UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 40-F
 o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934
 OR
 þ
    
    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(Province or other jurisdiction of
incorporation or organization)
    
    4011(Primary Standard Industrial
Classification Code Number)
    
    98-0355078
(Canadian Pacific Railway Limited)
98-0001377
(Canadian Pacific Railway Company)(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




---



##### 



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




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##### 



PRIOR FILINGS MODIFIED AND SUPERSEDED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




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##### 



MANAGEMENTS ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
  ATTESTATION REPORT OF THE REGISTERED PUBLIC ACCOUNTING FIRM
  CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
  NOTICES PURSUANT TO REGULATION BTR
  CODE OF ETHICS
 A. www.cpr.ca
 B. www.cpr.ca
 4




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##### 



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




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##### 



IDENTIFICATION OF AUDIT COMMITTEE AND AUDIT COMMITTEE FINANCIAL EXPERT
  
  FINANCIAL LITERACY OF AUDIT COMMITTEE MEMBERS
  SERVICE ON OTHER PUBLIC COMPANY AUDIT COMMITTEES
   6




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##### 



PRINICIPAL ACCOUNTANT FEES AND SERVICES
  Year ended December 31, 2010
    
    
    Year ended December 31, 2009Audit Fees
    
    
    $1,795,600
    
    
    
    $2,176,800Audit-Related Fees
    
    
    $388,400
    
    
    
    $794,800Tax Fees
    
    
    $341,200
    
    
    
    $424,600All Other Fees
    
    
    $ 
    
    
    
    $ TOTAL
    
    
    $2,525,200
    
    
    
    $3,396,200
  Audit Fees
  Audit-Related Fees
  Tax Fees
  All Other Fees
  7




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##### 



PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES PROVIDED BY

INDEPENDENT AUDITORS
  OFF-BALANCE SHEET ARRANGEMENTS
  TABLE OF CONTRACTUAL COMMITMENTS
  INTERACTIVE DATA FILE
  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 15, 2011 9




---



##### 



EXHIBITS
 99.1
    
    
    Consent of PricewaterhouseCoopers LLP, 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 1350.101
    
    
    Interactive Data File*
 
 *
    
    To be filed by amendment. 10




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##### 








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##### 



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
    
    
    64.2 STRATEGY
    
    
    64.3 PARTNERSHIPS, ALLIANCES AND NETWORK EFFICIENCY
    
    
    64.4 NETWORK AND RIGHT-OF-WAY
    
    
    74.5 QUARTERLY TRENDS
    
    
    104.6 BUSINESS CATEGORIES
    
    
    104.7 REVENUES
    
    
    104.8 RAILWAY PERFORMANCE
    
    
    144.9 FRANCHISE INVESTMENT
    
    
    154.10 INTEGRATED OPERATING PLAN (IOP)
    
    
    154.11 INFORMATION TECHNOLOGY
    
    
    164.12 LABOUR PRODUCTIVITY AND EFFICIENCY
    
    
    174.13 BUSINESS RISKS AND ENTERPRISE RISK MANAGEMENT
    
    
    174.14 INDEMNIFICATIONS
    
    
    174.15 SAFETY
    
    
    174.16 ENVIRONMENTAL PROTECTION
    
    
    184.17 INSURANCE
    
    
    194.18 COMPETITIVE CONDITIONS
    
    
    19SECTION 5: DIVIDENDS5.1 DECLARED DIVIDENDS AND DIVIDEND POLICY
    
    
    20SECTION 6: CAPITAL STRUCTURE6.1 DESCRIPTION OF CAPITAL STRUCTURE
    
    
    216.2 SECURITY RATINGS
    
    
    22SECTION 7: MARKET FOR SECURITIES7.1 STOCK EXCHANGE LISTINGS
    
    
    247.2 TRADING PRICE AND VOLUME
    
    
    24SECTION 8: DIRECTORS AND OFFICERS8.1 DIRECTORS
    
    
    258.2 CEASE TRADE ORDERS, BANKRUPTCIES, PENALTIES OR SANCTIONS
    
    
    268.3 SENIOR OFFICERS
    
    
    278.4 SHAREHOLDINGS OF DIRECTORS AND OFFICERS
    
    
    29SECTION 9: LEGAL PROCEEDINGS
    
    
    30SECTION 10: TRANSFER AGENTS AND REGISTRARS10.1 TRANSFER AGENT
    
    
    31SECTION 11: INTERESTS OF EXPERTS
    
    
    32SECTION 12: AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE12.1 COMPOSITION OF THE AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE AND RELEVANT EDUCATION AND EXPERIENCE
    
    
    3312.2 PRE-APPROVAL OF POLICIES AND PROCEDURES
    
    
    3412.3 AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE CHARTER
    
    
    3412.4 AUDIT AND NON-AUDIT FEES AND SERVICES
    
    
    39SECTION 13: FORWARD LOOKING INFORMATION
    
    
    41SECTION 14: ADDITIONAL INFORMATION14.1 ADDITIONAL COMPANY INFORMATION
    
    
    42
  March 2, 2011
 1




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##### 



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




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##### 



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




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##### 



SECTION 3: GENERAL DEVELOPMENTS OF THE BUSINESS
 
 3.1 Recent Developments
       2009
Highlights
      4




---



##### 



SECTION 3: GENERAL DEVELOPMENTS OF THE BUSINESS
 
 2008
Highlights
   5




---



##### 



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
   6




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##### 



SECTION 4: DESCRIPTION OF THE BUSINESS
 
  
    
    co-operation initiatives with the Canadian National Railway Company (CN) in the Port
Metro Vancouver Terminal and B.C. Lower Mainland;
    
    working very closely with all the Class I and other carriers that serve Chicago,
Illinois under the Chicago Region Environmental and Transportation Efficiency (CREATE)
program. Class Is, Amtrak, Metra and switching carriers Indiana Harbor Belt Railroad
(IHB) and Belt Railway of Chicago (BRC) have partnered in 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.
    
    CP working with the State Departments of Transportation of New York, Illinois, Wisconsin
and Minnesota to develop plans for improved track infrastructure to support intercity
passenger rail. Work on the improvements is expected to commence during the 2011
construction season and be complete by 2013. The improvements will improve the fluidity of
passenger and freight traffic on shared CP track.
  4.4 Network and Right-of-Way
  
  4.4.1 The Western Corridor: Vancouver-Thunder Bay
 Overview
 Products
 Feeder Lines
 7




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##### 



SECTION 4: DESCRIPTION OF THE BUSINESS
 
  Connections
 Yards and Repair Facilities
 4.4.2 The Central Corridor: Moose Jaw-Chicago-Kansas City
 Overview
 Products
 Feeder Lines
 Connections
 Yards and Repair Facilities
 8




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##### 



SECTION 4: DESCRIPTION OF THE BUSINESS
 
 4.4.3 The Eastern Corridor: Thunder Bay-Montreal and Detroit
 Overview
 Products
 Feeder Lines
 Connection
 Yards and Repair Facilities
  4.4.4 The Northeast U.S. Corridor: Buffalo and Montreal to New York
 Overview
 Products
 Feeder Lines
 Connections
 Yards and Repair Facilities
 4.4.5 Right-of-Way
   9




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##### 



SECTION 4: DESCRIPTION OF THE BUSINESS
 
  4.5 Quarterly Trends
   4.6 Business Categories
  Business Category
    
    2010
    
    2009Bulk
    
    
    43
    %
    
    
    44
    %Merchandise
    
    
    29
    %
    
    
    28
    %Intermodal
    
    
    28
    %
    
    
    28
    %
 4.7 Revenues
  Freight Revenues
    
    
    
    
    
    Fiscal 2010
    
    
    
    
    
    Fiscal 2009(in $ millions, except for percentages)
    
    Fiscal
    
    Compared
    
    Fiscal
    
    Compared
    
    Fiscal2010
    
    to Fiscal
    
    2009(1)
    
    to Fiscal
    
    2008(1)Business Category
    
    
    
    
    
    2009
    
    
    
    
    
    2008(1)BulkGrain
    
    
    1,135.7
    
    
    
    (0.1
    )%
    
    
    1,137.1
    
    
    
    16.4
    %
    
    
    977.2Coal
    
    
    490.8
    
    
    
    10.6
    %
    
    
    443.8
    
    
    
    (27.4
    )%
    
    
    611.4Sulphur and fertilizers
    
    
    474.8
    
    
    
    53.5
    %
    
    
    309.3
    
    
    
    (39.6
    )%
    
    
    511.9Total bulk
    
    
    2,101.3
    
    
    
    11.2
    %
    
    
    1,890.2
    
    
    
    (10.0
    )%
    
    
    2,100.5MerchandiseForest products
    
    
    184.9
    
    
    
    5.0
    %
    
    
    176.1
    
    
    
    (27.0
    )%
    
    
    241.1Industrial and consumer products
    
    
    902.8
    
    
    
    14.8
    %
    
    
    786.1
    
    
    
    1.8
    %
    
    
    772.0Automotive
    
    
    316.4
    
    
    
    38.0
    %
    
    
    229.3
    
    
    
    (29.6
    )%
    
    
    325.6Total merchandise
    
    
    1,404.1
    
    
    
    17.8
    %
    
    
    1,191.5
    
    
    
    (11.0
    )%
    
    
    1,338.7Intermodal
    
    
    1,347.9
    
    
    
    12.5
    %
    
    
    1,198.1
    
    
    
    (19.2
    )%
    
    
    1,482.3Total freight revenues
    
    
    4,853.3
    
    
    
    13.4
    %
    
    
    4,279.8
    
    
    
    (13.0
    )%
    
    
    4,921.5
 (1)
    
    Restated on a U.S. GAAP basis.
 10




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##### 



SECTION 4: DESCRIPTION OF THE BUSINESS
 
 4.7.1 Bulk
  4.7.1.1 Grain
    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
   11




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##### 



SECTION 4: DESCRIPTION OF THE BUSINESS
 
 Fertilizers
   4.7.2 Merchandise
   4.7.2.1 Forest Products
   4.7.2.2 Industrial and Consumer Products
    4.7.2.3 Automotive
   12




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##### 



SECTION 4: DESCRIPTION OF THE BUSINESS
 
 4.7.3 Intermodal
   Domestic Intermodal
  International Intermodal
   4.7.4 Other Business
  4.7.5 Significant Customers
  13




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##### 



SECTION 4: DESCRIPTION OF THE BUSINESS
 
 4.8 Railway Performance
  4.8.1 Performance Indicators
 Year Ended December 31Performance Indicators(1)
    
    2010(2)
    
    
    2009(2)
    
    
    2008(2)
    
    
    2007
    
    
    2006Efficiency and other indicatorsGross ton-miles (GTM) (millions)(3)
    
    
    242,757
    
    
    
    209,475
    
    
    
    239,705
    
    
    
    246,322
    
    
    
    236,405Train miles (thousands)
    
    
    39,576
    
    
    
    34,757
    
    
    
    41,420
    
    
    
    42,804
    
    
    
    42,310U.S. gallons of locomotive fuel per 1,000 GTMs  freight and yard(4)
    
    
    1.17
    
    
    
    1.19
    
    
    
    1.22
    
    
    
    1.21
    
    
    
    1.20Average number of active employees  expense(5)
    
    
    13,879
    
    
    
    13,619
    
    
    
    14,340
    
    
    
    14,172
    
    
    
    14,311Car miles per car day(6)
    
    
    139.9
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/ACar miles per car day, excluding DM&E
    
    
    151.5
    
    
    
    142.6
    
    
    
    143.6
    
    
    
    142.3
    
    
    
    137.3Average train speed (miles per hour)(7)
    
    
    22.7
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/AAverage train speed (miles per hour), excluding DM&E
    
    
    23.8
    
    
    
    25.5
    
    
    
    24.0
    
    
    
    23.2
    
    
    
    24.8Average terminal dwell (hours)(8)
    
    
    21.4
    
    
    
    21.9
    
    
    
    22.3
    
    
    
    22.2
    
    
    
    20.8Safety indicatorsFRA personal injuries per 200,000 employee-hours(9)(11)
    
    
    1.61
    
    
    
    1.92
    
    
    
    1.63
    
    
    
    2.09
    
    
    
    2.00FRA train accidents per million train-miles(10)(11)
    
    
    1.63
    
    
    
    1.81
    
    
    
    2.53
    
    
    
    2.05
    
    
    
    1.56
 (1)
    
    Certain prior period figures have been updated to reflect new information.(2)
    
    Consolidated data includes DM&E for 2010 and 2009. The 2008 figures include DM&E on
a fully consolidated basis 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)
    
    U.S. 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)
    
    U.S. 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$9,200 in the U.S. or $10,600 in Canada
in damage.(11)
    
    Safety indicators for 2008 include DM&E for the whole year. 14




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##### 



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
    
    
    200
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    2026-10
    
    
    205
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20511-15
    
    
    322
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32216-20
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Over 20
    
    
    
    
    
    
    472
    
    
    
    276
    
    
    
    226
    
    
    
    974Total
    
    
    727
    
    
    
    472
    
    
    
    278
    
    
    
    226
    
    
    
    1,703
 4.9.2 Railcar Fleet
   4.10 Integrated Operating Plan (IOP)
    15




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##### 



SECTION 4: DESCRIPTION OF THE BUSINESS
 
  4.11 Information Technology
   MultiRail
  Transportation
Management Systems (TMS)
  Mycpr.ca
 www.myCPR.ca
 Engineering
Excellence
  Equipment
Health Management System (EHMS)
  16




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##### 



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
   4.15 Safety
    17




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##### 



SECTION 4: DESCRIPTION OF THE BUSINESS
 
  4.16 Environmental Protection
  4.16.1 Policy
  Ò Ò Ò Ò
 4.16.2 Planning
  4.16.3 Implementation and Operation
   4.16.4 Environmental Contamination
  4.16.5 Checking and Corrective Action
   18




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##### 



SECTION 4: DESCRIPTION OF THE BUSINESS
 
 4.16.6 Management Review
  4.16.7 Expenditures
  4.17 Insurance
  4.18 Competitive Conditions
  19




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##### 



SECTION 5: DIVIDENDS
 
 5.1 Declared Dividends and Dividend Policy
  Dividend Amount
    
    Record Date
    
    Payment Date$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$0.2700
    
    June 25, 2010
    
    July 26, 2010$0.2700
    
    September 24, 2010
    
    October 25, 2010$0.2700
    
    December 31, 2010
    
    January 31, 2011$0.2700
    
    March 25, 2011
    
    April 25, 2011
  20




---



##### 



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.
 21




---



##### 



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
 22




---



##### 



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
 23




---



##### 



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
    
    
    57.14
    
    
    
    57.48
    
    
    
    49.98
    
    
    
    50.48
    
    
    
    9,122,731February
    
    
    50.51
    
    
    
    52.36
    
    
    
    49.58
    
    
    
    50.79
    
    
    
    9,466,384March
    
    
    51.00
    
    
    
    57.54
    
    
    
    50.80
    
    
    
    57.24
    
    
    
    10,568,993April
    
    
    57.01
    
    
    
    61.66
    
    
    
    55.55
    
    
    
    59.88
    
    
    
    9,487,200May
    
    
    60.35
    
    
    
    62.00
    
    
    
    53.57
    
    
    
    58.88
    
    
    
    14,227,073June
    
    
    57.77
    
    
    
    62.90
    
    
    
    56.03
    
    
    
    57.06
    
    
    
    15,469,194July
    
    
    57.25
    
    
    
    62.13
    
    
    
    55.65
    
    
    
    61.39
    
    
    
    12,208,568August
    
    
    61.76
    
    
    
    63.15
    
    
    
    58.19
    
    
    
    62.81
    
    
    
    10,558,343September
    
    
    63.25
    
    
    
    65.82
    
    
    
    62.44
    
    
    
    62.86
    
    
    
    10,812,161October
    
    
    63.01
    
    
    
    67.50
    
    
    
    61.60
    
    
    
    66.48
    
    
    
    9,812,600November
    
    
    66.49
    
    
    
    67.25
    
    
    
    63.93
    
    
    
    65.55
    
    
    
    7,919,864December
    
    
    66.00
    
    
    
    66.68
    
    
    
    64.10
    
    
    
    64.62
    
    
    
    7,441,455
  Opening
    
    High
    
    Low
    
    Closing
    
    Volume ofMonth
    
    Price per
    
    Price per
    
    Price per
    
    Price per
    
    SharesShare ($)
    
    Share ($)
    
    Share ($)
    
    Share ($)
    
    TradedJanuary
    
    
    54.76
    
    
    
    55.74
    
    
    
    46.77
    
    
    
    47.00
    
    
    
    11,418,147February
    
    
    47.55
    
    
    
    50.39
    
    
    
    46.13
    
    
    
    48.18
    
    
    
    10,748,305March
    
    
    48.71
    
    
    
    56.65
    
    
    
    48.29
    
    
    
    56.24
    
    
    
    9,753,036April
    
    
    56.59
    
    
    
    61.38
    
    
    
    55.43
    
    
    
    58.86
    
    
    
    9,258,699May
    
    
    59.55
    
    
    
    60.78
    
    
    
    49.98
    
    
    
    55.03
    
    
    
    17,260,850June
    
    
    54.78
    
    
    
    61.98
    
    
    
    53.15
    
    
    
    53.62
    
    
    
    17,870,414July
    
    
    53.81
    
    
    
    60.42
    
    
    
    52.15
    
    
    
    59.87
    
    
    
    12,998,927August
    
    
    61.00
    
    
    
    62.14
    
    
    
    54.73
    
    
    
    58.98
    
    
    
    13,356,734September
    
    
    59.89
    
    
    
    63.47
    
    
    
    59.89
    
    
    
    60.93
    
    
    
    13,237,176October
    
    
    61.42
    
    
    
    66.72
    
    
    
    60.14
    
    
    
    65.14
    
    
    
    11,116,621November
    
    
    65.45
    
    
    
    67.03
    
    
    
    62.62
    
    
    
    63.99
    
    
    
    8,600,049December
    
    
    64.86
    
    
    
    66.43
    
    
    
    63.59
    
    
    
    64.81
    
    
    
    10,300,835
 24




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##### 



SECTION 8: DIRECTORS AND OFFICERS
 
  8.1 Directors
 Name and Municipality of Residence
    
    Position Held and Principal Occupation within
    
    Year of Annual Meetingthe Preceding Five Years(1)
    
    at which Term of OfficeExpires (DirectorSince)J.E. Cleghorn, O.C., F.C.A. (3)
Toronto, Ontario, Canada
    
    Chairman, Canadian Pacific Railway Limited
and Canadian Pacific Railway Company
    
    2011
(2001)T.W. Faithfull (3)(4)(5)
Oxford, Oxfordshire, England
    
    Retired President and Chief Executive Officer
Shell Canada Limited (oil and gas company)
    
    2011
(2003)F.J. Green (4)
Calgary, Alberta, Canada
    
    President and Chief Executive Officer,
Canadian Pacific Railway Company and
Canadian Pacific
Railway Limited
    
    2011
(2006)K.T. Hoeg, C.A. (2)(6)
Toronto, Ontario, Canada
    
    Former President and Chief Executive Officer
of Corby Distilleries Limited (spirits and
wine)
    
    2011
(2007)R. 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)
    
    2011
(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)
    
    2011
(2006)L.J. Morgan (2)(4)
Bethesda, Maryland, U.S.A.
    
