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




---



##### 



PRIOR FILINGS MODIFIED AND SUPERSEDED
   CONSOLIDATED AUDITED ANNUAL FINANCIAL STATEMENTS AND
MANAGEMENTS DISCUSSION AND ANALYSIS
 A. Audited Annual Financial Statements
  B. Managements Discussion and Analysis
   DISCLOSURE CONTROLS AND PROCEDURES
  MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
  2




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##### 



CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
  CODE OF BUSINESS ETHICS
 www.cpr.ca
 CODE OF ETHICS FOR CHIEF EXECUTIVE OFFICER AND SENIOR FINANCIAL OFFICERS
 www.cpr.ca
 CORPORATE GOVERNANCE PRINCIPLES AND GUIDELINES
 www.cpr.ca
 3




---



##### 



COMMITTEE TERMS OF REFERENCE
 www.cpr.ca
 DIRECTOR INDEPENDENCE
  EXECUTIVE SESSIONS OF NON-MANAGEMENT DIRECTORS
   th
 AUDIT COMMITTEE FINANCIAL EXPERTS
  
  4




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##### 



FINANCIAL LITERACY OF AUDIT COMMITTEE MEMBERS
  SERVICE ON OTHER PUBLIC COMPANY AUDIT COMMITTEES
   
    
    Two of the public company audit committees on which Ms. Hoeg serves are the Audit
Committees of the Registrants. As Canadian Pacific Railway Company is a wholly-owned
subsidiary of Canadian Pacific Railway Limited, and the latter company carries on no
business operations and has no assets or liabilities of more than nominal value beyond its
100% shareholding in Canadian Pacific Railway Company, the workload of the Audit Committees
is essentially equivalent to the workload of one public company audit committee; and
    
    Ms. Hoeg, is the former chief executive officer of a large public company and the former
chief financial officer of a large public company and has been designated as an audit
committee financial expert for the Registrants. As a result, she no longer has any
day-to-day executive or managerial responsibilities and, in addition, brings to her role on
the Audit Committees of the Registrants considerable business experience and a
highly-focused and effective approach to audit-related matters.
 PRINICIPAL ACCOUNTANT FEES AND SERVICES
  Year ended December 31, 2008
    
    Year ended December 31, 2007Audit Fees
    
    $
    2,044,700
    
    
    $
    2,391,600Audit-Related Fees
    
    $
    808,600
    
    
    $
    619,780Tax Fees
    
    $
    341,900
    
    
    $
    422,600All Other Fees
    
    $
    0
    
    
    $
    0TOTAL
    
    $
    3,195,200
    
    
    $
    3,433,980
 5




---



##### 



Audit Fees
  Audit-Related Fees
 Sarbanes-Oxley Act
 Tax Fees
  All Other Fees
  PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES PROVIDED BY
INDEPENDENT AUDITORS
  6




---



##### 



OFF-BALANCE SHEET ARRANGEMENTS
  TABLE OF CONTRACTUAL COMMITMENTS
  UNDERTAKING AND CONSENT TO SERVICE OF PROCESS
 A. Undertaking
  B. Consent to Service of Process
  SIGNATURES
  CANADIAN PACIFIC RAILWAY LIMITED
CANADIAN PACIFIC RAILWAY COMPANY
(Registrants)/s/ Karen L. FlemingName:
    Karen L. FlemingTitle:
    Corporate SecretaryDate:
    March 5, 2009  7




---



##### 



DOCUMENTS FILED AS PART OF THIS REPORT
 1.
    
    Annual Information Form of the Registrant for the year ended December 31, 2008.2.
    
    Annual Report of the Registrant for the year ended December 31, 2008, including Managements
Discussion and Analysis, Managements Report on Internal Control over Financial Reporting and
the Audited Consolidated Financial Statements of the Registrant as of December 31, 2008 and
for each of the three years then ended1.
 EXHIBITS
 A.
    
    Consent of PricewaterhouseCoopers, Independent Auditors.B.
    
    Certifications by the Chief Executive Officer and Chief Financial Officer of the Registrants
filed pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.C.
    
    Certifications by the Chief Executive Officer and Chief Financial Officer of the Registrants
furnished pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 
 1
    
    For the purposes of this Annual Report on
Form 40-F, only pages 3 through 109 of the Registrants 2008 Annual Report
referred to above shall be deemed filed, and the balance of such 2008 Annual
Report, except as it may be otherwise specifically incorporated by reference in
the Registrants Annual Information Form, shall be deemed not filed with the
Securities and Exchange Commission as part of this Annual Report on Form 40-F
under the Exchange Act. 8




---



##### 



2008 Annual Information Form




---



##### 



Table Of Contents
 SECTION 1: CORPORATE STRUCTURE1.1 NAME, ADDRESS AND INCORPORATION INFORMATION
    
    
    2SECTION 2: INTERCORPORATE RELATIONSHIPS2.1 PRINCIPAL SUBSIDIARIES
    
    
    3SECTION 3: GENERAL DEVELOPMENT OF THE BUSINESS3.1 RECENT DEVELOPMENTS
    
    
    4SECTION 4: DESCRIPTION OF THE BUSINESS4.1 OUR BACKGROUND AND NETWORK
    
    
    54.2 STRATEGY
    
    
    54.3 PARTNERSHIPS, ALLIANCES AND NETWORK EFFICIENCY
    
    
    54.4 NETWORK AND RIGHT-OF-WAY
    
    
    64.5 QUARTERLY TRENDS
    
    
    94.6 BUSINESS CATEGORIES
    
    
    94.7 REVENUES
    
    
    104.8 RAILWAY PERFORMANCE
    
    
    124.9 FRANCHISE INVESTMENT
    
    
    144.10 INTEGRATED OPERATING PLAN
    
    
    144.11 INFORMATION TECHNOLOGY
    
    
    154.12 LABOUR PRODUCTIVITY AND EFFICIENCY
    
    
    164.13 BUSINESS RISKS & ENTERPRISE RISK MANAGEMENT
    
    
    164.14 INDEMNIFICATIONS
    
    
    164.15 SAFETY
    
    
    174.16 ENVIRONMENTAL PROTECTION
    
    
    174.17 INSURANCE
    
    
    18SECTION 5: DIVIDENDS5.1 DECLARED DIVIDENDS AND DIVIDEND POLICY
    
    
    19SECTION 6: CAPITAL STRUCTURE6.1 DESCRIPTION OF CAPITAL STRUCTURE
    
    
    206.2 SECURITY RATINGS
    
    
    21SECTION 7: MARKET FOR SECURITIES7.1 STOCK EXCHANGE LISTINGS
    
    
    237.2 TRADING PRICE AND VOLUME
    
    
    23SECTION 8: DIRECTORS AND OFFICERS8.1 DIRECTORS
    
    
    248.2 CEASE TRADE ORDERS, BANKRUPTCIES, PENALTIES OR SANCTIONS
    
    
    258.3 SENIOR OFFICERS
    
    
    268.4 SHAREHOLDINGS OF DIRECTORS AND OFFICERS
    
    
    278.5 ANNOUNCEMENTS
    
    
    27SECTION 9: LEGAL PROCEEDINGS
    
    
    28SECTION 10: TRANSFER AGENTS10.1 TRANSFER AGENT
    
    
    29SECTION 11: INTERESTS OF EXPERTS
    
    
    30SECTION 12: AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE12.1 COMPOSITION OF THE AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE AND RELEVANT EDUCATION AND EXPERIENCE
    
    
    3112.2 PRE-APPROVAL OF POLICIES AND PROCEDURES
    
    
    3112.3 AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE CHARTER
    
    
    3212.4 AUDIT AND NON-AUDIT FEES AND SERVICES
    
    
    37SECTION 13: ADDITIONAL INFORMATION13.1 ADDITIONAL COMPANY INFORMATION
    
    
    39
  February 23, 2009
 1




---



##### 



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




---



##### 



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




---



##### 



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




---



##### 



SECTION 4: DESCRIPTION OF THE BUSINESS
 
 4.1 Our Background and Network
    4.2 Strategy
  
    
    generating quality revenue growth by realizing the benefits of demand growth in our
bulk, intermodal and merchandise business lines with targeted infrastructure capacity
investments linked to global trade opportunities;
    
    improving productivity by leveraging strategic marketing and operating partnerships,
executing a scheduled railway through our Integrated Operating Plan (IOP) and driving
more value from existing assets and resources by improving fluidity; and
    
    continuing to develop a dedicated, professional and knowledgeable workforce that is
committed to safety and sustainable financial performance through steady improvement in
profitability, increased free cash flow and a competitive return on investment.
 4.3 Partnerships, Alliances and Network Efficiency
   5




---



##### 



SECTION 4: DESCRIPTION OF THE BUSINESS
 
  
    
    a CP-CN directional running agreement over about 100 miles of parallel CP and CN track
in Ontario between Waterfall (near Sudbury) and Parry Sound. The trains of both railways
operate eastbound over CNs line and westbound over our line;
    
    a CP-CN haulage agreement under which we transport CN freight over about 300 miles of CP
track in Ontario between Thunder Bay and Franz;
    
    CP-CN initiatives in the Port of Vancouver Terminal and B.C. Lower Mainland;
    
    CP-CN directional running operations in the B.C. Fraser Canyon;
    
    a CP-NS trackage rights agreement to handle NS traffic over our D&H lines in the US
Northeast; and
    
    a CP-NS track connection at Detroit, Michigan that provides service between eastern
Canada and the US Midwest.
  4.4 Network and Right-of-Way
  
  4.4.1 The Western Corridor: Vancouver-Moose Jaw
 Overview
 Products
 Feeder Lines
 6




---



##### 



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




---



##### 



SECTION 4: DESCRIPTION OF THE BUSINESS
 
 Yards and Repair Facilities
  4.4.4 The Eastern Corridor
 Overview
 Products
 Feeder Lines
 Connections
 Yards and Repair Facilities
 4.4.5 The Dakota, Minnesota & Eastern Railroad Corporation
 Overview
 Products
 Feeder Lines
 Connections
 8




---



##### 



SECTION 4: DESCRIPTION OF THE BUSINESS
 
 Yards and Repair Facilities
 4.4.6 Right-of-Way
    4.5 Quarterly Trends
  4.6 Business Categories
  Business
Category(1)
    
    2008

    
    2007Bulk
    
    
    43
    %
    
    
    44
    %Merchandise
    
    
    28
    %
    
    
    27
    %Intermodal
    
    
    29
    %
    
    
    29
    %
  9




---



##### 



SECTION 4: DESCRIPTION OF THE BUSINESS
 
 4.7 Revenues
  Freight
Revenues
    
    
    
    
    
    Fiscal 2008
    
    
    
    
    
    
    Fiscal 2007(in
$ millions, except for percentages)
    
    
    
    
    
    Growth
    
    
    
    
    
    
    GrowthFiscal
    
    
    Rate as
    
    
    Fiscal
    
    
    Rate as
    
    
    Fiscal2008(1)
    
    
    Compared
    
    
    2007
    
    
    Compared
    
    
    2006to Fiscal
    
    
    
    
    
    
    to FiscalBusiness
Category
    
    
    
    
    
    2007
    
    
    
    
    
    
    2006BulkGrain
    
    
    970
    
    
    
    3.3
    %
    
    
    939
    
    
    
    3.8
    %
    
    
    905Coal
    
    
    607
    
    
    
    5.9
    %
    
    
    573
    
    
    
    (3.1
    )%
    
    
    592Sulphur and fertilizers
    
    
    509
    
    
    
    1.3
    %
    
    
    502
    
    
    
    14.3
    %
    
    
    439Total bulk
    
    
    2,086
    
    
    
    3.6
    %
    
    
    2,014
    
    
    
    4.0
    %
    
    
    1,936MerchandiseForest products
    
    
    239
    
    
    
    (13.2
    )%
    
    
    276
    
    
    
    (12.8
    )%
    
    
    316Industrial and consumer products
    
    
    766
    
    
    
    22.0
    %
    
    
    628
    
    
    
    4.0
    %
    
    
    604Automotive
    
    
    324
    
    
    
    1.4
    %
    
    
    319
    
    
    
    1.5
    %
    
    
    314Total merchandise
    
    
    1,329
    
    
    
    8.7
    %
    
    
    1,223
    
    
    
    (0.9
    )%
    
    
    1,234Intermodal
    
    
    1,400
    
    
    
    6.2
    %
    
    
    1,318
    
    
    
    4.9
    %
    
    
    1,257Total freight revenues
    
    
    4,815
    
    
    
    5.7
    %
    
    
    4,555
    
    
    
    2.9
    %
    
    
    4,427
  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
   10




---



##### 



SECTION 4: DESCRIPTION OF THE BUSINESS
 
   4.7.1.3 Sulphur and Fertilizers
  Sulphur
  Fertilizers
  4.7.2 Merchandise
   4.7.2.1 Forest Products
   4.7.2.2 Industrial and Consumer Products
    11




---



##### 



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




---



##### 



4.8.1 Performance Indicators
 Year Ended December 31Performance
Indicators(1)(2)
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004Consolidated Data Including DM&E(3)Efficiency and other indicatorsGross ton-miles (GTM) (millions)(4)
    
    
    239,619
    
    
    
    246,322
    
    
    
    236,405
    
    
    
    242,100
    
    
    
    236,451US gallons of locomotive fuel per 1,000 GTMs  freight
and yard(5)
    
    
    1.22
    
    
    
    1.21
    
    
    
    1.20
    
    
    
    1.18
    
    
    
    1.20Terminal dwell (hours)(6)
    
    
    22.3
    
    
    
    22.2
    
    
    
    20.8
    
    
    
    25.8
    
    
    
    24.9Number of active employees  end of period(7)
    
    
    15,783
    
    
    
    15,382
    
    
    
    15,327
    
    
    
    16,295
    
    
    
    15,637Freight revenue per RTM (cents)(8)
    
    
    3.87
    
    
    
    3.52
    
    
    
    3.60
    
    
    
    3.40
    
    
    
    3.06CP Data excluding DM&EEfficiency and other indicatorsCar miles per car day(9)
    
    
    143.6
    
    
    
    142.3
    
    
    
    137.3
    
    
    
    124.0
    
    
    
    119.0Average train speed (miles per hour)(10)
    
    
    24.0
    
    
    
    23.2
    
    
    
    24.8
    
    
    
    22.0
    
    
    
    22.7Safety indicatorsFRA personal injuries per 200,000
employee-hours(11)
    
    
    1.47
    
    
    
    2.09
    
    
    
    2.00
    
    
    
    2.38
    
    
    
    2.75FRA train accidents per million train-miles(12)
    
    
    1.87
    
    
    
    2.05
    
    
    
    1.56
    
    
    
    2.26
    
    
    
    2.12DM&E Data onlyFRA personal injuries per 200,000
employee-hours(3)
    
    
    3.53
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    FRA train accidents per million train-miles(12)
    
    
    7.81
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 (1)
    
    Revenue ton-miles (RTM) (millions), GTMs per average active employee (thousands),
and GTMs per mile of road operated, excluding track on which CP has haulage rights (thousands)
are no longer reported.(2)
    
    Certain prior period figures have been updated to reflect new information.(3)
    
    The 2008 figures include the results of DM&E from October 30, 2008 to December 31,
2008, except where noted.(4)
    
    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.)(5)
    
    US gallons of locomotive fuel per 1,000 GTMs  freight and yard measures the
total fuel consumed in freight and yard operations for every 1,000 GTMs traveled. This is
calculated by dividing the total amount of fuel issued to our locomotives, excluding commuter
and non-freight activities, by the total freight-related GTMs. The result indicates how
efficiently we are using fuel.(6)
    
    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.(7)
    
    The number of actively employed workers during the last month of the period. This
includes employees who are taking vacation and statutory holidays and other forms of
short-term paid leave, and excludes individuals who have a continuing employment relationship
with us but are not currently working.(8)
    
    Freight revenue per RTM (cents) measures the amount of freight revenue earned for
every RTM moved, calculated by dividing the total freight revenue by the total RTMs in the
period.(9)
    
