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




---



##### 



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




---



##### 



PRIOR FILINGS MODIFIED AND SUPERSEDED
   ANNUAL INFORMATION FORM, CONSOLIDATED AUDITED ANNUAL FINANCIAL STATEMENTS
AND MANAGEMENTS DISCUSSION AND ANALYSIS
 A. Annual Information Form
  B. Audited Annual Financial Statements
  C. Managements Discussion and Analysis
   DISCLOSURE CONTROLS AND PROCEDURES
  3




---



##### 



MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
   CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
  CODE OF ETHICS
 A www.cpr.ca
 B. www.cpr.ca
 4




---



##### 



CORPORATE GOVERNANCE PRINCIPLES AND GUIDELINES
 www.cpr.ca
 COMMITTEE TERMS OF REFERENCE
 www.cpr.ca
 DIRECTOR INDEPENDENCE
  EXECUTIVE SESSIONS OF NON-MANAGEMENT DIRECTORS
   Office of the Corporate Secretary
Canadian Pacific Railway
Suite 920, 401  9th Avenue S.W.
Calgary, Alberta
Canada, T2P 4Z4
 5




---



##### 



AUDIT COMMITTEE FINANCIAL EXPERT
  Krystyna T. Hoeg
Richard C. Kelly
John P. Manley
Roger Phillips
David W. Raisbeck
Michael W. Wright
  FINANCIAL LITERACY OF AUDIT COMMITTEE MEMBERS
  SERVICE ON OTHER PUBLIC COMPANY AUDIT COMMITTEES
   
    
    Two of the public company audit committees on which Ms. Hoeg served are the Audit
Committees of the Registrants. As Canadian Pacific Railway Company is a wholly-owned
subsidiary of Canadian Pacific Railway Limited, and the latter company carries on no
business operations and has no assets or liabilities of more than nominal value beyond its
100% shareholding in Canadian Pacific Railway Company, the workload of the Audit Committees
is essentially equivalent to the workload of one public company audit committee; and
 
    
    Ms. Hoeg, is the former chief executive officer of a large public company and the former
chief financial officer of a large public company and has been designated as an audit
committee financial expert for the Registrants. As a result, she no longer has any
day-to-day executive or managerial responsibilities and, in
 6




---



##### 



addition, brings to her role on
the Audit Committees of the Registrants considerable business experience and a
highly-focused and effective approach to audit-related matters.
 PRINCIPAL ACCOUNTANT FEES AND SERVICES
  Year ended December 31, 2009
    
    Year ended December 31, 2008Audit Fees
    
    $
    2,176,800
    
    
    $
    2,044,700Audit-Related Fees
    
    $
    794,800
    
    
    $
    808,600Tax Fees
    
    $
    424,600
    
    
    $
    341,900All Other Fees
    
    $
    0
    
    
    $
    0TOTAL
    
    $
    3,396,200
    
    
    $
    3,195,200
  Audit Fees
  Audit-Related Fees
  Tax Fees
  All Other Fees
  7




---



##### 



PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES PROVIDED BY
INDEPENDENT AUDITORS
  OFF-BALANCE SHEET ARRANGEMENTS
  TABLE OF CONTRACTUAL COMMITMENTS
  UNDERTAKING AND CONSENT TO SERVICE OF PROCESS
 A. Undertaking
  B. Consent to Service of Process
  8




---



##### 



SIGNATURES
  CANADIAN PACIFIC RAILWAY LIMITED
CANADIAN PACIFIC RAILWAY COMPANY
(Registrants)/s/
Karen L. FlemingName:
    Karen L. FlemingTitle:
    Corporate SecretaryDate:
    March 19, 2010 9




---



##### 



EXHIBITS99.1
    
    Consent of PricewaterhouseCoopers, Independent Auditors.99.2
    
    Certification by the Chief Executive Officer of the Registrants filed pursuant to Rule 13a-14(a) of the Exchange Act.99.3
    
    Certification by Chief Financial Officer of the Registrants filed pursuant to Rule 13a-14(a) of the Exchange Act.99.4
    
    Certification by the Chief Executive Officer of the Registrants furnished pursuant to 18 U.S.C. Section 1350.99.5
    
    Certification by the Chief Financial Officer of the Registrants filed pursuant to 18 U.S.C. Section 1350.
 10




---



##### 








---



##### 



Table of Contents
 SECTION 1: CORPORATE STRUCTURE1.1 NAME, ADDRESS AND INCORPORATION INFORMATION
    
    
    2SECTION 2: INTERCORPORATE RELATIONSHIPS2.1 PRINCIPAL SUBSIDIARIES
    
    
    3SECTION 3: GENERAL DEVELOPMENTS OF THE BUSINESS3.1 RECENT DEVELOPMENTS
    
    
    4SECTION 4: DESCRIPTION OF THE BUSINESS4.1 OUR BACKGROUND AND NETWORK
    
    
    54.2 STRATEGY
    
    
    54.3 PARTNERSHIPS, ALLIANCES AND NETWORK EFFICIENCY
    
    
    54.4 NETWORK AND RIGHT-OF-WAY
    
    
    64.5 QUARTERLY TRENDS
    
    
    94.6 BUSINESS CATEGORIES
    
    
    94.7 REVENUES
    
    
    94.8 RAILWAY PERFORMANCE
    
    
    124.9 FRANCHISE INVESTMENT
    
    
    144.10 INTEGRATED OPERATING PLAN (IOP)
    
    
    144.11 INFORMATION TECHNOLOGY
    
    
    154.12 LABOUR PRODUCTIVITY AND EFFICIENCY
    
    
    164.13 BUSINESS RISKS AND ENTERPRISE RISK MANAGEMENT
    
    
    164.14 INDEMNIFICATIONS
    
    
    164.15 SAFETY
    
    
    174.16 ENVIRONMENTAL PROTECTION
    
    
    174.17 INSURANCE
    
    
    18SECTION 5: DIVIDENDS5.1 DECLARED DIVIDENDS AND DIVIDEND POLICY
    
    
    19SECTION 6: CAPITAL STRUCTURE6.1 DESCRIPTION OF CAPITAL STRUCTURE
    
    
    206.2 SECURITY RATINGS
    
    
    21SECTION 7: MARKET FOR SECURITIES7.1 STOCK EXCHANGE LISTINGS
    
    
    237.2 TRADING PRICE AND VOLUME
    
    
    23SECTION 8: DIRECTORS AND OFFICERS8.1 DIRECTORS
    
    
    248.2 CEASE TRADE ORDERS, BANKRUPTCIES, PENALTIES OR SANCTIONS
    
    
    258.3 SENIOR OFFICERS
    
    
    268.4 SHAREHOLDINGS OF DIRECTORS AND OFFICERS
    
    
    28SECTION 9: LEGAL PROCEEDINGS
    
    
    29SECTION 10: TRANSFER AGENT10.1 TRANSFER AGENT
    
    
    30SECTION 11: INTERESTS OF EXPERTS
    
    
    31SECTION 12: AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE12.1 COMPOSITION OF THE AUDIT, FINANCE AND RISK MANAGEMENT
COMMITTEE AND RELEVANT EDUCATION AND EXPERIENCE
    
    
    3212.2 PRE-APPROVAL OF POLICIES AND PROCEDURES
    
    
    3312.3 AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE CHARTER
    
    
    3312.4 AUDIT AND NON-AUDIT FEES AND SERVICES
    
    
    38SECTION 13: FORWARD LOOKING INFORMATION
    
    
    40SECTION 14: ADDITIONAL INFORMATION14.1 ADDITIONAL COMPANY INFORMATION
    
    
    41
  March 15, 2010
 1




---



##### 



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




---



##### 



SECTION 2: INTERCORPORATE RELATIONSHIPS
 
 2.1 Principal Subsidiaries
  Percentage ofNon-VotingSecuritiesPercentage of Voting
    
    Beneficially Owned,Securities Held
    
    or over whichIncorporated under
    
    Directly or
    
    Control or DirectionPrincipal Subsidiary(1)
    
    the Laws of
    
    Indirectly
    
    is ExercisedCanadian Pacific Railway Company
    
    Canada
    
    100%
    
    Not applicableSoo Line Corporation (2)
    
    Minnesota
    
    100%
    
    Not applicableSoo Line Railroad Company (3)
    
    Minnesota
    
    100%
    
    Not applicableDakota Minnesota & Eastern Railroad Corporation(4)
    
    Delaware
    
    100%
    
    Not applicableDelaware and Hudson Railway Company, Inc.(2)
    
    Delaware
    
    100%
    
    Not applicableMount Stephen Properties Inc.(5)
    
    Canada
    
    100%
    
    Not applicable
 (1)
    
    This table does not include all of our subsidiaries. The assets and revenues of unnamed subsidiaries did not exceed
10% of the total consolidated assets or total consolidated revenues of CP individually, or 20% of the total consolidated assets or total
consolidated revenues of CP in aggregate.(2)
    
    Indirect wholly owned subsidiary of Canadian Pacific Railway Company.(3)
    
    Wholly owned subsidiary of Soo Line Corporation.(4)
    
    Indirect wholly owned subsidiary of the Soo Line Corporation.(5)
    
    Wholly owned subsidiary of Canadian Pacific Railway Company.
  3




---



##### 



SECTION 3: GENERAL DEVELOPMENT OF THE BUSINESS
 
 3.1 Recent Developments
           4




---



##### 



SECTION 4: DESCRIPTION OF THE BUSINESS
 
 4.1 Our Background and Network
    4.2 Strategy
  
    
    generating quality revenue growth by realizing the benefits of demand growth in our
bulk, intermodal and merchandise business lines with targeted infrastructure capacity
investments linked to global trade opportunities;
    
    improving productivity by leveraging strategic marketing and operating partnerships,
executing a scheduled railway through our Integrated Operating Plan (IOP) and driving
more value from existing assets and resources by improving fluidity; and
    
    continuing to develop a dedicated, professional and knowledgeable workforce that is
committed to safety and sustainable financial performance through steady improvement in
profitability, increased free cash flow and a competitive return on investment.
 4.3 Partnerships, Alliances and Network Efficiency
    
    
    a CP-Canadian National (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 Metro Vancouver Terminal and B.C. Lower Mainland;
    
    CP-CN directional running operations in the B.C. Fraser Canyon;
    
    A joint routing agreement with CN to establish a structured plan to direct flows of
interline traffic through the most efficient interchange locations and compliment similar
arrangements with other Class Is Union Pacific Railroad (UP) & Burlington Northern Santa
Fe Railway (BNSF); and
    
    CP has worked very closely with all the Class I and other carriers that serve Chicago
under the Chicago Region Environmental and Transportation Efficiency (CREATE) program.
Class Is, Amtrak, Metra and switching carriers
 5




---



##### 



SECTION 4: DESCRIPTION OF THE BUSINESS
 
 Indiana Harbor Belt Railroad (IHB) and Belt Railway of Chicago (BRC) have partnered up
on CREATE to initiate operating and structural changes that will improve operating efficiency
and fluidity in and around Chicago, creating the largest railroad hub in North America.
  4.4 Network and Right-of-Way
  
  4.4.1 The Western Corridor: Vancouver-Moose Jaw
 Overview
 Products
 Feeder Lines
 Connections
 Yards and Repair Facilities
 6




---



##### 



SECTION 4: DESCRIPTION OF THE BUSINESS
 
 4.4.2 The Southern Corridor: Moose Jaw-Chicago
 Overview
 Products
 Feeder Lines
 Connections
 Yards and Repair Facilities
 4.4.3 The Central Corridor: Moose Jaw-Montreal
 Overview
 Products
 Feeder Lines
 Connection
 Yards and Repair Facilities
  4.4.4 The Eastern Corridor: Montreal to Chicago/ New York
 Overview
 7




---



##### 



SECTION 4: DESCRIPTION OF THE BUSINESS
 
 Products
 Feeder Lines
 Connections
 Yards and Repair Facilities
 4.4.5 The Dakota, Minnesota & Eastern Railroad Corporation
 Overview
 Products
 Feeder Lines
 Connections
 Yards and Repair Facilities
 4.4.6 Right-of-Way
    8




---



##### 



SECTION 4: DESCRIPTION OF THE BUSINESS
 
 4.5 Quarterly Trends
   4.6 Business Categories
  Business Category
    
    2009
    
    2008(1)Bulk
    
    
    45
    %
    
    
    43
    %Merchandise
    
    
    28
    %
    
    
    28
    %Intermodal
    
    
    27
    %
    
    
    29
    %
  4.7 Revenues
  Freight Revenues
    
    
    
    
    
    Fiscal 2009
    
    
    
    
    
    Fiscal 2008(1)(in $ millions, except for percentages)
    
    Fiscal
    
    Compared
    
    Fiscal
    
    Compared
    
    Fiscal2009
    
    to Fiscal
    
    2008(1)
    
    to Fiscal
    
    2007Business Category
    
    
    
    2008(1)
    
    
    
    2007BulkGrain
    
    
    1,129.9
    
    
    
    16.5
    %
    
    
    970.0
    
    
    
    3.3
    %
    
    
    938.9Coal
    
    
    443.3
    
    
    
    (27.0
    )%
    
    
    607.5
    
    
    
    5.9
    %
    
    
    573.6Sulphur and fertilizers
    
    
    303.5
    
    
    
    (40.3
    )%
    
    
    508.6
    
    
    
    1.3
    %
    
    
    502.0Total bulk
    
    
    1,876.7
    
    
    
    (10.0
    )%
    
    
    2,086.1
    
    
    
    3.6
    %
    
    
    2,014.5MerchandiseForest products
    
    
    173.2
    
    
    
    (27.6
    )%
    
    
    239.3
    
    
    
    (13.2
    )%
    
    
    275.8Industrial and consumer products
    
    
    766.6
    
    
    
    0.1
    %
    
    
    766.1
    
    
    
    22.0
    %
    
    
    627.9Automotive
    
    
    228.8
    
    
    
    (29.3
    )%
    
    
    323.5
    
    
    
    1.4
    %
    
    
    319.0Total merchandise
    
    
    1,168.6
    
    
    
    (12.1
    )%
    
    
    1,328.9
    
    
    
    8.7
    %
    
    
    1,222.7Intermodal
    
    
    1,129.9
    
    
    
    (19.3
    )%
    
    
    1,399.8
    
    
    
    6.2
    %
    
    
    1,318.0Total freight revenues
    
    
    4,175.2
    
    
    
    (13.3
    )%
    
    
    4,814.8
    
    
    
    5.7
    %
    
    
    4,555.2
  4.7.1 Bulk
  4.7.1.1 Grain
  9




---



##### 



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




---



##### 



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




---



##### 



SECTION 4: DESCRIPTION OF THE BUSINESS
 
 International Intermodal
   4.7.4 Other Business
  4.7.5 Significant Customers
  4.8 Railway Performance
  12




---



##### 



SECTION 4: DESCRIPTION OF THE BUSINESS
 
 4.8.1 Performance Indicators
 Year Ended December 31Performance Indicators(1)
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005Consolidated Data Including DM&E(2)Efficiency and other indicatorsGross ton-miles (GTM) (millions)(3)
    
    
    209,475
    
    
    
    239,705
    
    
    
    246,322
    
    
    
    236,405
    
    
    
    242,100Train miles (thousands)
    
    
    34,757
    
    
    
    41,420
    
    
    
    42,804
    
    
    
    42,310
    
    
    
    43,054US gallons of locomotive fuel per 1,000 GTMs  freight and
yard(4)
    
    
    1.19
    
    
    
    1.22
    
    
    
    1.21
    
    
    
    1.20
    
    
    
    1.18Average number of active employees  expense(5)
    
    
    13,619
    
    
    
    14,340
    
    
    
    14,172
    
    
    
    14,311
    
    
    
    14,793CP Data excluding DM&EEfficiency and other indicatorsCar miles per car day(6)
    
    
    142.6
    
    
    
    143.6
    
    
    
    142.3
    
    
    
    137.3
    
    
    
    124.0Average train speed (miles per hour)(7)
    
    
    25.5
    
    
    
    24.0
    
    
    
    23.2
    
    
    
    24.8
    
    
    
    22.0Average terminal dwell (hours)(8)
    
    
    21.9
    
    
    
    22.3
    
    
    
    22.2
    
    
    
    20.8
    
    
    
    25.8Safety indicatorsFRA personal injuries per 200,000 employee-hours(9)
    
    
    1.85
    
    
    
    1.51
    
    
    
    2.09
    
    
    
    2.00
    
    
    
    2.38FRA train accidents per million train-miles(10)
    
    
    1.49
    
    
    
    1.93
    
    
    
    2.05
    
    
    
    1.56
    
    
    
    2.26DM&E Data onlyFRA personal injuries per 200,000 employee-hours(9)
    
    
    2.17
    
    
    
    3.50
    
    
    
    
    
    
    
    
    
    
    
    FRA train accidents per million train-miles(10)
    
    
    6.78
    
    
    
    11.39
    
    
    
    
    
    
    
    
    
    
    
    
 (1)
    
    Certain prior period figures have been updated to reflect new information.(2)
    
    Consolidated data includes DM&E for
2009 and for the period from October 30 through
December 31, 2008.(3)
    
    GTMs 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). An increase in GTMs indicates additional workload.(4)
    
    US gallons of locomotive fuel per 1,000 GTMs  freight and yard measures the
total fuel consumed in freight and yard operations for every 1,000 GTMs traveled. This is
calculated by dividing the total amount of fuel issued to our locomotives, excluding commuter
and non-freight activities, by the total freight-related GTMs. The result indicates how
efficiently we are using fuel.(5)
    
    The average number of actively employed workers during the period whose
compensation costs are included in Compensation and Benefits Expense on the Consolidated
Statement of Income. 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 or who have not worked a minimum
number of hours. This definition also excludes employees working on capital projects.(6)
    
    Car miles per car day is calculated by dividing total car-miles for a period by the
total number of active cars. Total car-miles include the distance travelled by every car on a
revenue-producing train and a train used in or around our yards. A car-day is assumed to
equal one active car. An active car is a revenue-producing car that is generating costs to CP
on an hourly or mileage basis. Excluded from this count are i) cars that are not on the track
or are being stored; ii) cars that are in need of repair; iii) cars that are used to carry
materials for track repair; iv) cars owned by customers that are on the customers tracks; and
v) cars that are idle and waiting to be reclaimed by CP.(7)
    
    The average train speed measures average speed attained as a train travels between
terminals, calculated by dividing the total train miles traveled by the total hours operated.
This calculation does not include the travel time or the distance traveled by: i) trains used
in or around CPs yards; ii) passenger trains; and iii) trains used for repairing track. The
calculation also does not include the time trains spend waiting in terminals.(8)
    
    Average terminal dwell (hours) measures the average time a freight car resides at a
specified terminal location. The timing starts with a train arriving in the terminal, a
customer releasing the car to us, or a car arriving that is to be transferred to another
railway. The timing ends when the train leaves, a customer receives the car from us or the
freight car is transferred to another railway. Freight cars are excluded if: i) a train is
moving through the terminal without stopping; ii) they are being stored at the terminal; iii)
they are in need of repair; or iv) they are used in track repairs.(9)
    
    US Federal Railroad Administration (FRA) personal injuries per 200,000
employee-hours measures the number of personal injuries, multiplied by 200,000 and divided by
total employee-hours. Personal injuries are defined as injuries that require employees to
lose time away from work, modify their normal duties or obtain medical treatment beyond minor
first aid. Employee-hours are the total hours worked, excluding vacation and sick time, by
all employees, excluding contractors.(10)
    
    FRA train accidents per million train-miles measures the number of train accidents,
multiplied by 1,000,000 and divided by total train-miles. Train accidents included in this
metric meet or exceed the FRA reporting threshold of US$8,900 in the US or $11,000 in Canada
in damage. 13




---



##### 



SECTION 4: DESCRIPTION OF THE BUSINESS
 
 4.9 Franchise Investment
  4.9.1 Locomotive Fleet
   Number of Locomotives
 Road Freight
    
    Road
    
    YardAge in Years
    
    AC
    
    DC
    
    Switcher
    
    Switcher
    
    Total0-5
    
    
    234
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    2366-10
    
    
    184
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18411-15
    
    
    314
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31416-20
    
    
    
    
    
    
    21
    
    
    
    
    
    
    
    
    
    
    
    21Over 20
    
    
    
    
    
    
    452
    
    
    
    276
    
    
    
    226
    
    
    
    954Total
    
    
    732
    
    
    
    473
    
    
    
    278
    
    
    
    226
    
    
    
    1,709
 4.9.2 Railcar Fleet
   4.10 Integrated Operating Plan (IOP)
   14




---



##### 



SECTION 4: DESCRIPTION OF THE BUSINESS
 
     4.11 Information Technology
        15




---



##### 



SECTION 4: DESCRIPTION OF THE BUSINESS
 
         4.12 Labour Productivity and Efficiency
     4.13 Business Risks and Enterprise Risk Management
 www.sedar.com www.sec.gov www.cpr.ca.
 4.14 Indemnifications
  16




---



##### 



SECTION 4: DESCRIPTION OF THE BUSINESS
 
  4.15 Safety
     4.16 Environmental Protection
  4.16.1 Policy
  Ò Ò Ò Ò Ò
 4.16.2 Planning
  4.16.3 Implementation and Operation
  17




---



##### 



SECTION 4: DESCRIPTION OF THE BUSINESS
 
  4.16.4 Environmental Contamination
  4.16.5 Checking and Corrective Action
    4.16.6 Management Review
  4.16.7 Expenditures
  4.17 Insurance
  18




---



##### 



SECTION 5: DIVIDENDS
 
 5.1 Declared Dividends and Dividend Policy
  Dividend
Amount
    
    Record Date
    
    Payment Date$0.2250
    
    March 30, 2007
    
    April 30, 2007$0.2250
    
    June 29, 2007
    
    July 30, 2007$0.2250
    
    September 28, 2007
    
    October 29, 2007$0.2250
    
    December 28, 2007
    
    January 28, 2008$0.2475
    
    March 28, 2008
    
    April 28, 2008$0.2475
    
    June 27, 2008
    
    July 28, 2008$0.2475
    
    September 26, 2008
    
    October 27, 2008$0.2475
    
    December 24, 2008
    
    January 26, 2009$0.2475
    
    March 27, 2009
    
    April 27, 2009$0.2475
    
    June 26, 2009
    
    July 27, 2009$0.2475
    
    September 25, 2009
    
    October 26, 2009$0.2475
    
    December 31, 2009
    
    January 25, 2010$0.2475
    
    March 26, 2010
    
    April 26, 2010
  19




---



##### 



SECTION 6: CAPITAL STRUCTURE
 
 6.1 Description of Capital Structure
  1)
    
    The rights, privileges, restrictions and conditions attaching to the Common Shares are as
follows:
 a)
    
    Payment of Dividends: The holders of the Common Shares will be entitled to
receive dividends if, as and when declared by CPs Board of Directors out of the assets
of the Company properly applicable to the payment of dividends in such amounts and
payable in such manner as the Board may from time to time determine. Subject to the
rights of the holders of any other class of shares of the Company entitled to receive
dividends in priority to or rateably with the holders of the Common Shares, the Board
may in its sole discretion declare dividends on the Common Shares to the exclusion of
any other class of shares of the Company.b)
    