    Counsel, Covington & Burling LLP (law firm)
    
    2011
(2006)M. Paquin (4)(5)
Montreal, Quebec, Canada
    
    President and Chief Executive Officer,
Logistec Corporation (international
cargo-handling company)
    
    2011
(2001)M.E.J. Phelps, O.C. (3)(5)(6)
West Vancouver, B.C., Canada
    
    Chairman, Dornoch Capital Inc. (private
investment company)
    
    2011
(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)
    
    2011
(2001)D.W. Raisbeck (5)(6)
Sanibel, Florida, U.S.A
    
    Retired Vice-Chairman, Cargill Inc.
(producer and marketer of agricultural,
financial and industrial products)
    
    2011
(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)
    
    2011
(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)
    
    2011
(2001)
  (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. K.T. Hoeg was President
and Chief Executive Officer of Corby Distilleries Limited from October 1996 to February 2007.
The Hon. J.P. Manley
 25




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##### 



SECTION 8: DIRECTORS AND OFFICERS
 
 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
    26




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##### 



SECTION 8: DIRECTORS AND OFFICERS
 
 8.3 Senior Officers
  Name and municipality of residence
    
    Position held
    
    Principal occupation within thepreceding five yearsJ. E. Cleghorn, O.C., F.C.A.
Toronto, Ontario, Canada
    
    Chairman
    
    Chairman, Canadian Pacific
Railway Company and Canadian
Pacific Railway Limited;
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 LimitedE. L. Harris(1)
Spring Lake, Michigan, U.S.A.
    
    Executive Vice-President and Chief
Operations Officer
    
    Executive Vice-President and
Chief Operations Officer,
Canadian Pacific Railway
Company and Canadian Pacific
Railway Limited; Rail
Operations Consultant,
Independent Contractor; Senior
Advisor to the Board, Global
Infrastructure Partners;
Executive Vice-President
Operations, Canadian National
Railway CompanyK. 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 CorporationJ. A. OHagan 
Calgary, Alberta, Canada
    
    Executive
Vice-President and
Chief Marketing
Officer
    
    Executive Vice-President and
Chief Marketing Officer,
Canadian Pacific Railway
Company and Canadian Pacific
Railway Limited; Senior
Vice-President, Marketing and
Sales and Chief Marketing
Officer, Canadian Pacific
Railway Company and Canadian
Pacific Railway Limited;
Senior Vice-President,
Strategy and Yield, Canadian
Pacific Railway Company and
Canadian Pacific Railway
Limited; Vice-President,
Strategy and External Affairs,
Canadian Pacific Railway
Company; Vice-President,
Strategy, Research and New
Market Development, Canadian
Pacific Railway CompanyR. H. Foot 
Calgary, Alberta, Canada
    
    Group Vice-President,
Sales
    
    Group Vice-President, Sales,
Canadian Pacific Railway
Company and Canadian Pacific
Railway Limited;
Vice-President, Sales &
Marketing, Merchandise,
Canadian Pacific Railway
CompanyD. B. Campbell 
Calgary, Alberta, Canada
    
    Senior
Vice-President,
Strategy and
Financial Planning
    
    Senior Vice-President Strategy
and Financial Planning,
Canadian Pacific Railway
Company and Canadian Pacific
Railway Limited;
Vice-President, Finance,
Canadian Pacific Railway
Company and Canadian Pacific
Railway Limited;
Vice-President, Corporate
Planning, Canadian Pacific
Railway Company and Canadian
Pacific Railway Limited;
Vice-President Business
Planning and Development,
Canadian Pacific Railway
Company
 27




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##### 



SECTION 8: DIRECTORS AND OFFICERS
 
 Name and municipality of residence
    
    Position held
    
    Principal occupation within thepreceding five yearsJ. M. Franczak(1)
Calgary, Alberta, Canada
    
    Senior Vice-President,
Operations
    
    Senior Vice-President,
Operations, Canadian Pacific
Railway Company and Canadian
Pacific Railway Limited; Group
Vice-President, Operations,
Canadian Pacific Railway
Company and Canadian Pacific
Railway Limited;
Vice-President Operations,
Canadian Pacific Railway
Company; Vice-President,
Transportation, Canadian
Pacific Railway Company;
Assistant Vice-President,
Transportation, Canadian
Pacific Railway CompanyB. W. Grassby 
Calgary, Alberta, Canada
    
    Senior
Vice-President,
Finance and
Comptroller
    
    Senior Vice-President Finance
and Comptroller, Canadian
Pacific Railway Company and
Canadian Pacific Railway
Limited; 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 LimitedB. M. Winter 
Calgary, Alberta, Canada
    
    Senior Vice-President,
Engineering and
Mechanical
    
    Senior Vice-President,
Engineering and Mechanical,
Canadian Pacific Railway
Company and Canadian Pacific
Railway Limited; Senior
Vice-President, Operations,
Canadian Pacific Railway
Company and Canadian Pacific
Railway Limited;
Vice-President Operations,
Canadian Pacific Railway
Company; Vice-President,
Transportation and Field
Operations, 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.P. J. Edwards 
Calgary, Alberta, Canada
    
    Vice-President,
Human Resources and
Industrial
Relations
    
    Vice-President Human Resources
and Industrial Relations,
Canadian Pacific Railway
Company and Canadian Pacific
Railway Limited;
Vice-President Human
Resources, Canadian Pacific
Railway Company and Canadian
Pacific Railway Limited;
Vice-President Human
Resources, Canadian National
Railway CompanyP. A. Guthrie, Q.C. 
Municipal District of Rockyview,
Alberta, Canada
    
    Vice-President, Law
and Risk Management
    
    Vice-President, Law and Risk
Management, Canadian Pacific
Railway Company and Canadian
Pacific Railway Limited;
Assistant Vice-President Legal
Services, Canadian Pacific
Railway CompanyK. L. Fleming 
Calgary, Alberta, Canada
    
    Corporate Secretary
    
    Corporate Secretary, Canadian
Pacific Railway Company and
Canadian Pacific Railway
Limited; Associate Corporate
Secretary, Canadian Pacific
Railway Company and Canadian
Pacific Railway Limited; Legal
Counsel Labour & Employment
Coordinator, Canadian Pacific
Railway Company
 
 Note:(1)
    
    Effective April 1, 2011, Mr. Harris will be retiring and Mr. Franczak will be appointed
Executive Vice-President Operations. 28




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##### 



SECTION 8: DIRECTORS AND OFFICERS
 
 8.4 Shareholdings of Directors and Officers
  29




---



##### 



SECTION 9: LEGAL PROCEEDINGS
 
  30




---



##### 



SECTION 10: TRANSFER AGENTS AND REGISTRARS
 
 10.1 Transfer Agent
    th
 31




---



##### 



SECTION 11: INTERESTS OF EXPERTS
 
  32




---



##### 



SECTION 12: AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE
 
 12.1 Composition of the Audit, Finance and Risk Management Committee and Relevant Education and Experience
  K. T. Hoeg
 R. C. Kelly
 The Hon. J. P. Manley
 L. J. Morgan -
 R. Phillips
 M. W. Wright (Chair)
 33




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##### 



SECTION 12: AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE
 
  12.2 Pre-Approval of Policies and Procedures
  12.3 Audit, Finance and Risk Management Committee Charter
  A.
    
    Committee and Procedures1.
    
    Purpose
  
    
    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
  34




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##### 



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
  35




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##### 



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 MattersExternal Auditors Report on Annual Audit
 a)
    
    obtain and review annually prior to the completion of the external auditors annual
audit of the year-end financial statements a report from the external auditors describing:
 (i)
    
    all critical accounting policies and practices to be used;(ii)
    
    all alternative treatments of financial information within generally
accepted accounting principles that have been discussed with management, the
ramifications of the use of such alternative disclosures and treatments, and the
treatment preferred by the external auditors; and(iii)
    
    other material written communications between the external auditors and
management, such as any management letter or schedule of unadjusted differences;
 Managements and Internal Auditors Reports on External Audit Issues
 b)
    
    review any reports on the above or similar topics prepared by management or the
internal auditors and discuss with the external auditors any material issues raised in
such reports;
 Annual Financial Reporting Documents and External Auditors Report
 c)
    
    meet to review with management, the internal auditors and the external auditors the
Corporations annual financial statements, the report of the external auditors thereon,
the related Managements Discussion and Analysis, and the information derived from the
financial statements, as contained in the Annual Information Form and the Annual Report.
Such review will include obtaining assurance from the external auditors that the audit was
conducted in a manner consistent with applicable law and will include a review of:
 (i)
    
    all major issues regarding accounting principles and financial statement
presentations, including any significant changes in the Corporations selection or
application of accounting policies or principles;
 36




---



##### 



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;
 37




---



##### 



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;
 
 38




---



##### 



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, 2010
    
    December 31, 2009Audit Fees
    
    $
    1,795,600
    
    
    $
    2,176,800Audit-Related Fees
    
    
    388,400
    
    
    
    794,800Tax Fees
    
    
    341,200
    
    
    
    424,600All Other Fees
    
    
    
    
    
    
    TOTAL
    
    $
    2,525,200
    
    
    $
    3,396,200
  12.4.1 Audit Fees
  12.4.2 Audit-Related Fees
  39




---



##### 



SECTION 12: AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE
 
  12.4.3 Tax Fees
  12.4.4 All Other Fees
  40




---



##### 



SECTION
13: FORWARD-LOOKING INFORMATION
 
 Private Securities
Litigation Reform Act of 1995
   41




---



##### 



SECTION
14: ADDITIONAL INFORMATION
 
 14.1 Additional Company Information
 www.sedar.com www.sec.gov.
   www.cpr.ca.
 42




---



##### 








---



##### 



Annual Report 2010




---



##### 



1

Chief Executive Officers Letter to Shareholders2

Managements Discussion and Analysis49

Financial Statements109

Five-Year Summary111

Shareholder Information113

Directors and Committees114

Senior Officers of the Company




---



##### 



CHIEF EXECUTIVE
    OFFICERS LETTER TO SHAREHOLDERS
      o
    Revenue ton miles were increased by 17% as a result of an
    improving economy and CPs market development activities;o
    Adjusted diluted earnings per share increased by 54%;o
    CPs adjusted operating ratio was improved by
    410 basis points;o
    The annual dividend rate was increased by 9%;o
    The balance sheet was further strengthened by reducing long-term
    debt by approximately $250 million and making a
    $650 million voluntary prepayment to the Canadian Defined
    Benefit Pension Plan; ando
    CP and our largest customer, Teck Resources signed a historic
    ten year services contract that aligns the two parties to
    substantially grow volumes in the decade ahead.              th
         
    2010
    ANNUAL
    REPORT

1




---



##### 



CANADIAN
    PACIFIC
    MANAGEMENTS DISCUSSION AND ANALYSIS For
    the year ended December 31, 2010
   TABLE OF
    CONTENTS
  1.0

Business Profile


32.0

Strategy


33.0

Additional Information


34.0

Financial Highlights


45.0

Operating Results


55.1

Income


55.2

Diluted Earnings per Share


55.3

Operating Ratio


55.4

Impact of Foreign Exchange on Earnings


66.0

Non-GAAP Earnings


67.0

Lines of Business


87.1

Volumes


87.2

Revenues


107.3

2010 to 2009 Comparatives


107.3.1

Freight Revenues


107.3.2

Other Revenues


127.3.3

Freight Revenue per Carload


127.3.4

Freight Revenue per Revenue
    Ton-Mile


127.4

2009 to 2008 Comparatives


137.4.1

Freight Revenues


137.4.2

Other Revenues


147.4.3

Freight Revenue per Carload


147.4.4

Freight Revenue per Revenue
    Ton-Mile


148.0

Performance Indicators


148.1

Efficiency and Other Indicators


158.2

Safety Indicators


159.0

Operating Expenses


169.1

2010 to 2009 Comparatives


169.2

2009 to 2008 Comparatives


1810.0

Other Income Statement Items


1911.0

Quarterly Financial Data


2012.0

Fourth-Quarter Summary


2112.1

Operating Results


2212.2

Non-GAAP Earnings


2212.3

Revenues


2212.4

Operating Expenses


2312.5

Other Income Statement Items


2412.6

Income Taxes


2512.7

Liquidity and Capital Resources


2513.0

Changes in Accounting Policy


2513.1

2010 Accounting Changes


2513.2

New Accounting Pronouncements Issued and Not Yet Adopted


2614.0

Liquidity and Capital Resources


2614.1

Operating Activities


2614.2

Investing Activities


2714.3

Financing Activities


2814.4

Free Cash


2915.0

Balance Sheet


3016.0

Financial Instruments


3117.0

Off-Balance Sheet Arrangements


3418.0

Acquisition


3419.0

Contractual Commitments


3420.0

Future Trends and Commitments


3521.0

Business Risks and Enterprise Risk Management


3621.1

Competition


3621.2

Liquidity


3621.3

Regulatory Authorities


3721.4

Labour Relations


3821.5

Environmental Laws and Regulations


3921.6

Climate Change


3921.7

Financial Risks


3921.8

General and Other Risks


4022.0

Critical Accounting Estimates


4123.0

Systems, Procedures and Controls


4524.0

Forward-Looking Information


4525.0

Glossary of Terms


47   2

2010
    ANNUAL
    REPORT




---



##### 



March 2,
    2011
     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    2010
    ANNUAL
    REPORT

3




---



##### 



4.0 Financial
    Highlights  2010


2009(1)


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







2008(2)


DM&E(3)


Pro
    forma(1)(4)(5)Revenues

$
4,981.5


$
4,402.2


$
5,048.5


$
300.7


$
5,349.2Adjusted operating
    income(5)


1,116.1



805.5



1,039.0



86.2



1,125.2Operating income


1,116.1



830.1



1,039.0



86.2



1,125.2Income, before FX on LTD and other specified
    items(5)


654.2



418.3



631.2







631.2Net income


650.7



550.0



627.8







627.8Basic earnings per share


3.86



3.31



4.08







4.08Diluted earnings per share


3.85



3.30



4.04







4.04Diluted earnings per share, before FX on LTD and other specified
    items(5)


3.87



2.51



4.06







4.06Dividends declared per share


1.0575



0.9900



0.9900







0.9900Free
    cash(5)(7)


(325.2
)


(90.7
)


150.7Total assets at December 31


13,675.9



14,154.8



14,362.2Total long-term financial liabilities at December
    31(6)


4,169.8



4,302.2



5,126.2Operating ratio


77.6
%


81.1
%


79.4
%






79.0
%Adjusted operating
    ratio(5)


77.6
%


81.7
%


79.4
%






79.0
%   BAR GRAPH

BAR GRAPH

BAR GRAPH   (1)
  (2)
  (3)
  (4)
  (5)
  (6)
  (7)
  4

2010
    ANNUAL
    REPORT




---



##### 



5.0 Operating
    Results 5.1
    INCOME              o
    the global recession which resulted in lower traffic volumes;o
    reduced coal revenues as a result of regulatory rate proceedings
    and reduced average length of haul on export coal; ando
    a loss on termination of a lease (discussed further in
    Section 9.1.7.2 Loss on Termination of Lease with Shortline
    Railway).    o
    the gain on sales of significant properties (discussed further
    in Section 9.1.7.1 Gain on Sales of Significant Properties);o
    the favourable impact of the change in FX;o
    a decline in overall compensation and benefits expense due to
    lower volumes, however, the success of variable cost reductions
    in response to lower volumes resulted in higher incentive
    compensation and gainshare payments to employees;o
    the net effect of fuel price declines; ando
    lower purchased services and other expenses.      o
    the 2009 gain on sale of a partnership interest (discussed
    further in Section 10.1 Gain on Sale of Partnership
    Interest);o
    an increase in income tax expense; ando
    income tax recoveries in 2009 (discussed further in
    Section 10.5 Income Taxes).    o
    the gain on sale of a partnership interest (discussed further in
    Section 10.1 Gain on Sale of Partnership Interest);o
    the absence of the 2008 loss in fair value of our investment in
    Asset-backed Commercial Paper (ABCP); ando
    income tax recoveries in 2009 (discussed further in
    Section 10.5 Income Taxes). 5.2 DILUTED
    EARNINGS PER SHARE     5.3 OPERATING
    RATIO    5

2010
    ANNUAL
    REPORT




---



##### 



5.4 IMPACT OF
    FOREIGN EXCHANGE ON EARNINGS      year-over-year
 6.0
    Non-GAAP Earnings        line-by-line
        2010
    ANNUAL
    REPORT

6




---



##### 



RECONCILIATION OF
    NON-GAAP MEASURES TO GAAP MEASURES
  For the three months endedFor the year ended December 31


December 312010


2009(1)


2008(2)


2010


2009(1)(in millions, except diluted EPS)







2008(1)


DM&E(3)


Pro
    forma(3)(4)Adjusted operating
    income(4)(5)

$
1,116.1


$
805.5


$
1,039.0


$
86.2


$
1,125.2


$
297.7


$
222.0Equity income in DM&E










50.9



(50.9
)










Less:Other income and charges, before FX on LTD and other specified
    items(4)