    The total car-miles for a period divided by the total number of active cars. Total
car-miles includes the distance travelled by every car on a revenue-producing train and a
train used in or around our yards. A car-day is assumed to equal one active car. An active
car is a revenue-producing car that is generating costs to CP on an hourly or mileage basis.
Excluded from this count are i) cars that are not on the track or are being stored; ii) cars
that are in need of repair; iii) cars that are used to carry materials for track repair; iv)
cars owned by customers that are on the customers tracks; and v) cars that are idle and
waiting to be reclaimed by CP.(10)
    
    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.(11)
    
    US Federal Railroad Administration (FRA) personal injuries per 200,000
employee-hours measures the number of personal injuries, multiplied by 200,000 and divided by
total employee-hours. Personal injuries are defined as injuries that require employees to
lose time away from work, modify their normal duties or obtain medical treatment beyond minor
first aid. Employee-hours are the total hours worked, excluding vacation and sick time, by
all employees, excluding contractors.
 13




---



##### 



SECTION 4: DESCRIPTION OF THE BUSINESS
 
 (12)
    
    FRA train accidents per million train-miles measures the number of train accidents,
multiplied by 1,000,000 and divided by total train-miles. Train accidents included in this
metric meet or exceed the FRA reporting threshold of US$8,900 in damage.
 4.9 Franchise Investment
  4.9.1 Locomotive Fleet
   Number of Locomotives
 Road Freight
    
    Road
    
    YardAge
in Years
    
    AC
    
    DC
    
    Switcher
    
    Switcher
    
    Total0-5
    
    
    310
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    3126-10
    
    
    238
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23811-15
    
    
    184
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18416-20
    
    
    
    
    
    
    67
    
    
    
    
    
    
    
    
    
    
    
    67Over 20
    
    
    
    
    
    
    292
    
    
    
    269
    
    
    
    229
    
    
    
    790Total
    
    
    732
    
    
    
    359
    
    
    
    271
    
    
    
    229
    
    
    
    1,591
 4.9.2 Railcar Fleet
    4.10 Integrated Operating Plan (IOP)
  14




---



##### 



SECTION 4: DESCRIPTION OF THE BUSINESS
 
      4.11 Information Technology
      15




---



##### 



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




---



##### 



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




---



##### 



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




---



##### 



SECTION 5: DIVIDENDS
 
 5.1 Declared Dividends and Dividend Policy
  Dividend
Amount
    
    Record Date
    
    Payment Date$0.1875
    
    March 31, 2006
    
    April 24, 2006$0.1875
    
    June 30, 2006
    
    July 31, 2006$0.1875
    
    September 29, 2006
    
    October 30, 2006$0.1875
    
    December 29, 2006
    
    January 29, 2007$0.2250
    
    March 30, 2007
    
    April 30, 2007$0.2250
    
    June 29, 2007
    
    July 30, 2007$0.2250
    
    September 28, 2007
    
    October 29, 2007$0.2250
    
    December 28, 2007
    
    January 28, 2008$0.2475
    
    March 28, 2008
    
    April 28, 2008$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
  19




---



##### 



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




---



##### 



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




---



##### 



SECTION 6: CAPITAL STRUCTURE
 
  DominionMoodys
    
    
    
    BondInvestors
    
    Standard
    
    RatingService
    
    & Poors
    
    ServiceAaa
    
    AAA
    
    AAA
    
    
    
    HighInvestmentGradeAa1
    
    AA+
    
    AA(high)Aa2
    
    AA
    
    AAAa3
    
    AA-
    
    AA(low)A1
    
    A+
    
    A(high)A2
    
    A
    
    AA3
    
    A-
    
    A(low)Investment
GradeBaa1
    
    BBB+
    
    BBB(high)Baa2
    
    BBB
    
    BBBBaa3
    
    BBB-
    
    BBB(low)Ba1
    
    BB+
    
    BB(high)
    
    
    
    BelowInvestmentGradeBa2
    
    BB
    
    BBBa3
    
    BB-
    
    BB(low)B1
    
    B+
    
    B(high)B2
    
    B
    
    BB3
    
    B-
    
    B(low)Caa
    
    CCC
    
    CCCCa
    
    CC
    
    CCC
    
    C
    
    C
 22




---



##### 



SECTION 7: MARKET FOR SECURITIES
 
 7.1 Stock Exchange Listings
  7.2 Trading Price and Volume
  Opening
    
    High
    
    Low
    
    Closing
    
    Volume ofMonth
    
    Price per
    
    Price per
    
    Price per
    
    Price per
    
    SharesShare ($)
    
    Share ($)
    
    Share ($)
    
    Share ($)
    
    TradedJanuary
    
    
    64.24
    
    
    
    69.10
    
    
    
    57.30
    
    
    
    67.04
    
    
    
    16,198,128February
    
    
    67.30
    
    
    
    74.74
    
    
    
    67.13
    
    
    
    71.54
    
    
    
    13,733,133March
    
    
    71.54
    
    
    
    72.10
    
    
    
    62.39
    
    
    
    66.00
    
    
    
    15,823,326April
    
    
    66.45
    
    
    
    72.13
    
    
    
    63.98
    
    
    
    69.38
    
    
    
    16,600,290May
    
    
    69.17
    
    
    
    75.00
    
    
    
    69.05
    
    
    
    72.58
    
    
    
    16,782,877June
    
    
    71.90
    
    
    
    71.90
    
    
    
    64.60
    
    
    
    67.70
    
    
    
    16,748,437July
    
    
    65.50
    
    
    
    68.75
    
    
    
    60.50
    
    
    
    64.30
    
    
    
    16,287,700August
    
    
    64.98
    
    
    
    68.27
    
    
    
    60.50
    
    
    
    64.78
    
    
    
    9,102,256September
    
    
    65.00
    
    
    
    67.80
    
    
    
    53.80
    
    
    
    57.07
    
    
    
    16,919,026October
    
    
    57.86
    
    
    
    57.86
    
    
    
    43.38
    
    
    
    54.55
    
    
    
    18,774,397November
    
    
    54.84
    
    
    
    57.41
    
    
    
    34.24
    
    
    
    40.70
    
    
    
    15,023,450December
    
    
    39.00
    
    
    
    42.82
    
    
    
    35.16
    
    
    
    40.98
    
    
    
    14,078,169
  Opening
    
    High
    
    Low
    
    Closing
    
    Volume ofMonth
    
    Price per
    
    Price per
    
    Price per
    
    Price per
    
    SharesShare ($)
    
    Share ($)
    
    Share ($)
    
    Share ($)
    
    TradedJanuary
    
    
    64.95
    
    
    
    69.26
    
    
    
    55.39
    
    
    
    66.57
    
    
    
    5,470,200February
    
    
    67.00
    
    
    
    76.18
    
    
    
    66.90
    
    
    
    73.19
    
    
    
    5,112,100March
    
    
    72.90
    
    
    
    72.96
    
    
    
    60.82
    
    
    
    64.29
    
    
    
    5,728,000April
    
    
    65.10
    
    
    
    71.67
    
    
    
    62.84
    
    
    
    69.16
    
    
    
    4,899,100May
    
    
    68.23
    
    
    
    76.14
    
    
    
    68.09
    
    
    
    73.16
    
    
    
    4,630,400June
    
    
    71.86
    
    
    
    72.12
    
    
    
    63.55
    
    
    
    66.14
    
    
    
    5,111,200July
    
    
    65.42
    
    
    
    68.33
    
    
    
    59.62
    
    
    
    62.81
    
    
    
    11,084,078August
    
    
    63.26
    
    
    
    63.71
    
    
    
    57.97
    
    
    
    60.75
    
    
    
    5,420,403September
    
    
    61.18
    
    
    
    63.08
    
    
    
    51.75
    
    
    
    53.86
    
    
    
    10,446,979October
    
    
    53.60
    
    
    
    53.70
    
    
    
    34.37
    
    
    
    45.00
    
    
    
    15,014,105November
    
    
    45.44
    
    
    
    49.52
    
    
    
    26.64
    
    
    
    32.20
    
    
    
    12,614,948December
    
    
    31.37
    
    
    
    35.68
    
    
    
    28.05
    
    
    
    33.62
    
    
    
    10,174,603
 23




---



##### 



SECTION 8: DIRECTORS AND OFFICERS
 
  8.1 Directors
 Name
and Municipality of Residence
    
    Position Held and Principal Occupation within
    
    Year of Annual Meetingthe Preceding Five Years(1)
    
    at which Term of OfficeExpires (DirectorSince)J.E.
Cleghorn, O.C., F.C.A.
(3)
Toronto, Ontario, Canada
    
    Chairman, Canadian Pacific Railway Limited and
Canadian Pacific Railway Company; Chairman,
SNC-Lavalin Group Inc., (international
engineering and construction firm)
    
    2009(2001)T.W. Faithfull (4)(5)
Oxford, Oxfordshire, England
    
    Retired President and Chief Executive Officer
Shell Canada Limited (oil and gas company)
    
    2009(2003)F.J. Green (4)
Calgary, Alberta, Canada
    
    President and Chief Executive Officer, Canadian
Pacific Railway Company and Canadian Pacific
Railway Limited
    
    2009(2006)K.T. Hoeg, C.A. (2)(6)
Toronto, Ontario, Canada
    
    Former President and Chief Executive Officer of
Corby Distilleries Limited (spirits and wine)
    
    2009(2007)Richard C. Kelly (2)(4)
Minneapolis, Minnesota, U.S.A.
    
    Chairman, President and Chief Executive Officer
Xcel Energy (a utility supplier of electric
power and natural gas)
    
    2009(2008)The Hon. J.P. Manley (2)(3)(6)
Ottawa, Ontario, Canada
    
    Senior Counsel, McCarthy Tétrault LLP (law firm)
    
    2009(2006)L.J. Morgan (4)(5)
Bethesda, Maryland, U.S.A.
    
    Partner, Covington & Burling LLP (law firm)
    
    2009(2006)M. Paquin (4)(5)
Montreal, Quebec, Canada
    
    President and Chief Executive Officer, Logistec
Corporation (international cargo-handling
company)
    
    2009(2001)M.E.J. Phelps, O.C. (3)(5)(6)
West Vancouver, B.C., Canada
    
    Chairman, Dornoch Capital Inc. (private
investment company)
    
    2009(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)
    
    2009(2001)H.T.
Richardson, C.M., O.M. (5)(6)
Winnipeg, Manitoba, Canada
    
    President and Chief Executive Officer, James
Richardson & Sons, Limited (privately owned
corporation)
    
    2009(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)
    
    2009(2001)
 Notes:(1)
    
    F.J. Green was President and Chief Operating Officer, Canadian Pacific Railway Company and
Canadian Pacific Railway Limited from November 2005 until May 2006, Executive Vice-President
and Chief Operating Officer, Canadian Pacific Railway Company and Canadian Pacific Railway
Limited from October 2004 until November 2005; Executive Vice-President, Operations and
Marketing, Canadian Pacific Railway Company from January 2004 until October 2004. K. T. Hoeg
was President and Chief Executive Officer of Corby Distilleries Limited from October 1996 to
February 2007. The Hon. J.P. Manley was the Member of Parliament for Ottawa South from
November 1988 until June 2004 and Chairman of the Ontario Power Generation Review Committee
from December 2003 until March 2004.(2)
    
    Member of the Audit, Finance and Risk Management Committee.
 24




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##### 



SECTION 8: DIRECTORS AND OFFICERS
 
 (3)
    
    Member of the Corporate Governance and Nominating Committee.(4)
    
    Member of the Health, Safety, Security and Environment Committee.(5)
    
    Member of the Management Resources and Compensation Committee.(6)
    
    Member of the Pension Committee.
 8.2 Cease Trade Orders, Bankruptcies, Penalties or Sanctions
    25




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##### 



SECTION 8: DIRECTORS AND OFFICERS
 
 8.3 Senior Officers
  Name
and municipality of residence
    
    Position held
    
    Principal occupation within thepreceding five yearsJ.E.
Cleghorn, O.C., F.C.A.
Toronto, Ontario, Canada
    
    Chairman
    
    Chairman, Canadian Pacific
Railway Limited and Canadian
Pacific Railway Company;
Chairman, SNC-Lavalin Group
Inc. (international
engineering and construction
firm)F.J.
Green
Calgary, Alberta, Canada
    
    President and Chief
Executive Officer
    
    President and Chief Executive
Officer, Canadian Pacific
Railway Company and Canadian
Pacific Railway Limited;
President and Chief Operating
Officer, Canadian Pacific
Railway Company and Canadian
Pacific Railway Limited;
Executive Vice-President and
Chief Operating Officer,
Canadian Pacific Railway
Company and Canadian Pacific
Railway Limited; Executive
Vice-President, Operations and
Marketing, Canadian Pacific
Railway 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 RailroadJ. A.
OHagan
Calgary, Alberta, Canada
    
    Senior
Vice-President,
Strategy and Yield
    
    Senior Vice-President,
Strategy and Yield, Canadian
Pacific Railway Limited and
Canadian Pacific Railway
Company; Vice-President,
Canadian Pacific Railway
Limited and Vice-President,
Strategy and External Affairs,
Canadian Pacific Railway
Company; Vice-President,
Strategy Research and New
Market Development, Assistant
Vice-President, Strategy and
Research, Canadian Pacific
Railway CompanyM. M.
Szel
Calgary, Alberta, Canada
    
    Senior Vice-
President, Sales
and Marketing
    
    Senior Vice-President, Sales
and Marketing Canadian Pacific
Railway Limited and Senior
Vice-President, Marketing and
Sales, Canadian Pacific
Railway Company; Senior
Vice-President Bulk
Commodities and Government
Affairs, Canadian Pacific
Railway Company;
Vice-President, Marketing and
Sales  Bulk, Canadian
Pacific Railway;
Vice-President Strategy and
Law, Corporate Secretary,
Canadian Pacific Railway
CompanyB. M.
Winter
Calgary, Alberta, Canada
    
    Senior Vice-
President,
Operations
    
    Senior Vice-President,
Operations, Canadian Pacific
Railway Limited and Senior
Vice-President, Operations,
Canadian Pacific Railway
Company; Vice-President
Operations, Canadian Pacific
Railway Company;
Vice-President Transportation
and Field Operations, Canadian
Pacific Railway Company
 26




---



##### 



Name
and municipality of residence
    
    Position held
    
    Principal occupation within thepreceding five yearsD. B.
Campbell
Calgary, Alberta, Canada
    
    Vice-President,
Corporate Planning
    
    Vice-President, Corporate
Planning, Canadian Pacific
Railway Limited and Canadian
Pacific Railway Company;
Vice-President Business
Planning and Development,
Canadian Pacific Railway
CompanyB.
Grassby
Calgary, Alberta, Canada
    
    Vice-President and
Comptroller
    
    Vice-President and
Comptroller, Canadian Pacific
Railway Company and Canadian
Pacific Railway LimitedP.A.
Guthrie, Q.C.
Municipal District of Rockyview,
Alberta, Canada
    
    Vice-President, Law
    
    Vice-President, Law, Canadian
Pacific Railway Company and
Canadian Pacific Railway
Limited; Assistant
Vice-President Legal Services,
Canadian Pacific Railway
CompanyT. A.
Robinson
Calgary, Alberta, Canada
    
    Vice-President and
Treasurer
    
    Vice-President and Treasurer,
Canadian Pacific Railway
Company and Canadian Pacific
Railway Limited; Assistant
Treasurer, Canadian Pacific
Railway Company and Canadian
Pacific Railway Limited;
Assistant Comptroller,
Canadian Pacific Railway
Company; Assistant
Vice-President, Customer
Service, Canadian Pacific
Railway CompanyR. A.
Shields
Calgary, Alberta, Canada
    
    Vice-President,
Human Resources and
Industrial
Relations
    
    Vice-President, Human
Resources and Industrial
Relations, Canadian Pacific
Railway Limited and Canadian
Pacific Railway CompanyK.
Fleming
Calgary, Alberta, Canada
    
    Corporate
Secretary
    
    Corporate Secretary, Canadian
Pacific Railway Limited and
Canadian Pacific Railway
Company; Associate Corporate
Secretary, Canadian Pacific
Railway Limited and Canadian
Pacific Railway Company; Legal
Counsel Labour & Employment
Coordinator, Canadian Pacific
Railway Company; Labour
Coordinator, Canadian Pacific
Railway CompanyG.A.
Feigel
Calgary, Alberta, Canada
    
    Assistant Corporate
Secretary
    
    Assistant Corporate Secretary,
Canadian Pacific Railway
Company and Canadian Pacific
Railway Limited
 8.4 Shareholdings of Directors and Officers
  8.5 Announcements
  27




---



##### 



SECTION 9: LEGAL PROCEEDINGS
 
  9.1 Stoney Tribal Council v. Canada, EnCana and CP
  28




---



##### 



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




---



##### 



SECTION 11: INTERESTS OF EXPERTS
 
  30




---



##### 



SECTION 12: AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE
 
 12.1 Composition of the Audit, Finance and Risk Management Committee and Relevant Education and Experience
  Krystyna T. Hoeg
 Richard C. Kelly
 John P. Manley
 Roger Phillips (Chair)
 Michael W. Wright
  12.2 Pre-Approval of Policies and Procedures
  31




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##### 



SECTION 12: AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE
 
  12.3 Audit, Finance and Risk Management Committee Charter
  A.
    
    Committee and Procedures1.
    