    Participation upon Liquidation, Dissolution or Winding Up: In the event of the
liquidation, dissolution or winding up of the Company or other distribution of assets
of the Company among its shareholders for the purpose of winding up its affairs, the
holders of the Common Shares will, subject to the rights of the holders of any other
class of shares of the Company entitled to receive the assets of the Company upon such
a distribution in priority to or rateably with the holders of the Common Shares, be
entitled to participate rateably in any distribution of the assets of the Company.c)
    
    Voting Rights: The holders of the Common Shares will be entitled to receive
notice of and to attend all annual and special meetings of the shareholders of the
Company and to one (1) vote in respect of each Common Share held at all such meetings,
except at separate meetings of or on separate votes by the holders of another class or
series of shares of the Company.
 2)
    
    The rights, privileges, restrictions and conditions attaching to the First Preferred Shares
are as follows:
 a)
    
    Authority to Issue in One or More Series: The First Preferred Shares may at any
time or from time to time be issued in one (1) or more series. Subject to the
following provisions, the Board may by resolution fix from time to time before the
issue thereof the number of shares in, and determine the designation, rights,
privileges, restrictions and conditions attaching to the shares of each series of First
Preferred Shares.b)
    
    Voting Rights: The holders of the First Preferred Shares will not be entitled
to receive notice of or to attend any meeting of the shareholders of the Company and
will not be entitled to vote at any such meeting, except as may be required by law.c)
    
    Limitation on Issue: The Board may not issue any First Preferred Shares if by
so doing the aggregate amount payable to holders of First Preferred Shares as a return
of capital in the event of the liquidation, dissolution or winding up of the Company or
any other distribution of the assets of the Company among its shareholders for the
purpose of winding up its affairs would exceed $500,000,000.d)
    
    Ranking of First Preferred Shares: The First Preferred Shares will be entitled
to priority over the Second Preferred Shares and the Common Shares of the Company and
over any other shares ranking junior to the First Preferred Shares with respect to the
payment of dividends and the distribution of assets of the Company in the event of any
liquidation, dissolution or winding up of the Company or other distribution of the
assets of the Company among its shareholders for the purpose of winding up its affairs.e)
    
    Dividends Preferential:Except with the consent in writing of the holders of
all outstanding First Preferred Shares, no dividend can be declared and paid on or set
apart for payment on the Second Preferred Shares or the Common Shares or on any other
shares ranking junior to the First Preferred Shares unless and until all dividends (if
any) up to and including any dividend payable for the last completed period for which
such dividend is payable on each series of First Preferred Shares outstanding has been
declared and paid or set apart for payment.
 20




---



##### 



SECTION 6: CAPITAL STRUCTURE
 
 3)
    
    The rights, privileges, restrictions and conditions attaching to the Second Preferred
Shares are as follows:
 a)
    
    Authority to Issue in One or More Series: The Second Preferred Shares may at
any time or from time to time be issued in one (1) or more series. Subject to the
following provisions, the Board may by resolution fix from time to time before the
issue thereof the number of shares in, and determine the designation, rights,
privileges, restrictions and conditions attaching to the shares of each series of
Second Preferred Shares.b)
    
    Voting Rights: The holders of the Second Preferred Shares will not be entitled to
receive notice of or to attend any meetings of the shareholders of the Company and will
not be entitled to vote at any such meeting, except as may be required by law.c)
    
    Limitation on Issue: The Board may not issue any Second Preferred Shares if by
so doing the aggregate amount payable to holders of Second Preferred Shares as a return
of capital in the event of the liquidation, dissolution or winding up of the Company or
any other distribution of the assets of the Company among its shareholders for the
purpose of winding up its affairs would exceed $500,000,000.d)
    
    Ranking of Second Preferred Shares: The Second Preferred Shares will be
entitled to priority over the Common Shares of the Company and over any other shares
ranking junior to the Second Preferred Shares with respect to the payment of dividends
and the distribution of assets of the Company in the event of the liquidation,
dissolution or winding up of the Company or any other distribution of the assets of the
Company among its shareholders for the purpose of winding up of its affairs.e)
    
    Dividends Preferential: Except with the consent in writing of the holders of
all outstanding Second Preferred Shares, no dividend can be declared and paid on or set
apart for payment on the Common Shares or on any other shares ranking junior to the
Second Preferred Shares unless and until all dividends (if any) up to and including any
dividend payable for the last completed period for which such dividend is payable on
each series of Second Preferred Shares outstanding has been declared and paid or set
apart for payment.
 6.2 Security Ratings
  Long-TermApproved Rating
    
    DebtOrganization
    
    RatingMoodys Investors Service
    
    Baa3Standard & Poors Corporation
    
    BBBDominion Bond Rating Service
    
    BBB
    21




---



##### 



SECTION 6: CAPITAL STRUCTURE
 
  DominionMoodys
    
    
    
    BondInvestors
    
    Standard
    
    RatingService
    
    & Poors
    
    ServiceAaa
    
    AAA
    
    AAA
    
    
    
    HighInvestmentGradeAa1
    
    AA+
    
    AA(high)Aa2
    
    AA
    
    AAAa3
    
    AA-
    
    AA(low)A1
    
    A+
    
    A(high)A2
    
    A
    
    AA3
    
    A-
    
    A(low)Investment
GradeBaa1
    
    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
 22




---



##### 



SECTION 7: MARKET FOR SECURITIES
 
 7.1 Stock Exchange Listings
  7.2 Trading Price and Volume
  Opening
    
    High
    
    Low
    
    Closing
    
    Volume ofMonth
    
    Price per
    
    Price per
    
    Price per
    
    Price per
    
    SharesShare ($)
    
    Share ($)
    
    Share ($)
    
    Share ($)
    
    TradedJanuary
    
    
    41.18
    
    
    
    46.09
    
    
    
    35.65
    
    
    
    37.22
    
    
    
    17,888,292February
    
    
    36.75
    
    
    
    40.73
    
    
    
    33.85
    
    
    
    36.00
    
    
    
    18,381,125March
    
    
    35.50
    
    
    
    40.77
    
    
    
    32.36
    
    
    
    37.52
    
    
    
    18,480,834April
    
    
    36.89
    
    
    
    44.49
    
    
    
    36.80
    
    
    
    42.70
    
    
    
    17,272,564May
    
    
    42.94
    
    
    
    46.69
    
    
    
    40.05
    
    
    
    44.40
    
    
    
    12,159,714June
    
    
    44.97
    
    
    
    48.41
    
    
    
    42.50
    
    
    
    46.38
    
    
    
    13,671,593July
    
    
    46.18
    
    
    
    48.90
    
    
    
    38.35
    
    
    
    47.90
    
    
    
    19,086,785August
    
    
    48.95
    
    
    
    55.96
    
    
    
    48.76
    
    
    
    52.42
    
    
    
    10,938,822September
    
    
    51.95
    
    
    
    54.48
    
    
    
    49.37
    
    
    
    50.10
    
    
    
    12,911,527October
    
    
    50.23
    
    
    
    50.84
    
    
    
    45.41
    
    
    
    46.90
    
    
    
    11,792,086November
    
    
    46.56
    
    
    
    53.22
    
    
    
    46.43
    
    
    
    50.97
    
    
    
    8,003,124December
    
    
    52.74
    
    
    
    58.17
    
    
    
    51.50
    
    
    
    56.79
    
    
    
    8,507,339
  Opening
    
    High
    
    Low
    
    Closing
    
    Volume ofMonth
    
    Price per
    
    Price per
    
    Price per
    
    Price per
    
    SharesShare ($)
    
    Share ($)
    
    Share ($)
    
    Share ($)
    
    TradedJanuary
    
    
    33.81
    
    
    
    38.98
    
    
    
    28.15
    
    
    
    30.26
    
    
    
    12,836,132February
    
    
    29.64
    
    
    
    33.18
    
    
    
    27.07
    
    
    
    28.21
    
    
    
    11,182,010March
    
    
    27.56
    
    
    
    33.10
    
    
    
    25.11
    
    
    
    29.63
    
    
    
    11,703,105April
    
    
    29.26
    
    
    
    37.29
    
    
    
    29.19
    
    
    
    35.86
    
    
    
    10,267,837May
    
    
    36.05
    
    
    
    41.13
    
    
    
    34.10
    
    
    
    40.94
    
    
    
    9,494,588June
    
    
    41.35
    
    
    
    43.91
    
    
    
    37.28
    
    
    
    39.80
    
    
    
    8,490,151July
    
    
    40.36
    
    
    
    45.11
    
    
    
    32.96
    
    
    
    44.49
    
    
    
    8,287,929August
    
    
    45.70
    
    
    
    51.64
    
    
    
    44.46
    
    
    
    47.86
    
    
    
    6,952,194September
    
    
    47.36
    
    
    
    51.00
    
    
    
    44.55
    
    
    
    46.75
    
    
    
    8,967,769October
    
    
    46.83
    
    
    
    48.86
    
    
    
    42.05
    
    
    
    43.11
    
    
    
    9,159,843November
    
    
    43.18
    
    
    
    50.44
    
    
    
    43.04
    
    
    
    48.46
    
    
    
    6,235,945December
    
    
    50.11
    
    
    
    55.43
    
    
    
    49.31
    
    
    
    54.00
    
    
    
    6,886,290
 23




---



##### 



SECTION 8: DIRECTORS AND OFFICERS
 
  8.1 Directors
 Name and Municipality of Residence
    
    Position Held and Principal Occupation within
    
    Year of Annual Meetingthe Preceding Five Years(1)
    
    at which Term of OfficeExpires (DirectorSince)J.E. Cleghorn, O.C., F.C.A. (3)
Toronto, Ontario, Canada
    
    Chairman, Canadian Pacific Railway Limited
and Canadian Pacific Railway Company
    
    2010
(2001)T.W. Faithfull (3)(4)(5)
Oxford, Oxfordshire, England
    
    Retired President and Chief Executive Officer
Shell Canada Limited (oil and gas company)
    
    2010
(2003)F.J. Green (4)
Calgary, Alberta, Canada
    
    President and Chief Executive Officer,
Canadian Pacific Railway Company and
Canadian Pacific
Railway Limited
    
    2010
(2006)K.T. Hoeg, C.A. (2)(6)
Toronto, Ontario, Canada
    
    Former President and Chief Executive Officer
of Corby Distilleries Limited (spirits and
wine)
    
    2010
(2007)Richard C. Kelly (2)(4)
Minneapolis, Minnesota, U.S.A.
    
    Chairman and Chief Executive
Officer
Xcel Energy Inc. (a utility supplier of
electric power and natural gas)
    
    2010
(2008)The Hon. J.P. Manley (2)(3)(6)
Ottawa, Ontario, Canada
    
    President and Chief Executive Officer,
Canadian Council of Chief Executives
(non-profit public policy,
consultation and advocacy organization)
    
    2010
(2006)L.J. Morgan (4)(5)
Bethesda, Maryland, U.S.A.
    
    Counsel, Covington & Burling LLP (law firm)
    
    2010
(2006)M. Paquin (4)(5)
Montreal, Quebec, Canada
    
    President and Chief Executive Officer,
Logistec Corporation (international
cargo-handling company)
    
    2010
(2001)M.E.J. Phelps, O.C. (3)(5)(6)
West Vancouver, B.C., Canada
    
    Chairman, Dornoch Capital Inc. (private
investment company)
    
    2010
(2001)R.
Phillips, O.C.,S.O.M., F.Inst.P.
(2)(3)(6)
Regina, Saskatchewan, Canada
    
    Retired President and Chief Executive
Officer, IPSCO Inc. (steel manufacturing
company)
    
    2010
(2001)D.W. Raisbeck (2)(6)
Sanibel, Florida, U.S.A.
    
    Retired Vice-Chairman, Cargill Inc.
(producer and marketer of agricultural,
financial and industrial products)
    
    2010
(2009)H.T. Richardson, C.M., O.M. (5)(6)
Winnipeg, Manitoba, Canada
    
    President and Chief Executive Officer, James
Richardson & Sons, Limited (privately owned
corporation)
    
    2010
(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)
    
    2010
(2001)
 Notes:(1)
    
    J.E. Cleghorn was Chairman of the Board of SNC-Lavalin Group from May 2002 until May 2007.
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
 24




---



##### 



SECTION 8: DIRECTORS AND OFFICERS
 
 October 2004 until November 2005. K.T. Hoeg was President and Chief Executive Officer of Corby
Distilleries Limited from October 1996 to February 2007. The Hon. J.P. Manley was the counsel
for McCarthy Tetrault from July 2004 until October 2009 and President-Elect of the Canadian
Counsel of Chief Executives from October to December 2009. R.C. Kelly was President of Xcel
Energy Inc. from June 2005 to September 2009. D.W. Raisbeck was Vice-Chairman of Cargill Inc.
from 1999 to 2009.(2)
    
    Member of the Audit, Finance and Risk Management Committee.(3)
    
    Member of the Corporate Governance and Nominating Committee.(4)
    
    Member of the Health, Safety, Security and Environment Committee.(5)
    
    Member of the Management Resources and Compensation Committee.(6)
    
    Member of the Pension Committee.
 8.2 Cease Trade Orders, Bankruptcies, Penalties or Sanctions
    25




---



##### 



SECTION 8: DIRECTORS AND OFFICERS
 
 8.3 Senior Officers
  Name and municipality of residence
    
    Position held
    
    Principal occupation within thepreceding five yearsJ. E. Cleghorn, O.C., F.C.A.
Toronto, Ontario, Canada
    
    Chairman
    
    Chairman, Canadian Pacific
Railway Limited and Canadian
Pacific Railway Company;
Chairman, SNC-Lavalin Group
Inc. (international
engineering and construction
firm)F. J. Green
Calgary, Alberta, Canada
    
    President and Chief
Executive Officer
    
    President and Chief Executive
Officer, Canadian Pacific
Railway Company and Canadian
Pacific Railway Limited;
President and Chief Operating
Officer, Canadian Pacific
Railway Company and Canadian
Pacific Railway Limited;
Executive Vice-President and
Chief Operating Officer,
Canadian Pacific Railway
Company and Canadian Pacific
Railway LimitedK. B. McQuade
Mesquite, Nevada, U.S.A.
    
    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 and Chief
Operating Officer, Canadian
Pacific Railway Company and
Canadian Pacific Railway
Limited; Executive
Vice-President and Chief
Information Officer, Norfolk
Southern RailroadJ. A. OHagan
Calgary, Alberta, Canada
    
    Senior
Vice-President,
Strategy and Yield
    
    Senior Vice-President,
Strategy and Yield, Canadian
Pacific Railway Limited and
Canadian Pacific Railway
Company; Vice-President,
Canadian Pacific Railway
Limited and Vice-President,
Strategy and External Affairs,
Canadian Pacific Railway
Company; Vice-President,
Strategy Research and New
Market Development, Assistant
Vice-President, Strategy and
Research, Canadian Pacific
Railway CompanyB. M. Winter
Calgary, Alberta, Canada
    
    Senior Vice-President, Operations
    
    Senior Vice-President,
Operations, Canadian Pacific
Railway Limited and Senior
Vice-President, Operations,
Canadian Pacific Railway
Company; Vice-President
Operations, Canadian Pacific
Railway Company;
Vice-President Transportation
and Field Operations, Canadian
Pacific Railway CompanyR. H. Foot
Calgary, Alberta, Canada
    
    Group Vice-President, Sales
    
    Group Vice-President, Sales,
Canadian Pacific Railway
Company; Vice-President, Sales
& Marketing, Merchandise,
Canadian Pacific Railway
Company
 26




---



##### 



SECTION 8: DIRECTORS AND OFFICERS
 
 Name and municipality of residence
    
    Position held
    
    Principal occupation within thepreceding five yearsJ. Michael Franczak
Calgary, Alberta, Canada
    
    Group
Vice-President,
Operations
    
    Vice-President Operations,
Canadian Pacific Railway
Company; Vice-President
Transportation, Canadian
Pacific Railway Company;
Assistant Vice-President
Transportation, Canadian
Pacific Railway CompanyJ. R. Milloy
Calgary, Alberta, Canada
    
    Group
Vice-President,
Marketing & Yield
    
    Group Vice-President,
Marketing & Yield, Canadian
Pacific Railway Company;
Vice-President, Revenue &
Yield Management, Canadian
Pacific Railway Company;
Vice-President Marketing &
Yield, Canadian Pacific
Railway Company; Assistant
Vice-President Yield
Management, Canadian Pacific
Railway CompanyR. A. Shields
Calgary, Alberta, Canada
    
    Group
Vice-President,
Human Resources and
Industrial
Relations
    
    Group Vice-President, Human
Resources and Industrial
Relations, Canadian Pacific
Railway Limited and Canadian
Pacific Railway Company;
Vice-President, Human
Resources and Industrial
Relations, Canadian Pacific
Railway Limited and Canadian
Pacific Railway CompanyM. G. Allison
Calgary, Alberta, Canada
    
    Vice-President and
Treasurer
    
    Vice-President and Treasurer,
Canadian Pacific Railway
Company and Canadian Pacific
Railway Limited;
Vice-President and Treasurer,
Suncor Energy, Inc.;
Vice-President Process
Integration, Suncor Energy
Inc.; Vice-President Business
Services  Natural Gas &
Renewable Energy  Suncor
Energy Inc.D. B. Campbell
Calgary, Alberta, Canada
    
    Vice-President,
Finance
    
    Vice-President, Finance,
Canadian Pacific Railway
Limited and Canadian Pacific
Railway Company;
Vice-President, Corporate
Planning, Canadian Pacific
Railway Limited and Canadian
Pacific Railway Company;
Vice-President Business
Planning and Development,
Canadian Pacific Railway
CompanyB. W. Grassby
Calgary, Alberta, Canada
    
    Vice-President and
Comptroller
    
    Vice-President and
Comptroller, Canadian Pacific
Railway Company and Canadian
Pacific Railway Limited;
Acting Chief Financial Officer
and Vice-President and
Comptroller, Canadian Pacific
Railway Company and Canadian
Pacific Railway Limited;
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
 27




---



##### 



SECTION 8: DIRECTORS AND OFFICERS
 
 Name and municipality of residence
    
    Position held
    
    Principal occupation within thepreceding five yearsK. L. Fleming
Calgary, Alberta, Canada
    
    Corporate
Secretary
    
    Corporate Secretary, Canadian
Pacific Railway Limited and
Canadian Pacific Railway
Company; Associate Corporate
Secretary, Canadian Pacific
Railway Limited and Canadian
Pacific Railway Company; Legal
Counsel Labour & Employment
Coordinator, Canadian Pacific
Railway Company; Labour
Coordinator, Canadian Pacific
Railway Company
 8.4 Shareholdings of Directors and Officers
 
 28




---



##### 



SECTION 9: LEGAL PROCEEDINGS
 
  9.1 Stoney Tribal Council v. Canada, EnCana and CP
  29




---



##### 



SECTION 10: TRANSFER AGENTS AND REGISTRARS
 
 10.1 Transfer Agent
    th
 30




---



##### 



SECTION 11: INTERESTS OF EXPERTS
 
  31




---



##### 



SECTION 12: AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE
 
 12.1 Composition of the Audit, Finance and Risk Management Committee and Relevant Education and
Experience
  Krystyna T. Hoeg
 Richard C. Kelly
 John P. Manley
 Roger Phillips
 David W. Raisbeck
 Michael
W. Wright (Chair)
 32




---



##### 



SECTION 12: AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE
 
  12.2 Pre-Approval of Policies and Procedures
  12.3 Audit, Finance and Risk Management Committee Charter
  A.
    
    Committee and Procedures1.
    
    Purposes
  
    
    the review of the annual and interim financial statements of the Corporation;
    
    the integrity and quality of the Corporations financial reporting and systems
of internal control, and risk management;
    
    the Corporations compliance with legal and regulatory requirements;
    
    the qualifications, independence, engagement, compensation and performance of
the Corporations external auditors; and
    
    the performance of the Corporations internal audit function;
   2.
    
    Composition of Committee
  33




---



##### 



SECTION 12: AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE
 
 3.
    
    Appointment of Committee Members
  4.
    
    Committee Chair
  5.
    
    Absence of Committee Chair
  6.
    
    Secretary of Committee
  7.
    
    Meetings
  8.
    
    Quorum
  9.
    
    Notice of Meetings
  10.
    
    Attendance of Others at Meetings
  11.
    
    Procedure, Records and Reporting
  12.
    
    Delegation
  13.
    
    Report to Shareholders
  14.
    
    Guidelines to Exercise of Responsibilities
  34




---



##### 



SECTION 12: AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE
 
 15.
    
    Use of Outside Legal, Accounting or Other Advisors; Appropriate Funding
   (i)
    
    compensation of any outside advisers as contemplated by the immediately
preceding paragraph;(ii)
    
    compensation of any independent auditor engaged for the purpose of preparing or
issuing an audit report or performing other audit, review or attest services for the
Corporation; or(iii)
    
    ordinary administrative expenses that are necessary or appropriate in carrying
out the Committees duties.
  16.
    
    Remuneration of Committee Members
  B. Mandate
 17.
    