(6.3
)


22.3



17.1



(0.4
)


16.7



(5.3
)


0.6Adjusted
    EBIT(4)


1,122.4



783.2



1,072.8



35.7



1,108.5



303.0



221.4Less:Net interest expense


257.3



267.6



239.6



1.9



241.5



65.2



68.4Income tax expense, before income tax on FX on LTD and other
    specified
    items(4)


210.9



97.3



202.0



33.8



235.8



47.7



27.4Income, before FX gain (loss) on LTD and other specified
    items(4)


654.2



418.3



631.2







631.2



190.1



125.6Foreign exchange gain (loss) on long-term debtFX on LTD  gain (loss)


2.3



3.6



(5.8
)






(5.8
)


(0.9
)


7.6Income tax (expense) recovery on FX on LTD


(8.2
)


(31.3
)


37.2







37.2



(3.6
)


(5.1
)FX on LTD, net of tax  (loss) gain


(5.9
)


(27.7
)


31.4







31.4



(4.5
)


2.5Other specified itemsLoss on termination of lease with shortline railway






(54.5
)


















(54.5
)Income tax recovery






16.9



















16.9Loss on termination of lease with shortline railway, net of tax






(37.6
)


















(37.6
)Gain on sale of partnership interest






81.2



















Income tax expense






(12.5
)


















Gain on sale of partnership interest, net of tax






68.7



















Gain on sales of significant properties






79.1



















Income tax expense






(11.0
)


















Gain on sales of significant properties, net of tax






68.1



















Change in fair value of long-term floating rate notes/ ABCP


3.4



6.3



(49.4
)






(49.4
)


0.3



Income tax (expense) recovery


(1.0
)


(1.8
)


14.6







14.6



(0.1
)


Change in fair value of long-term floating rate notes/ ABCP, net
    of tax


2.4



4.5



(34.8
)






(34.8
)


0.2



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






55.7



















55.7Net income

$
650.7


$
550.0


$
627.8


$



$
627.8


$
185.8


$
146.2Diluted EPS

$
3.85


$
3.30


$
4.04


$



$
4.04


$
1.09


$
0.87Diluted EPS, related to FX on LTD, net of
    tax(4)


0.03



0.17



(0.20
)






(0.20
)


0.03



(0.02
)Diluted EPS, related to other specified items, net of
    tax(4)


(0.01
)


(0.96
)


0.22







0.22







(0.11
)Diluted EPS, before FX on LTD and other specified
    items(4)

$
3.87


$
2.51


$
4.06


$



$
4.06


$
1.12


$
0.74   (1)
  (2)
  (3)
  (4)
  (5)
  7

2010
    ANNUAL
    REPORT




---



##### 



6.1 FOREIGN
    EXCHANGE GAINS AND LOSSES ON LONG-TERM DEBT
      o
    FX gain on LTD of $2.3 million in 2010, as the Canadian
    dollar strengthened to $0.9946 at December 31, 2010,
    relative to the U.S. dollar;o
    FX gain on LTD of $3.6 million in 2009, as the Canadian
    dollar strengthened to $1.0510 at December 31, 2009,
    relative to the U.S. dollar;o
    FX loss on LTD of $5.8 million in 2008, as the Canadian
    dollar exchange rate weakened to $1.2180 at December 31,
    2008 relative to the U.S. dollar; ando
    income tax recovery (expense) related to FX on LTD is discussed
    further in Section 10.5 Income Taxes.  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 9.1.7.2 Loss on Termination of Lease with
    Shortline Railway).o
    in the fourth quarter of 2009, the Company recorded a tax
    benefit of $55.7 million due to a rate reduction and a
    settlement related to a prior year income tax matter.o
    in the third quarter of 2009, we recorded gains of
    $79.1 million ($68.1 million after tax) on the sale of
    Windsor Station, in Montreal and a land sale in western Canada
    (discussed further in Section 9.1.7.1 Gain on Sales of
    Significant Properties).o
    in the second quarter of 2009, we recorded a gain of
    $81.2 million ($68.7 million after tax) on the sale of
    a partnership interest in the Detroit River Tunnel Partnership
    (DRTP) (discussed further in Section 10.1 Gain
    on Sale of Partnership Interest).o
    in the second and third quarters of 2009, the Company recorded
    realized gains from the 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 22.6 Long-term Floating Rate
    Notes).   7.0 Lines of
    Business 7.1 VOLUMES    2010
    ANNUAL
    REPORT

8




---



##### 



VOLUMES
  2010


2009


2008For the year ended December 31







As
    reported(1)


Pro
    forma(2)Carloads (in thousands)Grain


466.4



469.5



382.4



460.4Coal


341.1



305.1



281.0



317.7Sulphur and fertilizers


177.2



108.8



191.3



195.4Forest products


71.6



66.8



91.8



97.6Industrial and consumer products


396.9



345.9



340.9



425.5Automotive


137.3



103.7



141.3



142.0Intermodal


1,070.1



962.9



1,216.0



1,216.0Total Carloads


2,660.6



2,362.7



2,644.7



2,854.6Revenue
    ton-miles
    (in millions)Grain


34,556



34,838



29,376



32,019Coal


19,021



16,997



21,247



21,600Sulphur and fertilizers


17,687



9,362



19,757



19,956Forest products


5,238



4,470



5,677



5,927Industrial and consumer products


21,996



17,653



18,296



21,364Automotive


2,067



1,607



2,213



2,221Intermodal


25,863



23,425



27,966



27,966Total revenue
    ton-miles


126,428



108,352



124,532



131,053   (1)
  (2)
  ton-miles
        9

2010
    ANNUAL
    REPORT




---



##### 



7.2 REVENUES    REVENUES
  2010


2009


2008AsFor the year ended December 31
    (in millions)







reported(1)


DM&E(2)


Pro
    forma(3)(4)Grain

$
1,135.7


$
1,137.1


$
977.2


$
102.3


$
1,079.5Coal


490.8



443.8



611.4



15.8



627.2Sulphur and fertilizers


474.8



309.3



511.9



10.5



522.4Forest products


184.9



176.1



241.1



9.9



251.0Industrial and consumer products


902.8



786.1



772.0



156.3



928.3Automotive


316.4



229.3



325.6



4.0



329.6Intermodal


1,347.9



1,198.1



1,482.3







1,482.3Total freight revenues


4,853.3



4,279.8



4,921.5



298.8



5,220.3Other revenues


128.2



122.4



127.0



1.9



128.9Total revenues

$
4,981.5


$
4,402.2


$
5,048.5


$
300.7


$
5,349.2   (1)
  (2)
  (3)
  (4)
   7.3 2010 TO
    2009 COMPARATIVES 7.3.1 Freight
    Revenues      o
    higher traffic volumes due to an improved economy;o
    higher fuel surcharge revenues due to the change in fuel
    price; ando
    increased freight rates on average for all lines of business.    7.3.1.1 Fuel
    Cost Recovery Program
    7.3.1.2 Grain
        7.3.1.3 Coal
    2010
    ANNUAL
    REPORT

10




---



##### 



o
    an increase in demand for metallurgical coal to Asia;o
    increased freight rates for U.S. originated
    traffic; ando
    higher fuel surcharge revenues due to the change in fuel price.    7.3.1.4 Sulphur
    and Fertilizers
      o
    higher export potash shipments as a result of the return of
    international buyers to the market;o
    higher domestic potash shipments due to increased overall demand
    and rising commodity prices such as grain, in the second half of
    the year;o
    higher fuel surcharge revenues due to the change in fuel
    price; ando
    increased freight rates.    7.3.1.5 Forest
    Products
      o
    higher overall shipments of lumber, panel and pulp and paper
    products due to the re-opening of a mill on our lines in 2010;o
    higher fuel surcharge revenues due to the change in fuel
    price; ando
    increased freight rates and extended length of haul.    7.3.1.6 Industrial
    and Consumer Products
      o
    increased shipments of steel, clay and aggregates driven by the
    improvement in the North American economy;o
    higher fuel surcharge revenues due to the change in fuel
    price; ando
    increased freight rates.    7.3.1.7 Automotive
  U.S.-produced
    o
    increased overall auto production and higher North American auto
    sales;o
    the absence of a series of unusual plant shutdowns and
    curtailments of production caused by the restructuring of
    U.S. automakers in 2009;o
    higher fuel surcharge revenues due to the change in fuel
    price; ando
    increased freight rates.    7.3.1.8 Intermodal
      o
    increased domestic container shipments due to increased domestic
    sales in the cross border and retail sectors offset by reduced
    volumes in short-haul lanes;o
    higher overall import/export volumes through the Port Metro
    Vancouver;  11

2010
    ANNUAL
    REPORT




---



##### 



o
    higher fuel surcharge revenues due to the change in fuel
    price; ando
    increased freight rates.   7.3.2 Other
    Revenues      7.3.3 Freight
    Revenue per Carload  FREIGHT REVENUE
    PER CARLOAD
  2008For the year ended December 31

2010


2009


As
    reported(1)


Pro
    forma(2)(3)Grain

$
2,435


$
2,422


$
2,555


$
2,345Coal


1,439



1,455



2,176



1,974Sulphur and fertilizers


2,679



2,843



2,676



2,673Forest products


2,582



2,636



2,626



2,572Industrial and consumer products


2,275



2,273



2,265



2,182Automotive


2,304



2,211



2,304



2,321Intermodal


1,260



1,244



1,219



1,219Total freight revenue per carload

$
1,824


$
1,811


$
1,861


$
1,829   (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)

2010


2009


As
    reported(1)


Pro
    forma(2)(3)Grain


3.29



3.26



3.33



3.37Coal


2.58



2.61



2.88



2.90Sulphur and fertilizers


2.68



3.30



2.59



2.62Forest products


3.53



3.94



4.25



4.23Industrial and consumer products


4.10



4.45



4.22



4.35Automotive


15.31



14.27



14.71



14.84Intermodal


5.21



5.11



5.30



5.30Total freight revenue per revenue
    ton-mile


3.84



3.95



3.95



3.98   (1)
  (2)
  (3)
  12

2010
    ANNUAL
    REPORT




---



##### 



7.4 2009 TO
    2008 COMPARATIVES   7.4.1 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.    7.4.1.1 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 U.S. and commercial
    grain.    7.4.1.2 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.    7.4.1.3 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; ando
    lower fuel surcharge revenues due to the change in fuel price.    7.4.1.4 Forest
    Products
        7.4.1.5 Industrial
    and Consumer Products
        o
    the favourable impact of the change in FX;o
    increased volumes in ethanol and other energy related products;  13

2010
    ANNUAL
    REPORT




---



##### 



o
    increased demurrage, a charge for the utilization of railroad
    assets beyond the standard times provided for loading or
    unloading; ando
    a net increase in freight rates.  7.4.1.6 Automotive
      7.4.1.7 Intermodal
     7.4.2 Other
    Revenues   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

2010


2009


2008 Pro
    forma(2)Efficiency and other indicatorsGross
    ton-miles
    (GTM) of freight (millions)


242,757



209,475



250,991Train miles (thousands)


39,576



34,757



43,243U.S. gallons of locomotive fuel consumed per 1,000
    GTMs  freight and yard


1.17



1.19



1.22Average number of active employees  expense


13,879



13,619



15,107Car miles per car day


139.9



N/A



N/ACar miles per car day, excluding DM&E


151.5



142.6



143.6Average train speed (miles per hour)


22.7



N/A



N/AAverage train speed (miles per hour), excluding DM&E


23.8



25.5



24.0Average terminal dwell
    (hours)(3)


21.4



21.9



22.3Safety indicatorsFRA personal injuries per
    200,000 employee-hours


1.61



1.92



1.63FRA train accidents per million
    train-miles


1.63



1.81



2.53   (1)
  (2)
  (3)
  2010
    ANNUAL
    REPORT

14




---



##### 



8.1 EFFICIENCY
    AND OTHER INDICATORS    year-over-year.
             8.2 SAFETY
    INDICATORS    200,000 employee-hours train-miles,
  15

2010
    ANNUAL
    REPORT




---



##### 



9.0 Operating
    Expenses  OPERATING
    EXPENSES
  2010


2009(2)


2008(2)VarianceVariance





2009 to2010 to





2008 pro2009





forma(1)(4)%





%








ProFor the year ended December 31 (in millions)

Expense


Fav/(unfav)


Expense


Fav/(unfav)


Expense


DM&E(3)


forma(1)(4)Compensation and benefits

$
1,431.0



(9.5
)

$
1,306.6



3.4


$
1,289.8


$
63.0


$
1,352.8Fuel


728.1



(25.5
)


580.3



45.1



1,005.9



51.5



1,057.4Materials


214.2



1.6



217.6



20.2



257.8



14.9



272.7Equipment rents


206.0



8.8



226.0



2.4



218.5



13.0



231.5Depreciation and amortization


489.6



(1.3
)


483.2



(4.1
)


428.2



35.9



464.1Purchased services and other


796.5



(1.7
)


783.0



7.4



809.3



36.2



845.5Adjusted operating
    expenses(1)

$
3,865.4



(7.5
)

$
3,596.7



14.9


$
4,009.5


$
214.5


$
4,224.0Loss on termination of lease with shortline railway






100.0



54.5



(100.0
)










Gain on sales of significant properties






(100.0
)


(79.1
)


100.0











Total operating expenses

$
3,865.4



(8.2
)

$
3,572.1



15.4


$
4,009.5


$
214.5


$
4,224.0   (1)
  (2)
  (3)
  (4)
            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.     9.1 2010 TO 2009
    COMPARATIVES 9.1.1
    Compensation and Benefits    16

2010
    ANNUAL
    REPORT




---



##### 



o
    labour expenses driven by higher traffic volumes;o
    employee incentive compensation expenses driven by improved
    corporate performance;o
    wage and benefit inflation;o
    pension expense; ando
    restructuring charges in 2010 associated with the implementation
    of our structural cost 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
    higher volume-related expenses;o
    higher information technology project planning costs due to an
    increase in activity in preparation for 2011 projects;o
    lower gains on land sales which are recorded as reductions to
    operating expenses;o
    higher property and other taxes;o
    higher relocation costs related to CPs structural cost
    initiatives;o
    increased consulting costs; ando
    increased maintenance costs performed by third parties.    17

2010
    ANNUAL
    REPORT




---



##### 



PURCHASED
    SERVICES AND OTHER
  For the year ended December 31
    (in millions)

2010


2009(1)Support and facilities

$
341.7


$
319.1Track and operations


228.9



242.0Intermodal


140.5



136.2Equipment


82.9



100.4Other


30.4



24.7824.4



822.4Land
    sales(2)


(27.9
)


(39.4
)Total purchased services and other

$
796.5


$
783.0   (1)
  (2)
  9.1.7 Specified
    Operating Expenses
    9.1.7.1 Gain on
    Sales of Significant Properties
        9.1.7.2 Loss on
    Termination of Lease with Shortline Railway
    9.2 2009 TO 2008
    COMPARATIVES
    9.2.1
    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-retirement benefit expense caused
    by a higher discount rate and a settlement of a post-retirement
    benefit liability with a U.S. national multi-employer
    benefit plan; ando
    savings from reduced overtime hours worked as a result of cost
    management initiatives.    o
    increased employee incentive compensation associated with a more
    normal bonus accrual in 2009 and increased gainshare payments to
    union employees;o
    increased labour expenses due to wage rate increases; ando
    the unfavourable impact of changes in FX for 2009.  9.2.2
    Fuel
      9.2.3
    Materials
      18

2010
    ANNUAL
    REPORT




---



##### 



9.2.4 Equipment
    Rents
      9.2.5
    Depreciation and Amortization
      9.2.6 Purchased
    Services and Other
      o
    lower costs from train accidents and personal injuries;o
    higher gains on land sales recorded as a reduction to operating
    expenses;o
    reduced locomotive maintenance and intermodal handling
    reflecting lower volumes;o
    lower intermodal trucking costs;o
    lower bad debt expense;o
    reduced business travel expenses, realized through cost
    management initiatives; ando
    lower utility costs.   10.0 Other Income
    Statement Items  10.1 GAIN ON SALE
    OF PARTNERSHIP INTEREST
    10.2 OTHER INCOME
    AND CHARGES
      10-year
  10.3 EQUITY
    INCOME IN DAKOTA, MINNESOTA & EASTERN RAILROAD
    CORPORATION
    10.4 NET INTEREST
    EXPENSE
    19

2010
    ANNUAL
    REPORT




---



##### 



o
    the favourable impact of the change in FX on
    U.S. dollar-denominated interest expense;o
    the repayment of debt during the second quarter of 2010
    (discussed further in Section 14.3 Financing
    Activities); ando
    the repurchase of debt securities during the second quarter of
    2009.      o
    a lower amount of interest capitalized on qualifying projects;o
    the unfavourable impact from the change in FX on
    U.S. 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
    the repurchase of debt as part of the tender offer of debt
    securities;o
    lower draws on the credit facility;o
    reduced rates on variable debt; ando
    repayment of the remaining DM&E bridge financing in
    December 2008 (discussed further in Section 14.3 Financing
    Activities).  10.5 INCOME
    TAXES
         11.0 Quarterly
    Financial Data



QUARTERLY
    FINANCIAL DATA AS REPORTED  2010


2009For the quarter ended(in millions, except per share data)

Dec. 31


Sept. 30


Jun. 30(1)


Mar. 31(1)


Dec. 31(1)


Sept. 30(1)


Jun. 30(1)


Mar. 31(1)Total revenue

$
1,294.3


$
1,286.2


$
1,234.2


$
1,166.8


$
1,143.2


$
1,118.1


$
1,031.3


$
1,109.6Operating income


297.7



337.7



274.1



206.6



167.5



342.9



184.9



134.8Adjusted operating
    income(2)


297.7



337.7



274.1



206.6



222.0



263.8



184.9



134.8Net income


185.8



197.3



166.6



101.0



146.2



209.3



135.5



59.0Income, before FX on LTD and other specified
    items(2)


190.1



204.7



156.2



103.2



125.6



160.9



79.3



52.5Basic earnings per share

$
1.10


$
1.17


$
0.99


$
0.60


$
0.87


$
1.25


$
0.81


$
0.37Diluted earnings per share


1.09



1.17



0.98



0.60



0.87



1.24



0.80



0.37Diluted earnings per share, before FX on LTD and other specified
    items(2)


