47
    
    
    
    2,918,294
    
    
    $
    29.64
 Deferred Share Unit Plan and Other
    80     2006 Annual Report
    Table of Contents  Employee Share Purchase Plan
   Additional Fair Value Disclosure
  2006
    
    
    2005
    
    
    2004Restated
    
    
    Restated(see Note 2
    )
    
    (see Note 2
    )Net income (in millions)
    
    As reported
    
    $
    796.3
    
    
    $
    543.0
    
    
    $
    411.1Pro forma
    
    $
    796.1
    
    
    $
    542.7
    
    
    $
    409.0Basic earnings per share (in dollars)
    
    As reported
    
    $
    5.06
    
    
    $
    3.43
    
    
    $
    2.59Pro forma
    
    $
    5.06
    
    
    $
    3.43
    
    
    $
    2.58Diluted earnings per share (in dollars)
    
    As reported
    
    $
    5.02
    
    
    $
    3.39
    
    
    $
    2.58Pro forma
    
    $
    5.01
    
    
    $
    3.39
    
    
    $
    2.57
  2006
    
    
    2005
    
    
    2004Expected option life (years)
    
    
    4.50
    
    
    
    4.50
    
    
    
    4.50Risk-free interest rate
    
    
    4.07
    %
    
    
    3.49
    %
    
    
    3.36
    %Expected stock price volatility
    
    
    22
    %
    
    
    24
    %
    
    
    28
    %Expected annual dividends per share
    
    $
    0.75
    
    
    $
    0.53
    
    
    $
    0.50Weighted average fair value of options granted during the year
    
    $
    12.99
    
    
    $
    9.66
    
    
    $
    8.04
  2006 Annual Report     81
    Table of Contents  24. Commitments and Contingencies
     Guarantees
  o
    
    residual value guarantees on operating lease commitments of $442.5 million at December 31, 2006;o
    
    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; ando
    
    indemnifications of certain tax-related payments incurred by lessors and lenders.
  Indemnifications
   25. Segmented Information
 Operating Segment
    82     2006 Annual Report
    Table of Contents  Geographic Information
 (in millions)
    
    Canada
    
    
    United States
    
    
    Total2006Revenues
    
    $
    3,575.1
    
    
    $
    1,008.1
    
    
    $
    4,583.2Net properties
    
    $
    7,539.3
    
    
    $
    1,583.6
    
    
    $
    9,122.92005Revenues
    
    $
    3,404.1
    
    
    $
    987.5
    
    
    $
    4,391.6Net properties
    
    $
    7,252.2
    
    
    $
    1,538.7
    
    
    $
    8,790.92004Revenues
    
    $
    2,926.7
    
    
    $
    976.2
    
    
    $
    3,902.9Net properties
    
    $
    6,832.8
    
    
    $
    1,560.7
    
    
    $
    8,393.5
   Consolidating Information  2006
 Other
    
    
    Consolidating(in millions)
    
    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 charges
    
    
    196.5
    
    
    
    42.0
    
    
    
    (25.2
    )
    
    
    9.0
    
    
    
    222.3Foreign exchange loss (gain) 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
  2006 Annual Report     83
    Table of Contents  Consolidating Information  2005
 Other
    
    
    Consolidating(in millions)
    
    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 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
    
    
    $
    543.0Current assets
    
    $
    686.5
    
    
    $
    263.8
    
    
    $
    5.0
    
    
    $
    (61.4
    )
    
    $
    893.9Net properties
    
    
    5,514.9
    
    
    
    1,533.6
    
    
    
    
    
    
    
    1,742.4
    
    
    
    8,790.9Other long-term assets
    
    
    1,141.8
    
    
    
    85.8
    
    
    
    401.9
    
    
    
    (423.2
    )
    
    
    1,206.3Total assets
    
    $
    7,343.2
    
    
    $
    1,883.2
    
    
    $
    406.9
    
    
    $
    1,257.8
    
    
    $
    10,891.1Current liabilities
    
    $
    881.2
    
    
    $
    300.0
    
    
    $
    0.4
    
    
    $
    (64.9
    )
    
    $
    1,116.7Long-term liabilities
    
    
    4,270.1
    
    
    
    1,004.4
    
    
    
    
    