    Purposes
  
    
    the review of the annual and interim financial statements of the Corporation;
    
    the integrity and quality of the Corporations financial reporting and systems
of internal control, and risk management;
    
    the Corporations compliance with legal and regulatory requirements;
    
    the qualifications, independence, engagement, compensation and performance of
the Corporations external auditors; and
    
    the performance of the Corporations internal audit function;
   2.
    
    Composition of Committee
  3.
    
    Appointment of Committee Members
  4.
    
    Committee Chair
  5.
    
    Absence of Committee Chair
  32




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##### 



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




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##### 



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




---



##### 



SECTION 12: AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE
 
 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 proforma or
adjusted information determined other than in accordance with generally accepted
accounting principles, and the disclosure by the Corporation of earnings guidance and
other financial information to the public including analysts and rating agencies, it being
understood that such discussions may, in the discretion of the Committee, be done
generally (i.e., by discussing the types of information to be disclosed and the type of
presentation to be made) and that the Committee need not discuss in advance each earnings
release or each instance in which the Corporation discloses earnings guidance or other
financial information; and be satisfied that adequate procedures are in place for the
review of such public disclosures and periodically assess the adequacy of those
procedures;
 Material Litigation, Tax Assessments, Etc.
 g)
    
    review with management, the external auditors and, if necessary, legal counsel all
legal and regulatory matters and litigation, claims or contingencies, including tax
assessments, that could have a material effect upon the financial position of the
Corporation, and the manner in which these matters may be, or have been, disclosed in the
financial statements; and obtain reports from management and review with the Corporations
chief legal officer, or appropriate delegates, the Corporations compliance with legal and
regulatory requirements;
 Oversight of External Auditors
 h)
    
    subject to applicable law relating to the appointment and removal of the external
auditors, be directly responsible for the appointment, retention, termination,
compensation and oversight of the external auditors; and be responsible for the resolution
of disagreements between management and the external auditors regarding financial
reporting;
 Rotation of External Auditors Audit Partners
 i)
    
    review and evaluate the lead audit partner of the external auditors and assure the
regular rotation of the lead audit partner and the audit partner responsible for reviewing
the audit and other audit partners, as required by applicable law; and consider whether
there should be a regular rotation of the external audit firm itself;
 External Auditors Internal Quality Control
 j)
    
    obtain and review, at least annually, and discuss with the external auditors a report
by the external auditors describing the external auditors internal quality-control
procedures, any material issues raised by the most recent internal quality-control review,
or peer review, of the external auditors, or by any inquiry or investigation by
governmental or professional authorities, within the preceding five years, respecting one
or more independent audits carried out by the external auditors, and any steps taken to
deal with any such issues;
 External Auditors Independence
 k)
    
    review and discuss at least annually with the external auditors all relationships
that the external auditors and their affiliates have with the Corporation and its
affiliates in order to assess the external auditors independence, including, without
limitation:
 (i)
    
    obtaining and reviewing, at least annually, a formal written statement
from the external auditors delineating all relationships that in the external
auditors professional judgment may reasonably be thought to bear on the
independence of the external auditors with respect to the Corporation,(ii)
    
    discussing with the external auditors any disclosed relationships or
services that may affect the objectivity and independence of the external auditors,
and
 35




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##### 



SECTION 12: AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE
 
 (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;
 Separate Meetings with External Auditors, Internal Audit, Management
 u)
    
    meet separately with management, the external auditors and the internal auditors
periodically to discuss matters of mutual interest, including any audit problems or
difficulties and managements response thereto, the responsibilities, budget and staffing
of the Internal Audit Department and any matter they recommend bringing to the attention
of the full Board;
 36




---



##### 



SECTION 12: AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE
 
 Finance
 v)
    
    review all major financings, including financial statement information contained in
related prospectuses, information circulars, etc., of the Corporation and its subsidiaries
and annually review the Corporations financing plans and strategies;w)
    
    review managements plans with respect to Treasury operations, including such items
as financial derivatives and hedging activities;
 Risk Management
 x)
    
    discuss risk assessment and risk management policies and processes to be implemented
for the Corporation, review with management and the Corporations internal auditors the
effectiveness and efficiency of such policies and processes and their compliance with
other relevant policies of the Corporation, and make recommendations to the Board with
respect to any outcomes, findings and issues arising in connection therewith;y)
    
    review managements program to obtain appropriate insurance to mitigate risks;
 Terms of Reference and Performance Evaluation of Committee
 z)
    
    review and reassess the adequacy of these Terms of Reference at least annually, and
otherwise as it deems appropriate, and recommend changes to the Board. The Committee
shall also undertake an annual evaluation of the Committees performance.
 Other
 aa)
    
    perform such other activities, consistent with these Terms of Reference, the
Corporations articles and by-laws and governing law, as the Committee or the Board deems
appropriate.bb)
    
    report regularly to the Board of Directors on the activities of the Committee.
 12.4 Audit and Non-Audit Fees and Services
  Year ended
    
    Year endedDecember 31, 2008
    
    December 31, 2007Audit Fees
    
    $
    2,044,700
    
    
    $
    2,391,600Audit-Related Fees
    
    $
    808,600
    
    
    $
    619,780Tax Fees
    
    $
    341,900
    
    
    $
    422,600All Other Fees
    
    $
    
    
    
    $
    TOTAL
    
    $
    3,195,200
    
    
    $
    3,433,980
  12.4.1 Audit Fees
  12.4.2 Audit-Related Fees
 Sarbanes-Oxley Act
 37




---



##### 



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




---



##### 



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




---



##### 








---



##### 



Annual Report 2008




---



##### 



1

Chief Executives Letter to Shareholders2

Management Discussion and Analysis51

Financial Statements110

Shareholder Information112

Directors and Committees113

Senior Officers of the Company




---



##### 



CHIEF EXECUTIVE
    OFFICERS LETTER TO SHAREHOLDERS February 23,
    2009
                         
    2008
    ANNUAL
    REPORT

1




---



##### 





MANAGEMENTS
    DISCUSSION AND ANALYSIS February 23,
    2009
   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


65.4

Return on Capital Employed


65.5

Impact of Foreign Exchange on Earnings


66.0

Non-GAAP Earnings


87.0

Lines of Business


107.1

Volumes


107.2

Revenues


117.2.1

Freight Revenues


127.2.2

Other Revenues


147.2.3

Freight Revenue per Carload


148.0

Performance Indicators


158.1

Safety Indicators


158.2

Efficiency and Other Indicators


159.0

Operating Expenses, Before Other Specified Items


1610.0

Other Income Statement Items


1811.0

Quarterly Financial Data


2112.0

Fourth-Quarter Summary


2212.1

Breakout of DM&E from Q4 2008 Operating Results


2212.2

Operating Results


2212.3

Non-GAAP Earnings


2312.4

Revenues


2312.5

Operating Expenses


2412.6

Other Income Statement Items


2512.7

Liquidity and Capital Resources


2513.0

Changes in Accounting Policy


2513.1

2008 Accounting Changes


2513.2

Future Accounting Changes


2514.0

Liquidity and Capital Resources


2614.1

Operating Activities


2714.2

Investing Activities


2714.3

Financing Activities


2714.4

Free Cash


2815.0

Balance Sheet


2916.0

Financial Instruments


3117.0

Off-Balance Sheet Arrangements


3418.0

Acquisition


3419.0

Contractual Commitments


3520.0

Future Trends and Commitments


3521.0

Business Risks and Enterprise Risk Management


3821.1

Teck Coal Limited


3921.2

Competition


3921.3

Liquidity


3921.4

Environmental Laws and Regulations


3921.5

Regulatory Authorities


4021.6

Labour Relations


4121.7

Network Capacity and Volume


4121.8

Financial Risks


4221.9

General and Other Risks


4222.0

Critical Accounting Estimates


4323.0

Systems, Procedures and Controls


4524.0

Forward-Looking Information


4625.0

Glossary of Terms


49   2

2008
    ANNUAL
    REPORT




---



##### 



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
    2008
    ANNUAL
    REPORT

3




---



##### 



4.0 Financial
    Highlights
  For the year ended December 31
    (in millions, except percentages and per-share data)

2008


2007


2006Revenues(2)

$
4,931.6


$
4,707.6


$
4,583.2Operating
    income(1)(2)


1,057.4



1,164.2



1,128.6Income, before FX on LTD and other specified
    items(1)


631.5



672.8



627.5Net income


619.0



946.2



796.3Basic earnings per share


4.03



6.14



5.06Diluted earnings per share


3.98



6.08



5.02Diluted earnings per share, before FX on LTD and other specified
    items(1)


4.06



4.32



3.95Dividends declared per share


0.9900



0.9000



0.7500Free
    cash(1)


230.9



303.4



244.9Total assets at December 31


15,469.8



13,365.0



11,415.9Total long-term financial liabilities at December
    31(3)(4)


4,844.5



4,267.1



2,956.2Operating ratio, before other specified
    items(1)


78.6
%


75.3
%


75.4
%Return on capital
    employed(1)


8.2
%


9.5
%


10.2
%   BAR GRAPH

BAR GRAPH

BAR GRAPH

BAR GRAPH   (1)
  (2)
  (3)
  (4)
  4

2008
    ANNUAL
    REPORT




---



##### 



5.0 Operating
    Results
  5.1 INCOME
      o
    the weakening economy in the second half of the year, which
    resulted in lower volumes;o
    the Canadian Transportation Agency (Agency) decision
    directing a downward adjustment of the railway maximum revenue
    entitlement for movement of regulated grain under the Canadian
    Transportation Act (CTA) which included a provision
    for repayment of revenues relating to grain rates (discussed
    further in Section 21.5.1 Regulatory Change);o
    increased purchased services and other expenses, due to higher
    casualty related expenses despite an improved frequency rate,
    primarily due to higher cost of derailments;o
    higher fuel expenses driven by higher West Texas Intermediate
    (WTI) prices and widening refining margins, net of
    fuel recoveries; ando
    higher costs associated with difficult operating conditions,
    mainly driven by harsh weather conditions on our central and
    eastern network.    o
    improved freight rates;o
    the consolidation of DM&E results from October 30,
    2008 to December 31, 2008; prior to October 30, 2008
    results of DM&E were recorded on an equity basis; ando
    the favourable impact of the change in FX of approximately
    $14 million.    o
    lower FX gains (net of tax) on US dollar-denominated long-term
    debt (LTD);o
    income tax benefits recorded in 2007 due to legislation to
    reduce corporate income tax rates;o
    lower operating income; ando
    impairment to the fair value of our investment in Canadian third
    party asset-backed commercial paper (ABCP, discussed
    further in Section 10.3 Loss in Fair Value of Canadian
    Third Party Asset-backed Commercial Paper).        o
    record shipments reflecting continued strong growth in bulk and
    intermodal products;o
    higher revenues resulting from increased freight rates; ando
    lower compensation and benefits expenses.    o
    higher fuel prices driven by higher refining charges and WTI
    prices, net of fuel recoveries;o
    higher costs reflecting record volumes in 2007;o
    the unfavourable impact of the change in FX of approximately
    $34 million; ando
    higher costs associated with network disruptions, mainly driven
    by harsh weather conditions.    o
    FX gains on US dollar-denominated LTD, reflecting a
    strengthening in the Canadian dollar;o
    higher operating income; ando
    the recognition of equity earnings, starting in October 2007,
    following our acquisition of DM&E (discussed further in
    Section 18.0 Acquisition).    5.2 DILUTED
    EARNINGS PER SHARE
      2008
    ANNUAL
    REPORT

5




---



##### 



5.3 OPERATING
    RATIO
    5.4 RETURN
    ON CAPITAL EMPLOYED
    5.5 IMPACT
    OF FOREIGN EXCHANGE ON EARNINGS
        6

2008
    ANNUAL
    REPORT




---



##### 



EFFECT ON
    EARNINGS DUE TO THE CHANGE IN FOREIGN EXCHANGE
  For the year ended December 31
    (in millions, except foreign exchange rate)

2008(1)

    vs. 2007


2007 vs. 2006Average annual foreign exchange rates


$1.05 vs. $1.08



$1.08 vs. $1.13Freight revenuesGrain

$
1


$
(24
)Coal






(5
)Sulphur and fertilizers


(4
)


(9
)Forest products


(4
)


(10
)Industrial and consumer products


(3
)


(20
)Automotive


(2
)


(8
)Intermodal


(5
)


(13
)Other revenues






(2
)Unfavourable effect


(17
)


(91
)Operating expensesCompensation and benefits


9



13Fuel


8



23Materials


5



2Equipment rents


4



7Depreciation and amortization


1



3Purchased services and other


2



9Favourable effect


29



57Favourable (Unfavourable) effect on operating
    income(2)


12



(34
)Other expensesOther charges


3



Net interest expense






7Income tax expense, before FX on LTD and other specified
    items(2)


2



7Favourable (Unfavourable) effect on income, before FX on LTD and
    other specified
    items(2)

$
17


$
(20
)   (1)
  (2)
  2008
    ANNUAL
    REPORT

7




---



##### 



6.0 Non-GAAP Earnings
          8

2008
    ANNUAL
    REPORT




---



##### 



SUMMARIZED
    STATEMENT OF CONSOLIDATED INCOME
  For the year ended


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

December 31


December 31(in millions, except diluted EPS
    and operating ratio)

2008(1)


2007


2006


2008(1)


2007Revenues

$
4,931.6


$
4,707.6


$
4,583.2


$
1,299.7


$
1,188.3Operating expenses


3,874.2



3,543.4



3,454.6



994.8



882.8Operating
    income(2)


1,057.4



1,164.2



1,128.6



304.9



305.5Other charges


22.7



29.6



27.8



8.3



8.5Equity income in DM&E


51.3



12.3







10.4



12.3Net interest expense


261.1



204.3



194.5



73.8



63.4Income tax expense, before income tax on FX on LTD and other
    specified
    items(2)


193.4



269.8



278.8



54.9



60.8Income, before FX on LTD and other specified
    items(2)


631.5



672.8



627.5



178.3



185.1Foreign exchange (gains) losses on long-term debtFX on LTD  losses (gains)


16.3



(169.8
)


0.1



3.9



(8.3
)Income tax (benefit) expense on FX on LTD


(38.6
)


44.3



7.1



(26.2
)


(3.1
)FX on LTD, net of tax  (gains) losses


(22.3
)


(125.5
)


7.2



(22.3
)


(11.4
)Other specified itemsLoss in fair value of ABCP


49.4



21.5











Income tax on loss in fair value of ABCP


(14.6
)


(6.5
)










Loss in fair value of ABCP, net of tax


34.8



15.0











Income tax benefits due to tax rate reductions






(162.9
)


(176.0
)






(145.8
)Net income

$
619.0


$
946.2


$
796.3


$
200.6


$
342.3Diluted EPS, before FX on LTD and other specified
    items(2)