1.12



1.21



0.92



0.61



0.74



0.95



0.47



0.33   (1)
  (2)
  2010
    ANNUAL
    REPORT

20




---



##### 



11.1 QUARTERLY
    TRENDS
     12.0
    Fourth-Quarter Summary  Q4 2010to Q4 2009%(in millions)

2010


2009(1)


fav/(unfav)RevenuesGrain

$
299.8


$
293.6



2.1Coal


125.2



112.3



11.5Sulphur and fertilizers


132.0



85.1



55.1Forest products


50.2



42.8



17.3Industrial and consumer products


240.0



205.2



17.0Automotive


75.3



67.9



10.9Intermodal


339.6



308.9



9.9Total freight revenues


1,262.1



1,115.8



13.1Other revenues


32.2



27.4



17.5Total revenues


1,294.3



1,143.2



13.2Operating expensesCompensation and benefits


362.3



316.7



(14.4
)Fuel


202.4



157.6



(28.4
)Materials


56.0



42.1



(33.0
)Equipment rents


48.5



53.0



8.5Depreciation and amortization


121.2



122.2



0.8Purchased services and other


206.2



229.6



10.2Adjusted operating
    expenses(2)


996.6



921.2



(8.2
)Loss on termination of lease with shortline railway






54.5



100.0Total operating expenses


996.6



975.7



(2.1
)Adjusted operating
    income(2)

$
297.7


$
222.0



34.1Operating income

$
297.7


$
167.5



77.7   (1)
  (2)
  2010
    ANNUAL
    REPORT

21




---



##### 



12.1 OPERATING
    RESULTS               12.2 NON-GAAP EARNINGS     12.3 REVENUES      o
    higher overall volumes in all lines of business other than grain;o
    higher fuel surcharge revenues resulting from the change in fuel
    price; ando
    increased freight rates.    12.3.1
    Grain
      o
    higher volumes of U.S. originated shipments due to the
    larger and better quality crop;o
    increased freight rates; ando
    higher fuel surcharge revenues due to the change in fuel price.    12.3.2
    Coal
      o
    higher export coal shipments due to an increase in demand for
    metallurgical coal to Asia;o
    higher fuel surcharge revenues due to the change in fuel
    price; ando
    increased freight rates.    12.3.3 Sulphur
    and Fertilizers
      o
    higher export potash shipments as a result of the return of
    international buyers to the market;  2010
    ANNUAL
    REPORT

22




---



##### 



o
    higher domestic potash shipments due to increased overall demand
    in the second half of the year;o
    higher fuel surcharge revenues due to the change in fuel
    price; ando
    increased freight rates.    12.3.4 Forest
    Products
      o
    higher overall shipments of lumber, panel and pulp and paper
    products due to the re-opening of a mill on our lines in 2010;o
    higher fuel surcharge revenues due to the change in fuel
    price; ando
    increased freight rates.    12.3.5 Industrial
    and Consumer Products
      o
    increased shipments of steel, plastics, aggregates and ethanol
    driven by the improvement in the North American economy;o
    higher fuel surcharge revenues due to the change in fuel
    price; ando
    increased freight rates and extended length of haul.    12.3.6
    Automotive
      o
    increased auto production and higher North American auto sales;o
    increased freight rates; ando
    the absence of a series of unusual plant shutdowns and
    curtailments of production caused by the restructuring of
    U.S. automakers in 2009.    12.3.7
    Intermodal
      o
    increased domestic container shipments due to increased domestic
    sales in the cross border and retail sectors offset by reduced
    volumes in short-haul lanes;o
    increased freight rates; ando
    higher fuel surcharge revenues due to the change in fuel price.    12.3.8 Other
    Revenues
   12.4 OPERATING
    EXPENSES    12.4.1
    Compensation and Benefits
      o
    a greater number of employees in response to higher volumes;o
    increased employee incentive compensation expenses driven by
    improved corporate performance;o
    higher wage and benefit inflation;o
    restructuring charges in 2010 associated with the implementation
    of our structural cost initiatives; ando
    higher training costs associated with additional employees hired
    to handle increased volumes.  23

2010
    ANNUAL
    REPORT




---



##### 



12.4.2
    Fuel
    12.4.3
    Materials
    12.4.4 Equipment
    Rents
    12.4.5
    Depreciation and Amortization
    12.4.6 Purchased
    Services and Other
  fourth-quarter
    o
    the favourable impact of the absence of the 2009 charge to
    workers compensation benefit;o
    a higher level of gains on land sales in the fourth quarter of
    2010 compared to the same period of 2009;o
    lower locomotive overhaul costs performed by third
    parties; ando
    the favourable impact of the change in FX.    o
    increased traffic volumes;o
    higher information technology project planning costs due to an
    increase in activity in preparation for 2011 projects; ando
    higher relocation costs related to CPs structural cost
    initiatives.  PURCHASED
    SERVICES AND OTHER
  For the three months ended
    December 31 (in millions)

2010


2009(1)Support and facilities

$
89.1


$
85.0Track and operations


65.9



84.5Intermodal


38.1



33.5Equipment


23.5



29.3Other


11.5



8.9228.1



241.2Land
    sales(2)


(21.9
)


(11.6
)Total purchased services and other

$
206.2


$
229.6   (1)
  (2)
  12.5 OTHER INCOME
    STATEMENT ITEMS        2010
    ANNUAL
    REPORT

24




---



##### 



12.6 INCOME
    TAXES     12.7 LIQUIDITY
    AND CAPITAL RESOURCES    30-year
 13.0 Changes in
    Accounting Policy 13.1 2010
    ACCOUNTING CHANGES  13.1.1 Rail
    Grinding
   For the three monthsended December 31


For the year ended December 31(in millions of Canadian dollars, except per share data)

2010


2009


2010


2009


2008Changes to Consolidated Statement of Income and Comprehensive
    Income (Loss)Depreciation and amortization

$
(4.3
)

$
(3.5
)

$
(15.7
)

$
(14.0
)

$
(8.9
)Compensation and benefits


0.8



1.0



2.3



2.8



2.7Fuel






0.1







0.1



0.1Materials


0.3



0.7



0.8



1.8



1.7Purchased services and other


4.5



5.2



13.8



15.9



15.4Total operating expenses


1.3



3.5



1.2



6.6



11.0Income tax expense


(0.5
)


(0.2
)


(0.7
)


(1.2
)


(3.2
)Net income

$
(0.8
)

$
(3.3
)

$
(0.5
)

$
(5.4
)

$
(7.8
)Basic earnings per share

$



$
(0.02
)

$



$
(0.03
)

$
(0.05
)Diluted earnings per share

$



$
(0.02
)

$



$
(0.03
)

$
(0.05
)Other comprehensive income (loss)


0.6



0.3



0.9



2.4



(2.8
)Comprehensive income (loss)

$
(0.2
)

$
(3.0
)

$
0.4


$
(3.0
)

$
(10.6
)Changes to Consolidated Statement of Cash FlowsCash provided by operating activities (decrease)

$
(5.6
)

$
(7.0
)

$
(16.9
)

$
(20.6
)

$
(19.9
)Cash used in investing activities (decrease)

$
(5.6
)

$
(7.0
)

$
(16.9
)

$
(20.6
)

$
(19.9
)    2010
    ANNUAL
    REPORT

25




---



##### 



As at


As at


As at


As atDecember 31


December 31


December 31


January 12010


2009


2008


2008Changes to Consolidated Balance SheetNet properties

$
(88.6
)

$
(89.0
)

$
(86.2
)

$
(70.6
)Deferred income tax liability


(26.3
)


(26.3
)


(26.5
)


(21.5
)Accumulated other comprehensive loss (income)


2.5



1.6



(0.8
)


2.0Retained earnings


(64.8
)


(64.3
)


(58.9
)


(51.1
)   13.1.2 U.S.
    GAAP/International Financial Reporting Standards
    (IFRS)
    13.1.3
    Consolidations
      13.1.4 Accounting
    for Transfers of Financial Assets
    13.1.5 Fair Value
    Measurement and Disclosure
   13.2 NEW
    ACCOUNTING PRONOUNCEMENTS ISSUED AND NOT YET ADOPTED  13.2.1 Future
    Accounting Changes
   14.0 Liquidity
    and Capital Resources   14.1 OPERATING
    ACTIVITIES      26

2010
    ANNUAL
    REPORT




---



##### 



o
    a $650 million voluntary prepayment to the Companys
    main Canadian defined benefit pension plan in 2010, compared to
    a $500 million voluntary prepayment in 2009 (discussed
    further in Section 20.5 Pension Plan Deficit). In addition,
    in 2010 the Company made scheduled contributions of
    approximately $100 million towards the main Canadian
    defined benefit pension plans deficit. The Company did not
    make a similar payment in 2009;o
    the unfavourable impact of the change in working capital
    balances in 2010; ando
    cash tax payments in 2010 compared to tax recoveries 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
    lower net income; ando
    the partial unwind of the 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. 14.2 INVESTING
    ACTIVITIES         CAPITAL PROGRAMS(in millions, except for miles and crossties)

2010


2009(1)


2008(1)Additions to
    properties(2)Track and roadway

$
589.2


$
509.9


$
663.2Buildings


19.0



12.0



14.9Rolling stock


26.4



79.8



107.8Information systems


53.7



41.3



46.4Other


55.1



60.3



73.0Total  accrued


743.4



703.3



905.3Less:Assets acquired through capital leases


1.1



0.8



79.5Other non-cash transactions


16.2



(1.0
)


9.9Cash invested in additions to properties (as per Consolidated
    Statement of Cash Flows)

$
726.1


$
703.5


$
815.9Track installation capital
    programs(3)Track miles of rail laid (miles)


416



395



408Track miles of rail capacity expansion (miles)


3



1



31Crossties installed (thousands)


872



870



1,065   (1)
  (2)
  (3)
  27

2010
    ANNUAL
    REPORT




---



##### 



14.3 FINANCING
    ACTIVITIES    seven-year 12.5-year
    o
    common shares under a final prospectus offering for net cash
    proceeds of approximately $489 million;o
    US$350 million 7.25%
    10-year
    Notes for net proceeds of approximately $409 million;o
    $400 million 6.45%
    30-year
    Notes for net proceeds of $397.8 million; ando
    US$64.7 million 5.57% Senior Secured Notes for net
    proceeds of $66.7 million.      o
    US$400 million 5.75% five-year Notes;o
    US$300 million 6.50%
    10-year
    Notes; ando
    $375 million 6.25%
    10-year
    Medium Term Notes.      14.3.1 Debt to
    Total Capitalization
      o
    repayment of long-term debt;o
    an increase in equity driven by earnings; ando
    the impact of the stronger Canadian dollar on
    U.S. dollar-denominated debt at December 31, 2010,
    compared with December 31, 2009.      o
    the proceeds raised from CPs equity issue;o
    the tendering of debt;o
    an increase in equity driven by earnings;o
    the impact of the stronger Canadian dollar on
    U.S. 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
  2010
    ANNUAL
    REPORT

28




---



##### 



year-over-year
   14.4 FREE
    CASH  day-to-day
  CALCULATION OF
    FREE
    CASH (5)
  (reconciliation of free cash to GAAP cash position)For the year ended December 31
    (in millions)

2010


2009(2)


2008(1)(2)Cash provided by operating activities

$
502.1


$
450.9


$
942.9Cash used in investing activities


(635.6
)


(358.7
)


(800.1
)Dividends paid


(174.5
)


(162.9
)


(148.7
)Add back investment in
    DM&E(3)










8.6Termination of accounts receivable securitization
    program(4)










120.0Foreign exchange effect on cash and cash equivalents


(17.2
)


(20.0
)


28.0Free
    cash(5)


(325.2
)


(90.7
)


150.7Cash provided by (used in) financing activities, excluding
    dividend payment


6.7



652.3



(282.5
)Investment in
    DM&E(3)










(8.6
)Accounts receivable securitization
    program(4)










(120.0
)(Decrease)/increase in cash, as shown on the Consolidated
    Statement of Cash Flows


(318.5
)


561.6



(260.4
)Net cash and cash equivalents at beginning of year


679.1



117.5



377.9Net cash and cash equivalents at end of year

$
360.6


$
679.1


$
117.5   (1)
  (2)
  (3)
  (4)
  (5)
      o
    a $650 million voluntary prepayment to the Companys
    main Canadian defined benefit pension plan in 2010, compared to
    a $500 million voluntary prepayment in 2009 (discussed
    further in Section 20.5 Pension Plan Deficit). In addition,
    in 2010 the Company made scheduled contributions of
    approximately $100 million towards the main Canadian
    defined benefit pension plans deficit. The Company did not
    make a similar payment in 2009;o
    proceeds on the sales of a partnership interest and significant
    properties in 2009;o
    the unfavourable impact in working capital balances in
    2010; ando
    cash tax payments in 2010 compared to tax recoveries in 2009.    2010
    ANNUAL
    REPORT

29




---



##### 



o
    a $500 million voluntary prepayment to the Companys
    main Canadian defined benefit pension plans (discussed further
    in Section 20.5 Pension Plan Deficit);o
    lower net income; ando
    the unfavourable impact in FX fluctuations on
    U.S. dollar-denominated cash.    o
    acquisition of assets held for sale in 2008;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. 15.0 Balance
    Sheet  15.1 ASSETS
        15.2 TOTAL
    LIABILITIES
      15.3 EQUITY
      15.4 SHARE
    CAPITAL
      2010
    ANNUAL
    REPORT

30




---



##### 



15.5 DIVIDENDS
    Dividend Amount

Record Date


Payment Date$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$0.2700


June 25, 2010



July 26, 2010$0.2700


September 24, 2010



October 25, 2010$0.2700


December 31, 2010



January 31, 2011$0.2700


March 25, 2011



April 25, 2011   16.0 Financial
    Instruments  16.1 FAIR
    VALUE OF FINANCIAL INSTRUMENTS
    o
    Level 1: Unadjusted quoted prices for identical assets and
    liabilities in active markets that are accessible at the
    measurement date.o
    Level 2: Directly or indirectly observable inputs other
    than quoted prices included within Level 1 or quoted prices
    for similar assets and liabilities. Derivative instruments in
    this category are valued using models or other industry standard
    valuation techniques derived from observable market data.o
    Level 3: 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.    16.1.1 Carrying
    Value and Fair Value of Financial Instruments
    16.2 DERIVATIVE
    FINANCIAL INSTRUMENTS
      31

2010
    ANNUAL
    REPORT




---



##### 



16.3 CREDIT
    RISK
    16.4 INTEREST
    RATE MANAGEMENT
      16.4.1 Interest
    Rate Swaps
    fixed-to-floating
    16.4.2 Treasury
    Rate Locks
    16.5 FOREIGN
    EXCHANGE MANAGEMENT
        16.5.1 Foreign
    Exchange Forward Contracts on Long-term Debt
    2010
    ANNUAL
    REPORT

32




---



##### 



16.6 FUEL
    PRICE MANAGEMENT
        16.6.1 Energy
    Futures
      16.7 STOCK-BASED
    COMPENSATION EXPENSE MANAGEMENT
  16.7.1 Total
    Return Swap
          33

2010
    ANNUAL
    REPORT




---



##### 



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

Total


2011


2012 & 2013


2014 & 2015


2016 & beyondLong-term debt

$
4,033.0


$
273.2


$
179.4


$
160.7


$
3,419.7Capital lease obligations


289.8



8.5



17.5



133.3



130.5Operating lease
    obligation(1)


782.1



133.3



226.4



145.6



276.8Supplier purchased obligations


1,541.1



206.8



261.1



297.4



775.8Other long-term liabilities reflected
    on our Consolidated Balance
    Sheet(2)


762.8



93.5



155.7



137.6



376.0Total contractual obligations

$
7,408.8


$
715.3


$
840.1


$
874.6


$
4,978.8   (1)
  (2)
  34

2010
    ANNUAL
    REPORT




---



##### 



20.0 Future
    Trends and Commitments  20.1 AGREEMENTS
    AND RECENT DEVELOPMENTS
  20.1.1 Teck
    Coal Limited
      20.1.2 Change
    in Executive Officer
      20.2 STOCK
    PRICE
    20.3 ENVIRONMENTAL
      20.4 CERTAIN
    OTHER FINANCIAL COMMITMENTS
    CERTAIN OTHER
    FINANCIAL COMMITMENTS AT DECEMBER 31, 2010
  Amount of commitment per period2012 &


2014 &


2016 &(in millions)

Total


2011


2013


2015


beyondLetters of credit

$
358.1


$
357.3


$
0.8


$



$
Capital commitments


236.8



216.0



19.9



0.1



0.8Total commitments

$
594.9


$
573.3


$
20.7


$
0.1


$
0.8   20.4.1 Letters
    of Credit
    20.4.2 Capital
    Commitments
    20.5 PENSION
    PLAN DEFICIT
    2010
    ANNUAL
    REPORT

35




---



##### 



20.6 RESTRUCTURING
   21.0 Business
    Risks and Enterprise Risk Management     21.1 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. 21.2 LIQUIDITY    2010
    ANNUAL
    REPORT

36




---



##### 



21.3 REGULATORY
    AUTHORITIES  21.3.1 Regulatory
    Change
                            21.3.2 Security
    37

2010
    ANNUAL
    REPORT




---



##### 



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 the 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
    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 U.S. regulations for rail security
    sensitive materials, we have implemented procedures to maintain
    positive chain of custody and are performing annual route
    assessments to select and use the route posing the least overall
    safety and security risk.  21.3.3 Positive
    Train Control
  train-to-train
 21.4 LABOUR
    RELATIONS      21.4.1 Canada
    21.4.2
    U.S.
        2010
    ANNUAL
    REPORT

38




---



##### 



21.5 ENVIRONMENTAL
    LAWS AND REGULATIONS        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. 21.6 CLIMATE
    CHANGE  and/or
  ton-mile
   21.7 FINANCIAL
    RISKS  21.7.1 Pension
    Funding Status Volatility
    21.7.2 Fuel
    Cost Volatility
  agreed-upon
    39