    
    
    115.8
    
    
    
    5,390.3Shareholders equity
    
    
    2,191.9
    
    
    
    578.8
    
    
    
    406.5
    
    
    
    1,206.9
    
    
    
    4,384.1Total liabilities and shareholders equity
    
    $
    7,343.2
    
    
    $
    1,883.2
    
    
    $
    406.9
    
    
    $
    1,257.8
    
    
    $
    10,891.1
 Consolidating Information  2004
 Other
    
    
    Consolidating(in millions)
    
    Canada
    
    
    United States
    
    
    countries
    
    
    entries
    
    
    TotalRevenues
    
    $
    2,923.6
    
    
    $
    976.2
    
    
    $
    
    
    
    $
    3.1
    
    
    $
    3,902.9Operating expenses
    
    
    2,451.1
    
    
    
    876.0
    
    
    
    0.2
    
    
    
    (139.1
    )
    
    
    3,188.2Operating income (loss)
    
    
    472.5
    
    
    
    100.2
    
    
    
    (0.2
    )
    
    
    142.2
    
    
    
    714.7Interest and other charges
    
    
    225.7
    
    
    
    38.8
    
    
    
    (14.1
    )
    
    
    4.3
    
    
    
    254.7Foreign exchange (gain) loss on long-term debt
    
    
    (114.1
    )
    
    
    
    
    
    
    31.7
    
    
    
    (12.0
    )
    
    
    (94.4
    )Income taxes
    
    
    97.0
    
    
    
    19.8
    
    
    
    0.7
    
    
    
    25.8
    
    
    
    143.3Net income (loss)
    
    $
    263.9
    
    
    $
    41.6
    
    
    $
    (18.5
    )
    
    $
    124.1
    
    
    $
    411.1Current assets
    
    $
    848.1
    
    
    $
    205.0
    
    
    $
    5.1
    
    
    $
    (66.2
    )
    
    $
    992.0Net properties
    
    
    5,182.0
    
    
    
    1,552.5
    
    
    
    
    
    
    
    1,659.0
    
    
    
    8,393.5Other long-term assets
    
    
    1,060.1
    
    
    
    81.1
    
    
    
    403.4
    
    
    
    (430.3
    )
    
    
    1,114.3Total assets
    
    $
    7,090.2
    
    
    $
    1,838.6
    
    
    $
    408.5
    
    
    $
    1,162.5
    
    
    $
    10,499.8Current liabilities
    
    $
    1,065.7
    
    
    $
    278.7
    
    
    $
    9.5
    
    
    $
    (65.7
    )
    
    $
    1,288.2Long-term liabilities
    
    
    4,123.8
    
    
    
    1,026.2
    
    
    
    
    
    
    
    80.7
    
    
    
    5,230.7Shareholders equity
    
    
    1,900.7
    
    
    
    533.7
    
    
    
    399.0
    
    
    
    1,147.5
    
    
    
    3,980.9Total liabilities and shareholders equity
    
    $
    7,090.2
    
    
    $
    1,838.6
    
    
    $
    408.5
    
    
    $
    1,162.5
    
    
    $
    10,499.8
  84     2006 Annual Report
    Table of Contents  26. Supplementary Data
 Reconciliation of Canadian and United States Generally Accepted Accounting Principles
  Accounting for Derivative Instruments and Hedging
  Fair Value of Financial Instruments
  Pensions and post-retirement benefits
      2006 Annual Report     85
    Table of Contents  Post-employment Benefits
  Termination and Severance Benefits
  Stock-based Compensation
     Internal Use Software
   86     2006 Annual Report
    Table of Contents  Capitalization of Interest
  Comprehensive Income
  Joint Venture
  Offsetting Contracts
  Start-up Costs
  Statement of Cash Flows
  Future Accounting Changes
 Uncertainty in Tax Positions
  Measurement Date of Defined Benefit Pension and Other Post-retirement Plans
   2006 Annual Report     87
    Table of Contents  Comparative Income Statement
  (in millions)
    
    2006
    
    
    2005
    
    
    2004Restated
    
    
    Restated(see Note 2
    )
    
    (see Note 2
    )Net income  Canadian GAAP
    
    $
    796.3
    
    
    $
    543.0
    
    
    $
    411.1Increased (decreased) by:Pension costs
    
    
    5.1
    
    
    