$
4.06


$
4.32


$
3.95


$
1.15


$
1.20Diluted EPS, related to FX on LTD, net of
    tax(2)


0.14



0.81



(0.04
)


0.14



0.07Diluted EPS, related to other specified items, net of
    tax(2)


(0.22
)


0.95



1.11







0.94Diluted EPS, as determined by GAAP

$
3.98


$
6.08


$
5.02


$
1.29


$
2.21   (1)
  (2)
  6.1 FOREIGN
    EXCHANGE GAINS AND LOSSES ON LONG-TERM DEBT
      o
    FX losses on LTD of $16.3 million in 2008, as the Canadian
    dollar exchange rate weakened to $1.2180 relative to the US
    dollar;o
    FX gains on LTD of $169.8 million in 2007, as the Canadian
    dollar exchange rate strengthened to $0.9913 relative to the US
    dollar; ando
    FX losses on LTD of $0.1 million in 2006, as the Canadian
    dollar exchange rate weakened to $1.1654 relative to the US
    dollar.    2008
    ANNUAL
    REPORT

9




---



##### 



6.2 OTHER
    SPECIFIED ITEMS
        o
    In the fourth quarter of 2007, the Government of Canada
    substantially enacted legislation to reduce corporate income tax
    rates starting in 2008. We recorded a future income tax benefit
    of $145.8 million to reflect the positive impact of these
    tax rate reductions on our future income tax balance as at
    December 31, 2006.o
    In the third quarter of 2007, we recorded a charge of
    $15.0 million after tax ($21.5 million before tax) to
    reflect the change in the estimated fair value of ABCP
    (discussed further in Section 10.3 Loss in Fair Value of
    Canadian Third Party Asset-backed Commercial Paper).o
    In the second quarter of 2007, the Government of Canada
    substantially enacted legislation to reduce corporate income tax
    rates starting in 2011. We recorded a future income tax benefit
    of $17.1 million to reflect the positive impact of these
    tax rate reductions on our future income tax balance as at
    December 31, 2006.    o
    In the second quarter of 2006, the governments of Canada and the
    provinces of Alberta, Saskatchewan and Manitoba introduced
    legislation to reduce corporate income tax rates over a period
    of several years. We recorded a future income tax benefit of
    $176.0 million to reflect the positive impact of these tax
    rate reductions on transactions in prior years for which future
    taxes will be paid.  7.0 Lines of
    Business
  7.1 VOLUMES
        o
    sharply declining economic conditions in the second half of 2008;o
    continued weakness in forest products due to a slowdown in the
    US housing market;o
    declining auto sales leading to reduced shipments; ando
    customer production issues resulting in potash and sulphur
    reduced shipments.      o
    strong intermodal growth due to strength in global markets and
    continued offshore sourcing trends;o
    strong global demand for bulk products; ando
    increase in average length of haul.    10

2008
    ANNUAL
    REPORT




---



##### 



VOLUMES
  For the year ended December 31

2008(1)


2007


2006Carloads (in
    thousands)(2)Grain


382.4



385.0



382.8Coal


281.0



269.1



281.7Sulphur and fertilizers


191.3



209.8



178.3Forest products


91.8



114.1



135.0Industrial and consumer products


340.9



313.3



316.0Automotive


141.3



168.5



165.3Intermodal


1,216.0



1,238.1



1,159.0Total carloads


2,644.7



2,697.9



2,618.1Revenue
    ton-miles
    (in millions)Grain


29,376



30,690



30,127Coal


21,247



20,629



19,650Sulphur and fertilizers


19,757



21,259



17,401Forest products


5,677



7,559



8,841Industrial and consumer products


18,296



16,987



16,844Automotive


2,213



2,471



2,450Intermodal


27,966



29,757



27,561Total revenue
    ton-miles


124,532



129,352



122,874   (1)
  (2)
  7.2 REVENUES
      2008
    ANNUAL
    REPORT

11




---



##### 



7.2.1 Freight
    Revenues
  REVENUES
  DM&Eas ofCP excluding


Oct. 30,


ConsolidatedFor the year ended December 31
    (in millions)

DM&E


2008


2008(1)


2007


2006Grain

$
950.4


$
19.6


$
970.0


$
938.9


$
904.6Coal


603.4



4.1



607.5



573.6



592.0Sulphur and fertilizers


507.0



1.6



508.6



502.0



439.3Forest products


237.5



1.8



239.3



275.8



316.4Industrial and consumer products


735.5



30.6



766.1



627.9



603.8Automotive


323.2



0.3



323.5



319.0



314.4Intermodal


1,399.8







1,399.8



1,318.0



1,256.8Total freight revenues


4,756.8



58.0



4,814.8



4,555.2



4,427.3Other revenues


116.3



0.5



116.8



152.4



155.9Total revenues

$
4,873.1


$
58.5


$
4,931.6


$
4,707.6


$
4,583.2   (1)
      o
    the inclusion of DM&E revenues from October 30, 2008
    to December 31, 2008;o
    improvements in freight rates, which include our fuel recovery
    program; ando
    overall volume growth in industrial and consumer products and
    coal.    o
    the negative effect on volume of the economic downturn;o
    the Agency decision directing a downward adjustment of the
    railway maximum revenue entitlement for movement of regulated
    grain under the CTA which included a provision for repayment of
    revenues relating to grain rates (discussed further in
    Section 21.5.1 Regulatory Change);o
    weakness throughout the year in forest products; ando
    the unfavourable impact of the change in FX of approximately
    $17 million.    o
    a decrease in coal freight rates;o
    continued weakness in forest products, mainly lumber and panel,
    and certain industrial and consumer products; ando
    the unfavourable impact of the change in FX of approximately
    $89 million.  7.2.1.1 Grain
          o
    a large carryover from the first half of the 2006/2007 crop year
    benefiting the first two quarters of 2007;o
    a strong export program as a result of strong commodity prices
    and demand for North American grain; ando
    higher freight rates.    12

2008
    ANNUAL
    REPORT




---



##### 



7.2.1.2 Coal
      o
    the strong global demand for metallurgical coal earlier in the
    year;o
    improvements in freight rates; ando
    the inclusion of DM&E revenues from October 30, 2008
    to December 31, 2008.    o
    decreased freight rates;o
    decrease in carloads due to the sale of the Latta subdivision in
    the first half of 2006; ando
    the negative impact of the change in FX of approximately
    $5 million.    7.2.1.3 Sulphur
    and Fertilizers
        7.2.1.4 Forest
    Products
          o
    continued soft demand for lumber and panel products caused by a
    significant slowdown in the US housing market and continued
    impact from the sub-prime mortgage crisis;o
    difficult market conditions for our forest product customers due
    to the softwood lumber agreement with the US which led to
    reduced volumes and extended plant shut downs;o
    the impact of the strengthening of the Canadian dollar, which
    has led to decreased market competitiveness for Canadian
    producers; ando
    the negative impact of the change in FX of approximately
    $10 million.    7.2.1.5 Industrial
    and Consumer Products
      o
    the inclusion of DM&E revenues, of $30.6 million, from
    October 30, 2008 to December 31, 2008;o
    continued economic growth in the early part of 2008; ando
    improvements in freight rates.      7.2.1.6 Automotive
    2008
    ANNUAL
    REPORT

13




---



##### 



7.2.1.7 Intermodal
        7.2.2 Other
    Revenues
        7.2.3 Freight
    Revenue per Carload


FREIGHT REVENUE
    PER CARLOAD
  For the year ended December
    31 ($)

2008(1)


2007


2006Freight revenue per carload


1,821



1,688



1,691Grain


2,537



2,439



2,363Coal


2,162



2,132



2,102Sulphur and fertilizers


2,659



2,393



2,464Forest products


2,607



2,417



2,344Industrial and consumer products


2,247



2,004



1,911Automotive


2,289



1,893



1,902Intermodal


1,151



1,065



1,084   (1)
  14

2008
    ANNUAL
    REPORT




---



##### 



8.0 Performance
    Indicators
    PERFORMANCE
    INDICATORS(1)
  For the year ended December 31

2008


2007


2006Consolidated data including
    DM&E(2)Efficiency and other indicatorsGross
    ton-miles
    (GTM) of freight (millions)


239,619



246,322



236,405US gallons of locomotive fuel consumed per 1,000
    GTMs  freight and yard


1.22



1.21



1.20Terminal dwell (hours)


22.3



22.2



20.8Number of active employees  end of period


15,783



15,382



15,327Freight revenue per RTM (cents)


3.87



3.52



3.60CP data excluding DM&EEfficiency and other indicatorsCar miles per car day


143.6



142.3



137.3Average train speed (miles per hour)


24.0



23.2



24.8Safety indicatorsFRA personal injuries per
    200,000 employee-hours


1.47



2.09



2.00FRA train accidents per million
    train-miles


1.87



2.05



1.56DM&E data onlySafety indicatorsFRA personal injuries per
    200,000 employee-hours


3.53







FRA train accidents per million
    train-miles


7.81







   (1)
  (2)
  8.1 SAFETY
    INDICATORS
    200,000 employee-hours
  train-miles,
  8.2 EFFICIENCY
    AND OTHER INDICATORS
  .
          2008
    ANNUAL
    REPORT

15




---



##### 



o
    an increase in the number of bulk trains, which operate at
    slower speeds and experienced more queuing for unloading in 2007;o
    network disruptions, which were primarily related to weather
    events;o
    temporary power and crew shortages; ando
    concentrated track maintenance programs following the end of the
    CP strike.  9.0 Operating
    Expenses, Before Other Specified Items
  2008


2007


2006DM&ECP


as ofexcluding


Oct. 30,


Consolidated


% of





% of





% ofFor the year ended December 31 (in millions)

DM&E


2008


2008(1)


revenue


Expense


revenue


Expense


revenueCompensation and benefits

$
1,293.3


$
12.2


$
1,305.5



26.5


$
1,284.2



27.3


$
1,327.6



29.0Fuel


998.7



7.1



1,005.8



20.4



746.8



15.9



650.5



14.2Materials


213.7



3.5



217.2



4.4



215.5



4.6



212.9



4.6Equipment rents


181.7



0.5



182.2



3.7



207.5



4.4



181.2



4.0Depreciation and amortization


483.5



7.8



491.3



10.0



472.0



10.0



464.1



10.1Purchased services and other


662.8



9.4



672.2



13.6



617.4



13.1



618.3



13.5Total

$
3,833.7


$
40.5


$
3,874.2



78.6


$
3,543.4



75.3


$
3,454.6



75.4   (1)
      o
    higher fuel prices driven by higher WTI prices;o
    higher weather related expenses as well as casualty related
    expenses despite improved safety performance;o
    the consolidation of DM&E from October 30, 2008 to
    December 31, 2008; ando
    increased wage rates.    o
    lower variable expenses due to reduced volumes;o
    the favourable impact of the change in FX of approximately
    $29 million; ando
    lower incentive compensation.    o
    higher fuel prices driven by higher refining charges and WTI
    prices;o
    record volumes as measured by GTMs and RTMs in 2007, including
    change in traffic mix largely driven by an increase in
    intermodal trains;o
    increased equipment rent expense; ando
    higher costs associated with network disruptions, mainly driven
    by harsh weather conditions.  16

2008
    ANNUAL
    REPORT




---



##### 



o
    the favourable impact of the change in FX of approximately
    $57 million;o
    a decrease in compensation and benefits expense; ando
    position reductions under restructuring initiatives.  9.1 COMPENSATION
    AND BENEFITS
      o
    increased wage rates;o
    the inclusion of DM&E expenses from October 30, 2008
    to December 31, 2008;o
    lower settlement gains in 2008 on the release of certain
    post-retirement benefit liabilities due to the assumption of
    these obligations by a US national multi-employer benefit plan;
    ando
    the impact of reduced costs from restructuring initiatives in
    the fourth quarter of 2007.    o
    lower employee incentive compensation partially offset by losses
    on our total return swap (TRS) (discussed further in
    Section 16.7.1 Total Return Swap);o
    lower pension expenses; ando
    the favourable impact of the change in FX of approximately
    $9 million.    o
    lower incentive and stock-based compensation;o
    lower pension expenses;o
    the favourable impact of the change in FX of approximately
    $13 million; ando
    a settlement gain in the third quarter of 2007 on the release of
    certain post-retirement benefit liabilities due to the
    assumption of these obligations by a US national multi-employer
    benefit plan.    9.2 FUEL
        o
    higher WTI prices and widening refining margins;o
    increased consumption driven by increased volumes;o
    a lower hedge position in 2007; ando
    a higher rate of fuel consumption, driven by harsh weather
    conditions and change in traffic mix largely driven by an
    increase in intermodal trains.    9.3 MATERIALS
        o
    lower car repair and train servicing costs;o
    recoveries from third parties; ando
    the favourable impact of the change in FX of approximately
    $5 million.    9.4 EQUIPMENT
    RENTS
      2008
    ANNUAL
    REPORT

17




---



##### 



o
    reductions in receipts for the use of our railcars from other
    railways and customers;o
    higher equipment rental payments to other railways as a result
    of network disruptions, mainly driven by harsh weather
    conditions; ando
    higher locomotive leasing costs, primarily driven by increased
    volume.    9.5 DEPRECIATION
    AND AMORTIZATION
    o
    additions to capital assets, especially to track;o
    accelerated depreciation of software; ando
    the consolidation of DM&E from October 30, 2008 to
    December 31, 2008 which includes amortization of fair
    values determined under purchase accounting.      9.6 PURCHASED
    SERVICES AND OTHER
      o
    casualty related expenses due to higher cost of derailments
    despite an improved safety performance;o
    increased bad debt expense;o
    the consolidation of DM&E from October 30, 2008 to
    December 31, 2008; ando
    higher energy costs.      10.0 Other
    Income Statement Items
  10.1 OTHER
    CHARGES
      10.2 EQUITY
    INCOME IN DAKOTA, MINNESOTA & EASTERN
    RAILROAD
    10.3 LOSS IN
    FAIR VALUE OF CANADIAN THIRD PARTY ASSET-BACKED COMMERCIAL
    PAPER
        18

2008
    ANNUAL
    REPORT




---



##### 



o
    $12.5 million is represented by traditional securitized
    assets and the Company will, on restructuring, receive
    replacement Traditional Asset (TA) Tracking
    long-term floating rate notes with expected repayments over
    approximately seven and three-quarter years. As the underlying
    assets are primarily comprised of cash and Canadian Lines of
    Credit which are subject to an offer to repurchase at par value,
    the Company has assumed that these notes will be repaid in full
    significantly in advance of maturity;o
    $117.7 million is represented by a combination of leveraged
    collateralized debt, synthetic assets and traditional
    securitized assets and the Company will, on restructuring,
    receive replacement senior Class
    A-1 and
    Class A-2
    and subordinated Class B and Class C long-term
    floating rate notes with expected repayments over approximately
    eight years. The Company expects to receive replacement notes
    with par values as follows:  o
    Class A-1:
    $59.6 milliono
    Class A-2:
    $46.2 milliono
    Class B: $8.4 milliono
    Class C: $3.5 million    o
    $13.4 million is represented by assets that have an
    exposure to US mortgages and sub-prime mortgages and assets that
    are held in a satellite trust that will be terminated when the
    restructuring is effective. On restructuring, the Company is
    likely to receive Ineligible Asset (IA) Tracking
    long-term floating rate notes with expected repayments over
    approximately five years to eight years. In addition, the
    Company will receive other tracking notes of approximately
    $1.2 million which are expected to be paid down when the
    restructuring is effective, with recoveries of 5.9% of
    principal. Certain of these notes may be rated, although at this
    time the pan-Canadian restructuring committee has provided no
    indication of the rating these notes may receive. DBRS has
    indicated that certain IA Tracking notes may be unrated.   2008Probability weighted average interest rate

2.2%Weighted average discount rate

9.1%Expected repayments of long-term floating rate notes

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

rated
    notes(1):

    nil to 25%
    unrated
    notes(2):

    25% to 100%   (1) Class A-1 Class A-2
  (2)
  2007Probability weighted average interest rate