2010
    ANNUAL
    REPORT




---



##### 



21.7.3 Foreign
    Exchange Risk
    21.7.4 Interest
    Rate Risk
   21.8 GENERAL
    AND OTHER RISKS  21.8.1
    Transportation of Hazardous Materials
    21.8.2 Supply
    Chain Disruptions
    21.8.3 Reliance
    on Technology and Technological Improvements
    21.8.4 Qualified
    Personnel
    21.8.5 Severe
    Weather
    21.8.6 Supplier
    Concentration
      2010
    ANNUAL
    REPORT

40




---



##### 



22.0 Critical
    Accounting Estimates      22.1 ENVIRONMENTAL
    LIABILITIES
        22.2 PENSIONS
    AND OTHER BENEFITS
      41

2010
    ANNUAL
    REPORT




---



##### 



22.3 PROPERTY,
    PLANT AND EQUIPMENT
          22.4 DEFERRED
    INCOME TAXES
      2010
    ANNUAL
    REPORT

42




---



##### 



22.5 LEGAL
    AND PERSONAL INJURY LIABILITIES
    case-by-case
      case-by-case case-by-case
      22.6 LONG-TERM
    FLOATING RATE NOTES
      o
    $116.8 million Master Asset Vehicle (MAV) 2
    notes with eligible assets; ando
    $0.2 million MAV 3 Class 9 Traditional Asset
    (TA) Tracking notes.    o
    $116.8 million MAV 2 notes with eligible assets;o
    $12.1 million MAV 2 Ineligible Assets (IA)
    Tracking notes with ineligible assets; ando
    $0.2 million MAV 3 Class 9 TA Tracking notes.  Class A-1 Class A-2
      43

2010
    ANNUAL
    REPORT




---



##### 



December 31, 2010


December 31, 2009Probability weighted average coupon interest rate


0.8
%


NilWeighted average discount rate


7.1
%


7.9
%Expected repayments of long-term floating rate notes


Approximately 6 years



31/2
    to 19 yearsCredit losses


MAV 2 eligible asset notes: 1% to 100
%


MAV 2 eligible asset notes: nil to 100
%MAV 2 IA Tracking notes: N/A



MAV 2 IA Tracking notes: 25
%MAV 3 Class 9  TA Tracking notes: 1
%


MAV 3 Class 9  TA Tracking notes: Nil     (in millions of Canadian dollars)

Original cost


Estimated fair valueAs at January 1, 2009

$
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



69.3Redemption of notes


(12.1
)


(7.7
)Accretion






5.9Change in market assumptions






2.0As at December 31, 2010

$
117.0


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

floating rate notesCoupon interest
    rate(1)50 basis point increase

$
Nil50 basis point decrease

$
NilDiscount rate50 basis point increase

$
(1.9
)50 basis point decrease

$
2.0   (1)
    22.7 GOODWILL
    AND INTANGIBLE ASSETS
      44

2010
    ANNUAL
    REPORT




---



##### 



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
        24.1 2010
    FINANCIAL ASSUMPTIONS
    o
    capital expenditures were estimated to range from
    $680 million to $730 million;o
    we expected our tax rate to be in the 25% to 27% range; ando
    2010 pension contributions were estimated to be between
    $150 million and $200 million.  24.1.1
    First-Quarter 2010 Guidance Updates
    24.1.2
    Second-Quarter 2010 Guidance Updates
    24.1.3
    Third-Quarter 2010 Guidance Updates
    45

2010
    ANNUAL
    REPORT




---



##### 



24.1.4 Variance
    from 2010 Guidance
    24.2 2011
    FINANCIAL ASSUMPTIONS
    2010
    ANNUAL
    REPORT

46




---



##### 



25.0 Glossary of
    Terms        car-miles car-miles
  car-day car-day.
                  200,000 employee-hours The employee-hours. Employee-hours
  train-miles.
            ton-miles The
          ton-miles The
    47

2010
    ANNUAL
    REPORT




---



##### 



2010
    ANNUAL
    REPORT

48




---



##### 



CANADIAN PACIFIC
    RAILWAY LIMITED 
    CONSOLIDATED FINANCIAL STATEMENTS December 31,
    2010 
    Accounting Principles Generally Accepted 
    In the United States
                                Except where otherwise indicated, all financial information
    
    reflected herein is expressed in Canadian dollars
                                 2010
    ANNUAL
    REPORT

49




---



##### 



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

-s- Fred J. GreenKATHRYN B. MCQUADE Executive Vice-President andChief Financial Officer February 24, 2011

FRED J. GREEN 
    Chief Executive Officer   2010
    ANNUAL
    REPORT

50




---



##### 



INDEPENDENT
    AUDITORS REPORT
  TO THE
    SHAREHOLDERS OF
    CANADIAN PACIFIC RAILWAY LIMITED
    REPORT ON THE
    CONSOLIDATED FINANCIAL STATEMENTS
    MANAGEMENTS
    RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL
    STATEMENTS
    AUDITORS
    RESPONSIBILITY
        OPINION
    EMPHASIS OF
    MATTER
    REPORT ON
    INTERNAL CONTROL OVER FINANCIAL REPORTING
    MANAGEMENTS
    RESPONSIBILITY FOR INTERNAL CONTROL OVER FINANCIAL
    REPORTING
    AUDITORS
    RESPONSIBILITY
        2010
    ANNUAL
    REPORT

51




---



##### 



DEFINITION OF
    INTERNAL CONTROL OVER FINANCIAL REPORTING
    INHERENT
    LIMITATIONS
    OPINION
     
      52

2010
    ANNUAL
    REPORT




---



##### 



CANADIAN PACIFIC
    RAILWAY LIMITED
  CONSOLIDATED
    STATEMENT OF INCOME December 31,
    2010
  2009


2008Restated


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

2010


(Note 2)


(Note 2)RevenuesFreight

$
4,853.3


$
4,279.8


$
4,921.5Other


128.2



122.4



127.04,981.5



4,402.2



5,048.5Operating expensesCompensation and benefits


1,431.0



1,306.6



1,289.8Fuel


728.1



580.3



1,005.9Materials


214.2



217.6



257.8Equipment rents


206.0



226.0



218.5Depreciation and amortization


489.6



483.2



428.2Purchased services and other


796.5



783.0



809.3Gain on sales of significant properties (Note 3)






(79.1
)


Loss on termination of lease with shortline railway (Note 5)






54.5



3,865.4



3,572.1



4,009.5Operating income


1,116.1



830.1



1,039.0Gain on sale of partnership interest (Note 4)






81.2



Equity income in Dakota, Minnesota & Eastern Railroad
    Corporation (Note 16)










50.9Less:Other income and charges (Note 6)


(12.0
)


12.4



72.3Net interest expense (Note 7)


257.3



267.6



239.6Income before income tax expense


870.8



631.3



778.0Income tax expense (Note 8)


220.1



81.3



150.2Net income

$
650.7


$
550.0


$
627.8Earnings per share (Note 9)Basic earnings per share

$
3.86


$
3.31


$
4.08Diluted earnings per share

$
3.85


$
3.30


$
4.04Weighted-average number of shares (millions)Basic


168.8



166.3



153.7Diluted


169.2



166.8



155.5Dividends declared per share

$
1.0575


$
0.9900


$
0.9900     2010
    ANNUAL
    REPORT

53




---



##### 



CANADIAN PACIFIC
    RAILWAY LIMITED
 CONSOLIDATED
    STATEMENT OF COMPREHENSIVE INCOME December 31,
    2010
  2009


2008Restated


RestatedYear ended December 31 (in
    millions of Canadian dollars)

2010


(Note 2)


(Note 2)Comprehensive incomeNet income

$
650.7


$
550.0


$
627.8Net gain (loss) in foreign currency translation adjustments, net
    of hedging activities


17.7



2.7



(5.7
)Change in derivatives designated as cash flow hedges


2.3



7.3



(16.1
)Change in pension and post-retirement defined benefit plans


(459.6
)


(661.1
)


(543.4
)Other comprehensive loss before income taxes


(439.6
)


(651.1
)


(565.2
)Income tax recovery


98.5



131.6



193.4Other comprehensive loss (Note 10)


(341.1
)


(519.5
)


(371.8
)Comprehensive income

$
309.6


$
30.5


$
256.0     2010
    ANNUAL
    REPORT

54




---



##### 



CANADIAN PACIFIC
    RAILWAY LIMITED
 CONSOLIDATED
    BALANCE SHEET December 31,
    2010
  2009RestatedAs at December 31 (in millions
    of Canadian dollars)

2010


(Note 2)AssetsCurrent assetsCash and cash equivalents (Note 12)

$
360.6


$
679.1Accounts receivable, net (Note 13)


459.0



655.1Materials and supplies


114.1



132.7Deferred income taxes (Note 8)


222.3



128.1Other current assets


47.8



46.51,203.8



1,641.5Investments (Note 14)


144.9



156.7Net properties (Note 15)


11,996.8



11,978.5Goodwill and intangible assets (Note 17)


189.8



202.3Other assets (Note 18)


140.6



175.8Total assets

$
13,675.9


$
14,154.8Liabilities and shareholders equityCurrent liabilitiesAccounts payable and accrued liabilities (Note 19)

$
1,007.8


$
1,000.7Long-term debt maturing within one year (Note 20)


281.7



605.31,289.5



1,606.0Pension and other benefit liabilities (Note 26)


1,115.7



1,453.9Other long-term liabilities (Note 22)


468.0



479.9Long-term debt (Note 20)


4,033.2



4,138.2Deferred income taxes (Note 8)


1,944.8



1,818.7Total liabilities


8,851.2



9,496.7Shareholders equityShare capital (Note 25)


1,812.8



1,771.1Authorized unlimited common shares without par value. Issued and
    outstanding are 169.2 million and 168.5 million at
    December 31, 2010 and 2009 respectively.Authorized unlimited number of first and second preferred
    shares; none outstanding.Additional paid-in capital


24.7



30.8Accumulated other comprehensive loss (Note 10)


(2,085.8
)


(1,744.7
)Retained earnings


5,073.0



4,600.94,824.7



4,658.1Total liabilities and shareholders equity

$
13,675.9


$
14,154.8          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   55

2010
    ANNUAL
    REPORT




---



##### 



CANADIAN PACIFIC
    RAILWAY LIMITED
 CONSOLIDATED
    STATEMENT OF CASH FLOWS December 31,
    2010
  2009


2008Restated


RestatedYear ended December 31 (in
    millions of Canadian dollars)

2010


(Note 2)


(Note 2)Operating activitiesNet income

$
650.7


$
550.0


$
627.8Reconciliation of net income to cash provided by operating
    activities:Depreciation and amortization


489.6



483.2



428.2Deferred income taxes (Note 8)


211.2



133.0



170.6Gain on sale of partnership interest (Note 4)






(81.2
)


Gain on sales of significant properties (Note 3)






(79.1
)


Pension funding in excess of expense (Note 26)


(800.9
)


(572.0
)


(66.5
)Other operating activities, net


(32.2
)


(85.7
)


(85.0
)Change in non-cash working capital balances related to
    operations (Note 11)


(16.3
)


102.7



(132.2
)Cash provided by operating activities


502.1



450.9



942.9Investing activitiesAdditions to properties (Note 15)


(726.1
)


(703.5
)


(815.9
)Additions to assets held for sale and other










(222.5
)Investment in Dakota, Minnesota & Eastern Railroad
    Corporation (Note 16)










(8.6
)Proceeds from sale of properties and other assets


88.9



337.4



237.2Other, net


1.6



7.4



9.7Cash used in investing activities


(635.6
)


(358.7
)


(800.1
)Financing activitiesDividends paid


(174.5
)


(162.9
)


(148.7
)Issuance of CP Common Shares (Note 25)


32.4



513.5



19.7Collection of receivable from financial institution
    (Note 13)


219.8







Issuance of long-term debt (Note 20)


355.2



872.7



1,148.2Repayment of long-term debt


(612.8
)


(617.9
)


(1,339.9
)Net increase (decrease) in short-term borrowing (Note 21)


9.0



(150.1
)


(79.6
)Other financing activities


3.1



34.1



(30.9
)Cash (used in) provided by financing activities


(167.8
)


489.4



(431.2
)Effect of foreign currency fluctuations on U.S.
    dollar-denominated cash and cash equivalents


(17.2
)


(20.0
)


28.0Cash position(Decrease) increase in cash and cash equivalents


(318.5
)


561.6



(260.4
)Cash and cash equivalents at beginning of year


679.1



117.5



377.9Cash and cash equivalents at end of year (Note 12)

$
360.6


$
679.1


$
117.5Supplemental disclosures of cash flow information:Income taxes paid (refunded)

$
8.3


$
(38.9
)

$
59.0Interest paid

$
346.8


$
289.3


$
269.1       2010
    ANNUAL
    REPORT

56




---



##### 



CANADIAN PACIFIC
    RAILWAY LIMITED
 CONSOLIDATED
    STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY December 31,
    2010
  AccumulatedAdditional


other





TotalShare


paid-in


comprehensive


Retained


shareholders(in millions of Canadian dollars)

capital


capital


loss


earnings


equityBalance at December 31, 2007

$
1,209.5


$
47.6


$
(855.4
)

$
3,792.9


$
4,194.6Adjustment for change in accounting policy (Note 2)










2.0



(51.1
)


(49.1
)Balance at December 31, 2007, as restated


1,209.5



47.6



(853.4
)


3,741.8



4,145.5Net income














627.8



627.8Other comprehensive loss










(371.8
)






(371.8
)Dividends declared














(152.2
)


(152.2
)Stock compensation expense






7.7











7.7Shares issued under stock option plans


32.8



(14.7
)










18.1Balance at December 31, 2008, as restated


1,242.3



40.6



(1,225.2
)


4,217.4



4,275.1Net income














550.0



550.0Other comprehensive loss










(519.5
)






(519.5
)Dividends declared














(166.5
)


(166.5
)Shares issued (Note 25)


495.2















495.2Stock compensation recovery






(1.8
)










(1.8
)Shares issued under stock option plans


33.6



(8.0
)










25.6Balance at December 31, 2009, as restated


1,771.1



30.8



(1,744.7
)


4,600.9



4,658.1Net income














650.7



650.7Other comprehensive loss










(341.1
)






(341.1
)Dividends declared














(178.6
)


(178.6
)Stock compensation expense






1.2











1.2Shares issued under stock option plans


41.7



(7.3
)










34.4Balance at December 31, 2010

$
1,812.8


$
24.7


$
(2,085.8
)

$
5,073.0


$
4,824.7     57

2010
    ANNUAL
    REPORT




---



##### 



CANADIAN PACIFIC
    RAILWAY LIMITED
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2010
    1  Summary
    of significant accounting policies
  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
    2010
    ANNUAL
    REPORT

58




---



##### 



CASH AND CASH
    EQUIVALENTS
    FOREIGN CURRENCY
    TRANSLATION
      PENSIONS AND
    OTHER BENEFITS
          MATERIALS AND
    SUPPLIES
    PROPERTIES
      59

2010
    ANNUAL
    REPORT




---



##### 



ASSETS HELD FOR
    SALE
    GOODWILL AND
    INTANGIBLE ASSETS
        FINANCIAL
    INSTRUMENTS
      2010
    ANNUAL
    REPORT

60




---



##### 



DERIVATIVE
    FINANCIAL INSTRUMENTS
                      2010
    ANNUAL
    REPORT

61




---



##### 



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

2010
    ANNUAL
    REPORT




---



##### 



2  Accounting
    changes
  CONSOLIDATIONS
    ACCOUNTING FOR
    TRANSFERS OF FINANCIAL ASSETS
    FAIR VALUE
    MEASUREMENT AND DISCLOSURE
    RAIL
    GRINDING
    2010
    ANNUAL
    REPORT

63




---



##### 



For the year ended December 31(in millions of Canadian dollars,
    except per share data)

2010


2009


2008Changes to Consolidated Statement of Income and Comprehensive
    Income (Loss)Depreciation and amortization

$
(15.7
)

$
(14.0
)

$
(8.9
)Compensation and benefits


2.3



2.8



2.7Fuel






0.1



0.1Materials


0.8



1.8



1.7Purchased services and other


13.8



15.9



15.4Total operating expenses


1.2



6.6



11.0Income tax expense


(0.7
)


(1.2
)


(3.2
)Net income

$
(0.5
)

$
(5.4
)

$
(7.8
)Basic earnings per share

$



$
(0.03
)

$
(0.05
)Diluted earnings per share

$



$
(0.03
)

$
(0.05
)Other comprehensive income (loss)


0.9



2.4



(2.8
)Comprehensive income (loss)

$
0.4


$
(3.0
)

$
(10.6
)Changes to Consolidated Statement of Cash FlowsCash provided by operating activities (decrease)

$
(16.9
)

$
(20.6
)

$
(19.9
)Cash used in investing activities (decrease)

$
(16.9
)

$
(20.6
)

$
(19.9
)   As atAs at December 31,


January 1,2010


2009


2008


2008Changes to Consolidated Balance SheetNet properties


$
(88.6
)

$
(89.0
)

$
(86.2
)

$
(70.6
)Deferred income tax liability



(26.3
)


(26.3
)


(26.5
)


(21.5
)Accumulated other comprehensive loss (income)



2.5



1.6



(0.8
)


2.0Retained earnings



(64.8
)


(64.3
)


(58.9
)


(51.1
)   FUTURE ACCOUNTING
    CHANGES
    RECLASSIFICATION
    OF COMPARATIVE FIGURES
    3  Gain
    on sales of significant properties
    10-year
    64

2010
    ANNUAL
    REPORT




---



##### 



4  Gain
    on sale of partnership interest
    5  Loss
    on termination of lease with shortline railway
    6  Other
    income and charges
  (in millions of Canadian dollars)

2010


2009


2008Accretion income on long-term floating rate notes (Note 21)

$
(5.9
)

$
(2.9
)

$
(Gain) loss in fair value of long-term floating rate notes/asset
    backed commercial paper (Note 21)


(3.4
)


(6.3
)


49.4Net loss on repurchase of debt (Note 20)






16.6



Other foreign exchange (gains) losses


(9.4
)


(0.4
)


6.1Foreign exchange (gain) loss on long-term debt


(2.3
)


(3.6
)