    The Committees role is one of oversight. Management is responsible for preparing the
interim and annual financial statements of the Corporation and for maintaining a system of
risk assessment and internal controls to provide reasonable assurance that assets are
safeguarded and that transactions are authorized, recorded and reported properly, for
maintaining disclosure controls and procedures to ensure that it is informed on a timely basis
of material developments and the Corporation complies with its public disclosure obligations,
and for ensuring compliance by the Corporation with legal and regulatory requirements. The
external auditors are responsible for auditing the Corporations financial statements. In
carrying out its oversight responsibilities, the Committee does not provide any professional
certification or special assurance as to the Corporations financial statements or the
external auditors work.The Committee shall:Audit Matters
 External Auditors Report on Annual Audit
 a)
    
    obtain and review annually prior to the completion of the external auditors annual
audit of the year-end financial statements a report from the external auditors describing:
 (i)
    
    all critical accounting policies and practices to be used;(ii)
    
    all alternative treatments of financial information within generally
accepted accounting principles that have been discussed with management, the
ramifications of the use of such alternative disclosures and treatments, and the
treatment preferred by the external auditors; and(iii)
    
    other material written communications between the external auditors and
management, such as any management letter or schedule of unadjusted differences;
 Managements and Internal Auditors Reports on External Audit Issues
 b)
    
    review any reports on the above or similar topics prepared by management or the
internal auditors and discuss with the external auditors any material issues raised in
such reports;
 Annual Financial Reporting Documents and External Auditors Report
 c)
    
    meet to review with management, the internal auditors and the external auditors the
Corporations annual financial statements, the report of the external auditors thereon,
the related Managements Discussion and Analysis, and the information derived from the
financial statements, as contained in the Annual Information Form and the Annual Report.
Such review will include obtaining assurance from the external auditors that the audit was
conducted in a manner consistent with applicable law and will include a review of:
 (i)
    
    all major issues regarding accounting principles and financial statement
presentations, including any significant changes in the Corporations selection or
application of accounting policies or principles;
 35




---



##### 



SECTION 12: AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE
 
 (ii)
    
    all significant financial reporting issues and judgments made in
connection with the preparation of the financial statements, including the effects
on the financial statements of alternative methods within generally accepted
accounting principles;(iii)
    
    the effect of regulatory and accounting issues, as well as off-balance
sheet structures, on the financial statements;(iv)
    
    all major issues as to the adequacy of the Corporations internal
controls and any special steps adopted in light of material control deficiencies;
and(v)
    
    the external auditors judgment about the quality, and not just the
acceptability, of the accounting principles applied in the Corporations financial
reporting;
 d)
    
    following such review with management and the external auditors, recommend to the
Board of Directors whether to approve the audited annual financial statements of the
Corporation and the related Managements Discussion and Analysis, and report to the Board
on the review by the Committee of the information derived from the financial statements
contained in the Annual Information Form and Annual Report;
 Interim Financial Statements and MD&A
 e)
    
    review with management, the internal auditors and the external auditors the
Corporations interim financial statements and its interim Managements Discussion and
Analysis, and if thought fit, approve the interim financial statements and interim
Managements Discussion and Analysis and the public release thereof by management;
 Earnings Releases, Earnings Guidance
 f)
    
    review and discuss earnings press releases, including the use of pro forma or
adjusted information determined other than in accordance with generally accepted
accounting principles, and the disclosure by the Corporation of earnings guidance and
other financial information to the public including analysts and rating agencies, it being
understood that such discussions may, in the discretion of the Committee, be done
generally (i.e., by discussing the types of information to be disclosed and the type of
presentation to be made) and that the Committee need not discuss in advance each earnings
release or each instance in which the Corporation discloses earnings guidance or other
financial information; and be satisfied that adequate procedures are in place for the
review of such public disclosures and periodically assess the adequacy of those
procedures;
 Material Litigation, Tax Assessments, Etc.
 g)
    
    review with management, the external auditors and, if necessary, legal counsel all
legal and regulatory matters and litigation, claims or contingencies, including tax
assessments, that could have a material effect upon the financial position of the
Corporation, and the manner in which these matters may be, or have been, disclosed in the
financial statements; and obtain reports from management and review with the Corporations
chief legal officer, or appropriate delegates, the Corporations compliance with legal and
regulatory requirements;
 Oversight of External Auditors
 h)
    
    subject to applicable law relating to the appointment and removal of the external
auditors, be directly responsible for the appointment, retention, termination,
compensation and oversight of the external auditors; and be responsible for the resolution
of disagreements between management and the external auditors regarding financial
reporting;
 Rotation of External Auditors Audit Partners
 i)
    
    review and evaluate the lead audit partner of the external auditors and assure the
regular rotation of the lead audit partner and the audit partner responsible for reviewing
the audit and other audit partners, as required by applicable law; and consider whether
there should be a regular rotation of the external audit firm itself;
 External Auditors Internal Quality Control
 j)
    
    obtain and review, at least annually, and discuss with the external auditors a report
by the external auditors describing the external auditors internal quality-control
procedures, any material issues raised by the most recent internal quality-control review,
or peer review, of the external auditors, or by any inquiry or investigation by
governmental or professional authorities, within the preceding five years, respecting one
or more independent audits carried out by the external auditors, and any steps taken to
deal with any such issues;
 36




---



##### 



SECTION 12: AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE
 
 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,(ii)
    
    discussing with the external auditors any disclosed relationships or
services that may affect the objectivity and independence of the external auditors,
and(iii)
    
    recommending that the Board take appropriate action in response to the
external auditors report to satisfy itself as to the external auditors
independence;
 Policies Regarding Hiring of External Auditors Employees and Former Employees
 l)
    
    set clear policies for the hiring by the Corporation of partners, employees and
former partners and employees of the external auditors;
 Pre-Approval of Audit and Non-Audit Services Provided by External Auditors
 m)
    
    be solely responsible for the pre-approval of all audit and non-audit services to be
provided to the Corporation and its subsidiary entities by the external auditors (subject
to any prohibitions provided in applicable law), and of the fees paid for these services;
provided however, that the Committee may delegate to an independent member or members of
the Committee authority to pre-approve such non-audit services, and such member(s) shall
report to the Committee at its next meeting following the granting any pre-approvals
granted pursuant to such delegated authority;n)
    
    review the external auditors annual audit plan (including scope, staffing, reliance
on internal controls and audit approach);o)
    
    review the external auditors engagement letter;
 Oversight of Internal Audit
 p)
    
    oversee the internal audit function by reviewing senior management action with
respect to the appointment or dismissal of the Chief Internal Auditor; afford the Chief
Internal Auditor unrestricted access to the Committee; review the charter, activities,
organizational structure, and the skills and experience of the Internal Audit Department;
discuss with management and the external auditors the competence, performance and
cooperation of the internal auditors; and discuss with management the compensation of the
internal auditors;
 q)
    
    review and consider, as appropriate, any significant reports and recommendations
issued by the Corporation or by any external party relating to internal audit issues,
together with managements response thereto;
 Internal Controls and Financial Reporting Processes
 r)
    
    review with management, the internal auditors and the external auditors, the
Corporations financial reporting processes and its internal controls;s)
    
    review with the internal auditors the adequacy of internal controls and procedures
related to any corporate transactions in which directors or officers of the Corporation
have a personal interest, including the expense accounts of officers of the Corporation at
the level of Vice-President and above and officers use of corporate assets, and consider
the results of any reviews thereof by the internal or external auditors;
 Complaints Processes
 t)
    
    establish procedures for:
 (i)
    
    the receipt, retention and treatment of complaints received by the
Corporation regarding accounting, internal accounting controls or auditing matters,
and(ii)
    
    the confidential, anonymous submission by employees of the Corporation of
concerns regarding questionable accounting or auditing matters,
 and review periodically with management and the internal auditors these procedures and any
significant complaints received;
 37




---



##### 



SECTION 12: AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE
 
 Separate Meetings with External Auditors, Internal Audit, Management
 u)
    
    meet separately with management, the external auditors and the internal auditors
periodically to discuss matters of mutual interest, including any audit problems or
difficulties and managements response thereto, the responsibilities, budget and staffing
of the Internal Audit Department and any matter they recommend bringing to the attention
of the full Board;
 Finance
 v)
    
    review all major financings, including financial statement information contained in
related prospectuses, information circulars, etc., of the Corporation and its subsidiaries
and annually review the Corporations financing plans and strategies;w)
    
    review managements plans with respect to Treasury operations, including such items
as financial derivatives and hedging activities;
 Risk Management
 x)
    
    discuss risk assessment and risk management policies and processes to be implemented
for the Corporation, review with management and the Corporations internal auditors the
effectiveness and efficiency of such policies and processes and their compliance with
other relevant policies of the Corporation, and make recommendations to the Board with
respect to any outcomes, findings and issues arising in connection therewith;
 y)
    
    review managements program to obtain appropriate insurance to mitigate risks;
 Terms of Reference and Performance Evaluation of Committee
 z)
    
    review and reassess the adequacy of these Terms of Reference at least annually, and
otherwise as it deems appropriate, and recommend changes to the Board. The Committee
shall also undertake an annual evaluation of the Committees performance.
 Other
 aa)
    
    perform such other activities, consistent with these Terms of Reference, the
Corporations articles and by-laws and governing law, as the Committee or the Board deems
appropriate.bb)
    
    report regularly to the Board of Directors on the activities of the Committee.
 12.4 Audit and Non-Audit Fees and Services
  Year ended
    
    Year endedDecember 31, 2009
    
    December 31, 2008Audit Fees
    
    $
    2,176,800
    
    
    $
    2,044,700Audit-Related Fees
    
    $
    794,800
    
    
    $
    808,600Tax Fees
    
    $
    424,600
    
    
    $
    341,900All Other Fees
    
    $
    
    
    
    $
    TOTAL
    
    $
    3,396,200
    
    
    $
    3,195,200
  12.4.1 Audit Fees
  12.4.2 Audit-Related Fees
  38




---



##### 



SECTION 12: AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE
 
  12.4.3 Tax Fees
  12.4.4 All Other Fees
  39




---



##### 



SECTION 13: FORWARD LOOKING INFORMATION
 
 Private Securities Litigation Reform Act of
1995
   40




---



##### 



SECTION
14: ADDITIONAL INFORMATION
 
 14.1 Additional Company Information
 www.sedar.com www.sec.gov
   www.cpr.ca.
 41




---



##### 








---



##### 








---



##### 



1

Chairmans Message to Shareholders2

Chief Executive Officers Letter to Shareholders3

Managements Discussion and Analysis50

Financial Statements107

Shareholder Information109

Directors and Committees110

Senior Officers of the Company




---



##### 



CHAIRMANS
    MESSAGE TO SHAREHOLDERS
                
    2009
    ANNUAL
    REPORT

1




---



##### 



CHIEF EXECUTIVE
    OFFICERS LETTER TO SHAREHOLDERS
    o
    Managing our balance sheet to ensure financial flexibility;o
    Driving productivity improvements to reduce variable costs;o
    Reducing structural costs;o
    Sustaining price increases through consistent, reliable service;
    ando
    Creating and preserving growth options.            th th th
  on-site
       
    2

2009
    ANNUAL
    REPORT




---



##### 



MANAGEMENTS
    DISCUSSION AND ANALYSIS For
    the year ended December 31, 2009
   TABLE OF
    CONTENTS
  
  1.0

Business Profile


42.0

Strategy


43.0

Additional Information


44.0

Financial Highlights


45.0

Operating Results


65.1

Income


65.2

Diluted Earnings per Share


65.3

Operating Ratio


75.4

Impact of Foreign Exchange on Earnings


76.0

Non-GAAP Earnings


77.0

Lines of Business


97.1

Volumes


97.2

Revenues


107.3

2009 to 2008 Comparatives


117.3.1

Freight Revenues


117.3.2

Other Revenues


127.3.3

Freight Revenue per Carload


137.3.4

Freight Revenue per Revenue Ton Mile


137.4

2008 to 2007 Comparatives


147.4.1

Freight Revenues


147.4.2

Other Revenues


147.4.3

Freight Revenue per Carload


157.4.4

Freight Revenue per Revenue Ton Mile


158.0

Performance Indicators


158.1

Efficiency and Other Indicators


158.2

Safety Indicators


169.0

Operating Expenses


179.1

2009 to 2008 Comparatives


179.2

2008 to 2007 Comparatives


1810.0

Other Income Statement Items


1911.0

Quarterly Financial Data


2211.1

Quarterly Trends


2312.0

Fourth-Quarter Summary


2312.1

Operating Results


2312.2

Non-GAAP Earnings


2412.3

Revenues


2412.4

Operating Expenses


2512.5

Other Income Statement Items


2612.6

Liquidity and Capital Resources


2613.0

Changes in Accounting Policy


2613.1

2009 Accounting Changes


2613.2

Future Accounting Changes


2814.0

Liquidity and Capital Resources


2814.1

Operating Activities


2814.2

Investing Activities


2914.3

Financing Activities


2914.4

Free Cash


3115.0

Balance Sheet


3216.0

Financial Instruments


3317.0

Off-Balance Sheet Arrangements


3618.0

Acquisition


3619.0

Contractual Commitments


3720.0

Future Trends and Commitments


3721.0

Business Risks and Enterprise Risk
    Management


3921.1

Teck Coal Limited


3921.2

Competition


3921.3

Liquidity


3921.4

Regulatory Authorities


4021.5

Labour Relations


4121.6

Environmental Laws and Regulations


4121.7

Climate Change


4221.8

Financial Risks


4221.9

General and Other Risks


4322.0

Critical Accounting Estimates


4323.0

Systems, Procedures and Controls


4624.0

Forward-Looking Information


4625.0

Glossary of Terms


48    2009
    ANNUAL
    REPORT

3




---



##### 



February 25,
    2010
     1.0 Business
    Profile         2.0
    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. 3.0 Additional
    Information  www.sedar.com www.sec.gov www.cpr.ca
 4.0 Financial
    Highlights    4

2009
    ANNUAL
    REPORT




---



##### 



Financial
    Highlights
  2009


2008(1)For the year ended December 31 (in millions, except
    percentages and per-share data)




2008(3)


DM&E(4)


Pro
    forma(5)(6)


2007(1)(2)Revenues

$
4,303.2


$
4,931.6


$
295.6


$
5,227.2


$
4,707.6Operating
    income(6)


900.1



1,041.7



86.2



1,127.9



1,160.8Income, before FX on LTD and other specified
    items(6)


460.3



619.7







619.7



658.7Net income


612.4



607.2







607.2



932.1Basic earnings per share


3.68



3.95







3.95



6.05Diluted earnings per share


3.67



3.91







3.91



5.99Diluted earnings per share, before FX on LTD and other specified
    items(6)


2.76



3.99







3.99



4.23Dividends declared per share


0.9900



0.9900











0.9000Free
    cash(6)


(90.1
)


230.9











303.4Total assets at December 31


15,531.4



15,157.3











13,073.4Total long-term financial liabilities at December
    31(7)


4,203.9



4,844.5











4,267.1Operating ratio, before other specified
    items(6)


79.1
%


78.9
%






78.4
%


75.3
%   BAR GRAPH

BAR GRAPH

BAR GRAPH   (1)
  (2)
  (3)
  (4)
  (5)
  (6)
  (7)
  2009
    ANNUAL
    REPORT

5




---



##### 



5.0 Operating
    Results  line-by-line
 5.1 INCOME        o
    the favourable impact of foreign exchange (FX,
    discussed further in Section 25.0 Glossary of Terms);o
    overall compensation and benefits declined due to lower volumes,
    however, the success of variable cost reductions in response to
    lower volumes resulted in higher incentive compensation and
    gainshare to employees;o
    the net effect of fuel price declines; ando
    lower purchased services and other expenses.      o
    the weakening economy in the second half of the year, which
    resulted in lower volumes;o
    the Canadian Transportation Agency (Agency) decision
    directing a downward adjustment of the railway maximum revenue
    entitlement for movement of regulated grain under the Canadian
    Transportation Act (CTA) which included a provision
    for repayment of revenues relating to grain rates (discussed
    further in Section 21.4.1 Regulatory Change);o
    increased purchased services and other expenses, due to higher
    casualty related expenses despite an improved safety performance;o
    higher fuel expenses driven by higher West Texas Intermediate
    (WTI) prices and widening refining margins, net of
    fuel recoveries; ando
    higher costs associated with difficult operating conditions,
    mainly driven by harsh weather conditions on our central and
    eastern network.    o
    improved freight rates;o
    the consolidation of DM&E results from October 30,
    2008 to December 31, 2008; prior to October 30, 2008
    results of DM&E were recorded on an equity basis; ando
    the favourable impact of the change in FX.    o
    gains on the sale of a partnership interest and significant
    properties (discussed further in Section 10.2 Gain on Sales
    of Partnership Interest and Significant Properties);o
    the absence of the negative impact in 2008 on net income from
    the loss in fair value of our investment in Asset-backed
    Commercial Paper (ABCP) compared to a small gain
    recorded in 2009 with respect to the replacement of long-term
    floating rate notes (discussed further in Section 10.3.1
    Change in Estimated Fair Value of Long-term Floating Rate Notes
    and Asset-backed Commercial Paper); ando
    income tax recoveries in 2009.        o
    lower FX gains (net of tax) on US dollar-denominated long-term
    debt (LTD);o
    income tax benefits recorded in 2007 due to legislation to
    reduce corporate income tax rates;o
    lower operating income;o
    loss in fair value of our investment in ABCP; ando
    higher interest expense that was primarily due to the funding
    required for our acquisition of DM&E (discussed further in
    Section 14.3 Financing Activities).   5.2 DILUTED
    EARNINGS PER SHARE    6

2009
    ANNUAL
    REPORT




---



##### 



5.3 OPERATING
    RATIO         5.4 IMPACT
    OF FOREIGN EXCHANGE ON EARNINGS     6.0 Non-GAAP Earnings        line-by-line
    2009
    ANNUAL
    REPORT

7




---



##### 



SUMMARIZED
    STATEMENT OF CONSOLIDATED INCOME
  For the year ended December 31


For the three months ended December 31(reconciliation of non-GAAP earnings to GAAP earnings)

2009


2008(1)


2007(1)(2)


2009


2008(1)(in millions, except diluted EPS)




2008


DM&E(3)


Pro
    forma(4)(5)








2008


DM&E(3)


Pro
    forma(4)(5)Revenues

$
4,303.2


$
4,931.6


$
295.6


$
5,227.2


$
4,707.6


$
1,121.9


$
1,299.7


$
34.4


$
1,334.1Operating expenses


3,403.1



3,889.9



209.4



4,099.3



3,546.8



852.9



1,012.5



17.3



1,029.8Operating
    income(5)


900.1



1,041.7



86.2



1,127.9



1,160.8



269.0



287.2



17.1



304.3Equity income in DM&E






50.9



(50.9
)






11.2







10.4



(10.4
)


Less:Other income and charges, before FX on LTD and other specified
    items(5)


31.0



22.7



(0.4
)


22.3



29.6



2.7



8.3







8.3Adjusted
    EBIT(5)


869.1



1,069.9



35.7



1,105.6



1,142.4



266.3



289.3



6.7



296.0Less:Net interest expense


273.1



261.1



1.9



263.0



204.3



62.8



73.8



0.1



73.9Income tax expense, before income tax on FX on LTD and other
    specified
    items(5)


135.7



189.1



33.8



222.9



268.7



44.6



49.7



6.6



56.3Income, before FX gain (loss) on LTD and other specified
    items(5)


460.3



619.7







619.7



669.4



158.9



165.8







165.8Foreign exchange gain (loss) on long-term debtFX on LTD  gain (loss)


5.8



(16.3
)






(16.3
)


169.8



3.1



(3.9
)






(3.9
)Income tax recovery (expense)


(31.6
)


38.6







38.6



(44.3
)


(4.5
)


26.2







26.2FX on LTD, net of tax  gain (loss)


(25.8
)


22.3







22.3



125.5



(1.4
)


22.3







22.3Other specified itemsLoss on termination of lease with shortline railway


(54.5
)


















(54.5
)










Income tax recovery (expense)


16.9



















16.9











Loss on termination of lease with shortline railway, net of tax


(37.6
)


















(37.6
)










Gain on sales of partnership interest and significant properties


160.3































Income tax recovery (expense)


(23.5
)






























Gain on sales of partnership interest and significant
    properties, net of tax


136.8































Gain/(loss) in fair value of long-term floating rate notes/ ABCP


6.3



(49.4
)






(49.4
)


(21.5
)














Income tax recovery (expense)


(1.8
)


14.6







14.6



6.5















Gain/(loss) in fair value of long-term floating rate notes/
    ABCP, net of tax


4.5



(34.8
)






(34.8
)


(15.0
)














Income tax benefits due to rate reduction and settlement related
    to prior year


74.2















152.2



74.2











Net income

$
612.4


$
607.2


$



$
607.2


$
932.1


$
194.1


$
188.1


$



$
188.1Diluted EPS, before FX on LTD and other specified
    items(5)

$
2.76


$
3.99


$



$
3.99


$
4.30


$
0.94


$
1.07


$



$
1.07Diluted EPS, related to FX on LTD, net of
    tax(5)


(0.15
)


0.14







0.14



0.81



(0.01
)


0.14







0.14Diluted EPS, related to other specified items, net of
    tax(5)


1.06



(0.22
)






(0.22
)


0.88



0.22











Diluted EPS, as determined by GAAP

$
3.67


$
3.91


$



$
3.91


$
5.99


$
1.15


$
1.21


$



$
1.21   (1)
  (2)
  (3)
  (4)
  (5)
  8

2009
    ANNUAL
    REPORT




---



##### 



6.1 FOREIGN
    EXCHANGE GAINS AND LOSSES ON LONG-TERM DEBT
      o
    FX gain on LTD of $5.8 million in 2009, as the Canadian
    dollar strengthened to $1.0510 at December 31, 2009,
    relative to the US dollar;o
    FX loss on LTD of $16.3 million in 2008, as the Canadian
    dollar exchange rate weakened to $1.2180 at December 31,
    2008 relative to the US dollar; ando
    FX gain on LTD of $169.8 million in 2007, as the Canadian
    dollar exchange rate strengthened to $0.9913 at
    December 31, 2007 relative to the US dollar from $1.1654 at
    the end of the previous year.    6.2 OTHER
    SPECIFIED ITEMS
      o
    In the fourth quarter of 2009, we recorded a loss of
    $54.5 million ($37.6 million after tax) on the
    termination of a lease with a shortline railway (discussed
    further in Section 10.1 Loss on Termination of Lease with
    Shortline Railway).o
    Also in the fourth quarter, the company recorded a benefit of
    $74.2 million due to a rate reduction and a settlement
    related to a prior year income tax matter.o
    In the second and third quarters of 2009, we recorded gains of
    $160.3 million ($136.8 million after tax) on the sale
    of Windsor Station in Montreal, a land sale in Western Canada
    and a gain on the sale of a partnership interest in the Detroit
    River Tunnel Partnership (DRTP) (discussed further
    in Section 10.2 Gain on Sales of Partnership Interest and
    Significant Properties).o
    Also in the second and third quarters of 2009, the company
    recorded realized gains from settlement of and unrealized gains
    from the change in estimated fair value of long-term floating
    rate notes totalling $6.3 million ($4.5 million after
    tax) (discussed further in Section 10.3.1 Change in
    Estimated Fair Value of Long-term Floating Rate Notes and
    Asset-backed Commercial Paper).      o
    In the fourth quarter of 2007, the Government of Canada
    substantially enacted legislation to reduce corporate income tax
    rates starting in 2008. We recorded a future income tax benefit
    of $136.2 million to reflect the positive impact of these
    tax rate reductions on our future income tax balance.o
    In the third quarter of 2007, we recorded a charge of
    $21.5 million ($15.0 million after tax) to reflect the
    change in the estimated fair value of ABCP.o
    In the second quarter of 2007, the Government of Canada
    substantially enacted legislation to reduce corporate income tax
    rates starting in 2011. We recorded a future income tax benefit
    of $16.0 million to reflect the benefit of these tax rate
    reductions on our future income tax balance. 7.0 Lines of
    Business 7.1 VOLUMES    2009
    ANNUAL
    REPORT

9




---



##### 



VOLUMES
  2009


2008


2007For the year ended December 31




As
    reported(1)


Pro
    forma(2)Carloads (in thousands)Grain


469.5



382.4



460.4



385.0Coal


305.1



281.0



317.7



269.1Sulphur and fertilizers


108.8



191.3



195.4



209.8Forest products


66.8



91.8



97.6



114.1Industrial and consumer products


345.9



340.9



425.5



313.3Automotive


103.7



141.3



142.0



168.5Intermodal


962.9



1,216.0



1,216.0



1,238.1Total Carloads


2,362.7



2,644.7



2,854.6



2,697.9Revenue
    ton-miles
    (in millions)Grain


34,838



29,376



32,019



30,690Coal


16,997



21,247



21,600



20,629Sulphur and fertilizers


9,362



19,757



19,956



21,259Forest products


4,470



5,677



5,927



7,559Industrial and consumer products


17,653



18,296



21,364



16,987Automotive


1,607



2,213



2,221



2,471Intermodal


23,425



27,966



27,966



29,757Total revenue
    ton-miles


108,352



124,532



131,053



129,352   (1)
  (2)
  ton-miles
          o
    sharply declining economic conditions in the second half of 2008;o
    continued weakness in forest products due to a slowdown in the
    US housing market;o
    declining auto sales leading to reduced shipments; ando
    customer production issues resulting in reduced shipments of
    potash and sulphur.   7.2 REVENUES    10