4.6%Weighted average discount rate

5.3%Expected repayments of long-term floating rate notes

five to seven yearsCredit losses

nil to 50%       2008
    ANNUAL
    REPORT

19




---



##### 



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

ABCPProbability of successful restructuring:1 percent increase

$
0.31 percent decrease

$
(0.3
)Interest rate50 basis point increase

$
3.050 basis point decrease

$
(3.0
)Discount rate50 basis point increase

$
(2.5
)50 basis point decrease

$
2.6     o
    $12.4 million Master Asset Vehicle (MAV) 3 TA
    Tracking notes;o
    $118.2 million MAV 2 notes with eligible assets:  o
    Class A-1:  $59.3 milliono
    Class A-2:  $45.9 milliono
    Class B:  $8.3 milliono
    Class C:  $3.5 milliono
    Class 9:  $0.6 milliono
    Class 14:  $0.6 million  o
    $12.2 million MAV 2 IA Tracking notes        10.4 NET
    INTEREST EXPENSE
      o
    financing being in place for a full 12 months to fund the
    acquisition of DM&E (discussed further in Section 14.3
    Financing Activities);o
    interest on new debt issued in May of 2008 (discussed further in
    Section 14.3 Financing Activities) to replace the majority of
    the bridge financing and permanently fund the acquisition of the
    DM&E; ando
    the issuance of US$450 million Notes in May of 2007.    20

2008
    ANNUAL
    REPORT




---



##### 



10.5 INCOME
    TAXES


11.0 Quarterly
    Financial Data
  2008(1)


2007For the quarter ended(in millions, except per share data)

Dec. 31


Sept. 30


Jun. 30


Mar. 31


Dec. 31


Sept. 30


Jun. 30


Mar. 31Total revenue

$
1,299.7


$
1,264.7


$
1,220.3


$
1,146.9


$
1,188.3


$
1,187.9


$
1,215.5


$
1,115.9Operating
    income(2)


304.9



303.2



251.1



198.2



305.5



321.7



307.7



229.3Net income


200.6



172.7



154.9



90.8



342.3



218.6



256.7



128.6Income, before FX on LTD and other specified
    items(2)


178.3



186.4



150.4



116.4



185.1



190.3



174.8



122.6Basic earnings per share

$
1.30


$
1.12


$
1.01


$
0.59


$
2.23


$
1.43


$
1.66


$
0.83Diluted earnings per share


1.29



1.11



1.00



0.59



2.21



1.41



1.64



0.82Diluted earnings per share, before FX on LTD and other specified
    items(2)


1.15



1.20



0.97



0.75



1.20



1.23



1.12



0.78   (1)
  (2)
  11.1 QUARTERLY
    TRENDS
    2008
    ANNUAL
    REPORT

21




---



##### 



12.0 Fourth-Quarter
    Summary
  12.1 BREAKOUT
    OF DM&E FROM Q4 2008 OPERATING
    RESULTS(1)
  CP


DM&E





CPexcluding


as of





excluding


Q4 2008DM&E


Oct. 30,


Consolidated


DM&E


increase(in millions)

Q4 2008


2008


Q4 2008


Q4 2007


(decrease)RevenuesGrain

$
287.5


$
19.6


$
307.1


$
257.5


$
49.6Coal


135.4



4.1



139.5



131.2



8.3Sulphur and fertilizers


115.9



1.6



117.5



121.2



(3.7
)Forest products


55.4



1.8



57.2



61.5



(4.3
)Industrial and consumer products


185.4



30.6



216.0



157.9



58.1Automotive


81.3



0.3



81.6



77.0



4.6Intermodal


338.9







338.9



336.3



2.6Total freight revenues


1,199.8



58.0



1,257.8



1,142.6



115.2Other revenues


41.4



0.5



41.9



45.7



(3.8
)Total revenues


1,241.2



58.5



1,299.7



1,188.3



111.4Operating ExpensesCompensation and benefits


337.2



12.2



349.4



308.4



41.0Fuel


232.4



7.1



239.5



196.3



43.2Materials


42.4



3.5



45.9



47.9



(2.0
)Equipment rents


45.3



0.5



45.8



45.1



0.7Depreciation and amortization


118.1



7.8



125.9



116.3



9.6Purchased services and other


178.9



9.4



188.3



168.8



19.5Total expenses


954.3



40.5



994.8



882.8



112.0Operating
    income(2)

$
286.9


$
18.0


$
304.9


$
305.5


$
(0.6
)   (1)
  (2)
  12.2 OPERATING
    RESULTS
        o
    improved freight rates;o
    the favourable impact of the change in FX of approximately
    $36 million; ando
    the consolidation of DM&E results from October 30,
    2008 to December 31, 2008.          22

2008
    ANNUAL
    REPORT




---



##### 



o
    the economic downturn;o
    lower intermodal volumes due to reduced demand for both domestic
    and international shipments;o
    reduced shipments of potash, sulphur & fertilizers,
    caused partially by customer production issues; ando
    decreased demand for lumber and panel products caused by a
    continued slowdown in the US housing market.    12.3 NON-GAAP EARNINGS
      12.4 REVENUES
    o
    the favourable impact of the change in FX of approximately
    $101 million;o
    the inclusion of DM&E revenues from October 30, 2008
    to December 31, 2008; ando
    an improvement of freight rates.    12.4.1 Grain
    o
    the favourable impact of the change in FX of approximately
    $28 million;o
    the inclusion of DM&E revenues from October 30, 2008
    to December 31, 2008; ando
    improved freight rates.    12.4.2 Coal
    o
    an improvement in freight rates;o
    the favourable impact of the change in FX of approximately
    $5 million; ando
    the inclusion of DM&E revenues from October 30, 2008
    to December 31, 2008.    12.4.3 Sulphur
    and Fertilizers
      o
    the favourable impact of the change in FX of $10 million;o
    an improvement in freight rates; ando
    the inclusion of DM&E revenues from October 30, 2008
    to December 31, 2008.  12.4.4 Forest
    Products
      12.4.5 Industrial
    and Consumer Products
    o
    the inclusion of DM&E revenues from October 30, 2008
    to December 31, 2008;o
    the favourable impact of the change in FX of approximately
    $25 million; ando
    an improvement in freight rates.    2008
    ANNUAL
    REPORT

23




---



##### 



12.4.6 Automotive
      12.4.7 Intermodal
    12.4.8 Other
    Revenues
    12.5 OPERATING
    EXPENSES
      12.5.1 Compensation
    and Benefits
    o
    the inclusion of DM&E expenses from October 30, 2008
    to December 31, 2008;o
    the unfavourable impact of the change in FX of approximately
    $12 million of 2008;o
    the impact of reduced costs from restructuring initiatives in
    the fourth quarter of 2007;o
    wage and benefit increases; ando
    higher stock-based compensation expense due to losses on our TRS
    (discussed further in Section 16.7.1 Total Return Swap).    12.5.2 Fuel
    o
    the unfavourable impact in the change in FX of approximately
    $31 million;o
    losses realized on our fuel hedging program; ando
    the inclusion of DM&E expenses from October 30, 2008
    to December 31, 2008.    12.5.3 Materials
    12.5.4 Equipment
    Rents
    o
    lower volumes;o
    fewer leased locomotives on the property; ando
    reduced lease rates on intermodal equipment.  12.5.5 Depreciation
    and Amortization
    12.5.6 Purchased
    Services and Other
    o
    the unfavourable impact of the change in FX of approximately
    $10 million;o
    the inclusion of DM&E expenses from October 30, 2008
    to December 31, 2008;o
    increased allowance for doubtful accounts reflecting uncertain
    economic conditions; ando
    higher casualty related expenses.  24

2008
    ANNUAL
    REPORT




---



##### 



o
    the recognition of anticipated future environmental costs at
    certain identified sites across our network in the fourth
    quarter of 2007;o
    the recognition of third party recoveries; ando
    lower travel and consulting costs.  12.6 OTHER
    INCOME STATEMENT ITEMS
          12.7 LIQUIDITY
    AND CAPITAL RESOURCES
    13.0 Changes
    in Accounting Policy
  13.1 2008
    ACCOUNTING CHANGES
  13.1.1 Financial
    Instruments and Capital Disclosures
          13.1.2 Inventories
    13.2 FUTURE
    ACCOUNTING CHANGES
  13.2.1 Goodwill
    and intangible assets
    13.2.2 Credit
    risk and the fair value of financial assets and financial
    liabilities
    2008
    ANNUAL
    REPORT

25




---



##### 



13.2.3 Business
    Combinations, consolidated financial statements and
    non-controlling interests
    Business combinations, Section 1582
    Consolidated financial statements, Section 1601 and
    Non-controlling
    interests, Section 1602
      13.2.4 International
    Financial Reporting Standards (IFRS)
              14.0 Liquidity
    and Capital Resources
      26

2008
    ANNUAL
    REPORT




---



##### 



14.1 OPERATING
    ACTIVITIES
        14.2 INVESTING
    ACTIVITIES
          14.3 FINANCING
    ACTIVITIES
      o
    the US$1.27 billion bridge financing to fund the
    acquisition of DM&E (discussed further in this section);o
    the issuance of US$450 million of 5.95%
    30-year
    Notes, which are unsecured and carry a negative pledge, for net
    proceeds of CAD$485.1 million; ando
    short-term borrowings of $229.7 million.    30-year
      o
    US$400 million of 5.75% five-year Notes;o
    US$300 million of 6.50%
    10-year
    Notes; ando
    CAD$375 million of 6.25%
    10-year
    Medium Term Notes.      14.3.1 Net-debt
    to Net-debt-plus-equity Ratio
    2008
    ANNUAL
    REPORT

27




---



##### 



o
    the bridge financing obtained for the acquisition of DM&E;o
    an increase in short-term borrowing of $229.7 million; ando
    the investment in ABCP (discussed further in Section 10.3
    Loss in Fair Value of Canadian Third Party Asset-backed
    Commercial Paper).    14.3.2 Interest-Coverage
    Ratio
  interest-coverage
      14.3.3 Security
    Ratings
    14.4 FREE
    CASH


28

2008
    ANNUAL
    REPORT




---



##### 



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

2008(7)


2007(6)


2006(6)Cash provided by operating
    activities(1)

$
1,079.1


$
1,333.5


$
1,049.2Cash used in investing activities


(856.1
)


(2,514.3
)


(693.7
)Add back reclassification of
    ABCP(2)






143.6



Dividends paid


(148.7
)


(133.1
)


(112.4
)Add back acquisition of
    DM&E(3)


8.6



1,492.6



Termination of accounts receivable securitization
    program(4)


120.0







Foreign exchange effect on
    cash(6)


28.0



(18.9
)


1.8Free
    cash(5)


230.9



303.4



244.9Cash provided by (used in) financing activities, excluding
    dividend payment


(362.8
)


1,586.6



(242.4
)Reclassification of
    ABCP(2)






(143.6
)


Acquisition of
    DM&E(3)


(8.6
)


(1,492.6
)


Accounts receivable securitization
    program(4)


(120.0
)






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


(260.5
)


253.8



2.5Net cash and cash equivalents at beginning of year


378.1



124.3



121.8Net cash and cash equivalents at end of year

$
117.6


$
378.1


$
124.3   (1)
  (2)
  (3)
  (4)
  (5)
  (6)
  (7)
  15.0 Balance
    Sheet
  15.1 ASSETS
        15.2 TOTAL
    LIABILITIES
      o
    an increase in long-term debt, driven by the impact of foreign
    exchange;o
    an increase in future income taxes (discussed further in
    Section 22.4 Future Income Taxes); ando
    an increase in deferred liabilities mainly due to the increases
    in cost of the TRS (discussed further in Section 16.7.1
    Total Return Swap) and the consolidation of DM&Es
    liabilities.      o
    an increase in short-term borrowing;o
    an increase in long-term debt resulting from the issuance in
    second-quarter 2007 of US$450 million of 5.95%
    30-year
    Notes (net proceeds of $485.1 million), which are unsecured
    but carry a negative pledge; and  2008
    ANNUAL
    REPORT

29




---



##### 



o
    bridge financing to fund the acquisition of DM&E (discussed
    further in Section 14.3 Financing Activities).    15.3 ACCUMULATED
    OTHER COMPREHENSIVE INCOME
    15.4 EQUITY
    15.5 SHARE
    CAPITAL
            12-month
      30

2008
    ANNUAL
    REPORT




---



##### 



15.6 DIVIDENDS
    Dividend Amount

Record Date


Payment Date$0.1875


March 31, 2006



April 24, 2006$0.1875


June 30, 2006



July 31, 2006$0.1875


September 29, 2006



October 30, 2006$0.1875


December 29, 2006



January 29, 2007$0.2250


March 30, 2007



April 30, 2007$0.2250


June 29, 2007



July 30, 2007$0.2250


September 28, 2007



October 29, 2007$0.2250


December 28, 2007



January 28, 2008$0.2475


March 28, 2008



April 28, 2008$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   16.0 Financial
    Instruments
    16.1 FAIR
    VALUE OF NON-DERIVATIVE FINANCIAL INSTRUMENTS
    16.1.1 Loans
    and receivables
      16.1.2 Financial
    liabilities
        16.1.3 Available
    for sale
    16.1.4 Held
    for trading
        2008
    ANNUAL
    REPORT

31




---



##### 



16.1.5 Carrying
    value and fair value of financial instruments
    16.2 DERIVATIVE
    FINANCIAL INSTRUMENTS
            16.3 CREDIT
    RISK
    16.4 INTEREST
    RATE MANAGEMENT
  16.4.1 Interest
    Rate Swaps
    16.4.2 Interest
    and Treasury Rate Locks
      32

2008
    ANNUAL
    REPORT




---



##### 



16.5 FOREIGN
    EXCHANGE MANAGEMENT
    16.5.1 Foreign
    Exchange Forward Contracts on Revenue
    16.5.2 Currency
    Forward on Long-term Debt
    16.6 FUEL
    PRICE MANAGEMENT
    16.6.1 Crude
    Oil Swaps
                  16.7 STOCK-BASED
    COMPENSATION EXPENSE MANAGEMENT
  16.7.1 Total
    Return Swap (TRS)
    2008
    ANNUAL
    REPORT

33




---



##### 



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


34

2008
    ANNUAL
    REPORT




---



##### 



19.0 Contractual
    Commitments
    CONTRACTUAL
    COMMITMENTS AT DECEMBER 31,
    2008(3)
  1  3


3  5


AfterPayments due by period (in millions)

Total


< 1 year


years


years


5 yearsLong-term debt

$
4,347.3


$
28.3


$
892.7


$
566.1


$
2,860.2Capital lease obligations


419.2



15.7



45.8



26.0



331.7Operating lease
    obligations(1)


1,072.9



172.0



265.0



204.9



431.0Supplier purchase obligations


1,216.0



171.7



223.4



211.8



609.1Other long-term liabilities reflected
    on our Consolidated Balance
    Sheet(2)


3,799.8



113.0



288.5



197.5



3,200.8Total contractual obligations

$
10,855.2


$
500.7


$
1,715.4


$
1,206.3


$
7,432.8   (1)
  (2)
  (3)
  20.0 Future
    Trends and Commitments
  20.1 AGREEMENTS
    AND RECENT DEVELOPMENTS
  20.1.1 Prospectus
    offering subsequent to year-end
      20.1.2 Recent
    developments
      20.2 CHANGE
    IN EXECUTIVE OFFICERS
        20.3 INTEGRATED
    OPERATING PLAN
    2008
    ANNUAL
    REPORT

35




---



##### 



20.4 CANADIAN
    GOVERNMENT COVERED HOPPER CARS
    20.5 SALE OF
    LATTA SUBDIVISION
    20.6 STOCK
    PRICE
        20.7 ENVIRONMENTAL


36

2008
    ANNUAL
    REPORT




---



##### 



20.8 CERTAIN
    OTHER FINANCIAL COMMITMENTS
    CERTAIN OTHER
    FINANCIAL COMMITMENTS AT DECEMBER 31,
    2008(1)
  Amount of commitment per period2010 &


2012 &


2014 &(in millions)