    7.7
    
    
    
    (0.3
    )Post-retirement benefits
    
    
    9.1
    
    
    
    9.2
    
    
    
    8.6Post-employment benefits
    
    
    6.7
    
    
    
    (4.0
    )
    
    
    (0.3
    )Termination and severance benefits
    
    
    (8.2
    )
    
    
    (9.4
    )
    
    
    (9.1
    )Internal use software  additions
    
    
    (9.2
    )
    
    
    (9.8
    )
    
    
    (6.4
    )Internal use software  depreciation
    
    
    7.1
    
    
    
    6.1
    
    
    
    5.4Stock-based compensation
    
    
    (3.0
    )
    
    
    (3.4
    )
    
    
    0.1(Loss) gain on ineffective portion of hedges
    
    
    (0.9
    )
    
    
    (6.6
    )
    
    
    (16.1
    )Capitalized interest  additions
    
    
    4.1
    
    
    
    4.4
    
    
    
    4.2Capitalized interest  depreciation
    
    
    (3.9
    )
    
    
    (3.9
    )
    
    
    (3.7
    )Start-up costs
    
    
    (10.8
    )
    
    
    
    
    
    
    Fair value of financial instruments
    
    
    (2.3
    )
    
    
    
    
    
    
    Future (deferred) income tax recovery related to net income
    
    
    (19.0
    )
    
    
    1.7
    
    
    
    6.7Income before cumulative catch-up adjustment
    
    
    771.1
    
    
    
    535.0
    
    
    
    400.2Cumulative catch-up adjustment on adoption of FASB 123 R, net of tax
    
    
    (2.0
    )
    
    
    
    
    
    
    Net income  U.S. GAAP
    
    $
    769.1
    
    
    $
    535.0
    
    
    $
    400.2Other comprehensive income:Unrealized foreign exchange gain (loss) on net investment in self-sustaining U.S. subsidiaries
    
    
    2.1
    
    
    
    (19.1
    )
    
    
    (50.6
    )Unrealized foreign exchange (loss) gain on designated net investment hedge
    
    
    (2.7
    )
    
    
    16.5
    
    
    
    49.5Minimum pension liability adjustment
    
    
    783.3
    
    
    
    (254.3
    )
    
    
    20.8Change in fair value of derivative instruments
    
    
    16.6
    
    
    
    86.5
    
    
    
    39.5Gain on derivative instruments realized in net income
    
    
    (42.5
    )
    
    
    (55.9
    )
    
    
    (26.0
    )Future (deferred) income tax (expense) recovery related to other comprehensive income
    
    
    (210.6
    )
    
    
    74.5
    
    
    
    (31.8
    )Comprehensive income
    
    $
    1,315.3
    
    
    $
    383.2
    
    
    $
    401.6Earnings per share  U.S. GAAPBasic earnings per share
    
    $
    4.89
    
    
    $
    3.38
    
    
    $
    2.52Diluted earnings per share
    
    $
    4.84
    
    
    $
    3.34
    
    
    $
    2.51
  88     2006 Annual Report
    Table of Contents  (in millions)
    
    2006
    
    
    2005
    
    
    2004Restated
    
    
    Restated(see Note 2
    )
    
    (see Note 2
    )Operating
income
Canadian GAAP
    
    $
    1,128.6
    
    
    $
    991.2
    
    
    $
    714.7U.S. GAAP
    
    $
    1,122.3
    
    
    $
    981.5
    
    
    $
    697.1
  Consolidated Balance Sheet
  (in millions)
    
    2006
    
    
    2005Restated(see Note 2
    )AssetsCurrent assetsCashInvestment in joint ventures
    
    $
    (0.4
    )
    
    $
    (0.1
    )Accounts receivable and other current assetsInvestment in joint ventures
    
    
    1.9
    
    
    
    0.7InvestmentsInvestment in joint ventures
    
    
    87.8
    
    
    
    41.9Capital commitments and mortgages
    
    
    (2.3
    )
    
    
    Long-term assetsPropertiesCapitalized interest
    
    
    150.4
    
    
    
    150.2Internal use software
    
    
    (51.2
    )
    