2009
    ANNUAL
    REPORT




---



##### 



REVENUES
  2009


2008


2007AsFor the year ended December 31
    (in millions)




reported(1)


DM&E(2)


Pro
    forma(3)(4)Grain

$
1,129.9


$
970.0


$
100.6


$
1,070.6


$
938.9Coal


443.3



607.5



15.4



622.9



573.6Sulphur and fertilizers


303.5



508.6



10.3



518.9



502.0Forest products


173.2



239.3



9.7



249.0



275.8Industrial and consumer products


766.6



766.1



153.7



919.8



627.9Automotive


228.8



323.5



3.9



327.4



319.0Intermodal


1,129.9



1,399.8







1,399.8



1,318.0Total freight revenues


4,175.2



4,814.8



293.6



5,108.4



4,555.2Other revenues


128.0



116.8



2.0



118.8



152.4Total revenues

$
4,303.2


$
4,931.6


$
295.6


$
5,227.2


$
4,707.6   (1)
  (2)
  (3)
  (4)
   7.3 2009 TO
    2008 COMPARATIVES 7.3.1 Freight
    Revenues        o
    lower traffic volumes due to the global recession;o
    a decline in freight revenues due to fuel price changes; ando
    decreased rates and reduced average length of haul on export
    coal as a result of regulatory rate proceedings.      7.3.1.1 Fuel
    Cost Recovery Program
    7.3.1.2 Grain
      o
    an increase in Canadian grain export shipments driven by strong
    demand and an above average 2008/2009 crop year;o
    the favourable impact of the change in FX; ando
    a net increase in freight rates for US and commercial grain.    2009
    ANNUAL
    REPORT

11




---



##### 



7.3.1.3 Coal
      o
    reduced coal shipments as a result of reduced market demand for
    metallurgical coal for the first three quarters of the year;o
    decreased rates as a result of regulatory rate proceedings and
    reduced average length of haul on export coal which reduced coal
    revenues by approximately $63 million; ando
    lower fuel surcharge revenues due to the change in fuel price.    7.3.1.4 Sulphur
    and Fertilizers
      o
    lower export potash shipments as a result of ongoing price
    negotiations between producers and major buyers;o
    lower domestic potash shipments as farmers deferred
    purchases; ando
    lower fuel surcharge revenues due to the change in fuel price.    7.3.1.5 Forest
    Products
        7.3.1.6 Industrial
    and Consumer Products
        7.3.1.7 Automotive
        7.3.1.8 Intermodal
       7.3.2 Other
    Revenues    12

2009
    ANNUAL
    REPORT




---



##### 



7.3.3 Freight
    Revenue per Carload  FREIGHT REVENUE
    PER CARLOAD
     2008For the year ended December 31

2009


As
    reported(1)


Pro
    forma(2)(3)


2007Grain

$
2,407


$
2,537


$
2,325


$
2,439Coal


1,453



2,162



1,961



2,132Sulphur and fertilizers


2,790



2,659



2,656



2,393Forest products


2,593



2,607



2,551



2,417Industrial and consumer products


2,216



2,247



2,162



2,004Automotive


2,206



2,289



2,306



1,893Intermodal


1,173



1,151



1,151



1,065Freight revenue per carload

$
1,767


$
1,821


$
1,790


$
1,688   (1)
  (2)
  (3)
 7.3.4 Freight
    Revenue per Revenue Ton Mile  FREIGHT REVENUE
    PER REVENUE
    TON-MILE
     2008For the year ended December 31
    (cents)

2009


As
    reported(1)


Pro
    forma(2)(3)


2007Grain


3.24



3.30



3.34



3.06Coal


2.61



2.86



2.88



2.78Sulphur and fertilizers


3.24



2.57



2.60



2.36Forest products


3.87



4.22



4.20



3.65Industrial and consumer products


4.34



4.19



4.31



3.70Automotive


14.24



14.62



14.74



12.91Intermodal


4.82



5.01



5.01



4.43Freight revenue per revenue
    ton-mile


3.85



3.87



3.90



3.52   (1)
  (2)
  (3)
  2009
    ANNUAL
    REPORT

13




---



##### 



7.4 2008 TO 2007
    COMPARATIVES   7.4.1 Freight
    Revenues    o
    the inclusion of DM&E revenues from October 30, 2008
    to December 31, 2008;o
    improvements in freight rates, which include our fuel recovery
    program; ando
    overall volume growth in industrial and consumer products and
    coal.    o
    the negative effect on volume of the global recession;o
    the Agency decision directing a downward adjustment of the
    railway maximum revenue entitlement for movement of regulated
    grain under the CTA which included a provision for repayment of
    revenues relating to grain rates (discussed further in
    Section 21.4.1 Regulatory Change);o
    weakness throughout the year in the market for forest
    products; ando
    the unfavourable impact of the change in FX.  7.4.1.1 Grain
        7.4.1.2 Coal
      o
    the strong global demand for metallurgical coal earlier in the
    year;o
    improvements in freight rates; ando
    the inclusion of DM&E revenues from October 30, 2008
    to December 31, 2008.  7.4.1.3 Sulphur
    and Fertilizers
      7.4.1.4 Forest
    Products
        7.4.1.5 Industrial
    and Consumer Products
      o
    the inclusion of DM&E revenues from October 30, 2008
    to December 31, 2008;o
    continued economic growth in the early part of 2008; ando
    improvements in freight rates.    7.4.1.6 Automotive
      7.4.1.7 Intermodal
     7.4.2 Other
    Revenues    14

2009
    ANNUAL
    REPORT




---



##### 



7.4.3 Freight
    Revenue per Carload   7.4.4 Freight
    Revenue per Revenue Ton Mile   8.0 Performance
    Indicators    PERFORMANCE
    INDICATORS(1)
  For the year ended December 31

2009


2008 Pro
    forma(2)


2007(3)Consolidated data including DM&EEfficiency and other indicatorsGross
    ton-miles
    (GTM) of freight (millions)


209,475



250,991



246,322Train miles (thousands)


34,757



43,243



42,804US gallons of locomotive fuel consumed per 1,000
    GTMs  freight and yard


1.19



1.22



1.21Average number of active employees  expense


13,619



15,107



14,172   2009


2008 As reported


2007(3)CP data excluding DM&EEfficiency and other indicatorsCar miles per car day


142.6



143.6



142.3Average train speed (miles per hour)


25.5



24.0



23.2Average terminal dwell (hours)


21.9



22.3



22.2Safety indicatorsFRA personal injuries per
    200,000 employee-hours


1.85



1.51



2.09FRA train accidents per million
    train-miles


1.49



1.93



2.05DM&E data onlySafety indicatorsFRA personal injuries per
    200,000 employee-hours


2.17



3.50FRA train accidents per million
    train-miles


6.78



11.39   (1)
  (2)
  (3)
  8.1 EFFICIENCY
    AND OTHER INDICATORS          2009
    ANNUAL
    REPORT

15




---



##### 



8.2 SAFETY
    INDICATORS    200,000 employee-hours train-miles,
  200,000 employee-hours
  16

2009
    ANNUAL
    REPORT




---



##### 



9.0 Operating
    Expenses  OPERATING
    EXPENSES
  2009


2008(2)


2007(2)(5)Variance2009 to











Variance2008 pro











2008 toforma(1)(4)











2007%


2008





Pro


%For the year ended December 31 (in millions)

Expense


Fav/(unfav)


Expense


DM&E(3)


forma(1)(4)


Fav/(unfav)


ExpenseCompensation and benefits

$
1,275.2



6.9


$
1,306.1


$
63.1


$
1,369.2



(2.4
)

$
1,275.0Fuel


580.2



45.1



1,005.8



51.5



1,057.3



(34.7
)


746.8Materials


215.1



19.5



252.3



14.9



267.2







252.2Equipment rents


184.8



5.3



182.2



12.9



195.1



12.2



207.5Depreciation and amortization


488.9



(2.2
)


442.5



35.8



478.3



(3.5
)


427.5Purchased services and other


658.9



10.0



701.0



31.2



732.2



(9.9
)


637.8Total

$
3,403.1



17.0


$
3,889.9


$
209.4


$
4,099.3



(9.7
)

$
3,546.8   (1)
  (2)
  (3)
  (4)
  (5)
      o
    decreased volumes;o
    cost management initiatives to align and size resources
    accordingly;o
    lower fuel prices;o
    lower costs from train accidents; ando
    fewer locomotive overhauls.        o
    higher fuel prices driven by higher WTI prices;o
    higher weather related expenses as well as casualty related
    expenses despite improved safety performance;o
    the consolidation of DM&E from October 30, 2008 to
    December 31, 2008; ando
    increased wage rates.    o
    lower variable expenses due to reduced volumes;o
    the favourable impact of the change in FX; ando
    lower incentive compensation. 9.1 2009 TO 2008
    COMPARATIVES    9.1.1
    Compensation and Benefits
      o
    reductions in labour expenses achieved through temporary layoffs
    and employment reductions in response to reduced volumes;o
    lower training and recertification costs associated with fewer
    active employees;o
    lower pension and other post-employment benefits
    (OPEB) expense caused by a higher discount rate and
    a settlement of a post-retirement benefit liability with a US
    national multi-employer benefit plan; and  2009
    ANNUAL
    REPORT

17




---



##### 



o
    savings from reduced overtime hours worked as a result of cost
    management initiatives.    9.1.2
    Fuel
      9.1.3
    Materials
      9.1.4 Equipment
    Rents
      9.1.5
    Depreciation and Amortization
      9.1.6 Purchased
    Services and Other
      o
    lower costs from train accidents and personal injuries;o
    reduced locomotive maintenance and intermodal handling
    reflecting lower volumes;o
    lower bad debt expense;o
    reduced business travel expenses, realized through cost
    management initiatives; ando
    lower utility costs.   9.2 2008 TO 2007
    COMPARATIVES    9.2.1
    Compensation and Benefits
      o
    increased wage rates;o
    the inclusion of DM&E expenses from October 30, 2008
    to December 31, 2008;o
    lower settlement gains in 2008 on the release of certain
    post-retirement benefit liabilities due to the assumption of
    these obligations by a US national multi-employer benefit
    plan; ando
    the impact of reduced costs from restructuring initiatives in
    the fourth quarter of 2007.    o
    lower employee incentive compensation partially offset by losses
    on our total return swap (TRS) (discussed further in
    Section 16.7.1 Total Return Swap);o
    lower pension expenses; ando
    the favourable impact of the change in FX.  18

2009
    ANNUAL
    REPORT




---



##### 



9.2.2
    Fuel
      9.2.3
    Materials
        o
    lower car repair and train servicing costs;o
    the favourable impact of the change in FX; ando
    recoveries from third parties.  9.2.4 Equipment
    Rents
      9.2.5
    Depreciation and Amortization
      o
    additions to capital assets, especially to track;o
    accelerated depreciation of software; ando
    the consolidation of DM&E from October 30, 2008 to
    December 31, 2008 which includes amortization of fair
    values determined under purchase accounting.    9.2.6 Purchased
    Services and Other
      o
    casualty related expenses due to the higher cost of derailments
    despite an improved safety performance;o
    increased bad debt expense;o
    the consolidation of DM&E from October 30, 2008 to
    December 31, 2008;o
    increased consulting costs;o
    higher energy costs; ando
    higher locomotive overhaul costs.   10.0 Other Income
    Statement Items  10.1 LOSS ON
    TERMINATION OF LEASE WITH SHORTLINE RAILWAY
    10.2 GAIN ON
    SALES OF PARTNERSHIP INTEREST AND SIGNIFICANT
    PROPERTIES
    2009
    ANNUAL
    REPORT

19




---



##### 



10.3 OTHER INCOME
    AND CHARGES
      10-year
    10.3.1 Change in
    Estimated Fair Value of Long-term Floating Rate Notes and
    Asset-backed Commercial Paper
      Class A-1
  o
    $116.8 million MAV 2 notes with eligible assets represented
    by a combination of leveraged collateralized debt, synthetic
    assets and traditional securitized assets with expected
    repayments over approximately five to seven years:  o
    Class A-1:
    $59.1 milliono
    Class A-2:
    $45.9 milliono
    Class B: $8.3 milliono
    Class C: $3.5 million  o
    $12.1 million MAV 2 IA Tracking notes representing assets
    that have an exposure to US mortgages and
    sub-prime
    mortgages with expected repayments over approximately three and
    a half to 19 years:  o
    Class 3: $0.5 milliono
    Class 6: $5.5 milliono
    Class 7: $3.4 milliono
    Class 8: $0.1 milliono
    Class 13: $2.6 million  o
    $0.2 million MAV 3 Class 9 TA Tracking notes with
    expected repayments over approximately seven years.  Class A-1 Class A-2
    20

2009
    ANNUAL
    REPORT




---



##### 



2009

2008Probability weighted average coupon interest rate

Nil%

2.2%Weighted average discount rate

7.9%

9.1%Expected repayments of long-term floating rate notes

Three and a half to 19 years

Five to eight years, other than certain tracking notes to be
    paid down on restructuringCredit losses

MAV 2 eligible asset notes: nil to 100%

Notes expected to be
    rated(1)

    : nil to 25%MAV 2 IA Tracking notes: 25%

Notes not expected to be
    rated(2)

    : 25 to 100%MAV 3 Class 9  TA Tracking notes: nil%   (1) Class A-1 Class A-2
  (2)
    (in millions of Canadian dollars)

Original cost


Estimated fair valueAs at January 1, 2008

$
143.6


$
122.1Change in market assumptions






(49.4
)As at December 31, 2008


143.6



72.7Change due to restructuring, January 21, 2009


(0.8
)


Redemption of notes


(13.7
)


(8.0
)Accretion






2.9Change in market assumptions






1.7As at December 31, 2009

$
129.1


$
69.3       Change in fair value of long-term(in millions of Canadian dollars)

floating rate notesCoupon interest rate50 basis point increase

$
2.350 basis point decrease


Nil(1
)Discount rate50 basis point increase

$
(2.1
)50 basis point decrease

$
2.2   (1)
    10.4 EQUITY
    INCOME IN DAKOTA, MINNESOTA & EASTERN RAILROAD
    CORPORATION
    10.5 NET INTEREST
    EXPENSE
    2009
    ANNUAL
    REPORT

21




---



##### 



o
    the unfavourable impact from the change in FX on US
    dollar-denominated interest expense;o
    interest on new debt issuances (discussed further in
    Section 14.3 Financing Activities); ando
    lower interest income due to lower rates on deposits.      o
    financing being in place for a full 12 months to fund the
    acquisition of DM&E (discussed further in Section 14.3
    Financing Activities);o
    interest on new debt issued in May of 2008 (discussed further in
    Section 14.3 Financing Activities) to replace the majority
    of the bridge financing and permanently fund the acquisition of
    the DM&E; ando
    the issuance of US$450 million Notes in May of 2007.  10.6 INCOME
    TAXES
         11.0 Quarterly
    Financial Data



QUARTERLY
    FINANCIAL DATA AS REPORTED  2009


2008(1)(2)For the quarter ended(in millions, except per share data)

Dec. 31


Sept. 30(1)


Jun. 30(1)


Mar. 31(1)


Dec. 31


Sept. 30


Jun. 30


Mar. 31Total revenue

$
1,121.9


$
1,088.2


$
1,022.4


$
1,070.7


$
1,299.7


$
1,264.7


$
1,220.3


$
1,146.9Operating
    income(3)


269.0



268.5



225.7



136.9



287.2



298.1



249.0



207.4Net income


194.1



201.0



157.2



60.1



188.1



169.3



152.8



97.0Income, before FX on LTD and other specified
    items(3)


158.9



149.8



99.9



51.7



165.8



183.0



148.3



122.6Basic earnings per share

$
1.15


$
1.20


$
0.94


$
0.37


$
1.22


$
1.10


$
0.99


$
0.63Diluted earnings per share


1.15



1.19



0.93



0.37



1.21



1.09



0.99



0.63Diluted earnings per share, before FX on LTD and other specified
    items(3)


0.94



0.89



0.59



0.32



1.07



1.18



0.96



0.79   (1)
  (2)
  (3)
  22

2009
    ANNUAL
    REPORT




---



##### 



11.1 QUARTERLY
    TRENDS     12.0 Fourth-Quarter
    Summary  Q4 20092009


2008(1)


to pro formaDM&E





2008(3)(4)

    %prior to


Pro forma


favourable/(in millions)




Q4 2008


consolidation(2)


Q4(3)(4)


(unfavourable)RevenuesGrain

$
291.9


$
307.1


$
12.8


$
319.9



(8.8
)Coal


112.1



139.5



1.8



141.3



(20.7
)Sulphur and fertilizers


83.7



117.5



1.5



119.0



(29.7
)Forest products


42.0



57.2



0.8



58.0



(27.6
)Industrial and consumer products


201.3



216.0



17.0



233.0



(13.6
)Automotive


67.7



81.6



0.2



81.8



(17.2
)Intermodal


292.3



338.9







338.9



(13.8
)Total freight revenues


1,091.0



1,257.8



34.1



1,291.9



(15.6
)Other revenues


30.9



41.9



0.3



42.2



(26.8
)Total revenues


1,121.9



1,299.7



34.4



1,334.1



(15.9
)Operating expensesCompensation and benefits


311.8



350.2



6.8



357.0



12.7Fuel


157.5



239.5



4.6



244.1



35.5Materials


41.1



63.8



1.4



65.2



37.0Equipment rents


45.0



45.8



1.3



47.1



4.5Depreciation and amortization


121.3



113.7



4.2



117.9



(2.9
)Purchased services and other


176.2



199.5



(1.0
)


198.5



11.2Total expenses


852.9



1,012.5



17.3



1,029.8



17.2Operating
    income(3)

$
269.0


$
287.2


$
17.1


$
304.3



(11.6
)   (1)
  (2)
  (3)
  (4)
  12.1 OPERATING
    RESULTS    2009
    ANNUAL
    REPORT

23




---



##### 



o
    the global recession which resulted in lower traffic volumes;o
    the impact of negative rate decisions in coal and regulated
    grain;o
    the impact of the reduction in average length of haul in coal;o
    an unfavourable variance in fuel recovery as compared to the
    fourth-quarter 2008; ando
    the unfavourable impact of the change in FX.            o
    the global recession;o
    reduced shipments of potash, sulphur and fertilizers caused
    partially by reduced demand; ando
    decreased demand for lumber and panel products caused by a
    continued slowdown in the US housing market. 12.2
    NON-GAAP EARNINGS     12.3 REVENUES      o
    lower overall volumes in all lines of business other than coal
    and automotive;o
    the unfavourable impact of the change in FX;o
    a decline in freight revenues due to fuel price changes; ando
    the impact of negative rate decisions in coal and regulated
    grain.      12.3.1
    Grain
    o
    the unfavourable impact of the change in FX;o
    lower fuel surcharge revenues due to the change in fuel
    price; ando
    negative rate decision in regulated grain.    12.3.2 Coal
      12.3.3 Sulphur
    and Fertilizers
    o
    lower export potash shipments as a result of ongoing price
    negotiations between producers and major buyers;o
    lower domestic potash shipments as farmers deferred purchases;o
    lower fuel surcharge revenues due to the change in fuel
    price; ando
    the unfavourable impact of the change in FX.    12.3.4 Forest
    Products
    24

2009
    ANNUAL
    REPORT




---



##### 



12.3.5 Industrial
    and Consumer Products
    12.3.6 Automotive
    12.3.7 Intermodal
    12.3.8 Other
    Revenues
   12.4 OPERATING
    EXPENSES      12.4.1 Compensation
    and Benefits
    o
    reductions in the number of employees in response to reduced
    volumes;o
    savings from reduced overtime and increased use of accrued
    vacation as a result of cost management initiatives;o
    lower pension expense caused by a higher discount rate; ando
    the favourable impact of foreign exchange.    12.4.2 Fuel
    12.4.3 Materials
    o
    fewer locomotive overhauls;o
    reduced freight car and locomotive repairs and train servicing
    due to lower volumes;o
    the favourable impact of the change in FX;o
    recoveries from third parties; ando
    lower vehicle and other fuel costs.  12.4.4 Equipment
    Rents
    12.4.5 Depreciation
    and Amortization
    12.4.6 Purchased
    Services and Other
    o
    lower costs from train accidents and personal injuries;o
    reduced bad debt expense; ando
    the favourable impact of the change in FX.  2009
    ANNUAL
    REPORT

25




---



##### 



12.5 OTHER
    INCOME STATEMENT ITEMS          o
    the repurchase of debt as part of the Tender Offer of Debt
    Securities (discussed further in Section 20.1.1 Tender
    Offer of Debt Securities);o
    the favourable impact from the change in FX on US
    dollar-denominated interest expense;o
    lower draws on the credit facility;o
    increased capitalization of interest expense for long-term
    capital projects in 2009; ando
    interest in 2008 related to the remaining bridge financing for
    the DM&E repaid in December 2008.   12.6 LIQUIDITY
    AND CAPITAL RESOURCES      o
    cash provided by the issuance of $400 million 6.45%
    30-year
    Notes and US$64.7 million of 5.57% Senior Secured
    Notes in 2009 compared to the repayment of the remaining bridge
    financing of $248.0 million originally used to finance the
    acquisition of DM&E and a greater reduction in short-term
    borrowings in 2008;o
    lower additions to properties in 2009; ando
    a greater improvement in working capital balances in 2009.    o
    a $500 million voluntary prepayment to the Canadian defined
    benefit pension plans (discussed further in Section 20.5
    Pension Plan Deficit);o
    the cost of terminating a lease with a shortline railway
    (discussed further in Section 10.1 Loss on Termination of
    Lease with Shortline Railway); ando
    lower proceeds from the sale and refinancing of equipment in
    2009. 13.0 Changes in
    Accounting Policy 13.1 2009
    ACCOUNTING CHANGES  13.1.1 Goodwill
    and Intangible Assets
      13.1.2 Credit
    Risk and the Fair Value of Financial Assets and Financial
    Liabilities
      26

2009
    ANNUAL
    REPORT




---



##### 



13.1.3 Pension
    Prior Service Costs
     Year ended December 31


As at December 31


As at January 1(in millions of Canadian dollars,
    except per share data)

2009


2008


2007


2009


2008


2007Compensation and benefits

$
0.9


$
0.1


$
(10.1
)Income tax expense


1.2



0.3



7.3Net income

$
(2.1
)

$
(0.4
)

$
2.8Basic earnings per share

$
(0.01
)

$



$
0.02Diluted earnings per share

$
(0.01
)

$



$
0.02Prepaid pension costs and other assets













$
(105.1
)

$
(104.2
)