Total


2009


2011


2013


beyondLetters of credit

$
336.6


$
336.6


$



$



$
Capital commitments


775.0



223.2



76.4



71.4



404.0Offset financial liability


201.8



201.8











Total commitments

$
1,313.4


$
761.6


$
76.4


$
71.4


$
404.0   (1)
  20.8.1 Letters
    of Credit
    20.8.2 Capital
    Commitments
    20.8.3 Offset
    Financial Liability
    20.9 PENSION
    PLAN DEFICIT
              2008
    ANNUAL
    REPORT

37




---



##### 



20.10 RESTRUCTURING
        20.11 INDEMNIFICATIONS
      21.0 Business
    Risks and Enterprise Risk Management
      38

2008
    ANNUAL
    REPORT




---



##### 



21.1 TECK
    COAL LIMITED
    21.2 COMPETITION
      o
    creating long-term value for customers, shareholders and
    employees by profitably growing within the reach of our rail
    franchise and through strategic additions to enhance access to
    markets and quality of service;o
    improving handling through IOP to reduce costs and enhance
    quality of service; ando
    exercising a disciplined yield approach to competitive contract
    renewals and bids.  21.3 LIQUIDITY
          21.4 ENVIRONMENTAL
    LAWS AND REGULATIONS
        follow-up
    o
    protecting the environment;o
    ensuring compliance with applicable environmental laws and
    regulations;o
    promoting awareness and training;  2008
    ANNUAL
    REPORT

39




---



##### 



o
    managing emergencies through preparedness; ando
    encouraging involvement, consultation and dialogue with
    communities along our lines.  21.5 REGULATORY
    AUTHORITIES
  21.5.1 Regulatory
    Change
      2007-2008
          21.5.2 Security
      o
    to strengthen the overall supply chain and border security, we
    are a certified carrier in voluntary customs 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  40

2008
    ANNUAL
    REPORT




---



##### 



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 US regulations, we will be completing annual
    route assessments to select and use the route posing the least
    overall safety and security risk, as well as implementing
    procedures to maintain positive chain of custody for rail
    security sensitive materials.  21.6 LABOUR
    RELATIONS
      21.6.1 Canada
  o
    On January 20, 2009 CP and the Teamsters Canada Rail
    Conference, Rail Canada Traffic Controllers, representing
    employees who control train traffic, reached a tentative
    three-year agreement extending through the end of 2011.o
    On January 26, 2008, CP and the Canadian Auto Workers
    (CAW), representing employees who maintain and
    repair locomotives and freight cars, reached a tentative
    three-year agreement extending through to the end of 2010. This
    agreement was ratified on February 15, 2008.o
    On December 5, 2007, CP and the Teamsters Canada Rail
    Conference (TCRC-RTE), which represents employees
    who operate trains, reached a tentative five-year agreement
    extending through the end of 2011. This agreement was ratified
    on February 13, 2008.o
    A three-year collective agreement with the Teamsters Canada Rail
    Conference (TCRC-MWED), which represents employees
    who maintain track infrastructure and perform capital programs,
    extends to the end of 2009.o
    A five-year collective agreement with the International
    Brotherhood of Electrical Workers, representing signal
    maintainers, extends to the end of 2009.o
    A four-year collective agreement with the Canadian Pacific
    Police Association, representing CP Police sergeants and
    constables, extends to the end of 2009.o
    A three-year agreement with the Steelworkers Union, representing
    intermodal operation and clerical employees extends to the end
    of 2009.  21.6.2 US
          21.7 NETWORK
    CAPACITY AND VOLUME
    21.7.1 Capacity
      2008
    ANNUAL
    REPORT

41




---



##### 



21.7.2 Volume
      21.8 FINANCIAL
    RISKS
  21.8.1 Pension
    Funding Status Volatility
    21.8.2 Fuel
    Cost Volatility
      21.8.3 Foreign
    Exchange Risk
    21.8.4 Interest
    Rate Risk
    21.9 GENERAL
    AND OTHER RISKS
    42

2008
    ANNUAL
    REPORT




---



##### 



agreed-upon
      22.0 Critical
    Accounting Estimates
      22.1 ENVIRONMENTAL
    LIABILITIES
        22.2 PENSIONS
    AND OTHER BENEFITS
      2008
    ANNUAL
    REPORT

43




---



##### 



22.3 PROPERTY,
    PLANT AND EQUIPMENT
            o
    additions to capital assets, especially to track;o
    accelerated depreciation of software; ando
    the consolidation of DM&E from October 30, 2008 to
    December 31, 2008, which includes amortization of fair
    values determined under purchase accounting.    22.4 FUTURE
    INCOME TAXES
      44

2008
    ANNUAL
    REPORT




---



##### 



22.5 LEGAL
    AND PERSONAL INJURY LIABILITIES
    case-by-case
      case-by-case case-by-case
      22.6 CANADIAN
    THIRD PARTY ASSET-BACKED COMMERCIAL PAPER
      23.0 Systems,
    Procedures and Controls
  Rules 13a-15(e) 15d-15(e)
  2008
    ANNUAL
    REPORT

45




---



##### 



24.0 Forward-Looking
    Information
  Private Securities Litigation Reform Act of 1995


24.1 2008
    FINANCIAL OUTLOOK
    2008 Financial Outlook

Guidance

Date

Key 2008 AssumptionsTotal revenues

Increase of 4%-6%

Oct 29, 2007

o average
    crude oil prices of US $80 per barrel;Total operating expenses

Increase of 3%  5%

Oct 29, 2007

o average
    FX rate of $1.00 per US dollar;Adjusted Diluted
    EPS(1)

$4.70  $4.85

Oct 29, 2007

o North
    American economic (GDP) growth of 2.5%; andCapital expenditures

$885  $895 million

Oct 29, 2007

o Tax
    rate of 29%  31%.Free
    Cash(1)

In excess of $250 million

Oct 29, 2007   (1)
  24.1.1 2008
    Q1 Guidance Updates
    2008 Financial Outlook

Guidance

Date

Key 2008 AssumptionsTotal revenues

Increase of 4%  6%

Apr 21, 2008

o average
    crude oil prices of US $98 per
    barrel(2);Total operating expenses

Increase of 6%  8%

Apr 21, 2008

o average
    all-in fuel cost of US $3.35 per US
    gallon(3);Adjusted Diluted
    EPS(1)

$4.40  $4.60

Apr 21, 2008

o average
    FX rate of $1.00 per US dollar;Capital expenditures

$885  $895 million

Apr 21, 2008

o US
    GDP growth of
    1.2%(4);Free
    Cash(1)

Approximately $200 million

Apr 21, 2008

o Canadian
    GDP growth of
    1.6%(4);

    ando Tax
    rate of 27% 
    29%(5).   (1)
  (2)
  46

2008
    ANNUAL
    REPORT




---



##### 



(3)
  (4)
  (5)
      o
    adjusted diluted EPS was revised to the range of $4.40 to $4.60;o
    total operating expenses was expected to increase by six to
    eight percent; ando
    free cash was expected to be approximately $200 million.    o
    the harsh weather conditions in the first quarter of 2008;o
    continued increase in fuel price; ando
    continued economic uncertainty.  24.1.2 2008
    Q2 Guidance Updates
    2008 Financial Outlook

Guidance

Date

Key 2008 AssumptionsTotal revenues

Increase of 6%  8%

July 21, 2008

o average
    crude oil prices of US $121 per
    barrel(2);Total operating expenses

Increase of 11%  13%

July 21, 2008

o average
    all-in fuel cost of US $3.80 to $3.90 per US
    gallon(2);Adjusted Diluted
    EPS(1)

$4.00  $4.20

July 21, 2008

o average
    FX rate of $1.00 per US dollar;Capital expenditures

$885  $895 million

July 21, 2008

o US
    GDP growth of
    1.6%(2);Free
    Cash(1)

Approximately $150 million

July 21, 2008

o Canadian
    GDP growth of
    1.2%(2);

    ando Tax
    rate of 26% 
    27%(2).   (1)
  (2)
      o
    a change in WTI of US$2 per barrel impacts EPS by $0.01; ando
    a change in crack margins of US$1 per barrel impacts EPS by
    $0.02.      2008
    ANNUAL
    REPORT

47




---



##### 



24.1.3 2008
    Q3 Guidance Updates
    2008 Financial Outlook

Guidance

Date

Key 2008 AssumptionsTotal revenues

Increase of 4%  6%

October 27, 2008

o average
    crude oil prices of US $105 per barrel;Total operating expenses

Increase of 8%  10%

October 27, 2008

o average
    all-in fuel cost of US $3.40 to $3.50 per US gallon;Adjusted Diluted
    EPS(1)

$4.00  $4.20

October 27, 2008

o average
    FX rate of $1.04 per US dollar;Capital expenditures

$885  $895 million

October 27, 2008

o US
    GDP growth of 1.5%;Free
    Cash(1)

Approximately $150 million

October 27, 2008

o Canadian
    GDP growth of 0.6%; ando Tax
    rate of 26%  27%.   (1)
    24.1.4 Variance
    from 2008 Guidance
      24.2 2009
    FINANCIAL OUTLOOK
    48

2008
    ANNUAL
    REPORT




---



##### 



25.0 Glossary Of
    Terms
      car-miles
  car-miles includes
  car-day is
                            200,000 employee-hours The employee-hours. Employee-hours
  train-miles.
          ton-miles The
                2008
    ANNUAL
    REPORT

49




---



##### 



ton-miles The
              50

2008
    ANNUAL
    REPORT




---



##### 



CONSOLIDATED
    FINANCIAL STATEMENTS December 31,
    2008
  Except where otherwise indicated, all financial information
    reflected herein is expressed in Canadian dollars
   2008
    ANNUAL
    REPORT

51




---



##### 



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

-s- Fred J. GreenKATHRYN B. MCQUADEExecutive Vice-President andChief Financial OfficerFebruary 23, 2009

FRED J. GREEN
    Chief Executive Officer   52

2008
    ANNUAL
    REPORT




---



##### 



INDEPENDENT
    AUDITORS REPORT
  TO THE
    SHAREHOLDERS OF 
    CANADIAN PACIFIC RAILWAY LIMITED
    CONSOLIDATED
    FINANCIAL STATEMENTS
        INTERNAL CONTROL
    OVER FINANCIAL REPORTING
            
        2008
    ANNUAL
    REPORT

53




---



##### 



STATEMENT OF
    CONSOLIDATED INCOME
  Year ended December 31 (in
    millions of Canadian dollars, except per share data)

2008


2007


2006RevenuesFreight (Note 26)

$
4,814.8


$
4,555.2


$
4,427.3Other


116.8



152.4



155.94,931.6



4,707.6



4,583.2Operating expensesCompensation and benefits


1,305.5



1,284.2



1,327.6Fuel


1,005.8



746.8



650.5Materials


217.2



215.5



212.9Equipment rents


182.2



207.5



181.2Depreciation and amortization


491.3



472.0



464.1Purchased services and other


672.2



617.4



618.33,874.2



3,543.4



3,454.6Revenues less operating expenses


1,057.4



1,164.2



1,128.6Equity income in Dakota, Minnesota & Eastern Railroad
    Corporation (Note 11)


51.3



12.3



Less:Other charges (Note 4)


22.7



29.6



27.8Loss in fair value of Canadian third party asset-backed
    commercial paper (Note 11)


49.4



21.5



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


16.3



(169.8
)


0.1Net interest expense (Note 5)


261.1



204.3



194.5Income tax expense (Note 6)


140.2



144.7



109.9Net income

$
619.0


$
946.2


$
796.3Basic earnings per share (Note 7)

$
4.03


$
6.14


$
5.06Diluted earnings per share (Note 7)

$
3.98


$
6.08


$
5.02       54

2008
    ANNUAL
    REPORT




---



##### 



CONSOLIDATED
    STATEMENT OF COMPREHENSIVE INCOME
  Year ended December 31 (in
    millions of Canadian dollars)

2008


2007


2006Comprehensive incomeNet income

$
619.0


$
946.2


$
796.3Net gain (loss) in foreign currency translation adjustments, net
    of hedging activities


10.0



(7.4
)


(1.6
)Realized gain and increased losses on derivatives designated as
    cash flow hedges


(16.1
)


(36.8
)


Other comprehensive loss before income taxes


(6.1
)


(44.2
)


(1.6
)Income tax recovery


44.8



3.4



0.5Other comprehensive income (loss) (Note 9)


38.7



(40.8
)


(1.1
)Comprehensive income

$
657.7


$
905.4


$
795.2     2008
    ANNUAL
    REPORT

55




---



##### 



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

2008


2007AssetsCurrent assetsCash and cash equivalents

$
117.6


$
378.1Accounts receivable and other current assets (Note 8)


713.1



542.8Materials and supplies


215.8



179.5Future income taxes (Note 6)


76.5



67.31,123.0



1,167.7Investments (Note 11)


151.1



1,668.6Net properties (Note 12)


12,576.9



9,293.1Assets held for sale


39.6



17.0Goodwill and intangible assets (Note 13)


237.2



Other assets and deferred charges (Note 14)


1,342.0



1,218.6Total assets

$
15,469.8


$
13,365.0Liabilities and shareholders equityCurrent liabilitiesShort-term borrowing

$
150.1


$
229.7Accounts payable and accrued liabilities


1,034.9



980.8Income and other taxes payable


42.2



68.8Dividends payable


38.1



34.5Long-term debt maturing within one year (Note 15)


44.0



31.01,309.3



1,344.8Deferred liabilities (Note 17)


865.2



714.6Long-term debt (Note 15)


4,685.8



4,146.2Future income taxes (Note 6)


2,616.1



1,701.5Shareholders equityShare capital (Note 20)


1,220.8



1,188.6Contributed surplus (Note 20)


40.2



42.4Accumulated other comprehensive income (Note 9)


78.3



39.6Retained income


4,654.1



4,187.35,993.4



5,457.9Total liabilities and shareholders equity

$
15,469.8


$
13,365.0         Approved on behalf of the Board:

-s- J.E. Cleghorn

-s- R. PhillipsJ.E. Cleghorn, Director

R. Phillips, Director   56

2008
    ANNUAL
    REPORT




---



##### 



STATEMENT OF
    CONSOLIDATED CASH FLOWS
  Year ended December 31 (in
    millions of Canadian dollars)

2008


2007


2006Operating activitiesNet income

$
619.0


$
946.2


$
796.3Add (deduct) items not affecting cashDepreciation and amortization


491.3



472.0



464.1Future income taxes (Note 6)


160.6



38.7



75.3Loss in fair value of Canadian third party asset-backed
    commercial paper (Note 11)


49.4



21.5



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


16.3



(169.8
)


0.1Amortization of deferred charges and accretion


10.1



12.1



16.5Equity income, net of cash received


(46.6
)


(10.1
)


Restructuring and environmental payments (Note 19)


(53.4
)


(61.0
)


(96.3
)Other operating activities, net


(35.4
)


33.6



(105.2
)Change in non-cash working capital balances related to
    operations (Note 10)


(132.2
)


50.3



(101.6
)Cash provided by operating activities


1,079.1



1,333.5



1,049.2Investing activitiesAdditions to properties (Note 12)


(892.3
)


(893.2
)


(793.7
)Additions to investments and other assets


(222.5
)


(19.2
)


(137.1
)Reductions in investments and other assets


257.6



19.4



139.3Net proceeds from disposal of transportation properties


9.7



14.9



97.8Additions to investment in Dakota, Minnesota & Eastern
    Railroad Corporation (Note 11)


(8.6
)


(1,492.6
)


Investment in Canadian third party asset-backed commercial paper
    (Note 11)






(143.6
)


Cash used in investing activities


(856.1
)


(2,514.3
)


(693.7
)Financing activitiesDividends paid


(148.7
)


(133.1
)


(112.4
)Issuance of CP Common Shares


19.7



30.4



66.6Purchase of CP Common Shares (Note 20)






(231.1
)


(286.4
)(Decrease) increase in short-term borrowing


(79.6
)


229.7



Issuance of long-term debt (Note 15)


1,068.7



1,745.3



2.8Repayment of long-term debt


(1,340.7
)


(187.7
)


(25.4
)Settlement of treasury rate lock


(30.9
)






Cash (used in) provided by financing activities


(511.5
)