5.8Other


9.0



9.0



11.0Total other income and charges

$
(12.0
)

$
12.4


$
72.3   7  Net
    interest expense
  (in millions of Canadian dollars)

2010


2009


2008Interest cost

$
287.7


$
305.1


$
291.3Interest capitalized to net properties


(19.6
)


(19.2
)


(30.9
)Interest expense


268.1



285.9



260.4Interest income


(10.8
)


(18.3
)


(20.8
)Net interest expense

$
257.3


$
267.6


$
239.6     2010
    ANNUAL
    REPORT

65




---



##### 



8  Income
    taxes
    2009


2008Restated


Restated(in millions of Canadian dollars)

2010


(Note 2)


(Note 2)Current income tax expense (recovery)

$
8.9


$
(51.7
)

$
(20.4
)Deferred income tax expenseOrigination and reversal of temporary differences


244.9



242.6



151.1Effect of tax rate decreases






(35.3
)


(10.4
)Effect of hedge of net investment in foreign subsidiaries


(18.2
)


(31.7
)


41.6Tax credits


(16.0
)


(16.4
)


(3.8
)Other


0.5



(26.2
)


(7.9
)Total deferred income tax expense


211.2



133.0



170.6Total income taxes

$
220.1


$
81.3


$
150.2Income before income tax expenseCanada

$
576.6


$
602.3


$
162.9Foreign


294.2



29.0



615.1Total income before income tax expense

$
870.8


$
631.3


$
778.0Income tax expense (recovery)CurrentCanada

$
(0.8
)

$
(51.0
)

$
14.0Foreign


9.7



(0.7
)


(34.4
)Total current income tax expense (recovery)


8.9



(51.7
)


(20.4
)DeferredCanada


122.6



81.4



63.6Foreign


88.6



51.6



107.0Total deferred income tax expense


211.2



133.0



170.6Total income taxes

$
220.1


$
81.3


$
150.2   2010
    ANNUAL
    REPORT

66




---



##### 



2009Restated(in millions of Canadian dollars)

2010


(Note 2)Deferred income tax assetsRestructuring liability

$
22.1


$
21.4Amount related to tax losses carried forward


333.6



224.2Liabilities carrying value in excess of tax basis


266.7



358.6Future environmental remediation costs


38.4



42.6Other


123.5



82.4Total deferred income tax assets


784.3



729.2Deferred income tax liabilitiesProperties carrying value in excess of tax basis


2,465.6



2,389.1Other long-term assets carrying value in excess of tax basis


17.8



8.9Other


23.4



21.8Total deferred income tax liabilities


2,506.8



2,419.8Total net deferred income tax liabilities


1,722.5



1,690.6Current deferred income tax assets


222.3



128.1Long-term deferred income tax liabilities

$
1,944.8


$
1,818.7     2009


2008Restated


Restated(in millions of Canadian dollars,
    except percentage)

2010


(Note 2)


(Note 2)Statutory federal and provincial income tax rate


29.15
%


30.71
%


31.53
%Expected income tax expense at Canadian enacted statutory tax
    rates

$
253.8


$
193.9


$
245.3Increase (decrease) in taxes resulting from:Items not subject to tax


(3.2
)


(24.7
)


(63.3
)Canadian tax rate differentials


(9.7
)


(26.1
)


(18.0
)Foreign tax rate differentials


0.2



(7.1
)


(1.1
)Effect of tax rate decreases






(34.5
)


(10.2
)Tax credits


(16.0
)


(16.4
)


(3.8
)Other


(5.0
)


(3.8
)


1.3Income tax expense

$
220.1


$
81.3


$
150.2       67

2010
    ANNUAL
    REPORT




---



##### 



(in millions of Canadian dollars)

2010


2009


2008Unrecognized tax benefits at January 1

$
87.7


$
85.6


$
79.2Increase in unrecognized:Tax benefits related to the current year


5.2



13.9



9.4Gross uncertain tax benefits related to prior years


1.9



11.2



7.7Accrued interest and penalties on uncertain tax benefits


3.7



18.2



7.6Dispositions:Gross uncertain tax benefits related to prior years


(4.9
)


(14.7
)


(13.5
)Settlements with tax authorities


(3.2
)


(26.5
)


Accrued interest and penalties on uncertain tax benefits


(10.5
)






(4.8
)Unrecognized tax benefits as at December 31

$
79.9


$
87.7


$
85.6             9  Earnings
    per share
    in-the-money
  68

2010
    ANNUAL
    REPORT




---



##### 



(in millions)

2010


2009


2008Weighted average shares outstanding


168.8



166.3



153.7Dilutive effect of weighted average number of stock options


0.4



0.5



1.8Weighted average diluted shares outstanding


169.2



166.8



155.5       10  Other
    comprehensive loss and accumulated other comprehensive
    loss
    2009Restated(in millions of Canadian dollars)

2010


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

$
(308.5
)

$
(184.6
)Unrealized 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


372.7



249.3Deferred loss on settled hedge instruments


(17.0
)


(18.3
)Unrealized effective gains on cash flow hedges


1.9



1.7Amounts for defined benefit pension and other post-retirement
    plans not recognized in income


(2,134.9
)


(1,792.8
)Accumulated other comprehensive loss

$
(2,085.8
)

$
(1,744.7
)   69

2010
    ANNUAL
    REPORT




---



##### 



2009


2008Restated


Restated(in millions of Canadian dollars)

2010


(Note 2)


(Note 2)Accumulated other comprehensive loss  January 1

$
(1,744.7
)

$
(1,225.2
)

$
(853.4
)Other comprehensive loss:Unrealized foreign exchange (loss) gain on:Translation of the net investment in U.S. subsidiaries


(123.9
)


(244.0
)


302.3Translation 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 $(18.2) million, $(31.7) million, and
    $41.6 million, respectively)


123.4



215.0



(266.4
)Change in derivatives designated as cash flow hedges:Realized (gain) loss on cash flow hedges recognized in income
    (net of tax of $nil, $(1.4) million, and $3.2 million,
    respectively)


(0.1
)


3.4



(7.8
)Unrealized gain (loss) on cash flow hedges (net of tax of
    $(0.8) million, $(0.8) million, and $1.4 million,
    respectively)


1.6



1.7



(3.7
)Change in pension and other benefits actuarial gains and losses
    (net of tax of $120.5 million, $170.8 million and
    $141.2 million, respectively)


(350.7
)


(511.5
)


(380.1
)Change in prior service pension and other benefit costs (net of
    tax of $(3.0) million, $(5.3) million and
    $6.0 million, respectively)


8.6



15.9



(16.1
)Other comprehensive loss


(341.1
)


(519.5
)


(371.8
)Accumulated other comprehensive loss  December 31

$
(2,085.8
)

$
(1,744.7
)

$
(1,225.2
)   11  Change
    in non-cash working capital balances related to
    operations
  (in millions of Canadian dollars)

2010


2009


2008Source (use) of cash:Accounts receivable, net

$
(8.8
)

$
206.4


$
(47.9
)Materials and supplies


22.5



75.5



(23.4
)Other current assets


(1.3
)


18.5



(21.2
)Accounts payable and accrued liabilities


(28.7
)


(197.7
)


(39.7
)Change in non-cash working capital

$
(16.3
)

$
102.7


$
(132.2
)   2010
    ANNUAL
    REPORT

70




---



##### 



12  Cash
    and cash equivalents
  (in millions of Canadian dollars)

2010


2009Cash

$
38.9


$
35.8Short-term investments:Government guaranteed investments


119.1



628.6Deposits with financial institutions


202.6



14.7Total cash and cash equivalents

$
360.6


$
679.1   13  Accounts
    receivable, net
  (in millions of Canadian dollars)

2010


2009Freight

$
327.1


$
316.8Non-freight


162.0



155.2489.1



472.0Allowance for doubtful accounts


(30.1
)


(31.0
)459.0



441.0Accounts receivable from a financial institution






214.1Total accounts receivable, net

$
459.0


$
655.1       14  Investments
  (in millions of Canadian dollars)

2010


2009Rail investments accounted for on an equity basis (Notes 4
    and 16)

$
58.1


$
56.1Long-term floating rate notes (Note 21)


69.5



69.3Other investments


17.3



31.3Total investments

$
144.9


$
156.7   71

2010
    ANNUAL
    REPORT




---



##### 



15  Properties
  2009Average annual


2010





Restated (Note 2)depreciation





Accumulated


Net book





Accumulated


Net book(in millions of Canadian dollars)

rate


Cost


depreciation


value


Cost


depreciation


valueTrack and roadway


3.0%


$
11,980.3


$
3,305.2


$
8,675.1


$
11,666.8


$
3,237.2


$
8,429.6Buildings


3.0%



440.4



265.9



174.5



357.4



115.4



242.0Rolling stock


2.8%



3,244.6



1,319.1



1,925.5



3,358.8



1,324.9



2,033.9Information
    systems(1)


8.5%



600.0



303.5



296.5



591.6



279.3



312.3Other


4.9%



1,354.8



429.6



925.2



1,387.3



426.6



960.7Total





$
17,620.1


$
5,623.3


$
11,996.8


$
17,361.9


$
5,383.4


$
11,978.5   (1)
    
    Net additions during 2010 were
    $53.7 million (2009  $39.1 million;
    2008  $37.5 million) and depreciation expense
    was $54.1 million (2009  $40.1 million;
    2008  $35.3 million).  CAPITAL LEASES INCLUDED IN PROPERTIES
  2010


2009Accumulated


Net book





Accumulated


Net book(in millions of Canadian dollars)

Cost


depreciation


value


Cost


depreciation


valueBuildings

$
0.5


$
0.1


$
0.4


$
0.5


$
0.1


$
0.4Rolling stock


517.6



151.9



365.7



525.3



137.1



388.2Other


2.2



1.2



1.0



4.5



1.8



2.7Total assets held under capital lease

$
520.3


$
153.2


$
367.1


$
530.3


$
139.0


$
391.3     16  Equity
    income
  DAKOTA, MINNESOTA & EASTERN RAILROAD CORPORATION
    (DM&E)
  line-by-line
    Period from January 1 to(in millions of Canadian dollars)

October 29, 2008Revenues

$
300.7Revenues less operating expenses


86.2Net income


50.9   2010
    ANNUAL
    REPORT

72




---



##### 



OTHER INVESTMENTS
    17  Goodwill
    and intangible assets
  Intangible assetsAccumulated


Net carrying(in millions of Canadian dollars)

Goodwill


Cost


amortization


amountBalance at December 31, 2008

$
179.6


$
59.6


$
(2.0
)

$
57.6Amortization










(2.5
)


(2.5
)Foreign exchange impact


(24.7
)


(7.7
)






(7.7
)Balance at December 31, 2009

$
154.9


$
51.9


$
(4.5
)

$
47.4Amortization










(1.7
)


(1.7
)Foreign exchange impact


(8.3
)


(2.5
)






(2.5
)Balance at December 31, 2010

$
146.6


$
49.4


$
(6.2
)

$
43.2         73

2010
    ANNUAL
    REPORT




---



##### 



18  Other
    assets
  (in millions of Canadian dollars)

2010


2009Unamortized fees on long-term debt

$
50.0


$
47.4Long-term receivables


6.6



32.9Contracted customer incentives


13.7



14.4Long-term materials


10.0



13.5Other


60.3



67.6Total other assets

$
140.6


$
175.8     19  Accounts
    payable and accrued liabilities
  (in millions of Canadian dollars)

2010


2009Trade payables

$
226.0


$
249.3Payroll-related accruals


165.1



145.6Accrued vacation


77.5



83.0Accrued charges


191.0



177.8Accrued interest


64.0



64.1Personal injury and other claims provision


50.5



75.1Provision for environmental remediation and restructuring


42.9



34.3Stock-based compensation liabilities


66.3



41.5Total return swap


6.0



18.2Income and other taxes payable


30.9



31.9Dividends payable


45.7



41.7Other


41.9



38.2Total accounts payable and accrued liabilities

$
1,007.8


$
1,000.7   2010
    ANNUAL
    REPORT

74




---



##### 



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

Maturity


payable


2010


20094.90% 7-year
    Medium Term Notes (A)


June 2010



CDN$


$



$
350.06.250%
    10-year
    Notes (A)


Oct. 2011



US$



249.7



266.15.75% 5-year
    Notes (A)


May 2013



US$



103.0



105.66.50%
    10-year
    Notes (A)


May 2018



US$



272.9



288.26.25%
    10-year
    Medium Term Notes (A)


June 2018



CDN$



373.2



372.97.250%
    10-year
    Notes (A)


May 2019



US$



344.7



363.99.450%
    30-year
    Debentures (A)


Aug. 2021



US$



248.6



262.74.450% 12.5-year Notes (A)


Mar. 2023



US$



346.6



7.125%
    30-year
    Debentures (A)


Oct. 2031



US$



348.1



367.85.750%
    30-year
    Debentures (A)


Mar. 2033



US$



248.6



261.85.95%
    30-year
    Notes (A)


May 2037



US$



440.1



465.46.45%
    30-year
    Notes (A)


Nov. 2039



CDN$



400.0



400.0Secured Equipment Loan (B)


Aug. 2015



CDN$



128.2



136.45.41% Senior Secured Notes (C)


Mar. 2024



US$



121.1



133.76.91% Secured Equipment Notes (D)


Oct. 2024



CDN$



194.1



202.25.57% Senior Secured Notes (E)


Dec. 2024



US$



62.8



68.07.49% Equipment Trust Certificates (F)


Jan. 2021



US$



103.2



112.6Bank loan (5.883%) (G)


June 2010



CDN$







219.8Other long-term loans (nil%  5.50%)


2014-2024



US$



4.4



5.3Obligations under capital leases (4.90%  7.63%) (H)


2011-2026



US$



286.6



319.7Obligations under capital leases (12.77%) (H)


Jan. 2031



CDN$



3.2



3.04,279.1



4,705.1Perpetual 4% Consolidated Debenture Stock (I)






US$



30.2



32.0Perpetual 4% Consolidated Debenture Stock (I)






GB£



5.6



6.44,314.9



4,743.5Less: Long-term debt maturing within one year










281.7



605.3$
4,033.2


$
4,138.2           10-year
  2010
    ANNUAL
    REPORT

75




---



##### 



(Note 21)
  Principal


Carrying


Cost toamount


amount


redeem(in millions)

Maturity


in USD


in
    CDN(2)


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
(1)


28.5



28.2Total debt tendered





$
477.7


$
555.3


$
571.9   (1)
  (2)
  30-year
              76

2010
    ANNUAL
    REPORT




---



##### 



(in millions of Canadian dollars)

Year


Capital leasesMinimum lease payments in:2011


$
29.42012



28.32013



26.82014



167.72015



12.9Thereafter



183.3Total minimum lease payments






448.4Less: Imputed interest






(158.6
)Present value of minimum lease payments






289.8Less: Current portion






(8.5
)Long-term portion of capital lease obligations





$
281.3         21  Financial
    instruments
  A. Fair
    values of financial instruments
    Loans and
    receivables
     Financial
    liabilities
       Available for
    sale
   Held for
    trading
   2010
    ANNUAL
    REPORT

77




---



##### 



o
    Level 1: Unadjusted quoted prices for identical assets and
    liabilities in active markets that are accessible at the
    measurement date.o
    Level 2: Directly or indirectly observable inputs other
    than quoted prices included within Level 1 or quoted prices
    for similar assets and liabilities. Derivative instruments in
    this category are valued using models or other industry standard
    valuation techniques derived from observable market data.o
    Level 3: 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.    FAIR VALUE OF
    LONG-TERM FLOATING RATE NOTES
      o
    $116.8 million Master Asset Vehicle (MAV) 2
    notes with eligible assets; ando
    $0.2 million MAV 3 Class 9 Traditional Asset
    (TA) Tracking notes.    o
    $116.8 million MAV 2 notes with eligible assets;o
    $12.1 million MAV 2 Ineligible Asset (IA)
    Tracking notes with ineligible assets; ando
    $0.2 million MAV 3 Class 9 TA Tracking notes.  Class A-1 Class A-2
      2010
    ANNUAL
    REPORT

78




---



##### 



December 31, 2010

December 31, 2009Probability weighted average coupon interest rate

0.8%

NilWeighted average discount rate

7.1%

7.9%Expected repayments of long-term floating rate notes

Approximately 6 years

31/2
    to 19 yearsCredit losses

MAV 2 eligible asset notes: 1% to 100%

MAV 2 eligible asset notes: nil to 100%MAV 2 IA Tracking notes: N/A

MAV 2 IA Tracking notes: 25%MAV 3 Class 9 TA Tracking notes: 1%

MAV 3 Class 9 TA Tracking notes: nil     Original


Estimated(in millions of Canadian dollars)

cost


fair valueAs at January 1, 2009

$
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



69.3Redemption of notes


(12.1
)


(7.7
)Accretion






5.9Change in market assumptions






2.0As at December 31, 2010

$
117.0


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

long-term floating rate notesCoupon interest
    rate(1)50 basis point increase

$
Nil50 basis point decrease

$
NilDiscount rate50 basis point increase

$
(1.9
)50 basis point decrease

$
2.0   2010
    ANNUAL
    REPORT

79




---



##### 



(1)
    B. Financial
    risk management
        Credit risk
    management
        Foreign
    exchange management
        2010
    ANNUAL
    REPORT

80




---



##### 



FOREIGN EXCHANGE
    FORWARD CONTRACTS ON LONG-TERM DEBT
      Interest rate
    management
      INTEREST RATE
    SWAPS
    fixed-to-floating
    TREASURY RATE
    LOCKS
    Stock-based
    compensation expense management
    81

2010
    ANNUAL
    REPORT




---



##### 



Fuel price
    management
            2010
    ANNUAL
    REPORT

82




---



##### 



Location of gain


Amount of gain (loss)


Amount of gain (loss)(loss) recognized


recognized in income on


recognized in otherin income on


derivatives


comprehensive income on derivatives(in millions of Canadian dollars)

derivatives


2010


2009


2008


2010


2009


2008Derivatives designated as hedging instrumentsEffective portionCrude oil swaps


Fuel expense


$



$
4.2


$
15.8


$



$
(3.2
)

$
(18.2
)Diesel future contracts


Fuel expense



2.5



(5.2
)