$
(114.2
)Future income tax liability














(27.0
)


(28.2
)


(35.8
)Retained income














(78.1
)


(76.0
)


(78.4
)   13.1.4 Locomotive
    Overhauls
   Year ended December 31


As at December 31


As at January 1(in millions of Canadian dollars,
    except per share data)

2009


2008


2007


2009


2008


2007Depreciation and amortization

$
(43.5
)

$
(48.8
)

$
(44.5
)Compensation and benefits


0.1



0.5



0.9Materials


13.8



35.0



36.7Purchased services and other


29.3



23.8



19.6Total increases


43.2



59.3



57.2Total operating expenses


(0.3
)


10.5



12.7Equity income in DM&E






(0.4
)


(1.1
)Income tax expense


1.3



(2.6
)


2.5Net income

$
(1.0
)

$
(8.3
)

$
(16.3
)Basic earnings per share

$
(0.01
)

$
(0.05
)

$
(0.11
)Diluted earnings per share

$
(0.01
)

$
(0.05
)

$
(0.11
)Other comprehensive income


2.1



(2.4
)


1.4Comprehensive income

$
1.1


$
(10.7
)

$
(14.9
)Cash provided by operating activities

$
(43.2
)

$
(59.3
)

$
(57.2
)Cash used in investing activities

$
43.2


$
59.3


$
57.2Net properties













$
(187.9
)

$
(191.8
)

$
(164.4
)Future income tax liability














(51.5
)


(54.3
)


(52.6
)Accumulated other comprehensive income














1.5



(0.6
)


0.4Retained income














(137.9
)


(136.9
)


(112.2
)   2009
    ANNUAL
    REPORT

27




---



##### 



13.1.5 Financial
    Instruments  Disclosures
   13.2 FUTURE
    ACCOUNTING CHANGES  13.2.1 US
    GAAP / International Financial Reporting Standards
    (IFRS)
          13.2.2 Business
    combinations, consolidated financial statements and
    non-controlling interests
    Business combinations, Section 1582
    Consolidated financial statements, Section 1601 and
    Non-controlling interests, Section 1602
     14.0 Liquidity
    and Capital Resources   14.1 OPERATING
    ACTIVITIES      o
    a $500 million voluntary prepayment to the Canadian defined
    benefit pension plans (discussed further in Section 20.5
    Pension Plan Deficit);o
    lower operating income (discussed further in Section 6.0
    Non-GAAP Earnings);o
    the cost of terminating a lease with a shortline railway
    (discussed further in Section 10.1 Loss on Termination of
    Lease with Shortline Railway); ando
    the partial unwind of the Total Return Swap (TRS)
    (discussed further in Section 16.7.1 Total Return Swap).    o
    the termination of our $120.0 million accounts receivable
    securitization program in 2008 (discussed further in
    Section 17.1 Sale of Accounts Receivable);o
    the favourable improvement in working capital balances; ando
    cash tax recoveries in 2009 compared to payments in 2008.  28

2009
    ANNUAL
    REPORT




---



##### 



14.2 INVESTING
    ACTIVITIES         CAPITAL PROGRAMS(in millions, except for miles and crossties)

2009


2008(1)


2007(1)Additions to
    properties(2)Track and roadway

$
534.9


$
680.4


$
543.7Buildings


(10.9
)


14.9



19.9Rolling stock


105.3



107.8



161.1Information systems


44.5



64.5



51.3Other


60.3



73.0



84.6Total  accrued


734.1



940.6



860.6Less:Assets acquired through capital leases


0.8



79.5



12.1Other non-cash transactions


10.9



28.2



12.5Cash invested in additions to properties (as per Consolidated
    Statement of Cash Flows)

$
722.4


$
832.9


$
836.0Track installation capital
    programs(3)Track miles of rail laid (miles)


395



408



349Track miles of rail capacity expansion (miles)


1



31



18Crossties installed (thousands)


870



1,065



1,037   (1)
  (2)
  (3)
   14.3 FINANCING
    ACTIVITIES      o
    common shares for net cash proceeds of approximately
    $489 million (discussed further in Section 20.1.2
    Issuance of Common Shares);o
    US$350 million of 7.25%
    10-year
    Notes for net proceeds of $408.2 million;o
    $400 million 6.45%
    30-year
    Notes for net proceeds of $397.8 million; ando
    US$64.7 million of 5.57% Senior Secured Notes for net
    proceeds of $66.7 million.  2009
    ANNUAL
    REPORT

29




---



##### 



o
    US$400 million of 5.75% five-year Notes;o
    US$300 million of 6.50%
    10-year
    Notes; ando
    $375 million of 6.25%
    10-year
    Medium Term Notes.    o
    the US$1.27 billion bridge financing to fund the
    acquisition of DM&E;o
    the issuance of US$450 million of 5.95%
    30-year
    notes, for net proceeds of $485.1 million; ando
    short-term borrowings of $229.7 million.      14.3.1 Debt
    to Total Capitalization
        o
    the proceeds raised from CPs equity issue (discussed
    further in Section 20.1.2 Issuance of Common Shares);o
    the tendering of debt (discussed further in Section 20.1.1
    Tender Offer of Debt Securities);o
    an increase in equity driven by earnings;o
    the impact of the stronger Canadian dollar on US
    dollar-denominated debt at December 31, 2009, compared with
    December 31, 2008; ando
    the repayment of short-term borrowings.        14.3.2 Interest
    Coverage Ratio
  year-over-year
      14.3.3 Security
    Ratings
    30

2009
    ANNUAL
    REPORT




---



##### 



14.4 FREE
    CASH  CALCULATION OF
    FREE CASH
  (reconciliation of free cash to GAAP cash position)For the year ended December 31 (in
    millions)

2009


2008(1)(2)


2007(2)Cash provided by operating activities

$
551.5


$
1,019.7


$
1,276.3Cash used in investing activities


(458.7
)


(796.7
)


(2,457.1
)Add back reclassification of
    ABCP(3)










143.6Dividends paid


(162.9
)


(148.7
)


(133.1
)Add back investment in
    DM&E(4)






8.6



1,492.6Termination of accounts receivable securitization
    program(5)






120.0



Foreign exchange effect on cash and cash
    equivalents(2)


(20.0
)


28.0



(18.9
)Free
    cash(6)


(90.1
)


230.9



303.4Cash provided by (used in) financing activities, excluding
    dividend payment


651.6



(362.8
)


1,586.6Reclassification of
    ABCP(3)










(143.6
)Investment in
    DM&E(4)






(8.6
)


(1,492.6
)Accounts receivable securitization
    program(5)






(120.0
)


Increase/(decrease) in cash, as shown on the Consolidated
    Statement of Cash Flows


561.5



(260.5
)


253.8Net cash and cash equivalents at beginning of year


117.6



378.1



124.3Net cash and cash equivalents at end of year

$
679.1


$
117.6


$
378.1   (1)
  (2)
  (3)
  (4)
  (5)
  (6)
  day-to-day
      o
    a $500 million voluntary prepayment to the Canadian defined
    benefit pension plans (discussed further in Section 20.5
    Pension Plan Deficit);o
    lower operating income (discussed further in Section 6.0
    Non-GAAP Earnings);o
    the cost of terminating a contract with a shortline railway
    (discussed further in Section 10.1 Loss on Termination of Lease
    with Shortline Railway); ando
    the unfavourable impact of foreign exchange fluctuations on US
    dollar-denominated cash.    o
    proceeds on the sales of a partnership interest and significant
    properties;o
    lower capital additions; ando
    the favourable improvement in working capital balances and cash
    tax recoveries in 2009 compared to payments in 2008.    2009
    ANNUAL
    REPORT

31




---



##### 



15.0 Balance
    Sheet  15.1 ASSETS
        15.2 TOTAL
    LIABILITIES
      15.3 EQUITY
      15.4 SHARE
    CAPITAL
        32

2009
    ANNUAL
    REPORT




---



##### 



15.5 DIVIDENDS
    Dividend Amount

Record Date


Payment Date$0.2250


March 30, 2007



April 30, 2007$0.2250


June 29, 2007



July 30, 2007$0.2250


September 28, 2007



October 29, 2007$0.2250


December 28, 2007



January 28, 2008$0.2475


March 28, 2008



April 28, 2008$0.2475


June 27, 2008



July 28, 2008$0.2475


September 26, 2008



October 27, 2008$0.2475


December 24, 2008



January 26, 2009$0.2475


March 27, 2009



April 27, 2009$0.2475


June 26, 2009



July 27, 2009$0.2475


September 25, 2009



October 26, 2009$0.2475


December 31, 2009



January 25, 2010$0.2475


March 26, 2010



April 26, 2010   16.0 Financial
    Instruments  16.1 FAIR
    VALUE OF FINANCIAL INSTRUMENTS
    o
    Level 1: This category includes assets and liabilities
    measured at fair value based on unadjusted quoted prices for
    identical assets and liabilities in active markets that are
    accessible at the measurement date. An active market for an
    asset or liability is considered to be a market where
    transactions occur with sufficient frequency and volume to
    provide pricing information on an ongoing basis.o
    Level 2: This category includes valuations determined using
    directly or indirectly observable inputs other than quoted
    prices included within Level 1. Derivative instruments in
    this category are valued using models or other industry standard
    valuation techniques derived from observable market data. Such
    valuation techniques include inputs such as quoted forward
    prices, time value, volatility factors and broker quotes that
    can be observed or corroborated in the market. Instruments
    valued using inputs in this category include non exchange traded
    derivatives such as over the counter financial forward
    contracts, as well as swaps for which observable inputs can be
    obtained for the entire duration of the derivative instrument.o
    Level 3: This category includes valuations based on inputs
    which are less observable, unavailable or where the observable
    data does not support a significant portion of the
    instruments fair value. Generally, Level 3 valuations
    are longer dated transactions, occur in less active markets,
    occur at locations where pricing information is not available,
    or have no binding broker quote to support Level 2
    classifications.    2009
    ANNUAL
    REPORT

33




---



##### 



(in millions of Canadian dollars)

Level 1


Level 2


Level 3


TotalFinancial assetsCurrent derivative assets

$



$
2.5


$



$
2.5Long-term derivative assets






0.2







0.2Investments










69.3



69.3Financial liabilitiesCurrent derivative liabilities






18.2







18.2   16.1.1 Carrying
    Value and Fair Value of Financial Instruments
    16.2 DERIVATIVE
    FINANCIAL INSTRUMENTS
      16.3 CREDIT
    RISK
    16.4 INTEREST
    RATE MANAGEMENT
    16.4.1 Interest
    Rate Swaps
  fixed-to-floating
          34

2009
    ANNUAL
    REPORT




---



##### 



16.4.2 Interest
    and Treasury Rate Locks
      16.5 FOREIGN
    EXCHANGE MANAGEMENT
    16.5.1 Foreign
    Exchange Forward on Long-term Debt
      16.6 FUEL
    PRICE MANAGEMENT
        16.6.1 Energy
    Futures
            2009
    ANNUAL
    REPORT

35




---



##### 



16.7 STOCK-BASED
    COMPENSATION EXPENSE MANAGEMENT
  16.7.1 Total
    Return Swap (TRS)
     17.0 Off-Balance
    Sheet Arrangements  17.1 SALE OF
    ACCOUNTS RECEIVABLE
      17.2 GUARANTEES
   18.0 Acquisition  18.1 DAKOTA,
    MINNESOTA & EASTERN RAILROAD CORPORATION
      36

2009
    ANNUAL
    REPORT




---



##### 



19.0 Contractual
    Commitments    CONTRACTUAL
    COMMITMENTS
  payments due by period (in millions)

Total


2010


2011 & 2012


2013 & 2014


2015 & beyondLong-term debt

$
4,215.6


$
381.6


$
327.3


$
192.5


$
3,314.2Capital lease obligations


331.7



10.5



23.4



156.9



140.9Operating lease
    obligation(1)


930.1



148.1



242.7



178.7



360.6Supplier purchased obligations


1,762.3



222.2



281.2



280.4



978.5Other long-term liabilities reflected
    on our Consolidated Balance
    Sheet(2)


3,464.6



106.7



203.3



177.4



2,977.2Total contractual obligations

$
10,704.3


$
869.1


$
1,077.9


$
985.9


$
7,771.4   (1)
  (2)
  20.0 Future
    Trends and Commitments  20.1 AGREEMENTS
    AND RECENT DEVELOPMENTS
  20.1.1 Tender
    Offer of Debt Securities
  10-year
 Principal


Carryingamount in


amount in


Cost to redeem(in millions)

USD


CDN


in CDN6.250% Notes due October 15, 2011

$
154.3


$
184.1


$
184.65.75% Notes due May 15, 2013


298.6



342.7



359.16.50% Notes due May 15, 2018


24.8
(1)


28.5



28.2Total debt tendered

$
477.7


$
555.3


$
571.9   (1)
  20.1.2 Issuance
    of Common Shares
      20.2 STOCK
    PRICE
    2009
    ANNUAL
    REPORT

37




---



##### 



20.3 ENVIRONMENTAL
      20.4 CERTAIN
    OTHER FINANCIAL COMMITMENTS
    CERTAIN OTHER
    FINANCIAL COMMITMENTS AT DECEMBER 31, 2009
  Amount of commitment per period2011 &


2013 &


2015 &(in millions)

Total


2010


2012


2014


beyondLetters of credit

$
330.8


$
330.8


$



$



$
Capital commitments


233.4



178.1



53.8



1.5



Offset financial liability


214.1



214.1











Total commitments

$
778.3


$
723.0


$
53.8


$
1.5


$
   20.4.1 Letters
    of Credit
    20.4.2 Capital
    Commitments
    20.4.3 Offset
    Financial Liability
    20.5 PENSION
    PLAN DEFICIT
          38

2009
    ANNUAL
    REPORT




---



##### 



20.6 RESTRUCTURING
   21.0 Business
    Risks and Enterprise Risk Management     21.1 TECK
    COAL LIMITED       21.2 COMPETITION      o
    creating long-term value for customers, shareholders and
    employees by profitably growing within the reach of our rail
    franchise and through strategic additions to enhance access to
    markets and quality of service;o
    renewing and maintaining infrastructure to enable safe and fluid
    operations;o
    improving handling through IOP to reduce costs and enhance
    quality and reliability of service; ando
    exercising a disciplined yield approach to competitive contract
    renewals and bids. 21.3 LIQUIDITY    2009
    ANNUAL
    REPORT

39




---



##### 



21.4 REGULATORY
    AUTHORITIES  21.4.1 Regulatory
    Change
                21.4.2 Security
      o
    to strengthen the overall supply chain and border security, we
    are a certified carrier in voluntary security programs, such as
    the Customs-Trade Partnership Against Terrorism and Partners in
    Protection;o
    to streamline clearances at the border, we have implemented
    several regulatory security frameworks that focus on the
    provision of advanced electronic cargo information and improved
    security technology at border crossings, including the
    implementation of Vehicle and Cargo Inspection System at five of
    our border crossings;o
    to strengthen railway security in North America, we signed a
    revised voluntary Memorandum of Understanding with Transport
    Canada and worked with the AAR to develop and put in place an
    extensive industry-wide security plan to address terrorism and  40

2009
    ANNUAL
    REPORT




---



##### 



security-driven efforts seeking to restrict the routings and
    operational handlings of certain hazardous materials;  o
    to reduce toxic inhalation risk in high threat urban areas, we
    are working with the Transportation Security
    Administration; ando
    to comply with new US regulations for rail security of sensitive
    materials, we have implemented procedures to maintain positive
    chain of custody and we will be completing annual route
    assessments to select and use the route posing the least overall
    safety and security risk.  21.4.3 Positive
    Train Control
  train-to-train
 21.5 LABOUR
    RELATIONS      21.5.1
    Canada
    21.5.2
    US
         21.6 ENVIRONMENTAL
    LAWS AND REGULATIONS        2009
    ANNUAL
    REPORT

41




---



##### 



follow-up
    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. 21.7 CLIMATE
    CHANGE  and/or
   21.8 FINANCIAL
    RISKS  21.8.1 Pension
    Funding Status Volatility
    21.8.2 Fuel Cost
    Volatility
  agreed-upon
    12-months
  21.8.3 Foreign
    Exchange Risk
    21.8.4 Interest
    Rate Risk
    42

2009
    ANNUAL
    REPORT




---



##### 



21.9 GENERAL
    AND OTHER RISKS       22.0 Critical
    Accounting Estimates      22.1 ENVIRONMENTAL
    LIABILITIES
        22.2 PENSIONS
    AND OTHER BENEFITS
    2009
    ANNUAL
    REPORT

43




---



##### 



22.3 PROPERTY,
    PLANT AND EQUIPMENT
        44

2009
    ANNUAL
    REPORT




---



##### 



22.4 FUTURE
    INCOME TAXES
        22.5 LEGAL
    AND PERSONAL INJURY LIABILITIES
    case-by-case
      case-by-case case-by-case
      22.6 LONG-TERM
    FLOATING RATE NOTES
    o
    at par of certain of the Companys investments in MAV 3
    Class 9 TA Tracking notes and MAV 2 Class 8 IA
    Tracking notes;o
    at close to par of certain of the Companys investment in
    MAV 2
    Class A-1
    notes and MAV 2 Class 7 IA Tracking notes; ando
    the full redemption of MAV 2 Class 14 notes with no
    proceeds being received by CP.    2009
    ANNUAL
    REPORT

45




---



##### 



22.7 GOODWILL
    AND INTANGIBLE ASSETS
         23.0 Systems,
    Procedures and Controls  Rules 13a-15(e) 15d-15(e)
 24.0 Forward-Looking
    Information  Private Securities Litigation Reform Act of 1995
        46

2009
    ANNUAL
    REPORT




---



##### 



24.1 2009
    FINANCIAL OUTLOOK
    24.1.1
    First-Quarter 2009 Guidance Updates
    24.1.2
    Second-Quarter 2009 Guidance Updates
    24.1.3 Variance
    from 2009 Guidance
    24.2 2010
    FINANCIAL ASSUMPTIONS
    2009
    ANNUAL
    REPORT

47




---



##### 



25.0 Glossary of
    Terms                              200,000 employee-hours The
          ton-miles The
          ton-miles The
    48

2009
    ANNUAL
    REPORT




---



##### 



2009
    ANNUAL
    REPORT

49




---



##### 



CONSOLIDATED
    FINANCIAL STATEMENTS December 31,
    2009
  Except where otherwise indicated, all financial information
    reflected herein is expressed in Canadian dollars
   50

2009
    ANNUAL
    REPORT




---



##### 



MANAGEMENTS
    RESPONSIBILITY FOR FINANCIAL REPORTING
      MANAGEMENTS
    REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
        -s- Kathryn B. McQuade

-s- Fred J. GreenKATHRYN B. MCQUADEExecutive Vice-President andChief Financial OfficerFebruary 25, 2010

FRED J. GREEN
    Chief Executive Officer   2009
    ANNUAL
    REPORT

51




---



##### 



INDEPENDENT
    AUDITORS REPORT
  TO THE
    SHAREHOLDERS OF
    CANADIAN PACIFIC RAILWAY LIMITED
    CONSOLIDATED
    FINANCIAL STATEMENTS
        INTERNAL CONTROL
    OVER FINANCIAL REPORTING
            
       52

2009
    ANNUAL
    REPORT




---



##### 



COMMENTS BY
    AUDITORS FOR U.S. READERS ON CANADA  U.S. REPORTING
    DIFFERENCES
    
       2009
    ANNUAL
    REPORT

53




---



##### 



CONSOLIDATED
    STATEMENT OF INCOME
  2008


2007Restated


RestatedYear ended December 31 (in
    millions of Canadian dollars, except per share data)

2009


(Note 2)


(Note 2)RevenuesFreight

$
4,175.2


$
4,814.8


$
4,555.2Other


128.0



116.8



152.44,303.2



4,931.6



4,707.6Operating expensesCompensation and benefits


1,275.2



1,306.1



1,275.0Fuel


580.2



1,005.8



746.8Materials


215.1



252.3



252.2Equipment rents


184.8



182.2



207.5Depreciation and amortization


488.9



442.5



427.5Purchased services and other


658.9



701.0



637.83,403.1



3,889.9



3,546.8Revenues less operating expenses


900.1



1,041.7



1,160.8Gain on sales of partnership interest and significant properties
    (Note 4)


160.3







Equity income in Dakota, Minnesota & Eastern Railroad
    Corporation (Note 15)






50.9



11.2Less:Loss on termination of lease with shortline railway (Note 5)


54.5







Other income and charges (Note 6)


18.9



88.4



(118.7
)Net interest expense (Note 7)


273.1



261.1



204.3Income before income tax expense


713.9



743.1



1,086.4Income tax expense (Note 8)


101.5



135.9



154.3Net income

$
612.4


$
607.2


$
932.1Basic earnings per share (Note 9)

$
3.68


$
3.95


$
6.05Diluted earnings per share (Note 9)

$
3.67


$
3.91


$
5.99       54

2009
    ANNUAL
    REPORT




---



##### 



CONSOLIDATED
    STATEMENT OF COMPREHENSIVE INCOME
  2008


2007Restated


RestatedYear ended December 31 (in
    millions of Canadian dollars)

2009


(Note 2)


(Note 2)Comprehensive incomeNet income

$
612.4


$
607.2


$
932.1Net (loss) gain in foreign currency translation adjustments, net
    of hedging activities


(1.9
)


7.6



(6.0
)Change in derivatives designated as cash flow hedges


7.3



(16.1
)


(36.8
)Other comprehensive income (loss) before income taxes


5.4



(8.5
)


(42.8
)Income tax (expense) recovery


(33.6
)


44.8



3.4Other comprehensive (loss) income (Note 10)


(28.2
)


36.3



(39.4
)Comprehensive income

$
584.2


$
643.5


$
892.7     2009
    ANNUAL
    REPORT

55




---



##### 



CONSOLIDATED
    BALANCE SHEET
  2008RestatedAs at December 31 (in millions
    of Canadian dollars)

2009


(Note 2)AssetsCurrent assetsCash and cash equivalents (Note 11)

$
679.1


$
117.6Accounts receivable (Note 12)


441.0



647.4Materials and supplies


132.7



215.8Future income taxes (Note 8)


128.1



76.5Other


46.5



65.71,427.4



1,123.0Investments (Note 13)


156.7



151.1Net properties (Note 14)


11,967.8



12,384.6Assets held for sale






39.6Goodwill and intangible assets (Note 17)


202.3



237.2Prepaid pension costs and other assets (Note 16)


1,777.2



1,221.8Total assets

$
15,531.4


$
15,157.3Liabilities and shareholders equityCurrent liabilitiesShort-term borrowing

$



$
150.1Accounts payable and accrued liabilities


917.3



1,034.9Income and other taxes payable


31.9



42.2Dividends payable


41.7



38.1Long-term debt maturing within one year (Note 18)


392.1



44.01,383.0



1,309.3Other long-term liabilities (Note 20)


790.2



865.2Long-term debt (Note 18)


4,102.7



4,685.8Future income taxes (Note 8)


2,549.5



2,527.6Shareholders equityShare capital (Note 23)