1,453.5



(354.8
)Effect of foreign currency fluctuations on U.S.
    dollar-denominated cash and cash equivalents


28.0



(18.9
)


1.8Cash position(Decrease) increase in cash and cash equivalents


(260.5
)


253.8



2.5Cash and cash equivalents at beginning of year


378.1



124.3



121.8Cash and cash equivalents at end of year

$
117.6


$
378.1


$
124.3       2008
    ANNUAL
    REPORT

57




---



##### 



CONSOLIDATED
    STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
  Year ended December 31 (in
    millions of Canadian dollars)

2008


2007


2006Share capitalBalance, beginning of year

$
1,188.6


$
1,175.7


$
1,141.5Shares issued under stock option plans (Note 20)


32.2



37.4



71.0Shares purchased (Note 20)






(24.5
)


(36.8
)Balance, end of year


1,220.8



1,188.6



1,175.7Contributed surplusBalance, beginning of year


42.4



32.3



245.1Stock compensation expense


7.8



10.1



11.4Stock compensation related to shares issued under stock option
    plans


(10.0
)






(1.1
)Shares purchased










(223.1
)Balance, end of year


40.2



42.4



32.3Accumulated other comprehensive incomeBalance, beginning of year


39.6



66.4



67.5Adjustment for change in accounting policy






14.0



Adjusted balance, beginning of year


39.6



80.4



67.5Other comprehensive income (loss) (Note 9)


38.7



(40.8
)


(1.1
)Balance, end of year


78.3



39.6



66.4Retained incomeBalance, beginning of year


4,187.3



3,582.1



2,930.0Adjustment for change in accounting policy






4.0



Adjusted balance, beginning of year


4,187.3



3,586.1



2,930.0Net income for the year


619.0



946.2



796.3Shares purchased (Note 20)






(206.6
)


(26.5
)Dividends


(152.2
)


(138.4
)


(117.7
)Balance, end of year


4,654.1



4,187.3



3,582.1Total accumulated other comprehensive income and retained
    income


4,732.4



4,226.9



3,648.5Shareholders equity, end of year

$
5,993.4


$
5,457.9


$
4,856.5     58

2008
    ANNUAL
    REPORT




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS December 31,
    2008
  1.  Summary
    of significant accounting policies
  PRINCIPLES OF
    CONSOLIDATION
    USE OF
    ESTIMATES
    PRINCIPAL
    SUBSIDIARIES
    Incorporated under

Percentage of voting securitiesPrincipal subsidiary

the laws of

held directly or indirectly by CPRLCanadian Pacific Railway Company

Canada

100%Soo Line Railroad Company (Soo Line)

Minnesota

100%Delaware and Hudson Railway Company, Inc. (D&H)

Delaware

100%Dakota, Minnesota & Eastern Railroad Corporation
    (DM&E)

Delaware

100%Mount Stephen Properties Inc. (MSP)

Canada

100%     REVENUE
    RECOGNITION
    CASH AND CASH
    EQUIVALENTS
    FOREIGN CURRENCY
    TRANSLATION
      2008
    ANNUAL
    REPORT

59




---



##### 



PENSIONS AND
    OTHER BENEFITS
      MATERIALS AND
    SUPPLIES
    NET
    PROPERTIES
            60

2008
    ANNUAL
    REPORT




---



##### 



Assets

YearsRolling stockDiesel locomotives


28 to 55Freight cars


21 to 46Track and roadwayTies


34 to 41Rails  in first position


25 to 29 in
    other than first position


55OtherComputer system development costs


5 to 15   ASSETS HELD FOR
    SALE
    GOODWILL
      INTANGIBLE
    ASSETS
      DERIVATIVE
    FINANCIAL AND COMMODITY INSTRUMENTS
      2008
    ANNUAL
    REPORT

61




---



##### 



RESTRUCTURING
    ACCRUAL AND ENVIRONMENTAL REMEDIATION
    INCOME
    TAXES
    EARNINGS PER
    SHARE
    62

2008
    ANNUAL
    REPORT




---



##### 



STOCK-BASED
    COMPENSATION
      2.  New
    accounting policies
  FINANCIAL
    INSTRUMENTS AND CAPITAL DISCLOSURES
          INVENTORIES
    3.  Future
    accounting changes
  GOODWILL AND
    INTANGIBLE ASSETS
    CREDIT RISK AND
    THE FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL
    LIABILITIES
      2008
    ANNUAL
    REPORT

63




---



##### 



BUSINESS
    COMBINATIONS, CONSOLIDATED FINANCIAL STATEMENTS AND
    NON-CONTROLLING INTERESTS
    Business
    combinations, Section 1582
    Consolidated
    financial statements, Section 1601 and Non-controlling
    interests, Section 1602
      INTERNATIONAL
    FINANCIAL REPORTING STANDARDS (IFRS)
    4.  Other
    charges
  (in millions of Canadian dollars)

2008


2007


2006Amortization of discount on accruals recorded at present value

$
6.4


$
8.1


$
10.0Other exchange losses


6.1



5.8



6.5Loss on sale of accounts receivable (Note 8)


2.7



5.8



5.0(Gain) loss on non-hedging derivative instruments


(0.7
)


1.5



(1.2
)Other


8.2



8.4



7.5Total other charges

$
22.7


$
29.6


$
27.8   64

2008
    ANNUAL
    REPORT




---



##### 



5.  Net
    interest expense
  (in millions of Canadian dollars)

2008


2007


2006Interest expense

$
270.4


$
219.6


$
200.5Interest income


(9.3
)


(15.3
)


(6.0
)Net interest expense

$
261.1


$
204.3


$
194.5Gross cash interest payments

$
269.6


$
208.9


$
192.8     6.  Income
    taxes
    (in millions of Canadian dollars)

2008


2007


2006Canada (domestic)Current income tax expense

$
14.0


$
69.8


$
3.3Future income tax expenseOrigination and reversal of temporary differences


17.5



163.8



194.7Effect of tax rate decreases


(15.7
)


(162.9
)


(176.0
)Effect of hedge of net investment in self-sustaining foreign
    subsidiaries


40.2



(9.7
)


0.5Other






(6.9
)


(2.2
)Total future income tax expense (recovery)


42.0



(15.7
)


17.0Total income taxes (domestic)

$
56.0


$
54.1


$
20.3Other (foreign)Current income tax expense (recovery)

$
(34.4
)

$
36.2


$
31.3Future income tax expense
    Origination and reversal of temporary differences


132.7



64.7



62.5Other


(14.1
)


(10.3
)


(4.2
)Total future income tax expense


118.6



54.4



58.3Total income taxes (foreign)

$
84.2


$
90.6


$
89.6TotalCurrent income tax expense (recovery)

$
(20.4
)

$
106.0


$
34.6Future income tax expense


160.6



38.7



75.3Total income taxes (domestic and foreign)

$
140.2


$
144.7


$
109.9   2008
    ANNUAL
    REPORT

65




---



##### 



(in millions of Canadian dollars)

2008


2007Future income tax assetsRestructuring liability

$
29.1


$
39.7Amount related to tax losses carried forward


92.3



53.9Liabilities carrying value in excess of tax basis


124.2



35.6Future environmental remediation costs


53.9



35.1Other


88.3



28.7Total future income tax assets


387.8



193.0Future income tax liabilitiesCapital assets carrying value in excess of tax basis


2,557.5



1,493.5Other long-term assets carrying value in excess of tax basis


333.1



300.0Other


36.8



33.7Total future income tax liabilities


2,927.4



1,827.2Total net future income tax liabilities


2,539.6



1,634.2Current future income tax assets


76.5



67.3Long-term future income tax liabilities

$
2,616.1


$
1,701.5     (in millions of Canadian dollars)

2008


2007


2006Expected income tax expense at Canadian enacted statutory tax
    rates

$
239.4


$
333.6


$
298.6Increase (decrease) in taxes resulting from:Large corporations tax










(5.6
)Gains and equity income not subject to tax


(61.6
)


(62.5
)


(22.0
)Foreign tax rate differentials


(0.2
)


33.8



6.6Effect of tax rate decreases


(15.7
)


(162.9
)


(176.0
)Other


(21.7
)


2.7



8.3Income tax expense

$
140.2


$
144.7


$
109.9           66

2008
    ANNUAL
    REPORT




---



##### 



7.  Earnings
    per share
          (in millions)

2008


2007


2006Weighted average shares outstanding


153.7



154.0



157.3Dilutive effect of weighted average number of stock options


1.8



1.6



1.5Weighted average diluted shares outstanding


155.5



155.6



158.8(in dollars)


2008



2007



2006Basic earnings per share

$
4.03


$
6.14


$
5.06Diluted earnings per share

$
3.98


$
6.08


$
5.02     8.  Accounts
    receivable and other current assets
  (in millions of Canadian dollars)

2008


2007Freight

$
464.1


$
336.2Non-freight


215.1



182.4679.2



518.6Allowance for doubtful accounts


(31.8
)


(18.4
)647.4



500.2Other current assets


65.7



42.6Accounts receivable and other current assets

$
713.1


$
542.8       2008
    ANNUAL
    REPORT

67




---



##### 



(in millions of Canadian dollars)

2008


2007


2006Proceeds from collections reinvested

$
595.4


$
1,478.9


$
1,475.7   68

2008
    ANNUAL
    REPORT




---



##### 



9.  Other
    comprehensive income (loss) and accumulated other comprehensive
    income
    Income taxBefore


(expense)


Net of tax(in millions of Canadian dollars)

tax amount


recovery


amountFor the year ended December 31, 2008Unrealized foreign exchange loss on translation of U.S.
    dollar-denominated
    long-term debt designated as a hedge of the net investment in
    U.S. subsidiaries

$
(297.5
)

$
40.2


$
(257.3
)Unrealized foreign exchange gain on translation of the net
    investment in U.S. subsidiaries


307.5







307.5Realized gain on cash flow hedges settled in the period


(14.2
)


4.2



(10.0
)Increase in unrealized holding losses on cash flow hedges


(5.1
)


1.4



(3.7
)Realized loss on cash flow hedges settled in prior periods


3.2



(1.0
)


2.2Other comprehensive (loss) income

$
(6.1
)

$
44.8


$
38.7For the year ended December 31, 2007Unrealized foreign exchange gain on translation of U.S.
    dollar-denominated
    long-term debt designated as a hedge of the net investment in
    U.S. subsidiaries

$
71.0


$
(9.7
)

$
61.3Unrealized foreign exchange loss on translation of the net
    investment in U.S. subsidiaries


(78.4
)






(78.4
)Realized gain on cash flow hedges settled in the period


(12.8
)


4.8



(8.0
)Increase in unrealized holding losses on cash flow hedges


(26.2
)


9.1



(17.1
)Realized loss on cash flow hedges settled in prior periods


2.2



(0.8
)


1.4Other comprehensive loss

$
(44.2
)

$
3.4


$
(40.8
)For the year ended December 31, 2006Unrealized foreign exchange loss on translation of U.S.
    dollar-denominated
    long-term debt designated as a hedge of the net investment in
    U.S. subsidiaries

$
(3.7
)

$
0.5


$
(3.2
)Unrealized foreign exchange gain on translation of the net
    investment in U.S. subsidiaries


2.1







2.1Other comprehensive loss

$
(1.6
)

$
0.5


$
(1.1
)   2008
    ANNUAL
    REPORT

69




---



##### 



Opening





ClosingBalance,





Balance,January 1,


Period


December 31,(in millions of Canadian dollars)

2008


change


2008Year ended December 31, 2008Foreign exchange gain (loss) on U.S. dollar debt designated as a
    hedge
    of the net investment in U.S. subsidiaries

$
296.6


$
(257.3
)

$
39.3Foreign exchange (loss) gain on net investment in U.S.
    subsidiaries


(246.9
)


307.5



60.6Decrease in unrealized effective losses on cash flow hedges


(6.2
)


5.2



(1.0
)Increase in deferred loss on settled hedge instruments


(3.9
)


(16.7
)


(20.6
)Accumulated other comprehensive income

$
39.6


$
38.7


$
78.3   AdjustedAdjustment


OpeningOpening


for change in


Balance,





ClosingBalance,


accounting


January 1,





Balance,January 1,


policy


2007


Period


December 31,(in millions of Canadian dollars)

2007


(Note 2)


(Note 2)


change


2007Year ended December 31, 2007Foreign exchange gain on U.S. dollar debt designated as a hedge
    of the net investment in U.S. subsidiaries

$
234.9


$
0.4


$
235.3


$
61.3


$
296.6Foreign exchange loss on net investment in U.S. subsidiaries


(168.5
)






(168.5
)


(78.4
)


(246.9
)Unrealized effective gains (losses) on cash flow hedges






18.9



18.9



(25.1
)


(6.2
)Deferred loss on settled hedge instruments






(5.3
)


(5.3
)


1.4



(3.9
)Accumulated other comprehensive income

$
66.4


$
14.0


$
80.4


$
(40.8
)

$
39.6     10.  Change
    in non-cash working capital balances related to
    operations
  (in millions of Canadian dollars)

2008


2007


2006(Use) source of cash:Accounts receivable and other current assets

$
(69.1
)

$
70.6


$
(101.0
)Materials and supplies


(23.4
)


(28.7
)


(15.8
)Accounts payable and accrued liabilities


(6.2
)


(45.5
)


(0.4
)Income and other taxes payable


(33.5
)


53.9



15.6Change in non-cash working capital

$
(132.2
)

$
50.3


$
(101.6
)   70

2008
    ANNUAL
    REPORT




---



##### 



11.  Investments
  For the year ended December 31
    (in millions of Canadian dollars)

2008


2007Investment in Dakota, Minnesota & Eastern Railroad
    Corporation accounted for on an equity basis

$



$
1,493.0Other rail investments accounted for on an equity basis


48.4



35.6Asset backed commercial paper


72.7



122.1Other investments


30.0



17.9Total investments

$
151.1


$
1,668.6   DAKOTA,
    MINNESOTA & EASTERN RAILROAD CORPORATION
    (DM&E)
    line-by-line
      2008
    ANNUAL
    REPORT

71




---



##### 



October 4, 2007 (in millions
    of Canadian dollars)Current assets

$
92Railroad properties


1,932Intangible assets


50Goodwill


147Other assets


2Total assets acquired


2,223Current liabilities


98Future income taxes


559Debt and other liabilities


70Total liabilities assumed


727Investment in net assets of DM&E

$
1,496   CANADIAN THIRD
    PARTY ASSET-BACKED COMMERCIAL PAPER (ABCP)
          o
    $12.5 million is represented by traditional securitized
    assets and the Company will, on restructuring, receive
    replacement Traditional Asset (TA) Tracking
    long-term floating rate notes with expected repayments over
    approximately seven and three-quarter years. As the underlying
    assets are primarily comprised of cash and Canadian Lines of
    Credit which are subject to an offer to repurchase at par value,
    the Company has assumed that these notes will be repaid in full
    significantly in advance of maturity;o
    $117.7 million is represented by a combination of leveraged
    collateralized debt, synthetic assets and traditional
    securitized assets and the Company will, on restructuring,
    receive replacement senior
    Class A-1
    and
    Class A-2
    and subordinated Class B and Class C long-term
    floating rate notes with expected repayments over approximately
    eight years. The Company expects to receive replacement notes
    with par values as follows:  o
    Class A-1:
    $59.6 milliono
    Class A-2:
    $46.2 milliono
    Class B: $8.4 milliono
    Class C: $3.5 million  72

2008
    ANNUAL
    REPORT




---



##### 



o
    $13.4 million is represented by assets that have an
    exposure to U.S. mortgages and sub-prime mortgages and assets
    that are held in a satellite trust that will be terminated when
    the restructuring is effective. On restructuring, the Company is
    likely to receive Ineligible Asset (IA) Tracking
    long-term floating rate notes with expected repayments over
    approximately five years to eight years. In addition, the
    Company will receive other tracking notes of approximately
    $1.2 million which are expected to be paid down when the
    restructuring is effective, with recoveries of 5.9% of
    principal. Certain of these notes may be rated, although at this
    time the pan-Canadian restructuring committee has provided no
    indication of the rating these notes may receive. DBRS has
    indicated that certain IA Tracking notes may be unrated.    2008Probability weighted average interest rate