    
    (49.1
    )Investment in joint ventures
    
    
    (71.5
    )
    
    
    (35.9
    )Other assets and deferred chargesPension
    
    
    (1,079.7
    )
    
    
    (205.8
    )Minimum pension liability adjustment
    
    
    
    
    
    
    (525.7
    )Long-term receivable (FIN 39)
    
    
    179.5
    
    
    
    169.2Derivative instruments
    
    
    31.7
    
    
    
    61.7Start-up costs
    
    
    (10.8
    )
    
    
    Investment in joint ventures
    
    
    (22.2
    )
    
    
    (9.9
    )Total assets
    
    $
    (786.8
    )
    
    $
    (402.8
    )
  2006 Annual Report     89
    Table of Contents  Consolidated Balance Sheet
 (in millions)
    
    2006
    
    
    2005Restated(see Note 2
    )Liabilities and shareholders equityCurrent liabilitiesAccounts payable and accrued liabilitiesInvestment in joint ventures
    
    $
    (1.3
    )
    
    $
    (1.1
    )Income and other taxes payableInvestment in joint ventures
    
    
    (0.2
    )
    
    
    (0.1
    )Long-term liabilitiesDeferred liabilitiesTermination and severance benefits
    
    
    (19.0
    )
    
    
    (27.2
    )Post-retirement benefit liability
    
    
    
    
    
    
    43.3Post-employment benefit liability
    
    
    16.4
    
    
    
    23.1Minimum pension liability adjustment
    
    
    
    
    
    
    297.3Under funded status of defined benefit pension and other post-retirement plans
    
    
    421.0
    
    
    
    Derivative instruments
    
    
    4.8
    
    
    
    6.0Investment in joint ventures
    
    
    (2.7
    )
    
    
    (2.2
    )Stock-based compensation
    
    
    (0.6
    )
    
    
    (2.4
    )Long-term debtMarked-to-market hedged portion of debt
    
    
    (2.8
    )
    
    
    (0.2
    )Bank loan (FIN 39)
    
    
    179.5
    
    
    
    169.2Future (deferred) income tax liability
    
    
    (437.2
    )
    
    
    (278.4
    )Total liabilities
    
    
    157.9
    
    
    
    227.3Shareholders equityShare capitalStock-based compensation
    
    
    16.9
    
    
    
    11.5Contributed surplusStock-based compensation
    
    
    8.3
    
    
    
    9.5Foreign currency translation adjustments
    
    
    (66.4
    )
    
    
    (67.5
    )Retained income
    
    
    (128.4
    )
    
    
    (101.2
    )Accumulated other comprehensive incomeForeign currency translation adjustments
    
    
    64.3
    
    
    
    10.3Funding status of defined benefit pension and other post-retirement plans
    
    
    (858.8
    )
    
    
    Minimum pension liability adjustment
    
    
    
    
    
    
    (527.5
    )Derivative instruments (FASB 133)
    
    
    19.4
    
    
    
    34.8Total liabilities and shareholders equity
    
    $
    (786.8
    )
    
    $
    (402.8
    )
  90     2006 Annual Report
    Table of Contents  FIVE-YEAR SUMMARY
 (in millions)
    
    2006
    
    
    2005
    (1)
    
    2004
    (1)
    
    2003
    (1)(2)
    
    2002
    (1)(2)Income StatementRevenuesFreightGrain
    
    $
    904.6
    
    
    $
    754.5
    
    
    $
    668.2
    
    
    $
    644.4
    
    
    $
    631.4Coal
    
    
    592.0
    
    
    
    728.8
    
    
    
    530.3
    
    
    
    444.0
    
    
    
    442.5Sulphur and fertilizers
    
    
    439.3
    
    
    
    447.1
    
    
    
    460.0
    
    
    
    417.4
    
    
    
    401.3Forest products
    
    
    316.4
    
    
    
    333.9
    
    
    
    322.0
    
    
    
    328.8
    
    
    
    360.3Industrial and consumer products (3)
    
    
    603.8
    
    
    
    542.9
    
    
    
    481.4
    
    
    
    459.9
    
    
    
    485.2Intermodal (3)
    
    
    1,256.8
    
    
    
    1,161.1
    
    
    