1,746.4



1,220.8Contributed surplus (Note 23)


33.5



40.2Accumulated other comprehensive income (Note 10)


49.5



77.7Retained income


4,876.6



4,430.76,706.0



5,769.4Total liabilities and shareholders equity

$
15,531.4


$
15,157.3         Approved on behalf of the Board:

-s- J.E. Cleghorn

-s- Michael W. WrightJ.E. Cleghorn, Director, Chairman of the Board

M.W. Wright, Director, Chairman of the Audit, Finance and Risk
    Management Committee   56

2009
    ANNUAL
    REPORT




---



##### 



CONSOLIDATED
    STATEMENT OF CASH FLOWS
  2008


2007Restated


RestatedYear ended December 31 (in
    millions of Canadian dollars)

2009


(Note 2)


(Note 2)Operating activitiesNet income

$
612.4


$
607.2


$
932.1Reconciliation of net income to cash provided byoperating activities:Depreciation and amortization


488.9



442.5



427.5Future income taxes (Note 8)


153.2



156.3



48.3(Gain) loss in fair value of long-term floating rate notes/
    asset-backed commercial paper (Note 19)


(6.3
)


49.4



21.5Foreign exchange (gain) loss on long-term debt


(5.8
)


16.3



(169.8
)Amortization and accretion charges


9.5



10.1



12.1Equity income, net of cash received (Note 15)


0.5



(50.8
)


(12.9
)Gain on sales of partnership interest and significant properties
    (Note 4)


(160.3
)






Net loss on repurchase of debt (Note 18)


16.6







Restructuring and environmental remediation payments
    (Note 22)


(45.1
)


(53.4
)


(61.0
)Pension funding in excess of expense


(589.0
)


(53.2
)


(28.8
)Other operating activities, net


(25.8
)


27.5



57.0Change in non-cash working capital balances related to
    operations (Note 24)


102.7



(132.2
)


50.3Cash provided by operating activities


551.5



1,019.7



1,276.3Investing activitiesAdditions to properties (Note 14)


(722.4
)


(832.9
)


(836.0
)Additions to assets held for sale and other






(222.5
)


(19.2
)Investment in Dakota, Minnesota & Eastern Railroad
    Corporation (Note 15)






(8.6
)


(1,492.6
)Proceeds from sale of properties and other assets (Note 4)


243.8



257.6



34.3Redemption of long-term floating rate notes/ (investment in)
    asset-backed commercial paper (Note 19)


12.5







(143.6
)Other, net


7.4



9.7



Cash used in investing activities


(458.7
)


(796.7
)


(2,457.1
)Financing activitiesDividends paid


(162.9
)


(148.7
)


(133.1
)Issuance of CP Common Shares (Note 23)


513.5



19.7



30.4Purchase of CP Common Shares (Note 23)










(231.1
)Net (decrease) increase in short-term borrowing


(150.1
)


(79.6
)


229.7Issuance of long-term debt (Note 18)


872.7



1,068.7



1,745.3Repayment of long-term debt (Note 18)


(618.6
)


(1,340.7
)


(187.7
)Settlement of treasury rate lock (Note 19)






(30.9
)


Settlement of foreign exchange forward on long-term debt
    (Note 19)


34.1







Cash provided by (used in) financing activities


488.7



(511.5
)


1,453.5Effect of foreign currency fluctuations on U.S.
    dollar-denominated cash and cash equivalents


(20.0
)


28.0



(18.9
)Cash positionIncrease (decrease) in cash and cash equivalents


561.5



(260.5
)


253.8Cash and cash equivalents at beginning of year


117.6



378.1



124.3Cash and cash equivalents at end of year(Note 11)

$
679.1


$
117.6


$
378.1       2009
    ANNUAL
    REPORT

57




---



##### 



CONSOLIDATED
    STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
  Accumulatedother





TotalShare


Contributed


comprehensive


Retained


Shareholders(in millions of Canadian dollars)

capital


surplus


income


income


equityBalance at December 31, 2006, as previously reported

$
1,175.7


$
32.3


$
80.4


$
3,586.1


$
4,874.5Adjustment for change in accounting policies (Note 2)










0.4



(197.5
)


(197.1
)Balance at December 31, 2006, as restated


1,175.7



32.3



80.8



3,388.6



4,677.4Net income














932.1



932.1Other comprehensive income (loss)










(39.4
)






(39.4
)Dividends declared














(138.4
)


(138.4
)Shares purchased (Note 23)


(24.5
)










(206.6
)


(231.1
)Stock compensation expense






11.3











11.3Shares issued under stock option plans


37.4



(1.2
)










36.2Balance at December 31, 2007


1,188.6



42.4



41.4



3,975.7



5,248.1Net income














607.2



607.2Other comprehensive income (loss)










36.3







36.3Dividends declared














(152.2
)


(152.2
)Stock compensation expense






7.8











7.8Shares issued under stock option plans


32.2



(10.0
)










22.2Balance at December 31, 2008


1,220.8



40.2



77.7



4,430.7



5,769.4Net income














612.4



612.4Other comprehensive income (loss)










(28.2
)






(28.2
)Dividends declared














(166.5
)


(166.5
)Shares issued (Note 23)


495.2















495.2Stock compensation (recovery) expense






(1.6
)










(1.6
)Shares issued under stock option plans


30.4



(5.1
)










25.3Balance at December 31, 2009

$
1,746.4


$
33.5


$
49.5


$
4,876.6


$
6,706.0     58

2009
    ANNUAL
    REPORT




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS December 31,
    2009
  1  Summary
    of significant accounting policies
  CANADIAN
    GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
    (GAAP)
    PRINCIPLES OF
    CONSOLIDATION
    USE OF
    ESTIMATES
    PRINCIPAL
    SUBSIDIARIES
    Incorporated underPrincipal subsidiary

the laws ofCanadian Pacific Railway Company

CanadaSoo Line Railroad Company (Soo Line)

MinnesotaDelaware and Hudson Railway Company, Inc. (D&H)

DelawareDakota, Minnesota & Eastern Railroad Corporation
    (DM&E)

DelawareMount Stephen Properties Inc. (MSP)

Canada   REVENUE
    RECOGNITION
    CASH AND CASH
    EQUIVALENTS
    FOREIGN CURRENCY
    TRANSLATION
    2009
    ANNUAL
    REPORT

59




---



##### 



PENSIONS AND
    OTHER BENEFITS
      MATERIALS AND
    SUPPLIES
    PROPERTIES
          (Note 2)
  60

2009
    ANNUAL
    REPORT




---



##### 



ASSETS HELD FOR
    SALE
    GOODWILL
      INTANGIBLE
    ASSETS
      FINANCIAL
    INSTRUMENTS
        DERIVATIVE
    FINANCIAL INSTRUMENTS
        2009
    ANNUAL
    REPORT

61




---



##### 



RESTRUCTURING
    ACCRUAL AND ENVIRONMENTAL REMEDIATION
    INCOME
    TAXES
    EARNINGS PER
    SHARE
    STOCK-BASED
    COMPENSATION
    62

2009
    ANNUAL
    REPORT




---



##### 



2  Accounting
    changes
  PENSION PRIOR
    SERVICE COSTS
    Year ended December 31


As at December 31


As at January 1(in millions of Canadian dollars,
    except per share data)


2009


2008


2007


2009


2008


2007Compensation and benefits


$
0.9


$
0.1


$
(10.1
)Income tax expense



1.2



0.3



7.3Net income


$
(2.1
)

$
(0.4
)

$
2.8Basic earnings per share


$
(0.01
)

$



$
0.02Diluted earnings per share


$
(0.01
)

$



$
0.02Prepaid pension costs and other assets














$
(105.1
)

$
(104.2
)

$
(114.2
)Future income tax liability















(27.0
)


(28.2
)


(35.8
)Retained income















(78.1
)


(76.0
)


(78.4
)   LOCOMOTIVE
    OVERHAULS
    2009
    ANNUAL
    REPORT

63




---



##### 



Year ended December 31


As at December 31


As at January 1(in millions of Canadian dollars,
    except per share data)


2009


2008


2007


2009


2008


2007Depreciation and amortization


$
(43.5
)

$
(48.8
)

$
(44.5
)Compensation and benefits



0.1



0.5



0.9Materials



13.8



35.0



36.7Purchased services and other



29.3



23.8



19.6Total increases



43.2



59.3



57.2Total operating expenses



(0.3
)


10.5



12.7Equity income in DM&E







(0.4
)


(1.1
)Income tax expense



1.3



(2.6
)


2.5Net income


$
(1.0
)

$
(8.3
)

$
(16.3
)Basic earnings per share


$
(0.01
)

$
(0.05
)

$
(0.11
)Diluted earnings per share


$
(0.01
)

$
(0.05
)

$
(0.11
)Other comprehensive income



2.1



(2.4
)


1.4Comprehensive income


$
1.1


$
(10.7
)

$
(14.9
)Cash provided by operating activities


$
(43.2
)

$
(59.3
)

$
(57.2
)Cash used in investing activities


$
43.2


$
59.3


$
57.2Net properties














$
(187.9
)

$
(191.8
)

$
(164.4
)Future income taxes liability















(51.5
)


(54.3
)


(52.6
)Accumulated other comprehensive income















1.5



(0.6
)


0.4Retained income















(137.9
)


(136.9
)


(112.2
)   64

2009
    ANNUAL
    REPORT




---



##### 



GOODWILL AND
    INTANGIBLE ASSETS
      CREDIT RISK AND
    THE FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL
    LIABILITIES
      FINANCIAL
    INSTRUMENTS  DISCLOSURES
    3  Future
    accounting changes
  U.S. GAAP /
    INTERNATIONAL FINANCIAL REPORTING STANDARDS
    (IFRS)
    BUSINESS
    COMBINATIONS, CONSOLIDATED FINANCIAL STATEMENTS AND
    NON-CONTROLLING INTERESTS
    Business
    combinations, Section 1582
    Consolidated
    financial statements, Section 1601 and Non-controlling
    interests, Section 1602
    2009
    ANNUAL
    REPORT

65




---



##### 



4  Gain
    on sales of partnership interest and significant
    properties
      10-year
    5  Loss
    on termination of lease with shortline railway
    6  Other
    income and charges
  (in millions of Canadian dollars)

2009


2008


2007Accretion charges on accruals recorded at present value

$
8.7


$
6.4


$
8.1Accretion income on long-term floating rate notes (Note 19)


(2.9
)






(Gain) loss in fair value of long-term floating rate notes/ ABCP
    (Note 19)


(6.3
)


49.4



21.5Net loss on repurchase of debt (Note 18)


16.6







Other exchange (gains) losses


(0.4
)


6.1



5.8Foreign exchange (gain) loss on long-term debt


(5.8
)


16.3



(169.8
)Other


9.0



10.2



15.7Total other income and charges

$
18.9


$
88.4


$
(118.7
)   66

2009
    ANNUAL
    REPORT




---



##### 



7  Net
    interest expense
  (in millions of Canadian dollars)

2009


2008


2007Interest cost

$
293.4


$
280.3


$
221.1Interest capitalized to net properties


(14.3
)


(9.9
)


(1.5
)Interest expense


279.1



270.4



219.6Interest income


(6.0
)


(9.3
)


(15.3
)Net interest expense

$
273.1


$
261.1


$
204.3Gross cash interest payments

$
289.8


$
269.6


$
208.9     8  Income
    taxes
    2008


2007Restated


Restated(in millions of Canadian dollars)

2009


(Note 2)


(Note 2)Canada (domestic)Current income tax (recovery) expense

$
(51.0
)

$
14.0


$
69.8Future income tax expenseOrigination and reversal of temporary differences


185.2



15.2



163.2Effect of tax rate decreases


(57.9
)


(14.9
)


(152.2
)Effect of hedge of net investment in self-sustaining foreign
    subsidiaries


(31.4
)


40.2



(9.7
)Other


(8.1
)






(6.9
)Total future income tax expense (recovery)


87.8



40.5



(5.6
)Total income taxes (domestic)

$
36.8


$
54.5


$
64.2Other (foreign)Current income tax (recovery) expense

$
(0.7
)

$
(34.4
)

$
36.2Future income tax expenseOrigination and reversal of temporary differences


74.6



129.9



64.2Other


(9.2
)


(14.1
)


(10.3
)Total future income tax expense


65.4



115.8



53.9Total income taxes (foreign)

$
64.7


$
81.4


$
90.1TotalCurrent income tax (recovery) expense

$
(51.7
)

$
(20.4
)

$
106.0Future income tax expense


153.2



156.3



48.3Total income taxes (domestic and foreign)

$
101.5


$
135.9


$
154.3   2009
    ANNUAL
    REPORT

67




---



##### 



2008Restated(in millions of Canadian dollars)

2009


(Note 2)Future income tax assetsRestructuring liability

$
21.4


$
29.1Amount related to tax losses carried forward


224.2



92.3Liabilities carrying value in excess of tax basis


56.0



124.2Future environmental remediation costs


42.6



53.9Other


82.4



88.3Total future income tax assets


426.6



387.8Future income tax liabilitiesCapital assets carrying value in excess of tax basis


2,387.7



2,503.4Other long-term assets carrying value in excess of tax basis


438.6



299.1Other


21.7



36.4Total future income tax liabilities


2,848.0



2,838.9Total net future income tax liabilities


2,421.4



2,451.1Current future income tax assets


128.1



76.5Long-term future income tax liabilities

$
2,549.5


$
2,527.6     2008


2007Restated


Restated(in millions of Canadian dollars)

2009


(Note 2)


(Note 2)Expected income tax expense at Canadian statutory tax rates

$
219.3


$
234.3


$
332.5Increase (decrease) in taxes resulting from:Items not subject to tax


(25.0
)


(61.6
)


(62.5
)Foreign tax rate differentials


(6.8
)


(0.2
)


33.8Effect of tax rate decreases


(57.9
)


(14.9
)


(152.2
)Other


(28.1
)


(21.7
)


2.7Income tax expense

$
101.5


$
135.9


$
154.3         68

2009
    ANNUAL
    REPORT




---



##### 



9  Earnings
    per share
      in-the-money (Note 26)
    2008


2007Restated


Restated(in millions)

2009


(Note 2)


(Note 2)Weighted average shares outstanding


166.3



153.7



154.0Dilutive effect of weighted average number of stock options


0.5



1.8



1.6Weighted average diluted shares outstanding


166.8



155.5



155.6(in dollars)Basic earnings per share

$
3.68


$
3.95


$
6.05Diluted earnings per share

$
3.67


$
3.91


$
5.99     10  Other
    comprehensive (loss) income and accumulated other comprehensive
    income
    2008Restated(in millions of Canadian dollars)

2009


(Note 2)Unrealized foreign exchange (loss) gain on translation of the
    net investment in U.S. subsidiaries

$
(186.2
)

$
60.0Unrealized foreign exchange gain on translation of the U.S.
    dollar-denominated long-term debt designated as a hedge of the
    net investment in U.S. subsidiaries


252.3



39.3Deferred loss on settled hedge instruments


(18.3
)


(20.6
)Unrealized effective gains (losses) on cash flow hedges


1.7



(1.0
)Accumulated other comprehensive income

$
49.5


$
77.7   2009
    ANNUAL
    REPORT

69




---



##### 



2008


2007Restated


Restated(in millions of Canadian dollars)

2009


(Note 2)


(Note 2)Accumulated other comprehensive income  January 1

$
77.7


$
41.4


$
80.8Other comprehensive (loss) income:Unrealized foreign exchange (loss) gain on:Translation of the net investment in U.S. subsidiaries


(246.4
)


305.1



(77.0
)Translation of the U.S. dollar-denominated long-term debt
    designated as a hedge of the net investment in U.S. subsidiaries
    (net of tax of $(31.4) million, $40.2 million, and
    $(9.7) million, respectively)


213.1



(257.3
)


61.3Change in derivatives designated as cash flow hedges:Realized loss (gain) on cash flow hedges recognized in income
    (net of tax of $(1.4) million, $3.2 million, and
    $4.0 million, respectively)


3.4



(7.8
)


(6.6
)Unrealized gain (loss) on cash flow hedges (net of tax of
    $(0.8) million, $1.4 million, and $9.1 million,
    respectively)


1.7



(3.7
)


(17.1
)Other comprehensive (loss) income


(28.2
)


36.3



(39.4
)Accumulated other comprehensive income  December 31

$
49.5


$
77.7


$
41.4     11  Cash
    and cash equivalents
  (in millions of Canadian dollars)

2009


2008Cash

$
35.8


$
11.3Short-term investments:Government guaranteed investments


628.6



Deposits with financial institutions


14.7



106.3Total cash and cash equivalents

$
679.1


$
117.6   12  Accounts
    receivable
  (in millions of Canadian dollars)

2009


2008Freight

$
316.8


$
464.1Non-freight


155.2



215.1472.0



679.2Allowance for doubtful accounts


(31.0
)


(31.8
)$
441.0


$
647.4   70

2009
    ANNUAL
    REPORT




---



##### 



13  Investments
  (in millions of Canadian dollars)

2009


2008Rail investments accounted for on an equity basis

$
56.1


$
48.4Long-term floating rate notes / ABCP (Note 19)


69.3



72.7Other investments


31.3



30.0Total investments

$
156.7


$
151.1   (Note 4)
    2008Restated(in millions of Canadian dollars)

(Note 2)Total assets

$
40.8Total liabilities


2.9Revenues


10.3   14  Net
    properties
  20082009





Restated (note 2)Annual





Accumulated


Net book





Accumulated


Net book(in millions of Canadian dollars)

rate


Cost


depreciation


value


Cost


depreciation


valueTrack and roadway


2.9
%

$
11,590.1


$
3,197.5


$
8,392.6


$
11,862.4


$
3,195.0


$
8,667.4Buildings


2.8
%


357.3



115.4



241.9



366.5



126.8



239.7Rolling stock


2.9
%


3,369.7



1,327.1



2,042.6



3,497.4



1,340.2



2,157.2Information
    systems(1)


8.2
%


639.7



276.2



363.5



609.9



240.0



369.9Other


4.7
%


1,339.7



412.5



927.2



1,418.0



467.6



950.4Total net properties





$
17,296.5


$
5,328.7


$
11,967.8


$
17,754.2


$
5,369.6


$
12,384.6   (1)
    
    Additions during 2009 were
    $42.9 million (2008  $55.6 million;
    2007  $48.8 million) and depreciation expense
    was $47.5 million (2008  $44.5 million;
    2007  $50.5 million).  2009
    ANNUAL
    REPORT

71




---



##### 



CAPITAL LEASES
    INCLUDED IN PROPERTIES
  2009


2008Accumulated


Net book





Accumulated


Net book(in millions of Canadian dollars)

Cost


depreciation


value


Cost


depreciation


valueBuildings

$
0.5


$
0.1


$
0.4


$



$



$
Rolling stock


536.2



139.3



396.9



604.3



152.6



451.7Other


4.5



1.8



2.7



5.6



1.3



4.3Total assets held under capital lease

$
541.2


$
141.2


$
400.0


$
609.9


$
153.9


$
456.0     15  Equity
    income
  DAKOTA, MINNESOTA & EASTERN RAILROAD CORPORATION
    (DM&E)
    line-by-line
  (Note 17)
  OTHER EQUITY INVESTMENTS
    72

2009
    ANNUAL
    REPORT




---



##### 



16  Prepaid
    pension costs and other assets
  2008Restated(in millions of Canadian dollars)

2009


(Note 2)Prepaid pension costs (Note 25)

$
1,644.4


$
1,056.0Other


132.8



165.8Total prepaid pension costs and other assets

$
1,777.2


$
1,221.8     17  Goodwill
    and intangible assets
  (in millions of Canadian dollars)

Goodwill


Intangible assetsBalance at December 31, 2007

$



$
Additions (Note 15)


147.1



50.0Amortization






(2.0
)Foreign exchange impact


32.5



9.6Balance at December 31, 2008

$
179.6


$
57.6Amortization






(2.5
)Foreign exchange impact


(24.7
)


(7.7
)Balance at December 31, 2009

$
154.9


$
47.4         2009
    ANNUAL
    REPORT

73




---



##### 



18  Long-term
    debt
  Currencyin which(in millions of Canadian dollars)

Maturity


payable


2009


20084.90% 7-year
    Medium Term Notes (A)


June 2010


CDN$



$
350.0


$
349.96.250% 10-year
    Notes (A)


Oct. 2011


US$




264.2



505.75.75% 5-year
    Notes (A)


May 2013


US$




105.8



483.36.50% 10-year
    Notes (A)


May 2018


US$




286.6



362.06.25% 10-year
    Medium Term Notes (A)


June 2018


CDN$




371.1



370.77.250% 10-year
    Notes (A)


May 2019


US$




363.2



9.450% 30-year
    Debentures (A)


Aug. 2021


US$




258.8



301.27.125% 30-year
    Debentures (A)


Oct. 2031


US$




362.0



420.85.750% 30-year
    Debentures (A)


Mar. 2033


US$




250.6



292.45.95% 30-year
    Notes (A)


May 2037


US$




459.4



534.36.45% 30-year
    Notes (A)


Nov. 2039


CDN$




397.8



Secured Equipment Loan (B)


Aug. 2015


CDN$




136.1



139.35.41% Senior Secured Notes (C)


Mar. 2024


US$




131.1



156.76.91% Secured Equipment Notes (D)


Oct. 2024


CDN$




198.4



205.95.57% Senior Secured Notes (E)


Dec. 2024


US$




66.9



7.49% Equipment Trust Certificates (F)


Jan. 2021


US$




111.7



133.3Bank loan payable on demand (5.883%) (G)


June 2010


CDN$




5.7



5.4Other Long Term Loans (4.00%  5.65%)


2010-2015


US$




5.3



5.4Obligations under capital leases (5.20%  9.38%) (H)


2010-2026


US$




319.7



406.4Obligations under capital leases (5.64%  5.65%) (H)


2013-2031


CDN$




12.0



12.84,456.4



4,685.5Perpetual 4% Consolidated Debenture Stock (I)





US$




32.0



37.2Perpetual 4% Consolidated Debenture Stock (I)






GB£



6.4



7.14,494.8



4,729.8Less: Long-term debt maturing within one year










392.1



44.0$
4,102.7


$
4,685.8         10-year
  74

2009
    ANNUAL
    REPORT




---



##### 



(Note 19)
  Principal


Carrying


Cost toamount


amount


redeem(in millions)

Maturity


in USD


in CDN


in CDN6.250% Notes


2011


$
154.3


$
184.1


$
184.65.75% Notes


2013



298.6



342.7



359.16.50% Notes


2018



24.8
*


28.5



28.2Total debt tendered





$
477.7


$
555.3


$
571.9   *
    
    Includes US$2.7 million
    principal amount of debt repurchased prior to commencement of
    the debt tender.  30-year
  5-year 10-year 10-year
              2009
    ANNUAL
    REPORT

75




---



##### 



(in millions of Canadian dollars)

Year


Capital leasesMinimum lease payments in:2010


$
33.42011



33.42012



33.82013



31.92014



177.1Thereafter



213.1Total minimum lease payments






522.7Less: Imputed interest






(191.0
)Present value of minimum lease payments






331.7Less: Current portion






(10.5
)Long-term portion of capital lease obligations





$
321.2       19  Financial
    instruments
    Loans and
    receivables
     Financial
    liabilities
       Available for
    sale
   Held for
    trading
     76