1.6



6.9



(4.4
)FX contracts on fuel


Fuel expense







(0.4
)


(1.8
)






0.1



3.5FX forward contracts


Other income and
    charges



(0.5
)










(1.1
)






Interest rate swaps


Net interest expense



3.5



5.5



3.1











Other income and
    charges







6.5















Treasury rate locks


Net interest expense



(1.8
)


(3.5
)


(3.3
)


1.8



3.5



3.0Ineffective portionFuel hedges


Fuel expense











(0.1
)










Treasury rate locks


Net interest expense











(1.1
)










Derivatives not designated as hedging instrumentsTotal return swaps


Compensation and benefits



12.0



18.6



(64.1
)










Diesel future contracts


Fuel expense











(9.7
)










Heating oil crack spreads


Fuel expense







0.2















FX forward contracts


Other income and
    charges







(23.0
)


73.0











Treasury rate locks


Net interest expense







(0.7
)


1.3











$
15.7


$
2.2


$
13.1


$
2.3


$
7.3


$
(16.1
)       Location of


Ineffective portion


Effective portion recognizedineffective portion


recognized in income


in other comprehensiverecognized in


gain (loss)


income gain (loss)(in millions of Canadian dollars)

income


2010


2009


2008


2010


2009


2008FX on LTD within net investment hedge


Other income and charges


$
2.6


$
(1.8
)

$
9.9


$
141.6


$
246.7


$
(308.0
)   2010
    ANNUAL
    REPORT

83




---



##### 



22  Other
    long-term liabilities
  (in millions of Canadian dollars)

2010


2009Provision for environmental remediation, net of current
    portion(1)

$
91.0


$
106.5Provision for restructuring, net of current
    portion(2)

    (Note 24)


45.6



57.5Deferred gains on sale leaseback transactions


40.9



44.3Deferred revenue on
    rights-of-way
    license agreements, net of current portion


36.2



40.6Deferred income credits


30.1



38.0Stock-based compensation liabilities, net of current portion


82.2



39.0Asset retirement obligations (Note 23)


22.4



26.6Other, net of current portion


119.6



127.4Total other long-term liabilities

$
468.0


$
479.9   (1)
  (2)
  rights-of-way
  ENVIRONMENTAL
    REMEDIATION ACCRUALS
      2010
    ANNUAL
    REPORT

84




---



##### 



23  Asset
    retirement obligations
    (In millions of Canadian dollars)

2010


2009Opening balance, January 1

$
26.6


$
31.9Liabilities incurred






0.3Accretion


1.7



1.8Liabilities settled


(5.1
)


(5.9
)Revision to estimated cash flows


(0.8
)


(1.5
)Closing balance, December 31

$
22.4


$
26.6   Canada
    Transportation Act
    24  Restructuring
    accrual
      (in millions of Canadian dollars)

2010


2009Opening balance, January 1

$
77.0


$
98.6Accrued


13.0



1.2Payments


(20.3
)


(27.0
)Amortization of
    discount(1)


3.6



7.4Foreign exchange impact


(1.2
)


(3.2
)Closing balance, December 31

$
72.1


$
77.0   (1)
  2010
    ANNUAL
    REPORT

85




---



##### 



25  Shareholders
    equity
  AUTHORIZED AND
    ISSUED SHARE CAPITAL
      (number of shares in millions)

2010


2009Share capital, January 1


168.5



153.8Shares issued






13.9Shares issued under stock option plans


0.7



0.8Share capital, December 31


169.2



168.5       26  Pensions
    and other benefits
            five-year
    86

2010
    ANNUAL
    REPORT




---



##### 



Pensions


Other benefits(in millions of Canadian dollars)

2010


2009


2008


2010


2009


2008Current service cost (benefits earned by employees in the year)

$
86.0


$
67.1


$
97.4


$
15.6


$
14.3


$
16.1Interest cost on benefit obligation


464.0



482.2



445.2



27.8



29.1



27.0Expected return on fund assets


(598.3
)


(557.3
)


(583.2
)


(0.7
)


(0.9
)


(0.7
)Recognized net actuarial loss (gain)


71.5



7.4



47.8



1.9



34.8



(1.9
)Amortization of prior service costs


13.1



22.7



21.4



(1.5
)


(1.5
)


(1.5
)Settlement
    gain(1)


















(8.0
)


(4.8
)Net periodic benefit cost

$
36.3


$
22.1


$
28.6


$
43.1


$
67.8


$
34.2   (1)
    Pensions


Other benefits(in millions of Canadian dollars)

2010


2009


2010


2009Change in projected benefit obligation:Benefit obligation at January 1

$
8,032.8


$
7,068.3


$
484.1


$
438.0Current service cost


86.0



67.1



15.6



14.3Interest cost


464.0



482.2



27.8



29.1Employee contributions


53.9



48.4



0.3



0.3Benefits paid


(468.7
)


(457.5
)


(34.7
)


(39.5
)Foreign currency changes


(8.0
)


(22.8
)


(1.2
)


(5.1
)Actuarial loss


823.8



847.1



2.3



57.5Release due to settlement














(10.5
)Projected benefit obligation at December 31

$
8,983.8


$
8,032.8


$
494.2


$
484.1Change in fund assets:Fair value of fund assets at January 1

$
7,013.8


$
6,118.5


$
11.5


$
12.1Actual return on fund assets


880.3



723.0



0.2



0.3Employer contributions


837.2



595.2



33.7



38.3Employee contributions


53.9



48.4



0.3



0.3Benefits paid


(468.7
)


(457.5
)


(34.7
)


(39.5
)Foreign currency changes


(6.1
)


(13.8
)






Fair value of fund assets at December 31

$
8,310.4


$
7,013.8


$
11.0


$
11.5Funded status  plan deficit

$
(673.4
)

$
(1,019.0
)

$
(483.2
)

$
(472.6
)   87

2010
    ANNUAL
    REPORT




---



##### 



Pensions


Other benefits(in millions of Canadian dollars)

2010


2009


2010


2009Accounts payable and accrued liabilities

$



$



$
40.9


$
37.7Pension and other benefit liabilities


673.4



1,019.0



442.3



434.9Total amount recognized

$
673.4


$
1,019.0


$
483.2


$
472.6         Pensions


Other benefits(in millions of Canadian dollars)

2010


2009


2010


2009Net actuarial loss:Other than deferred investment losses

$
2,309.2


$
1,548.8


$
98.9


$
98.1Deferred investment losses


547.2



837.2







Prior service cost


17.3



30.4



(3.4
)


(4.9
)Deferred income tax


(807.4
)


(690.2
)


(26.9
)


(26.6
)Total

$
2,066.3


$
1,726.2


$
68.6


$
66.6       (percentages)

2010


2009


2008Benefit obligation at December 31:Discount rate


5.20



5.90



7.00Projected future salary increases


3.00



3.00



3.00Health care cost trend rate


8.00
(1)


8.50
(2)


9.00
(2)Benefit cost for year ended December 31:Discount rate


5.90



7.00



5.60Expected rate of return on fund assets


7.75



7.75



8.00Projected future salary increases


3.00



3.00



3.00Health care cost trend rate


8.50
(2)


9.00
(2)


9.50
(2)   (1)
  (2)
  2010
    ANNUAL
    REPORT

88




---



##### 



One percentage


One percentage(in millions of Canadian dollars)
    Favourable (unfavourable)

point increase


point decreaseEffect on the total of service and interest costs


(0.6
)


0.6Effect on post-retirement benefit obligation


(8.4
)


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

Current policy range


2010


2009Public equity securities


45  51



47.7



45.9Debt securities


37  43



41.8



42.3Real estate and infrastructure


8  16



10.5



11.8Total






100.0



100.0     Quoted prices in


Significant other


Significantactive markets for


observable


unobservableidentical assets


inputs


inputs(in millions of Canadian dollars)

(Level 1)


(Level 2)


(Level 3)


TotalDecember 31, 2010Cash and cash equivalents

$
34.8


$
71.3


$



$
106.1Government bonds






2,398.1







2,398.1Corporate bonds






940.9







940.9Mortgages






15.6



5.2



20.8Public equities   Canada


1,050.5



67.0







1,117.5   U.S. and international


2,437.9



44.6







2,482.5Real estate










619.6



619.6Infrastructure










254.2



254.2Derivative
    assets(1)






370.7







370.7$
3,523.2


$
3,908.2


$
879.0


$
8,310.4  2010
    ANNUAL
    REPORT

89




---



##### 



Quoted prices in


Significant other


Significantactive markets for


observable


unobservableidentical assets


inputs


inputs(in millions of Canadian dollars)

(Level 1)


(Level 2)


(Level 3)


TotalDecember 31, 2009Cash and cash equivalents

$
16.2


$
238.2


$



$
254.4Government bonds






1,935.2







1,935.2Corporate bonds






753.6







753.6Mortgages






15.8



11.8



27.6Public equities   Canada


793.9



59.7







853.6   U.S. and international


2,036.3



54.6







2,090.9Real estate










576.3



576.3Infrastructure










240.2



240.2Derivative
    assets(1)






284.1







284.1Derivative
    liabilities(1)






(2.1
)






(2.1
)$
2,846.4


$
3,339.1


$
828.3


$
7,013.8   (1)
    
    The Companys pension funds
    utilize the following derivative instruments: equity futures to
    replicate equity index returns (Level 2); currency forwards
    to partially hedge foreign currency exposures (Level 2);
    and bond forwards to reduce asset/liability interest rate risk
    exposures (Level 2).    (in millions of Canadian dollars)

Mortgages


Real Estate


Infrastructure


TotalAs at January 1, 2009

$
27.9


$
596.4


$
198.7


$
823.0Contributions










63.7



63.7Disbursements


(16.1
)


(5.0
)






(21.1
)Decrease in net unrealized gains






(15.1
)


(22.2
)


(37.3
)As at December 31, 2009

$
11.8


$
576.3


$
240.2


$
828.3Contributions






10.0



52.9



62.9Disbursements


(7.2
)


(17.0
)


(44.2
)


(68.4
)Net realized gain (loss)






26.3



(2.0
)


24.3Increase in net unrealized gains


0.6



24.0



7.3



31.9As at December 31, 2010

$
5.2


$
619.6


$
254.2


$
879.0       90

2010
    ANNUAL
    REPORT




---



##### 



CASH
    FLOWS
      ESTIMATED FUTURE
    BENEFIT PAYMENTS
    (in millions of Canadian dollars)

Pensions


Other benefits2011

$
459.7


$
38.92012


469.4



39.32013


486.7



39.72014


505.1



40.52015


525.0



41.42016  2020


2,912.6



215.4     DEFINED
    CONTRIBUTION PLAN
    CONTRIBUTIONS TO
    MULTI-EMPLOYER PLANS
    27  Stock-based
    compensation
    91

2010
    ANNUAL
    REPORT




---



##### 



A.
    STOCK OPTION PLANS  Regular options and TSARs
      Performance Options
    Summary of regular and performance options
    Nonvested optionsOptions outstanding






WeightedWeighted






averageNumber of


average



Number of


grant dateoptions


exercise price



options


fair valueOutstanding, January 1, 2010



4,094,296


$
52.71




1,488,913


$
17.34New options granted



31,900



57.10




31,900



15.90Exercised



(551,878
)


48.41




NA



NAVested



NA



NA




(407,500
)


14.97Forfeited



(43,620
)


57.71




(17,038
)


17.61Outstanding at December 31, 2010



3,530,698


$
53.36




1,096,275


$
18.18Vested or expected to vest at December 31,
    2010(1)



2,664,803


$
48.75




NA



NAExercisable at December 31, 2010



2,434,423


$
46.82




NA



NA   (1)

    As at December 31, 2010, the weighted average remaining
    term of vested or expected to vest options was 4.4 years
    with an aggregate intrinsic value of $45.0 million.  in-the-money
  Options outstanding


Options exercisableWeighted





Aggregate








Aggregateaverage


Weighted


intrinsic





Weighted


intrinsicRange of

Number of


years to


average


value


Number of


average


valueexercise prices

options


expiration


exercise price


(millions)


options


exercise price


(millions)$27.62  $40.47


959,298



2.1


$
31.17


$
32.1



956,448


$
31.15


$
32.0$42.05  $62.56


1,697,450



4.1



56.53



13.7



1,275,750



54.67



12.7$62.90  $74.89


873,950



4.5



71.56







202,225



71.46



Total(1)


3,530,698



3.6


$
53.36


$
45.8



2,434,423


$
46.82


$
44.7   (1)

    As at December 31, 2010, the total number of
    in-the-money
    stock options outstanding was 2,663,398 with a weighted-average
    exercise price of $47.41. The weighted-average years to
    expiration of exercisable stock options is 3.9 years.  2010
    ANNUAL
    REPORT

92




---



##### 



2010


2009


2008Expected option life
    (years)(1)


6.25



5.0



4.39Risk-free interest
    rate(2)


2.78
%


2.35
%


3.53
%Expected stock price
    volatility(3)


30
%


23
%


23
%Expected annual dividends per
    share(4)

$
1.08


$
0.99


$
0.99Estimated forfeiture
    rate(5)


0.7
%


2.3
%


2.0
%Weighted average grant date fair value of options granted during
    the year

$
15.90


$
6.52


$
15.07   (1)
  (2)
  (3)
  (4)
    Determined by the current annual dividend divided by the current
    stock price. The Company does not employ different dividend
    yields throughout the year.(5)
    The Company estimated forfeitures based on past experience. The
    rate is monitored on a periodic basis.        Summary of TSARs
    Nonvested TSARsTSARs outstanding






WeightedWeighted






averageNumber of


average



Number of


grant dateTSARs


exercise price



TSARs


fair valueOutstanding, January 1, 2010



3,357,397


$
45.92




1,375,587


$
10.94New TSARs granted



812,900



51.81




812,900



14.27Exercised as TSARs



(7,720
)


38.25




NA



NAExercised as Options



(145,317
)


36.80




NA



NAVested



NA



NA




(407,500
)


14.97Forfeited



(18,350
)


54.27




(14,012
)


10.88Outstanding at December 31, 2010



3,998,910


$
47.43




1,766,975


$
11.54Vested or expected to vest at December 31,
    2010(1)



3,990,461


$
47.42




NA



NAExercisable at December 31, 2010



2,231,935


$
47.31




NA



NA   (1)
    93

2010
    ANNUAL
    REPORT




---



##### 



in-the-money
  TSARs outstanding


TSARs exercisableWeighted


Weighted


Aggregate





Weighted


Aggregateaverage


average


intrinsic





average


intrinsicNumber


years to


exercise


value


Number of


exercise


valueRange of exercise prices

of TSARs


expiration


price


(millions)


TSARs


price


(millions)$27.62  $40.47


1,574,635



5.0


$
33.63


$
48.8



837,785


$
31.29


$
27.9$42.05  $62.56


2,025,725



6.8



53.41



22.7



1,191,925



54.46



12.1$62.90  $74.89


398,550



7.0



71.50







202,225



71.46



Total(1)


3,998,910



6.1


$
47.43


$
71.5



2,231,935


$
47.31


$
40.0   (1) in-the-money
        Summary of stock option plans
    (in millions of Canadian dollars)

2010


2009


2008Regular stock option plan

$
6.1


$
5.9


$
5.4Performance stock option plan










2.8TSARs


6.1



5.9



5.4Total

$
12.2


$
11.8


$
13.6     (in millions of Canadian dollars)

2010


2009


2008Total intrinsic value

$
10.1


$
8.4


$
19.4Cash received by the Company upon exercise of options


32.4



24.2



19.6Related tax benefits


0.4



0.1



0.1   B. OTHER SHARE-BASED PLANS
  Performance share unit (PSU) plan
    2010
    ANNUAL
    REPORT

94




---



##### 



PSUs outstandingWeightedaverageNumber of


grant datePSUs


fair valueOutstanding, January 1, 2010


422,534


$
38.72Granted


328,020



46.86Units, in lieu of dividends


10,707



59.57Vested


NA



NAForfeited


(24,816
)


77.71Cancelled


(35,977
)


39.83Outstanding at December 31, 2010


700,468


$
41.41Exercisable at December 31, 2010






       Deferred share
    unit plan
          2010


2009Outstanding, January 1


345,843



292,982Granted


37,802



55,273Transferred from RSUs


18,756



Units, in lieu of dividends


6,226



7,093Redeemed


(20,281
)


(9,505
)Outstanding, December 31


388,346



345,843     95

2010
    ANNUAL
    REPORT




---



##### 



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

2010


2009


2008PlanTSARs

$
0.2


$
2.6


$
1.6DSUs


1.8



0.3



2.4Total

$
2.0


$
2.9


$
4.0   C.
    EMPLOYEE SHARE PURCHASE PLAN      28  Variable
    interest entities
      (Note 29)
      29  Commitments
    and contingencies
    2011-2028.
  2010
    ANNUAL
    REPORT

96




---



##### 



(Note 17)
  30  Guarantees
    o
    residual value guarantees on operating lease commitments of
    $162.5 million at December 31, 2010;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
      31  Segmented
    information
  OPERATING
    SEGMENT
    97

2010
    ANNUAL
    REPORT




---



##### 



GEOGRAPHIC
    INFORMATION
  (in millions of Canadian dollars)

Canada


United States


Total2010Revenues

$
3,635.5


$
1,346.0


$
4,981.5Long-term assets excluding financial instruments, mortgages
    receivable and deferred tax assets

$
8,458.2


$
4,012.8


$
12,471.02009 (Restated Note 2)Revenues

$
3,166.2


$
1,236.0


$
4,402.2Long-term assets excluding financial instruments, mortgages
    receivable and deferred tax assets

$
8,363.5


$
4,134.2


$
12,497.72008Revenues

$
3,921.5


$
1,127.0


$
5,048.5       CONSOLIDATING
    INFORMATION  2010
  Other


Consolidating(in millions of Canadian dollars)

Canada


United States


countries


entries


TotalRevenues

$
3,635.5


$
1,346.0


$



$



$
4,981.5Operating expenses


2,921.9



1,027.9







(84.4
)


3,865.4Revenues less operating expenses


713.6



318.1







84.4



1,116.1Net interest expense and other income and charges


226.6



81.8



(57.8
)