    1,034.7
    
    
    
    926.4
    
    
    
    855.4Automotive
    
    
    314.4
    
    
    
    298.0
    
    
    
    288.5
    
    
    
    304.2
    
    
    
    332.44,427.3
    
    
    
    4,266.3
    
    
    
    3,785.1
    
    
    
    3,525.1
    
    
    
    3,508.5Other (3) (4) (6)
    
    
    155.9
    
    
    
    125.3
    
    
    
    117.8
    
    
    
    135.6
    
    
    
    157.1Total revenues (4) (6)
    
    
    4,583.2
    
    
    
    4,391.6
    
    
    
    3,902.9
    
    
    
    3,660.7
    
    
    
    3,665.6Operating expensesCompensation and benefits
    
    
    1,327.6
    
    
    
    1,322.1
    
    
    
    1,261.5
    
    
    
    1,166.4
    
    
    
    1,143.8Fuel
    
    
    650.5
    
    
    
    588.0
    
    
    
    440.0
    
    
    
    393.6
    
    
    
    358.3Materials
    
    
    212.9
    
    
    
    203.3
    
    
    
    178.5
    
    
    
    179.2
    
    
    
    168.7Equipment rents
    
    
    181.2
    
    
    
    210.0
    
    
    
    218.5
    
    
    
    238.5
    
    
    
    255.4Depreciation
    
    
    464.1
    
    
    
    445.1
    
    
    
    407.1
    
    
    
    372.3
    
    
    
    340.2Purchased services and other
    
    
    618.3
    
    
    
    621.6
    
    
    
    610.7
    
    
    
    583.6
    
    
    
    555.6Total operating expenses, before other specified items (4) (6)
    
    
    3,454.6
    
    
    
    3,390.1
    
    
    
    3,116.3
    
    
    
    2,933.6
    
    
    
    2,822.0Operating income, before other specified items (4) (6)
    
    
    1,128.6
    
    
    
    1,001.5
    
    
    
    786.6
    
    
    
    727.1
    
    
    
    843.6Other charges, before foreign exchange gains and losses
on long-term debt and other specified items (4) (5) (6)
    
    
    27.8
    
    
    
    18.1
    
    
    
    36.1
    
    
    
    33.5
    
    
    
    21.8Interest expense
    
    
    194.5
    
    
    
    204.2
    
    
    
    218.6
    
    
    
    218.7
    
    
    
    242.2Income tax expense, before foreign exchange gains
and losses on long-term debt and income tax
on other specified items (4) (5) (6)
    
    
    278.8
    
    
    
    250.8
    
    
    
    172.4
    
    
    
    147.0
    
    
    
    181.1Income,
before foreign exchange gains and losses
on long-term debt and other specified items (4) (5) (6)
    
    
    627.5
    
    
    
    528.4
    
    
    
    359.5
    
    
    
    327.9
    
    
    
    398.5Foreign exchange gain (loss) on long-term debt
(net of income tax) (5)
    
    
    (7.2
    )
    
    
    22.3
    
    
    
    94.4
    
    
    
    224.4
    
    
    
    16.7Other specified items (net of income tax) (4)
    
    
    176.0
    
    
    
    (7.7
    )
    
    
    (42.8
    )
    
    
    (153.2
    )
    
    
    72.0Net income
    
    $
    796.3
    
    
    $
    543.0
    
    
    $
    411.1
    
    
    $
    399.1
    
    
    $
    487.2
 (1)
 
 (2)
  2006 Annual Report     91
    Table of Contents  (3)
 
 (4)
 
 (5)
 
 (6)
 SHAREHOLDER INFORMATION
 Common Share Market Prices
 2006
    
    2005Toronto Stock Exchange(Canadian dollars)
    
    High
    
    
    Low
    
    
    High
    
    
    LowFirst Quarter
    
    
    60.85
    
    
         45.55    
    
    
    46.52
    
    
    
    38.70Second Quarter
    
    
    65.17
    
    
         52.55    
    
    
    46.88
    
    
    
    41.46Third Quarter
    
    
    57.97
    
    
         51.05    
    
    
    50.49
    
    
    
    41.79Fourth Quarter
    
    
    65.29
    
    
         54.95    
    
    
    52.70
    
    
    