2009
    ANNUAL
    REPORT




---



##### 



Fair value of
    financial instruments
    o
    Level 1: This category includes assets and liabilities
    measured at fair value based on unadjusted quoted prices for
    identical assets and liabilities in active markets that are
    accessible at the measurement date. An active market for an
    asset or liability is considered to be a market where
    transactions occur with sufficient frequency and volume to
    provide pricing information on an ongoing basis.o
    Level 2: This category includes valuations determined using
    directly or indirectly observable inputs other than quoted
    prices included within Level 1. Derivative instruments in
    this category are valued using models or other industry standard
    valuation techniques derived from observable market data. Such
    valuation techniques include inputs such as quoted forward
    prices, time value, volatility factors and broker quotes that
    can be observed or corroborated in the market. Instruments
    valued using inputs in this category include non exchange traded
    derivatives such as over the counter financial forward
    contracts, as well as swaps for which observable inputs can be
    obtained for the entire duration of the derivative instrument.o
    Level 3: This category includes valuations based on inputs
    which are less observable, unavailable or where the observable
    data does not support a significant portion of the
    instruments fair value. Generally, Level 3 valuations
    are longer dated transactions, occur in less active markets,
    occur at locations where pricing information is not available,
    or have no binding broker quote to support Level 2
    classifications.      (in millions of Canadian dollars)

Level 1


Level 2


Level 3


TotalFinancial assetsCurrent derivative assets

$



$
2.5


$



$
2.5Long-term derivative assets






0.2







0.2Investments










69.3



69.3Financial liabilitiesCurrent derivative liabilities






18.2







18.2   LONG-TERM
    FLOATING RATE NOTES/ABCP
      Class A-1
  2009
    ANNUAL
    REPORT

77




---



##### 



o
    $116.8 million MAV 2 notes with eligible assets represented
    by a combination of leveraged collateralized debt, synthetic
    assets and traditional securitized assets with expected
    repayments over approximately five to seven years: o
    Class A-1:
    $59.1 milliono
    Class A-2:
    $45.9 milliono
    Class B: $8.3 milliono
    Class C: $3.5 million  o
    $12.1 million MAV 2 IA Tracking notes representing assets
    that have an exposure to US mortgages and sub-prime mortgages
    with expected repayments over approximately three and a half to
    19 years: o
    Class 3: $0.5 milliono
    Class 6: $5.5 milliono
    Class 7: $3.4 milliono
    Class 8: $0.1 milliono
    Class 13: $2.6 million  o
    $0.2 million MAV 3 Class 9 TA Tracking notes with
    expected repayments over approximately seven years.  Class A-1 Class A-2
    2009

2008Probability weighted average coupon interest rate

Nil%

2.2%Weighted average discount rate

7.9%

9.1%Expected repayments of long-term floating rate notes

Three and a half to 19 years

Five to eight years, other than certain 
    tracking notes to be paid down 
    on restructuringCredit losses

MAV 2 eligible asset notes: nil to 100%

Notes expected to be
    rated(1):

    nil to 25%MAV 2 IA Tracking notes: 25%

Notes not expected to be
    rated(2):

    25 to 100%MAV 3 Class 9  TA Tracking notes: nil%   (1) Class A-1 Class A-2
 (2)
  78

2009
    ANNUAL
    REPORT




---



##### 



Original


Estimated(in millions of Canadian dollars)

cost


fair valueAs at January 1, 2008

$
143.6


$
122.1Change in market assumptions






(49.4
)As at December 31, 2008


143.6



72.7Change due to restructuring, January 21, 2009


(0.8
)


Redemption of notes


(13.7
)


(8.0
)Accretion






2.9Change in market assumptions






1.7As at December 31, 2009

$
129.1


$
69.3       Change in fair value of(in millions of Canadian dollars)

long-term floating rate notesCoupon interest rate50 basis point increase

$
2.350 basis point decrease


Nil
(1)Discount rate50 basis point increase

$
(2.1
)50 basis point decrease

$
2.2   (1)
    
    Notes are currently not expected to
    receive any coupon interest.    2009
    ANNUAL
    REPORT

79




---



##### 



Carrying value
    and fair value of financial instruments
    2008 Restated (Note 2)2009Carrying Value of


Carrying Value of





Carrying Value of


Carrying Value ofFinancial Assets /


Other Assets /


Balance Sheet


Financial Assets /


Other Assets /


Balance Sheet(in millions of Canadian dollars)

Liabilities


Liabilities


Amount


Liabilities


Liabilities


AmountAssetsCash and cash equivalents

$
679.1


$



$
679.1


$
117.6


$



$
117.6Accounts receivableTrade accounts receivable


419.6











638.7



Other






21.4











8.7419.6



21.4



441.0



638.7



8.7



647.4OtherDerivatives


2.5











10.4



Other






44.0











55.32.5



44.0



46.5



10.4



55.3



65.7InvestmentsEquity investments at cost


15.8











18.3



Long-term receivables at amortized cost


15.8











10.8



Long-term floating rate notes / ABCP


69.3











72.7



Other






55.8











49.3100.9



55.8



156.7



101.8



49.3



151.1Prepaid pension costs and other assetsDerivatives


0.2











71.0



Other






1,777.0











1,150.80.2



1,777.0



1,777.2



71.0



1,150.8



1,221.8LiabilitiesShort-term borrowings

$



$



$



$
150.1


$



$
150.1Accounts payable and accrued liabilitiesAccounts payable and accrued liabilities


750.5











899.0



Derivatives


18.2











4.6



Other






148.6











131.3768.7



148.6



917.3



903.6



131.3



1,034.9Dividends payable


41.7







41.7



38.1







38.1Long-term debt maturing within one year


392.1







392.1



44.0







44.0Other long-term liabilitiesDerivatives














67.9



Other long-term liabilities


101.2











90.8



Other






689.0











706.5101.2



689.0



790.2



158.7



706.5



865.2Long-term debt


4,102.7







4,102.7



4,685.8







4,685.8     80

2009
    ANNUAL
    REPORT




---



##### 



Financial risk
    management
      o
    Maintaining sound financial condition as an ongoing entity;o
    Optimizing earnings per share and cash flow;o
    Financing operations of the group of CP companies at the optimal
    cost of capital; ando
    Ensuring liquidity to all Canadian and U.S. operations.    o
    Prepare multi-year planning and budget documents at prevailing
    market rates to ensure clear, corporate alignment to performance
    management and achievement of targets;o
    Measure the extent of operating risk within the business;o
    Identify the magnitude of the impact of market risk factors on
    the overall risk of the business and take advantage of natural
    risk reductions that arise from these relationships; ando
    Utilize financial instruments, including derivatives, to manage
    the remaining residual risk to levels that fall within the risk
    tolerance of the Company.    and/or
  Risk
    factors
    Foreign
    exchange risk
    o
    Translation of U.S. dollar-denominated revenues and
    expenses into Canadian dollars  When the Canadian
    dollar changes relative to the U.S. dollar, income reported
    in Canadian dollars will change. The impact of a strengthening
    Canadian dollar on U.S. dollar revenues and expenses will
    reduce net income because the Company has more U.S. dollar
    revenues than expenses. This impact is excluded from the
    sensitivity in the table below; ando
    Translation of U.S. dollar-denominated debt and other
    financial instruments   A strengthening Canadian
    dollar will reduce the Companys U.S. dollar
    denominated debt in Canadian dollar terms and generate a FX gain
    on long-term debt, which is recorded in income. Other
    U.S. dollar denominated financial instruments will also be
    impacted by changes in FX rates.  FOREIGN EXCHANGE
    MANAGEMENT
      2009
    ANNUAL
    REPORT

81




---



##### 



Year ended


Year endedDecember 31, 2009


December 31, 2008Impact to Other





Impact to OtherImpact to


comprehensive


Impact to


comprehensive(in millions of Canadian dollars)

Net income


income


Net income


income1 cent strengthening in Canadian dollar

$
(1.9
)

$
(2.0
)

$
(2.3
)

$
(2.1
)1 cent weakening in Canadian dollar


1.9



2.0



2.3



2.1     FOREIGN EXCHANGE
    FORWARD CONTRACTS
      Interest rate
    risk
        As at December 31, 2009


As at December 31, 2008At floating


At fixed


At floating


At fixed(in millions of Canadian dollars)

interest rates


interest rates


interest rates


interest ratesFinancial assetsCash and short-term investments

$
679.1


$



$
117.6


$
Financial liabilitiesShort-term borrowings










150.1



Long-term
    debt(1)


136.1



4,358.7



384.4



4,345.4   (1)
    
    Includes impact of interest rate
    swaps.  82

2009
    ANNUAL
    REPORT




---



##### 



INTEREST RATE
    MANAGEMENT
      Year ended December 312009


2008Impact to


Impact to(in millions of Canadian dollars)

net income


net income50 basis point increase in rates

$
1.9


$
(1.4
)50 basis point decrease in rates


(0.9
)


1.4     INTEREST RATE
    SWAPS
      (Note 18)
    INTEREST AND
    TREASURY RATE LOCKS
      Stock-based
    compensation risk
      2009
    ANNUAL
    REPORT

83




---



##### 



STOCK-BASED
    COMPENSATION EXPENSE MANAGEMENT
      Year ended December 312009


2008Impact to


Impact to(in millions of Canadian dollars)

Net income


Net income$1 increase in share price

$
1.1


$
1.8$1 decrease in share price


(1.1
)


(1.8
)       Commodity
    risk
    FUEL PRICE
    MANAGEMENT
      84

2009
    ANNUAL
    REPORT




---



##### 



Year ended December 312009


2008Impact to Other


Impact to Other(in millions of Canadian dollars)

comprehensive income


comprehensive income$0.01 increase in price per US gallon

$
0.1


$
0.1$0.01 decrease in price per US gallon


(0.1
)


(0.1
)             Credit
    risk
    CREDIT RISK
    MANAGEMENT
    2009
    ANNUAL
    REPORT

85




---



##### 



(in millions of Canadian dollars)

2009


2008Up to date

$
330.1


$
394.8Under 30 days past due


59.8



163.030-60 days
    past due


11.7



33.761-90 days
    past due


4.2



17.5Over 91 days past due


13.8



29.7Trade accounts receivable

$
419.6


$
638.7       Liquidity
    risk
    LIQUIDITY RISK
    MANAGEMENT
        86

2009
    ANNUAL
    REPORT




---



##### 



As at December 31, 2009(in millions of Canadian dollars)

2010


2011  2013


2014+


TotalFinancial liabilitiesAccounts payable and accrued liabilities

$
750.5


$



$



$
750.5Dividends payable


41.7











41.7Other long-term liabilities






55.5



45.7



101.2Total return swap


18.2











18.2Long-term
    debt(1)


670.3



1,272.8



6,556.5



8,499.6   (1)
    
    Includes contractual interest
    payments related to debt obligations. Interest rates on variable
    rate debt are based on prevailing rates at December 31,
    2009.  20  Other
    long-term liabilities
  (in millions of Canadian dollars)

2009


2008Accrued employee benefits, net of current portion

$
234.4


$
226.9Provision for environmental remediation, net of current
    portion(1)


106.5



130.2Deferred workers compensation and personal injury
    accruals, net of current portion


88.0



104.5Provision for restructuring, net of current
    portion(2)(Note 22)


57.5



74.9Deferred income credits


38.0



39.0Deferred revenue on rights-of-way license agreements, net of
    current portion


40.6



45.4Stock-based compensation liabilities, net of current portion


36.8



11.7Asset retirement obligations (Note 21)


26.6



31.9Deferred gain on sale leaseback


44.3



26.7Total return swap, net of current portion (Note 19)






67.9Long-term payable to shortline (Note 5)






20.6Other, net of current portion


117.5



85.5Total other long-term liabilities

$
790.2


$
865.2   (1)
    
    As at December 31, 2009, the
    aggregate provision for environmental remediation, including the
    current portion was $121.3 million (2008 
    $151.1 million).(2)
    
    As at December 31, 2009, the
    aggregate provision for restructuring, including the current
    portion was $77.0 million (2008  $100.1 million).    2009
    ANNUAL
    REPORT

87




---



##### 



21  Asset
    retirement obligations
    (in millions of Canadian dollars)

2009


2008Opening balance, January 1

$
31.9


$
29.1Liabilities incurred


0.3



3.7Accretion


1.8



1.9Liabilities settled


(5.9
)


(2.2
)Revision to estimated cash flows


(1.5
)


(0.6
)Closing balance, December 31

$
26.6


$
31.9   Canada
    Transportation Act
    22  Restructuring
    accrual
      (in millions of Canadian dollars)

2009


2008


2007Opening balance, January 1

$
100.1


$
130.0


$
188.8Accrued (reduced)


1.2



1.9



(13.0
)Payments


(27.0
)


(40.7
)


(47.0
)Amortization of
    discount(1)


5.9



4.3



6.1Foreign exchange impact


(3.2
)


4.6



(4.9
)Closing balance, December 31

$
77.0


$
100.1


$
130.0   (1)
  88

2009
    ANNUAL
    REPORT




---



##### 



23  Shareholders
    equity
  AUTHORIZED AND
    ISSUED SHARE CAPITAL
      2009


2008(in millions)

Number


NumberShare capital, January 1


153.8



153.3Shares issued


13.9



Shares issued under stock option plans


0.8



0.5Share capital, December 31


168.5



153.8           24  Change
    in non-cash working capital balances related to
    operations
  (in millions of Canadian dollars)

2009


2008


2007Source (use) of cash:Accounts receivable

$
206.4


$
(47.9
)

$
54.8Materials and supplies


75.5



(23.4
)


(28.7
)Other


18.5



(21.2
)


15.8Accounts payable and accrued liabilities


(163.3
)


(6.2
)


(45.5
)Income and other taxes payable


(34.4
)


(33.5
)


53.9Change in non-cash working capital

$
102.7


$
(132.2
)

$
50.3   25  Pensions
    and other benefits
      2009
    ANNUAL
    REPORT

89




---



##### 



Pensions2008


2007


Other benefitsRestated


Restated(in millions of Canadian dollars)

2009


(Note 2)


(Note 2)


2009


2008


2007Current service cost (benefits earned by employees in the year)

$
67.1


$
97.6


$
97.6


$
14.3


$
16.1


$
16.8Interest cost on benefit obligation


482.2



445.8



420.0



29.1



27.0



26.7Actual (return) loss on fund assets


(723.0
)


1,210.4



(275.9
)


(0.3
)


(0.3
)


(1.2
)Actuarial (gain) loss


847.1
(1)


(1,176.9
)(2)


(1.4
)


57.5
(1)


(63.4
)(2)


(1.1
)Plan amendments






42.0



22.5











Settlement gain














(8.0
)(3)


(4.8
)(3)


(10.7
)(3)Elements of employee future benefit 
    cost, before adjustments to 
    recognize the long-term nature 
    of employee future benefit costs


673.4



618.9



262.8



92.6



(25.4
)


30.5Adjustments to recognize the long-
    term nature of employee future 
    benefit costs:Amortization of transitional 
    (asset) obligation


(16.2
)


(16.2
)


(16.2
)


12.4



12.4



12.4Difference between expected 
    return and actual return on 
    fund assets


165.7



(1,794.3
)


(278.3
)


(0.6
)


(0.4
)


0.6Difference between actuarial 
    loss/gain recognized and 
    actual actuarial loss/gain on 
    benefit obligation


(839.7
)


1,254.9



99.9



(57.0
)


68.3



6.8Difference between amortization 
    of prior service costs and 
    actual plan amendments


21.9



(21.4
)


(15.9
)


(0.2
)


(0.1
)


(0.2
)Net benefit cost

$
5.1


$
41.9


$
52.3


$
47.2


$
54.8


$
50.1   (1)
  (2)
  (3)
  90

2009
    ANNUAL
    REPORT




---



##### 



Pensions2008


Other benefitsRestated(in millions of Canadian dollars)

2009


(Note 2)


2009


2008Change in benefit obligation:Benefit obligation at January 1

$
7,068.3


$
8,025.8


$
438.0


$
491.7Current service cost


67.1



97.6



14.3



16.1Interest cost


482.2



445.8



29.1



27.0Employee contributions


48.4



57.1



0.3



0.2Benefits paid


(457.5
)


(452.8
)


(39.5
)


(35.2
)Foreign currency changes


(22.8
)


29.7



(5.1
)


8.6Actuarial loss (gain)


847.1



(1,176.9
)


57.5



(63.4
)Plan amendments and other






42.0







Release due to settlement










(10.5
)


(7.0
)Benefit obligation at December 31

$
8,032.8


$
7,068.3


$
484.1


$
438.0Change in fund assets:Fair value of fund assets at January 1

$
6,118.5


$
7,610.5


$
12.1


$
12.5Actual return (loss) on fund assets


723.0



(1,210.4
)


0.3



0.3Employer contributions


595.2



95.4



38.3



34.2Employee contributions


48.4



57.1



0.3



0.2Benefits paid


(457.5
)


(452.8
)


(39.5
)


(35.2
)Foreign currency changes


(13.8
)


18.7







0.1Fair value of fund assets at December 31

$
7,013.8


$
6,118.5


$
11.5


$
12.1Funded status  plan deficit:

$
(1,019.0
)

$
(949.8
)

$
(472.6
)

$
(425.9
)Unamortized prior service cost


28.0



50.0



(0.4
)


(0.7
)Unamortized net transitional (asset) obligation


(47.9
)


(64.1
)


36.9



49.3Unamortized experience losses:Deferred investment losses due to use of market-related
    value to determine net benefit cost


837.2



1,204.0







Unamortized net actuarial loss


1,845.3
(1)


814.8
(1)


86.7



33.8Accrued benefit asset (liability) on the Consolidated Balance
    Sheet

$
1,643.6


$
1,054.9


$
(349.4
)

$
(343.5
)   (1)
  2009
    ANNUAL
    REPORT

91




---



##### 



Pensions2008


Other benefitsRestated(in millions of Canadian dollars)

2009


(Note 2)


2009


2008Prepaid pension costs and other assets

$
1,644.4


$
1,056.0


$



$
Accounts payable and accrued liabilities


(0.2
)


(0.3
)


(40.6
)


(39.1
)Other long-term liabilities


(0.6
)


(0.8
)


(308.8
)


(304.4
)Accrued benefit asset (liability) on the Consolidated Balance
    Sheet

$
1,643.6


$
1,054.9


$
(349.4
)

$
(343.5
)       (percentage)

2009


2008


2007Benefit obligation at December 31:Discount rate


5.90



7.00



5.60Projected future salary increases


3.00



3.00



3.00Health care cost trend rate


8.50
(1)


9.00
(1)


9.50
(1)Benefit cost for year ended December 31:Discount rate


7.00



5.60



5.40Expected rate of return on fund assets


7.75



8.00



8.00Projected future salary increases


3.00



3.00



3.00Health care cost trend rate


9.00
(1)


9.50
(1)


10.00
(1)   (1)
    
    The health care cost trend rate is
    projected to decrease by 0.5% per year from a 10.0% rate in 2006
    and 2007 to approximately 5.0% per year in 2017.    One percentage


One percentageFavourable (unfavourable) (in
    millions of Canadian dollars)

point increase


point decreaseEffect on the total of service and interest costs

$
(1.1
)

$
1.0Effect on post-retirement benefit obligation

$
(11.7
)

$
11.2   PLAN
    ASSETS
    Percentage of plan assets at December 31Asset allocation (percentage)

Current policy range


2009


2008Equity securities


45  51



45.9



41.6Debt securities


37  43



42.3



45.2Real estate and infrastructure


8  16



11.8



13.2Total






100.0



100.0     92

2009
    ANNUAL
    REPORT




---



##### 



CASH
    FLOWS
    DEFINED
    CONTRIBUTION PLAN
    26  Stock-based
    compensation
    A.
    STOCK OPTION PLANS  Regular options and TSARs
      Performance options
    2009
    ANNUAL
    REPORT

93




---



##### 



Summary of
    regular and performance options
    20082009Weighted






WeightedNumber of


average



Number of


averageoptions


exercise price



options


exercise priceOutstanding, January 1



4,842,946


$
50.74




4,428,761


$
44.58New options granted



350



37.60




942,850



71.41Exercised



(652,175
)


34.91




(492,440
)


33.89Forfeited



(96,825
)


74.20




(36,225
)


63.67Outstanding, December 31



4,094,296


$
52.71




4,842,946


$
50.74Exercisable at December 31



2,605,383


$
44.07




2,817,808


$
39.72   20092009Options outstanding


Options exercisableWeightedaverage


Weighted





WeightedNumber of


years to


average


Number of


averageRange of exercise prices

options


expiration


exercise price


options


exercise price$14.61  $18.06


17,375



0.2


$
15.35



17,375


$
15.35$27.62  $40.47


1,084,096



3.0



31.10



1,078,746



31.05$42.05  $62.56


2,106,625



4.3



56.20



1,506,562



53.68$63.45  $74.89


886,200



5.5



71.58



2,700



67.54Total


4,094,296



4.2


$
52.71



2,605,383


$
44.07       2009


2008


2007Expected option life (years)


5.00



4.39



4.00Risk-free interest rate


2.35
%


3.53
%


3.90
%Expected stock price volatility


23
%


23
%


22
%Expected annual dividends per share

$
0.99


$
0.99


$
0.90Weighted average fair value of options granted during the year

$
6.52


$
15.07


$
12.97     94

2009
    ANNUAL
    REPORT




---



##### 



Summary of
    TSARs
    20082009Weighted






WeightedNumber of


average



Number of


averageTSARs


exercise price



TSARs


exercise priceOutstanding, January 1



2,828,197


$
47.42




2,552,347


$
42.83New TSARs granted



765,850



36.76




433,750



71.07Exercised as TSARs



(94,050
)


27.06




(52,450
)


35.10Exercised as Options



(70,775
)


25.95




(85,425
)


34.85Forfeited



(71,825
)


51.73




(20,025
)


60.63Outstanding, December 31



3,357,397


$
45.92




2,828,197


$
47.42Exercisable at December 31



1,981,810


$
42.52




1,740,235


$
36.49   20092009TSARs outstanding


TSARs exercisableWeighted


Weighted





Weightedaverage


average





averageNumber of


years to


exercise


Number of


exerciseRange of exercise prices

TSARs


expiration


price


TSARs


price$14.61  $18.06


20,725



0.2


$
15.23



20,725


$
15.23$27.62  $40.47


1,655,727



5.9



33.54



907,477



31.25$42.05  $62.56


1,272,945



6.1



54.33



1,050,908



52.72$63.45  $74.89


408,000



8.0



71.49



2,700



67.54Total


3,357,397



6.2


$
45.92



1,981,810


$
42.52     B. OTHER SHARE-BASED PLANS
  Performance share unit plan
      2009


2008Outstanding, January 1


24,245



23,855Granted


404,580



Units, in lieu of dividends


7,312



390Forfeited


(13,603
)