(5.3
)


245.3Income before taxes


487.0



236.3



57.8



89.7



870.8Income tax expense


104.8



97.1



1.5



16.7



220.1Net income

$
382.2


$
139.2


$
56.3


$
73.0


$
650.7Current assets

$
757.8


$
508.4


$
21.6


$
(84.0
)

$
1,203.8Net properties


6,334.3



3,744.5







1,918.0



11,996.8Other long-term assets


1,460.2



268.6



1,291.6



(2,545.1
)


475.3Total assets

$
8,552.3


$
4,521.5


$
1,313.2


$
(711.1
)

$
13,675.9Current liabilities

$
1,105.0


$
272.0


$
1.2


$
(88.7
)

$
1,289.5Long-term liabilities


5,031.7



3,629.9







(1,099.9
)


7,561.7Shareholders equity


2,415.6



619.6



1,312.0



477.5



4,824.7Total liabilities and shareholders equity

$
8,552.3


$
4,521.5


$
1,313.2


$
(711.1
)

$
13,675.9   98

2010
    ANNUAL
    REPORT




---



##### 



32  Reconciliation
    of Canadian GAAP and U.S. GAAP
    (a) ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND
    HEDGING:
    (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:
    (h) JOINT VENTURE:
    99

2010
    ANNUAL
    REPORT




---



##### 



(i) LONG-TERM DEBT:
      (j) CAPITAL LEASES:
    (k) INVESTMENT TAX CREDITS AND TAX CREDIT
    CARRYFORWARDS:
    (l) GAIN ON SALE OF SIGNIFICANT PROPERTIES:
    (m) CASH FLOWS:
    2010
    ANNUAL
    REPORT

100




---



##### 



CONSOLIDATED
    STATEMENT OF INCOME RECONCILIATION
    2009


2008(in millions of Canadian dollars,
    except per share data)

2010


Restated (Note 2)


Restated (Note 2)Net income  U.S. GAAP

$
650.7


$
550.0


$
627.8Increased (decreased) by:Pension costs (b)


(11.4
)


17.0



(13.3
)Post-retirement benefits costs (b)


(10.0
)


(9.8
)


(9.6
)Post-employment benefits costs (c)


(4.9
)


30.3



(11.0
)Termination and severance benefits (d)






1.5



8.7Internal use software  additions (f)


16.8



3.8



18.1Internal use software  depreciation (f)


(8.6
)


(7.4
)


(9.2
)Stock-based compensation (e)


2.5



14.7



(6.9
)Gain (loss) on ineffective portion of hedges (a)


1.9



2.2



(10.5
)Capitalized interest  additions (g)


(4.9
)


(4.9
)


(21.0
)Capitalized interest  depreciation (g)


6.4



12.3



5.3Capital lease  equipment rents (j)


1.3



1.3



1.3Capital lease  depreciation (j)


(0.9
)


(0.9
)


(0.9
)Capital lease  interest (j)


(0.5
)


(0.6
)


(0.5
)Future/deferred income tax expense related to above differences


4.4



(2.5
)


21.1Net income  Canadian GAAP

$
642.8


$
607.0


$
599.42009


20082010


Restated (Note 2)


Restated (Note 2)Earnings per share  Canadian GAAPBasic earnings per share

$
3.81


$
3.65


$
3.90Diluted earnings per share

$
3.80


$
3.64


$
3.86   2010
    ANNUAL
    REPORT

101




---



##### 



CONSOLIDATED
    BALANCE SHEET RECONCILIATION
    (in millions of Canadian dollars)

2010


2009AssetsCurrent assetsAccounts receivable, netReceivable from bank (i)

$



$
(214.1
)Long-term assetsNet propertiesCapitalized interest (g)


(166.6
)


(168.3
)Internal use software (f)


68.0



59.9Stock-based compensation (e)


(1.1
)


Capital leases (j)


7.8



8.7Prepaid pension costs and other assetsPension (b)


2,432.6



1,644.4Transaction costs on long-term debt (i)


(46.9
)


(43.6
)Investment tax credits and tax credit carryforwards (k)


28.2



Internal use software (f)


0.6



0.6Total assets

$
2,322.6


$
1,287.6   102

2010
    ANNUAL
    REPORT




---



##### 



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

2010


2009Liabilities and shareholders equityCurrent liabilitiesAccounts payable and accrued liabilitiesStock-based compensation (e)

$
(12.2
)

$
(9.8
)Long-term debt maturing within one yearCapital leases (j)


0.9



0.9Bank loan (i)






(214.1
)Long-term liabilitiesOther long-term liabilitiesPost-employment benefit liability (c)


(19.6
)


(24.6
)Under funded status of defined benefit pension and other
    post-retirement plans (b)


(764.8
)


(1,116.8
)Stock-based compensation (e)


(3.6
)


(2.2
)Long-term debtCapital leases (j)


7.3



8.1Transaction costs on long-term debt (i)


(46.9
)


(43.6
)Future/deferred income taxes


843.7



704.5Total liabilities


4.8



(697.6
)Shareholders equityShare capitalStock-based compensation (e)


(26.1
)


(24.7
)Contributed surplus/additional paid in capitalStock-based compensation (e)


4.3



2.7Retained income / earnings


203.4



211.4Accumulated other comprehensive incomeFunding status of defined benefit pension and other
    post-retirement plans (b)


2,134.9



1,792.8Unrealized foreign exchange loss on designated net investment
    hedge (a)


1.3



3.0Total liabilities and shareholders equity

$
2,322.6


$
1,287.6    2010
    ANNUAL
    REPORT

103




---



##### 



CANADIAN
    GAAP CONSOLIDATED STATEMENT OF INCOME
  Year ended


Year endedDecember 31


December 312009


2008Restated


Restated(Note 2)


(Note 2)RevenuesFreight

$
4,175.2


$
4,814.8Other


128.0



116.84,303.2



4,931.6Operating expensesCompensation and benefits


1,278.0



1,308.8Fuel


580.3



1,005.9Materials


216.9



254.0Equipment rents


184.8



182.2Depreciation and amortization


474.9



433.6Purchased services and other


674.8



716.43,409.7



3,900.9Revenues less operating expenses


893.5



1,030.7Gain on sale of partnership interest


81.2



Gain on sales of significant properties


79.1



Equity income in Dakota, Minnesota & Eastern Railroad
    Corporation






50.9Less:Loss on termination of lease with shortline railway


54.5



Other income and charges


18.9



88.4Net interest expense


273.1



261.1Income before income tax expense


707.3



732.1Income tax expense


100.3



132.7Net income

$
607.0


$
599.4Earnings per shareBasic earnings per share

$
3.65


$
3.90Diluted earnings per share

$
3.64


$
3.86    104

2010
    ANNUAL
    REPORT




---



##### 



CANADIAN
    GAAP CONSOLIDATED BALANCE SHEET
  As atDecember 312009Restated(Note 2)AssetsCurrent assetsCash and cash equivalents

$
679.1Accounts receivable, net


441.0Materials and supplies


132.7Future income taxes


128.1Other current assets


46.51,427.4Investments


156.7Net properties


11,878.8Goodwill and intangible assets


202.3Prepaid pension costs and other assets


1,777.2Total assets

$
15,442.4Liabilities and shareholders equityCurrent liabilitiesAccounts payable and accrued liabilities

$
990.9Long-term debt maturing within one year


392.11,383.0Other long-term liabilities


790.2Long-term debt


4,102.7Future income taxes


2,523.2Total liabilities


8,799.1Shareholders equityShare capital


1,746.4Contributed surplus


33.5Accumulated other comprehensive income


51.1Retained income


4,812.36,643.3Total liabilities and shareholders equity

$
15,442.4   (Note 29).
  2010
    ANNUAL
    REPORT

105




---



##### 



CANADIAN
    GAAP CONSOLIDATED STATEMENT OF CASH FLOWS
  Year ended


Year endedDecember 31


December 312009


2008Restated


Restated(Note 2)


(Note 2)Operating activitiesNet income

$
607.0


$
599.4Reconciliation of net income to cash provided by operating
    activities:Depreciation and amortization


474.9



433.6Future income taxes


152.0



153.1Gain on sale of partnership interest


(81.2
)


Gain on sales of significant properties


(79.1
)


Pension funding in excess of expense


(589.0
)


(53.2
)Other operating activities, net


(56.4
)


(0.9
)Change in non-cash working capital balances related to operations


102.7



(132.2
)Cash provided by operating activities


530.9



999.8Investing activitiesAdditions to properties


(701.8
)


(813.0
)Additions to assets held for sale and other






(222.5
)Proceeds from sale of properties and other assets


256.3



257.6Other, net


7.4



1.1Cash used in investing activities


(438.1
)


(776.8
)Financing activitiesDividends paid


(162.9
)


(148.7
)Issuance of CP Common Shares


513.5



19.7Issuance of long-term debt


872.7



1,068.7Repayment of long-term debt


(618.6
)


(1,340.7
)Net decrease in short-term borrowing


(150.1
)


(79.6
)Other financing activities


34.1



(30.9
)Cash provided by (used in) financing activities


488.7



(511.5
)Effect of foreign currency fluctuations on U.S.
    dollar-denominated cash and cash equivalents


(20.0
)


28.0Cash positionIncrease (decrease) in cash and cash equivalents


561.5



(260.5
)Cash and cash equivalents at beginning of year


117.6



378.1Cash and cash equivalents at end of year

$
679.1


$
117.6Supplemental disclosures of cash flow information:Income taxes (refunded) paid

$
(38.9
)

$
59.0Interest paid

$
289.3


$
269.1   106

2010
    ANNUAL
    REPORT




---



##### 



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
    2010
    ANNUAL
    REPORT

107




---



##### 



December 31,2009December 31,


Restated(in millions of Canadian dollars,
    U.S. GAAP)

Guidelines


2010


(See Note 2)Long-term debt





$
4,033.2


$
4,138.2Long-term debt maturing within one year






281.7



605.3Total debt





$
4,314.9


$
4,743.5Shareholders equity





$
4,824.7


$
4,658.1Total debt






4,314.9



4,743.5Total debt plus equity





$
9,139.6


$
9,401.6Operating income for the twelve months ended December 31





$
1,116.1


$
830.1Gain on sale of significant properties










(79.1
)Loss on termination of lease with shortline railway










54.5Other income and charges






12.0



(12.4
)Gain in long-term floating rate notes






(3.4
)


(6.3
)Foreign exchange gain on long-term debt






(2.3
)


(3.6
)Adjusted
    EBIT(1)(2)

    for the twelve months ended December 31





$
1,122.4


$
783.2Total debt





$
4,314.9


$
4,743.5Total debt plus equity





$
9,139.6


$
9,401.6Total debt to total capitalization


No more than 50.0%



47.2
%


50.5
%Adjusted
    EBIT(1)(2)





$
1,122.4


$
783.2Net interest
    expense(2)





$
257.3


$
267.6Interest coverage
    ratio(1)(2)


No less than 4.0



4.4



2.9   (1)
  (2)

    The amount is calculated on a twelve month rolling basis.  year-over-year year-over-year
    108

2010
    ANNUAL
    REPORT




---



##### 



FIVE-YEAR
    SUMMARY
  CanadianU.S. GAAP


GAAP(in millions)

2010


2009(1)


2008(1)(3)


2007(1)(2)


2006(1)Income StatementRevenuesFreightGrain

$
1,135.7


$
1,137.1


$
977.2


$
944.0


$
904.6Coal


490.8



443.8



611.4



576.5



592.0Sulphur and fertilizers


474.8



309.3



511.9



504.6



439.3Forest products


184.9



176.1



241.1



277.5



316.4Industrial and consumer products


902.8



786.1



772.0



631.4



603.8Automotive


316.4



229.3



325.6



320.8



314.4Intermodal


1,347.9



1,198.1



1,482.3



1,368.3



1,256.84,853.3



4,279.8



4,921.5



4,623.1



4,427.3Other revenues


128.2



122.4



127.0



131.0



155.9Total revenues


4,981.5



4,402.2



5,048.5



4,754.1



4,583.2Adjusted operating
    expenses(4)(7)Compensation and benefits


1,431.0



1,306.6



1,289.8



1,266.0



1,350.3Fuel


728.1



580.3



1,005.9



746.9



650.6Materials


214.2



217.6



257.8



256.0



256.0Equipment rents


206.0



226.0



218.5



234.8



181.2Depreciation and amortization


489.6



483.2



428.2



413.5



411.0Purchased services and other


796.5



783.0



809.3



676.7



651.6Total adjusted operating
    expenses(4)(7)


3,865.4



3,596.7



4,009.5



3,593.9



3,500.7Adjusted operating
    income(4)(7)


1,116.1



805.5



1,039.0



1,160.2



1,082.5Equity 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(5)(6)(7)


(6.3
)


22.3



17.1



20.9



27.8Net interest expense


257.3



267.6



239.6



190.0



194.5Income tax expense, before income tax on foreign exchange gains
    and losses on long-term debt and other specified items
    (5)(6)(7)


210.9



97.3



202.0



262.8



266.5Income, before foreign exchange gains and losses on long-term
    debt and other specified
    items(5)(6)(7)


654.2



418.3



631.2



697.7



593.7Foreign exchange gain (loss) on long-term debt (net of income
    tax)(6)


(5.9
)


(27.7
)


31.4



125.2



(7.2
)Other specified items (net of income
    tax)(5)(7)


2.4



159.4



(34.8
)


84.7



166.2Net income

$
650.7


$
550.0


$
627.8


$
907.6


$
752.7   (1)
    Certain comparative period figures have been restated for the
    accounting policy change related to rail grinding costs.(2)
    The 2007 figures include equity income for DM&E from
    October 4, 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
    consolidated basis after that date.(4)
    Before other specified items as follows: For 2009, a
    $54.5 million loss on termination of lease with shortline
    railway and a gain of $79.1 million on sales of significant
    properties.  2010
    ANNUAL
    REPORT

109




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##### 



(5)
    Before other specified items as follows: For 2010, a
    $3.4 million gain in fair value of long-term floating rate
    notes ($2.4 million after tax); for 2009, a
    $54.5 million loss on termination of lease with 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
    $55.7 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 $99.7 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.(6)
    Before foreign exchange gain (loss) on long-term debt as
    follows: For 2010, a $2.3 million ($5.9 million loss
    after tax) foreign exchange gain on long-term debt; for 2009, a
    $3.6 million ($27.7 million loss after tax) foreign
    exchange gain on long-term debt; for 2008, a $5.8 million
    ($31.4 million gain after tax) foreign exchange loss on
    long-term debt; for 2007, a $169.4 million
    ($125.2 million after tax) foreign exchange gain on
    long-term debt; for 2006, a $0.1 million ($7.2 million
    loss after tax) foreign exchange loss on long-term debt.(7)
    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.  2010
    ANNUAL
    REPORT

110




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##### 



SHAREHOLDER
    INFORMATION
  COMMON SHARE
    MARKET PRICES
  2010


2009Toronto Stock Exchange(Canadian dollars)

High


Low


High


LowFirst Quarter


57.54



49.58



46.09



32.36Second Quarter


62.90



53.57



48.41



36.80Third Quarter


65.82



55.65



55.96



38.35Fourth Quarter


67.50



61.60



58.17



45.41Year


67.50



49.58



58.17



32.362010


2009New York Stock Exchange
    Composite transactions(U.S. dollars)

High


Low


High


LowFirst Quarter


56.65



46.13



38.98



25.11Second Quarter


61.98



49.98



43.91



29.19Third Quarter


63.47



52.15



51.64



32.96Fourth Quarter


67.03



60.14



55.43



42.05Year


67.03



46.13



55.43



25.11Number of registered shareholders at year end:














16,950Closing market prices at year end:Toronto Stock Exchange:













CDN$
64.62New York Stock Exchange:













US$
64.81   SHAREHOLDER
    ADMINISTRATION
  COMMON
    SHARES
    , (514) 982-7555,
      INFORMATION
    REGARDING DIRECT REGISTRATION
      DIRECT DEPOSIT OF
    DIVIDENDS
    111

2010
    ANNUAL
    REPORT




---



##### 



4% CONSOLIDATED
    DEBENTURE STOCK
    (212) 815-2719 e-mail
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    SECURITIES
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    OFFICER AND CHIEF FINANCIAL OFFICER CERTIFICATION
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  2011 ANNUAL AND
    SPECIAL MEETING
    SHAREHOLDER
    SERVICES
  (403) 319-7538, e-mail
    INVESTOR
    INFORMATION
    COMMUNICATIONS
    AND PUBLIC AFFAIRS
    2010
    ANNUAL
    REPORT

112




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##### 



DIRECTORS AND
    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(1)(3)
 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(4)(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)
  *
  113

2010
    ANNUAL
    REPORT




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##### 



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
  Edmond L.
    Harris(1)(2)
 Executive Vice-President and Chief
    Operations Officer
 Spring Lake, Michigan
  Kathryn B.
    McQuade(1)
 Executive Vice-President and Chief
    Financial Officer
 Mesquite, Nevada
  Jane A.
    OHagan(1)
 Executive Vice-President and Chief
    Marketing Officer
 Calgary, Alberta
  Donald B.
    Campbell(1)
 Senior Vice-President, Strategy
    and Financial Planning
 Calgary, Alberta
  J. Michael
    Franczak(1)(2)
 Senior Vice-President, Operations
 Calgary, Alberta
  Brian W.
    Grassby(1)
 Senior Vice-President, Finance and
    Comptroller
 Calgary, Alberta
  Brock M.
    Winter(1)
 Senior Vice-President, Engineering
    and
 Mechanical
 Calgary, Alberta
  Raymond H.
    Foot(1)
 Group Vice-President, Sales
 Calgary, Alberta
  Marlowe G. Allison
 Vice-President and Treasurer
 Calgary, Alberta
  Peter J.
    Edwards(1)
 Vice-President Human Resources and
    Industrial
 Relations
 Calgary, Alberta
  Paul A. Guthrie,
    Q.C.(1)
 Vice-President, Law and Risk
    Management
 Municipal District of Rocky View,
    Alberta
  Karen L. Fleming
 Corporate Secretary
 Calgary, Alberta
  (1)
  (2)
  2010
    ANNUAL
    REPORT

114




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#####