    46.60Year
    
    
    65.29
    
    
         45.55    
    
    
    52.70
    
    
    
    38.70New York Stock Exchange(U.S. dollars)
    
    High
    
    
    Low
    
    
    High
    
    
    LowFirst Quarter
    
    
    53.00
    
    
         39.10    
    
    
    38.05
    
    
    
    31.52Second Quarter
    
    
    57.73
    
    
         47.10    
    
    
    37.85
    
    
    
    33.60Third Quarter
    
    
    52.17
    
    
         44.85    
    
    
    43.40
    
    
    
    33.71Fourth Quarter
    
    
    57.32
    
    
         48.75    
    
    
    45.34
    
    
    
    39.56Year
    
    
    57.73
    
    
         39.10    
    
    
    45.34
    
    
    
    31.52Number of registered shareholders at year end
    
    
    
    
    
             
    
    
    
    
    
    
    18,497Market prices at year endToronto Stock Exchange
    
    
    
    
    
             
    
    
    
    
    
    CDN$
    61.40New York Stock Exchange
    
    
    
    
    
             
    
    
    
    
    
    US$
    52.76
  92     2006 Annual Report
    Table of Contents  Shareholder Administration
 Common Shares
   
 4 % Consolidated Debenture Stock
       Market for Securities
  Trading Symbol
  Duplicate Annual Reports
  Direct Deposit of Dividends
   2006 Annual Report     93
    Table of Contents  Corporate Governance
   Governance Standards
  Chief Executive Officer and Chief Financial Officer Certification
   94     2006 Annual Report
    Table of Contents  DIRECTORS ANDCOMMITTEES
 Stephen E. Bachand (2) (4)* (5)
 John E. Cleghorn, O.C., F.C.A. (2)*
 Tim W. Faithfull (2) (3) (4)
 Fred J. Green
 The Honourable John P. Manley (1) (2) (5)
 Linda J. Morgan (2) (3) (4)
 Dr. James R. Nininger (2) (3) (4)
 Madeleine Paquin (1) (2) (3)
 Michael E.J. Phelps, O.C. (2) (4) (5)*
 Roger Phillips, O.C. (1)* (2) (5)
 Hartley T. Richardson (1) (2) (5)
 Michael W. Wright (1) (2) (3)*
 (1)
 
 (2)
 
 (3)
 
 (4)
 
 (5)
 
 *
    2006 Annual Report     95
    Table of Contents  SENIOR OFFICERSOF THE COMPANY
 John E. Cleghorn, O.C., F.C.A.Chairman of the BoardToronto, Ontario1
    
    Fred J. Green(1)President and Chief Executive OfficerCalgary, Alberta2
    
    Michael R. Lambert(1)Executive Vice-Presidentand Chief Financial
OfficerCalgary, Alberta3
    
    Neal R. Foot(1)Executive Vice-President, OperationsCalgary, Alberta4
    
    Marcella M. Szel(1)Senior Vice-President, Marketing and Sales
Calgary, Alberta5
    
    Brock M. Winter(1)Senior Vice-President, Operations
Calgary, Alberta6
    
    Allen H. Borak(1)Vice-President, Business Information
and Technology Services
Calgary, Alberta7
    
    Donald B. Campbell(1)Vice-President, Corporate Planning
Calgary, Alberta
 8
    
    Paul A. Guthrie, Q.C.(1)Vice-President, Law
Municipal District of Rocky View, Alberta9
    
    Jane A. OHagan(1)Vice-President, Strategy and External Affairs
Calgary, Alberta10
    
    Jonathan R. Legg(1)Vice-President, Strategic Sourcing Group
Calgary, Alberta11
    
    R. Andrew Shields(1)Vice-President,
Human Resources and Industrial Relations
Calgary, AlbertaPaul ClarkVice-President,
Communications and Public Affairs
Calgary, AlbertaBrian W. GrassbyVice-President and Comptroller
Calgary, AlbertaTracy A. RobinsonVice-President and Treasurer
Calgary, AlbertaDonald F. BarnhardtCorporate Secretary
Calgary, Alberta
 (1) Management Committee of Canadian Pacific Railway Company
    
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    96     2006 Annual Report
    Table of Contents  
    Table of Contents