Outstanding, December 31


422,534



24,245     Deferred share unit plan
    2009
    ANNUAL
    REPORT

95




---



##### 



2009


2008Outstanding, January 1


292,982



284,968Granted


55,273



43,651Units, in lieu of dividends


7,093



4,813Redeemed


(9,505
)


(40,450
)Outstanding, December 31


345,843



292,982     Restricted share unit plan
      Summary of share
    based liabilities paid
    (in millions of Canadian dollars)

2009


2008


2007PlanTSARs

$
2.6


$
1.6


$
5.4DSUs


0.3



2.4



6.5Total

$
2.9


$
4.0


$
11.9   C.
    EMPLOYEE SHARE PURCHASE PLAN      96

2009
    ANNUAL
    REPORT




---



##### 



27  Capital
    disclosures
    o
    to maintain a flexible capital structure which optimizes the
    cost of capital at acceptable risk while providing an
    appropriate return to its shareholders;o
    to manage capital in a manner which balances the interests of
    equity and debt holders;o
    to manage capital in a manner that will maintain compliance with
    its financial covenants;o
    to manage its long-term financing structure to maintain its
    investment grade rating; ando
    to maintain a strong capital base so as to maintain investor,
    creditor and market confidence and to sustain future development
    of the business.    o
    shareholders equity;o
    long-term debt, including the current portion thereof; ando
    short-term borrowing.  and/or
    o
    debt to total capitalization; ando
    interest-coverage ratio.    DEBT TO TOTAL
    CAPITALIZATION
    INTEREST-COVERAGE
    RATIO
    2009
    ANNUAL
    REPORT

97




---



##### 



December 31,


December 31,December 31,


2008


2007(in millions of Canadian dollars)

Guidelines


2009


Restated (Note 2)


Restated (Note 2)Long-term debt





$
4,102.7


$
4,685.8


$
4,146.2Long-term debt maturing within one year






392.1



44.0



31.0Short-term borrowing










150.1



229.7Debt





$
4,494.8


$
4,879.9


$
4,406.9Shareholders equity





$
6,706.0


$
5,769.4


$
5,248.1Debt






4,494.8



4,879.9



4,406.9Debt plus equity





$
11,200.8


$
10,649.3


$
9,655.0Revenues less operating expenses





$
900.1


$
1,041.7


$
1,160.8Less:Other income and charges






18.9



88.4



(118.7
)Plus:(Gain) loss in long-term floating rate notes/ABCP






(6.3
)


49.4



21.5Foreign exchange (gain) loss on long-term debt






(5.8
)


16.3



(169.8
)Equity income in DM&E










50.9



11.2Adjusted
    EBIT(1)





$
869.1


$
1,069.9


$
1,142.4Debt





$
4,494.8


$
4,879.9


$
4,406.9Debt plus equity





$
11,200.8


$
10,649.3


$
9,655.0Debt to total capitalization


No more than 50.0%



40.1
%


45.8
%


45.6
%Adjusted
    EBIT(1)





$
869.1


$
1,069.9


$
1,142.4Net interest expense





$
273.1


$
261.1


$
204.3Interest-coverage
    ratio(1)


No less than 4.0



3.2



4.1



5.6   (1)

    These earnings measures have no standardized meanings prescribed
    by GAAP and, therefore, are unlikely to be comparable to similar
    measures of other companies.    year-over-year
      28  Commitments
    and contingencies
    98

2009
    ANNUAL
    REPORT




---



##### 



2010-2028.
    29  Guarantees
    o
    residual value guarantees on operating lease commitments of
    $167.3 million at December 31, 2009;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
      30  Segmented
    information
  OPERATING
    SEGMENT
      2009
    ANNUAL
    REPORT

99




---



##### 



GEOGRAPHIC
    INFORMATION
  (in millions of Canadian dollars)

Canada


United States


Total2009Revenues

$
3,075.9


$
1,227.3


$
4,303.2Net properties

$
8,080.7


$
3,887.1


$
11,967.82008 (Restated Note 2)Revenues

$
3,814.6


$
1,117.0


$
4,931.6Net properties

$
7,954.4


$
4,430.2


$
12,384.62007 (Restated Note 2)Revenues

$
3,716.4


$
991.2


$
4,707.6Net Properties

$
7,582.2


$
1,535.5


$
9,117.7       CONSOLIDATING
    INFORMATION  2009
  Other


Consolidating(in millions of Canadian dollars)

Canada


United States


countries


entries


TotalRevenues

$
3,072.1


$
1,227.3


$



$
3.8


$
4,303.2Operating expenses


2,479.6



960.4







(36.9
)


3,403.1Revenues less operating expenses


592.5



266.9







40.7



900.1Net interest expense, other income and charges, gain on sales of
    partnership interest and significant properties and loss on
    termination of lease with shortline railway


(35.6
)


88.2



136.4



(2.8
)


186.2Income tax expense


60.0



62.0



1.5



(22.0
)


101.5Net income (loss)

$
568.1


$
116.7


$
(137.9
)

$
65.5


$
612.4Current assets

$
1,183.8


$
472.5


$
29.1


$
(258.0
)

$
1,427.4Net properties


6,096.0



3,828.8







2,043.0



11,967.8Other long-term assets


3,140.0



241.0



1,364.8



(2,609.6
)


2,136.2Total assets

$
10,419.8


$
4,542.3


$
1,393.9


$
(824.6
)

$
15,531.4Current liabilities

$
1,162.6


$
228.4


$
2.0


$
(10.0
)

$
1,383.0Long-term liabilities


5,710.1



2,160.5



(0.3
)


(427.9
)


7,442.4Shareholders equity


3,547.1



2,153.4



1,392.2



(386.7
)


6,706.0Total liabilities and shareholders equity

$
10,419.8


$
4,542.3


$
1,393.9


$
(824.6
)

$
15,531.4   100

2009
    ANNUAL
    REPORT




---



##### 



31  Reconciliation
    of Canadian and United States generally accepted accounting
    principles
    (a) ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
    AND OTHER FINANCIAL INSTRUMENTS:
    (b) PENSIONS AND POST-RETIREMENT BENEFITS:
    (c) POST-EMPLOYMENT BENEFITS:
    (d) TERMINATION AND SEVERANCE BENEFITS:
    (e) STOCK-BASED COMPENSATION:
      (f) INTERNAL USE SOFTWARE:
    (g) CAPITALIZATION OF INTEREST:
    2009
    ANNUAL
    REPORT

101




---



##### 



(h) COMPREHENSIVE INCOME:
    (i) JOINT VENTURE:
    (j) OFFSETTING CONTRACTS:
    (k) CAPITAL LEASES:
    (l) STATEMENT OF CASH FLOWS:
    (m) INVESTMENT TAX CREDITS:
    FUTURE ACCOUNTING
    CHANGES
  Consolidations
  Amendments to Consolidation of
    Variable Interest Entities.
  Accounting for
    Transfers of Financial Assets
    Fair Value
    Measurements and Disclosure
    102

2009
    ANNUAL
    REPORT




---



##### 



COMPARATIVE
    INCOME STATEMENT
    2008


2007(in millions of Canadian dollars,
    except per share data)

2009


Restated (Note 2)


Restated (Note 2)Net income  Canadian GAAP

$
612.4


$
607.2


$
932.1Increased (decreased) by:Pension costs (b)


(17.0
)


13.3



15.9Post-retirement benefits costs (b)


9.8



9.6



9.4Post-employment benefits costs (c)


(30.3
)


11.0



7.2Termination and severance benefits (d)


(1.5
)


(8.7
)


(8.8
)Internal use software  additions (f)


(3.8
)


(18.1
)


(12.0
)Internal use software  depreciation (f)


7.4



9.2



8.0Stock-based compensation (e)


(14.7
)


6.9



(1.7
)Loss on ineffective portion of hedges (a)


(2.2
)


10.5



(0.4
)Capitalized interest  additions (g)


4.9



21.0



14.0Capitalized interest  depreciation (g)


(12.3
)


(5.3
)


(4.5
)Capital lease  equipment rents (k)


(1.3
)


(1.3
)


(0.7
)Capital lease  depreciation (k)


0.9



0.9



0.4Capital lease  interest (k)


0.6



0.5



0.3Future/deferred income tax expense related to above differences


2.5



(21.1
)


(46.0
)Net income  U.S. GAAP

$
555.4


$
635.6


$
913.2Other comprehensive (loss) income  Canadian
    GAAP


(28.2
)


36.3



(39.4
)Increased (decreased) by:Unrealized foreign exchange gain (loss) on designated net
    investment hedge (a)


2.2



(10.5
)


0.4Unfunded pension and post-retirement liability adjustment
    (b)


(661.1
)


(543.4
)


(206.8
)Future/deferred income tax recovery related to other
    comprehensive loss


165.2



148.6



48.1Other comprehensive loss  U.S. GAAP

$
(521.9
)

$
(369.0
)

$
(197.7
)Earnings per share  U.S. GAAPBasic earnings per share

$
3.34


$
4.14


$
5.93Diluted earnings per share

$
3.33


$
4.09


$
5.87     2008


2007(in millions of Canadian dollars)

2009


Restated (Note 2)


Restated (Note 2)Comprehensive incomeCanadian GAAP

$
584.2


$
643.5


$
892.7U.S. GAAP

$
33.5


$
266.6


$
715.5   2009
    ANNUAL
    REPORT

103




---



##### 



CONSOLIDATED
    BALANCE SHEET
    2008(in millions of Canadian dollars)

2009


Restated (Note 2)AssetsCurrent assetsCash and cash equivalentsInvestment in joint ventures (i)

$



$
(0.1
)Accounts receivableReceivable from bank (j)


214.1



Long-term assetsInvestmentsInvestment in joint ventures (i)






51.2Net propertiesCapitalized interest (g)


168.3



175.7Internal use software (f)


(59.9
)


(64.1
)Investment in joint ventures (i)






(36.0
)Capital leases (k)


(8.7
)


(9.6
)Prepaid pension costs and other assetsPension (b)


(1,644.4
)


(1,056.0
)Long-term receivable from bank (j)






201.8Transaction costs on long-term debt (a)


43.6



43.9Investment in joint ventures (i)






(15.7
)Internal use software (f)


(0.6
)


Total assets

$
(1,287.6
)

$
(708.9
)   104

2009
    ANNUAL
    REPORT




---



##### 



CONSOLIDATED
    BALANCE SHEET (CONTINUED)
  2008(in millions of Canadian dollars)

2009


Restated (Note 2)Liabilities and shareholders equityCurrent liabilitiesAccounts payable and accrued liabilitiesInvestment in joint ventures (i)

$



$
(0.3
)Stock-based compensation (e)


9.8



Long-term debt maturing within one yearCapital leases (k)


(0.9
)


(0.8
)Bank loan (j)


214.1



Long-term liabilitiesOther long-term liabilitiesTermination and severance benefits (b)






(1.5
)Post-employment benefit liability


24.6



(5.8
)Under funded status of defined benefit pension and other
    post-retirement plans


1,116.8



1,036.9Investment in joint ventures (i)






(0.5
)Stock-based compensation (e)


2.2



(2.5
)Long-term debtBank loan (j)






201.8Capital leases (k)


(8.1
)


(8.9
)Transaction costs on long-term debt (a)


43.6



43.9Future/deferred income taxes


(704.5
)


(536.6
)Total liabilities


697.6



725.7Shareholders equityShare capitalStock-based compensation (e)


24.7



21.5Contributed surplusStock-based compensation (e)


(2.7
)


0.4Retained income


(211.4
)


(154.4
)Accumulated other comprehensive incomeFunding status of defined benefit pension and other
    post-retirement plans (b)


(1,792.8
)


(1,297.2
)Unrealized foreign exchange (gain) loss on designated net
    investment hedge (a)


(3.0
)


(4.9
)Total liabilities and shareholders equity

$
(1,287.6
)

$
(708.9
)   2009
    ANNUAL
    REPORT

105




---



##### 



FIVE-YEAR
    SUMMARY
  (in millions of Canadian dollars)

2009


2008(1)(3)


2007(1)(2)


2006(1)


2005(1)Income StatementRevenuesFreightGrain

$
1,129.9


$
970.0


$
938.9


$
904.6


$
754.5Coal


443.3



607.5



573.6



592.0



728.8Sulphur and fertilizers


303.5



508.6



502.0



439.3



447.1Forest products


173.2



239.3



275.8



316.4



333.9Industrial and consumer products


766.6



766.1



627.9



603.8



542.9Automotive


228.8



323.5



319.0



314.4



298.0Intermodal


1,129.9



1,399.8



1,318.0



1,256.8



1,161.14,175.2



4,814.8



4,555.2



4,427.3



4,266.3Other revenues


128.0



116.8



152.4



155.9



125.3Total revenues


4,303.2



4,931.6



4,707.6



4,583.2



4,391.6Operating expensesCompensation and benefits


1,275.2



1,306.1



1,275.0



1,348.1



1,339.3Fuel


580.2



1,005.8



746.8



650.5



588.0Materials


215.1



252.3



252.2



254.6



223.3Equipment rents


184.8



182.2



207.5



181.2



210.0Depreciation and amortization


488.9



442.5



427.5



426.9



414.8Purchased services and other


658.9



701.0



637.8



638.7



637.0Total operating expenses


3,403.1



3,889.9



3,546.8



3,500.0



3,412.4Operating
    income(6)


900.1



1,041.7



1,160.8



1,083.2



979.2Equity income (net of income tax) in Dakota,
    Minnesota & Eastern Railroad Corporation (DM&E)






50.9



11.2







Less:Other income and charges, before foreign exchange gains and
    losses on long-term debt and other specified
    items(4)(5)(6)


31.0



22.7



29.6



27.8



18.1Net interest expense


273.1



261.1



204.3



194.5



204.2Income tax expense, before income tax on foreign exchange gains
    and losses on
    long-term
    debt and income tax on other specified
    items(4)(5)(6)


135.7



189.1



268.7



264.6



243.7Income, before foreign exchange gains and losses on long-term
    debt and other specified
    items(4)(5)(6)


460.3



619.7



669.4



596.3



513.2Foreign exchange gain (loss) on long-term debt (net of income
    tax)(5)


(25.8
)


22.3



125.5



(7.2
)


22.3Other specified items (net of income
    tax)(4)(6)


177.9



(34.8
)


137.2



166.2



(7.7
)Net income

$
612.4


$
607.2


$
932.1


$
755.3


$
527.8   (1)
    Certain comparative period figures have been restated for the
    adoption of CICA accounting standard 3064 and accounting policy
    changes related to pension prior service costs and locomotive
    overhauls.(2)
    The 2007 figures include equity income for DM&E from
    October 30, 2007 to December 31, 2007.(3)
    The 2008 figures include the results of the DM&E on an
    equity accounting basis through October 29, 2008 and on a
    fully consolidated basis after that date.(4)
    Before other specified items as follows: For 2009, a
    $54.5 million loss on termination of lease with a shortline
    railway ($37.6 million after tax), a gain of $160.3 million
    on sales of partnership interest and significant properties
    ($136.8 million after tax), a $6.3 million gain in fair value of
    long-term
    floating rate notes ($4.5 million after tax), and income
    tax benefits of $74.2 million due to Provincial income tax
    rate reductions and a settlement related to a prior year; for
    2008, a $49.4 million loss in fair value of Canadian third party
    asset-backed
    commercial paper ($34.8 million after tax); for 2007, a
    $152.2 million income tax benefit was recorded due to
    Federal income tax rate reductions which was offset by a
    $21.5 million loss in fair value of Canadian third party
    asset-backed
    commercial paper ($15.0 million after tax); for 2006, a
    $166.2 million income tax benefit was recorded due to
    Federal and Provincial income tax rate reductions; for 2005, a
    $33.9 million ($20.6 million after tax) reduction to
    environmental remediation and a $44.2 million
    ($28.3 million after tax) special charge for labour
    restructuring.(5)
    Before foreign exchange gain (loss) on
    long-term
    debt as follows: For 2009, a $5.8 million ($25.8 million
    loss after tax) foreign exchange gain on
    long-term
    debt; for 2008, a $16.3 million ($22.3 million gain
    after tax) foreign exchange loss on
    long-term
    debt; for 2007, a $169.8 million ($125.5 million after
    tax) foreign exchange gain on
    long-term
    debt; for 2006, a $0.1 million ($7.2 million after
    tax) foreign exchange loss on
    long-term
    debt, for 2005, a $44.7 million ($22.3 million after
    tax) foreign exchange gain on
    long-term
    debt.(6)
    These are earnings measures that are not in accordance with GAAP
    and may not be comparable to similar measures of other
    companies. CPs results, before foreign exchange gains and
    losses on
    long-term
    debt and other specified items as defined in this summary, are
    presented to provide the reader with information that is readily
    comparable to prior years results. By excluding foreign
    exchange gains and losses on
    long-term
    debt, the impact of volatile
    short-term
    exchange rate fluctuations, which can only be realized when
    long-term
    debt matures or is settled, is largely eliminated. By also
    excluding other specified items, the results better reflect
    ongoing operations at CP.  106

2009
    ANNUAL
    REPORT




---



##### 



SHAREHOLDER
    INFORMATION
  COMMON SHARE
    MARKET PRICES
  2009


2008Toronto Stock Exchange(Canadian dollars)

High


Low


High


LowFirst Quarter


46.09



32.36



74.74



57.30Second Quarter


48.41



36.80



75.00



63.98Third Quarter


55.96



38.35



68.75



53.80Fourth Quarter


58.17



45.41



57.86



34.24Year


58.17



32.36



75.00



34.24New York Stock Exchange(U.S. dollars)


High



Low



High



LowFirst Quarter


38.98



25.11



76.18



55.39Second Quarter


43.91



29.19



76.14



62.84Third Quarter


51.64



32.96



68.33



51.75Fourth Quarter


55.43



42.05



53.70



26.64Year


55.43



25.11



76.18



26.64Number of registered shareholders at year end:














17,437Closing market prices at year end:Toronto Stock Exchange:













CDN$
56.79New York Stock Exchange:













US$
54.00   SHAREHOLDER
    ADMINISTRATION
  Common Shares
    , (514) 982-7555,
  Computershare Investor Services
    Inc.
 100 University Avenue, 9th Floor
 Toronto, Ontario Canada M5J 2Y1
  INFORMATION
    REGARDING DIRECT REGISTRATION
    4% CONSOLIDATED
    DEBENTURE STOCK
   (212) 815-2719 e-mail
 (416) 933-8504 e-mail
  2009
    ANNUAL
    REPORT

107




---



##### 



MARKET FOR
    SECURITIES
    TRADING
    SYMBOL
    DUPLICATE ANNUAL
    REPORTS
    DIRECT DEPOSIT OF
    DIVIDENDS
    CORPORATE
    GOVERNANCE
      GOVERNANCE
    STANDARDS
    CHIEF EXECUTIVE
    OFFICER AND CHIEF FINANCIAL OFFICER CERTIFICATION
  Sarbanes-Oxley Act of 2002 Form 40-F. 52-109.
  2010 ANNUAL AND
    SPECIAL MEETING
    SHAREHOLDER
    SERVICES
  1-866-861-4289 (403) 319-7538, e-mail
    INVESTOR
    INFORMATION
    COMMUNICATIONS
    AND PUBLIC AFFAIRS
    108

2009
    ANNUAL
    REPORT




---



##### 



DIRECTORS &
    COMMITTEES
  John E. Cleghorn, O.C.,
    F.C.A.(2)
 Chairman
 Canadian Pacific Railway Limited
 Toronto, Ontario
  Tim W.
    Faithfull(2)(3)*(4 )
 Retired President and Chief
    Executive Officer
 Shell Canada Limited
 Oxford, Oxfordshire, England
  Frederic J.
    Green(3)
 President and Chief Executive
    Officer
 Canadian Pacific Railway Limited
 Calgary, Alberta
  Krystyna T. Hoeg,
    C.A.(1)(5 )
 Former President and Chief
    Executive Officer
 Corby Distilleries Limited
 Toronto, Ontario
  Richard C.
    Kelly(1)(3)
 Chairman and Chief Executive
    Officer
 Xcel Energy, Inc.
 Minneapolis, Minnesota
  The Honourable John P.
    Manley(1)(2)(5)*
 President and Chief Executive
    Officer
 Canadian Council of Chief
    Executives
 Ottawa, Ontario
  Linda J.
    Morgan(3)(4)
 Counsel
 Covington & Burling LLP
 Bethesda, Maryland
  Madeleine
    Paquin(3)(4)
 President and Chief Executive
    Officer
 Logistec Corporation
 Montreal, Quebec
  Michael E.J. Phelps,
    O.C.(2)(4)*(5)
 Chairman
 Dornoch Capital Inc.
 West Vancouver, British Columbia
  Roger Phillips, O.C., S.O.M.,
    F.Inst.P.(1)(2)*(5)
 Retired President and Chief
    Executive Officer
 IPSCO Inc.
 Regina, Saskatchewan
  David W.
    Raisbeck(1)(5)
 Retired Vice-Chairman
 Cargill Inc.
 Sanibel, Florida
  Hartley T. Richardson, C.M.,
    O.M.(4)(5)
 President and Chief Executive
    Officer
 James Richardson & Sons,
    Limited
 Winnipeg, Manitoba
  Michael W.
    Wright(1)*(2)(3)
 Retired Chairman of the Board and
    Chief Executive Officer
 SUPERVALU INC.
 Longboat Key, Florida
  (1)
  (2)
  (3)
  (4)
  (5)
  *
  2009
    ANNUAL
    REPORT

109




---



##### 



SENIOR OFFICERS
    OF THE COMPANY
   John E. Cleghorn, O.C.,
    F.C.A.
 Chairman of the Board
 Toronto, Ontario
  Frederic J.
    Green(1)
 President and Chief Executive
    Officer
 Calgary, Alberta
  Kathryn B.
    McQuade(1)
 Executive Vice-President and Chief
    Financial Officer
 Mesquite, Nevada
  Jane A.
    OHagan(1)
 Senior Vice-President, Strategy
    and Yield
 Calgary, Alberta
  Brock M.
    Winter(1)
 Senior Vice-President, Operations
 Calgary, Alberta
  Raymond H.
    Foot(1)
 Group Vice-President, Sales
 Calgary, Alberta
  J. Michael
    Franczak(1)
 Group Vice-President, Operations
 Calgary, Alberta
  J. Robert
    Milloy(1)
 Group Vice-President, Marketing
    and Yield
 Calgary, Alberta
  R. Andrew
    Shields(1)
 Group Vice-President, Human
    Resources and
 Industrial Relations
 Calgary, Alberta
  Marlowe G. Allison
 Vice-President and Treasurer
 Calgary, Alberta
  Donald B.
    Campbell(1)
 Vice-President, Finance
 Calgary, Alberta
  Brian W.
    Grassby(1)
 Vice-President and Comptroller
 Calgary, Alberta
  Paul A. Guthrie,
    Q.C.(1)
 Vice-President, Law
 Municipal District of Rocky View,
    Alberta
  Karen L. Fleming
 Senior Counsel and Corporate
    Secretary
 Calgary, Alberta
  (1)
  110

2009
    ANNUAL
    REPORT




---



#####