2.2%Weighted average discount rate

9.1%Expected repayments of long-term floating rate notes

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

rated
    notes(1):

    nil to 25%unrated
    notes(2):

    25% to 100%   (1) Class A-1 Class A-2
 (2)
  2007Probability weighted average interest rate

4.6%Weighted average discount rate

5.3%Expected repayments of long-term floating rate notes

five to seven yearsCredit losses

nil to 50%               2008
    ANNUAL
    REPORT

73




---



##### 



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

ABCPProbability of successful restructuring:1 percent increase

$
0.31 percent decrease

$
(0.3
)Interest rate50 basis point increase

$
3.050 basis point decrease

$
(3.0
)Discount rate50 basis point increase

$
(2.5
)50 basis point decrease

$
2.6     o
    $12.4 million Master Asset Vehicle (MAV) 3 TA
    Tracking notes;o
    $118.2 million MAV 2 notes with eligible assets:  o
    Class A-1:
    $59.3 milliono
    Class A-2:
    $45.9 milliono
    Class B: $8.3 milliono
    Class C: $3.5 milliono
    Class 9: $0.6 milliono
    Class 14: $0.6 million  o
    $12.2 million MAV 2 IA Tracking notes      74

2008
    ANNUAL
    REPORT




---



##### 



OTHER
    INVESTMENTS
    (in millions of Canadian dollars)

2008


2007Current assets

$
2.4


$
0.8Long-term assets


50.8



51.0Current liabilities


2.4



2.5Long-term liabilities


0.5



0.5Revenues


10.3



12.9Expenses


0.9



2.4Income before tax


9.4



10.5Cash provided by operating activities


8.4



9.4Cash used in investing activities


0.9



1.9Cash used in financing activities


7.4



7.7     12.  Net
    properties
  Accumulated


Net book(in millions of Canadian dollars)

Cost


depreciation


value2008Track and roadway

$
11,862.9


$
3,195.0


$
8,667.9Buildings


366.5



126.8



239.7Rolling stock


3,829.4



1,480.4



2,349.0Other


2,027.9



707.6



1,320.3Total net properties

$
18,086.7


$
5,509.8


$
12,576.92007Track and roadway

$
8,828.0


$
2,852.1


$
5,975.9Buildings


342.4



136.0



206.4Rolling stock


3,593.7



1,485.4



2,108.3Other


1,632.9



630.4



1,002.5Total net properties

$
14,397.0


$
5,103.9


$
9,293.1       2008
    ANNUAL
    REPORT

75




---



##### 



(see Note 11).
  13.  Goodwill
    and intangible assets
  2008(in millions of Canadian dollars)

Goodwill


Intangible assetsBalance at beginning of the year

$



$
Additions (Note 11)


147.1



50.0Amortization






(2.0
)Foreign exchange impact


32.5



9.6Balance at end of year

$
179.6


$
57.6     14.  Other
    assets and deferred charges
  (in millions of Canadian dollars)

2008


2007Prepaid pension costs

$
1,160.2


$
1,104.1Other


181.8



114.5Total other assets and deferred charges

$
1,342.0


$
1,218.6   76

2008
    ANNUAL
    REPORT




---



##### 



15.  Long-term
    debt
  (in millions of Canadian dollars)

Currency in which payable

2008


20076.250% Notes due 2011

US$

$
505.7


$
398.87.125% Debentures due 2031

US$


420.8



341.49.450% Debentures due 2021

US$


301.2



244.45.750% Debentures due 2033

US$


292.4



235.54.90% Medium Term Notes due 2010

CDN$


349.9



349.85.95% Notes due 2037

US$


534.3



432.15.75% Notes due 2013

US$


483.3



6.50% Notes due 2018

US$


362.0



6.25% Medium Term Notes due 2018

CDN$


370.7



5.41% Senior Secured Notes due 2024

US$


156.7



130.46.91% Secured Equipment Notes due 2009  2024

CDN$


205.9



212.97.49% Equipment Trust Certificates due
    2009  2021

US$


133.3



111.2Secured Equipment Loan due 2009  2015

CDN$


139.3



144.2Other Long Term Loans due 2009  2015
    (4.00%  5.65%)

US$


5.4



Obligations under capital leases due 2009  2022
    (5.20%  9.38%)

US$


406.4



263.5Obligations under capital leases due 2009  2031
    (5.64%  5.65%)

CDN$


12.8



13.5Bridge financing due 2009

US$






1,256.3Bank loan payable on demand due 2010 (5.883%)

CDN$


5.4



5.14,685.5



4,139.1Perpetual 4% Consolidated Debenture Stock

US$


37.2



30.3Perpetual 4% Consolidated Debenture Stock

GB£


7.1



7.84,729.8



4,177.2Less: Long-term debt maturing within one year




44.0



31.0$
4,685.8


$
4,146.2       5-year 10-year 10-year
      2008
    ANNUAL
    REPORT

77




---



##### 



2009-2015
          (in millions of Canadian dollars)

Year


Capital leasesMinimum lease payments in:2009


$
45.82010



61.92011



37.02012



38.32013



36.3Thereafter



442.1Total minimum lease payments






661.4Less: Imputed interest






(242.2
)Present value of minimum lease payments






419.2Less: Current portion






(15.7
)Long-term portion of capital lease obligations





$
403.5     78

2008
    ANNUAL
    REPORT




---



##### 



16.  Financial
    instruments
  Fair value of
    financial instruments
    Loans and
    receivables
     Financial
    liabilities
       Available for
    sale
   Held for
    trading
       2008
    ANNUAL
    REPORT

79




---



##### 



December 31, 2007December 31, 2008Carrying Value of


Carrying Value of





Carrying Value of


Carrying Value ofFinancial Assets /


Other Assets /


Balance Sheet


Financial Assets /


Other Assets /


Balance Sheet(in millions of Canadian dollars)

Liabilities


Liabilities


Amount


Liabilities


Liabilities


AmountAssetsCash and cash equivalents

$
117.6


$



$
117.6


$
378.1


$



$
378.1Accounts receivable and other current assets Accounts
    receivable


638.7











483.0



Current portion of crude oil swaps


3.2











12.9



Current portion of interest rate swaps


7.2















Other






64.0











46.9649.1



64.0



713.1



495.9



46.9



542.8InvestmentsEquity investments at cost


18.3











1.3



Long-term receivables at amortized cost


10.8











17.5



ABCP


72.7











122.1



Other






49.3











1,527.7101.8



49.3



151.1



140.9



1,527.7



1,668.6Other assets and deferred chargesLong-term portion of crude oil swaps














8.5



Long-term portion of currency forward


57.3















Long-term portion of interest rate swaps


13.7















Other






1,271.0











1,210.171.0



1,271.0



1,342.0



8.5



1,210.1



1,218.6LiabilitiesShort-term borrowings

$
150.1


$



$
150.1


$
229.7


$



$
229.7Accounts payable and accrued liabilities Accounts payable and
    accrued liabilities


899.0











759.1



Current portion of foreign exchange contracts on fuel


0.1











2.1



Current portion of diesel swaps


4.5















Current portion of treasury rate lock














30.6



Current portion of interest rate swaps














(1.0
)


Other






131.3











190.0903.6



131.3



1,034.9



790.8



190.0



980.8Long-term debt maturing within one year


44.0







44.0



31.0







31.0Deferred liabilitiesLong-term portion of foreign exchange contracts on fuel














1.5



Long-term portion of currency forward














15.7



Long-term portion of interest rate swaps














(4.5
)


Total return swap


67.9











3.8



Other deferred liabilities


90.8











104.4



Other






706.5











593.7158.7



706.5



865.2



120.9



593.7



714.6Long-term debt


4,685.8







4,685.8



4,146.2







4,146.2   80

2008
    ANNUAL
    REPORT




---



##### 



Carrying value
    and fair value of financial instruments
    Financial risk
    management
      o
    Maintaining sound financial condition as an ongoing entity;o
    Optimizing earnings per share and cash flow;o
    Financing operations of the group of CP companies at the optimal
    cost of capital; ando
    Ensuring liquidity to all Canadian and U.S. operations.    o
    Prepare multi-year planning and budget documents at prevailing
    market rates to ensure clear, corporate alignment to performance
    management and achievement of targets;o
    Measure the extent of operating risk within the business;o
    Identify the magnitude of the impact of market risk factors on
    the overall risk of the business and take advantage of natural
    risk reductions that arise from these relationships; ando
    Utilize financial instruments, including derivatives, to manage
    the remaining residual risk to levels that fall within the risk
    tolerance of the Company.    and/or
  Risk
    factors
    Foreign
    exchange risk
    o
    Translation of U.S. dollar-denominated revenues and
    expenses into Canadian dollars  When the Canadian
    dollar changes relative to the U.S. dollar, income reported
    in Canadian dollars will change. The impact of a strengthening
    Canadian dollar on U.S. dollar revenues and expenses will
    reduce net income because the Company has more U.S. dollar
    revenues than expenses. This impact is excluded from the
    sensitivity in the table below; ando
    Translation of U.S. dollar-denominated debt and other
    monetary items   A strengthening Canadian dollar will
    reduce the Companys U.S. dollar denominated debt in
    Canadian dollar terms and generate a FX gain on long-term debt,
    which is recorded in income. The Company calculates FX on
    long-term debt using the difference in FX rates at the beginning
    and at the end of each reporting period. Other U.S. dollar
    denominated monetary items will also be impacted by changes in
    FX rates.  2008
    ANNUAL
    REPORT

81




---



##### 



FOREIGN EXCHANGE
    MANAGEMENT
          Year ended December 31, 2008Impact to OtherImpact to


comprehensive(in millions of Canadian dollars)

Net income


income1 cent strengthening in Canadian dollar

$
(2.3
)

$
(2.1
)1 cent weakening in Canadian dollar


2.3



2.1     FOREIGN EXCHANGE
    FORWARD CONTRACTS
    Interest rate
    risk
      82

2008
    ANNUAL
    REPORT




---



##### 



December 31, 2008At floating


At fixed(in millions of Canadian dollars)

interest rates


interest ratesFinancial assetsCash and short-term investments

$
117.6


$
ABCP


72.7



Financial liabilitiesShort-term borrowings


150.1



Long-term
    debt(1)


384.4



4,345.4   (1)
    
    Includes impact of interest rate
    swaps.  INTEREST RATE
    MANAGEMENT
      Year endedDecember 31, 2008Impact to(in millions of Canadian dollars)

Net income50 basis point increase in rates

$
(1.2
)50 basis point decrease in rates


1.2         Expiration

October 15, 2011Notional amount of principal (in millions of Canadian dollars)

$243.6Fixed receiving rate

6.250%Variable paying rate  year ended December 31,
    2008

4.859%     2008
    ANNUAL
    REPORT

83




---



##### 



Stock-based
    compensation risk
      STOCK-BASED
    COMPENSATION EXPENSE MANAGEMENT
      Year endedDecember 31, 2008Impact to(in millions of Canadian dollars)

Net income$1 increase in share price

$
1.8$1 decrease in share price


(1.8
)       Commodity
    risk
    FUEL PRICE
    MANAGEMENT
    84

2008
    ANNUAL
    REPORT




---



##### 



Year endedDecember 31, 2008Impact to Other(in millions of Canadian dollars)

comprehensive income$1 increase in price per barrel

$
0.3$1 decrease in price per barrel


(0.3
)             Credit
    risk
    CREDIT RISK
    MANAGEMENT
    2008
    ANNUAL
    REPORT

85




---



##### 



(in millions of Canadian dollars)Up to date

$
394.8Under 30 days past due


163.030-60 days
    past due


33.761-90 days
    past due


17.5Over 91 days past due


29.7$
638.7       Liquidity
    risk
    LIQUIDITY RISK
    MANAGEMENT
          As at December 31, 2008(in millions of Canadian dollars)

2009


2010  2012


2013+


TotalFinancial liabilitiesShort-term borrowings

$
150.1


$



$



$
150.1Accounts payable and accrued liabilities


899.0



73.6



17.2



989.8Total return swap






67.9







67.9Diesel swaps


4.5











4.5Foreign exchange contracts on fuel


0.1











0.1Long-term
    debt(1)


74.1



1,067.3



3,867.3



5,008.7   (1)
    
    Includes principal on long-term
    debt and undiscounted payments on capital leases.  86

2008
    ANNUAL
    REPORT




---



##### 



17.  Deferred
    liabilities
  (in millions of Canadian dollars)

2008


2007Provision for restructuring and environmental remediation
    (Note 19)

$
251.2


$
234.0Deferred workers compensation and personal injury accruals


159.8



161.4Accrued employee benefits


248.0



222.0Total return swap (Note 16)


67.9



3.8Deferred revenue on rights-of-way license agreements


51.3



48.0Deferred income credits


39.0



32.0Asset retirement obligations (Note 18)


31.9



29.1Deferred gain on sale leaseback


26.7



Long term payable


20.6



20.6Stock-based compensation liabilities


23.2



71.3Financial instruments






13.7Other


92.2



71.41,011.8



907.3Less: Amount payable/realizable within one year


146.6



192.7Total deferred liabilities

$
865.2


$
714.6     18.  Asset
    retirement obligations
    (in millions of Canadian dollars)

2008


2007


2006Balance, beginning of year

$
29.1


$
30.9


$
32.9Liabilities incurred


3.7







Accretion


1.9



1.9



2.0Liabilities settled  payments


(2.2
)


(0.7
)


(0.7
)Liabilities settled  sale of related asset






(0.8
)


(3.4
)Revision to estimated cash flows


(0.6
)


(2.2
)


0.1Balance, end of year

$
31.9


$
29.1


$
30.9   Canada
    Transportation Act,
    2008
    ANNUAL
    REPORT

87




---



##### 



19.  Restructuring
    accrual and environmental remediation
      Opening











Foreign


Closingbalance


Accrued





Amortization


exchange


balance(in millions of Canadian dollars)

Jan. 1


(reduced)


Payments


of
    discount(1)


impact


Dec. 31Year ended December 31, 2008Labour liability for terminations and severances

$
129.2


$
1.9


$
(40.3
)

$
4.3


$
4.5


$
99.6Other non-labour liabilities for exit plans


0.8







(0.4
)






0.1



0.5Total restructuring liability


130.0



1.9



(40.7
)


4.3



4.6



100.1Environmental remediation program


104.0



47.6



(12.6
)






12.1



151.1Total restructuring and environmental remediation liability

$
234.0


$
49.5


$
(53.3
)

$
4.3


$
16.7


$
251.2Year ended December 31, 2007Labour liability for terminations and severances

$
187.4


$
(12.8
)

$
(46.8
)

$
6.1


$
(4.7
)

$
129.2Other non-labour liabilities for exit plans


1.4



(0.2
)


(0.2
)






(0.2
)


0.8Total restructuring liability


188.8



(13.0
)


(47.0
)


6.1



(4.9
)


130.0Environmental remediation program


120.2



7.5



(14.0
)






(9.7
)


104.0Total restructuring and environmental remediation liability

$
309.0


$
(5.5
)

$
(61.0
)

$
6.1


$
(14.6
)

$
234.0Year ended December 31, 2006Labour liability for terminations and severances

$
263.6


$
(14.1
)

$
(71.8
)

$
9.8


$
(0.1
)

$
187.4Other non-labour liabilities for exit plans


5.8



0.7



(5.0
)


0.1



(0.2
)


1.4Total restructuring liability


269.4



(13.4
)


(76.8
)


9.9



(0.3
)


188.8Environmental remediation program


129.4



10.5



(19.5
)






(0.2
)


120.2Total restructuring and environmental remediation liability

$
398.8


$
(2.9
)

$
(96.3
)

$
9.9


$
(0.5
)

$
309.0   (1)
      88

2008
    ANNUAL
    REPORT




---



##### 



20.  Shareholders
    equity
  AUTHORIZED AND
    ISSUED SHARE CAPITAL
      2008


2007(in millions)

Number


NumberShare capital, January 1


153.3



155.5Shares issued under stock option plans


0.5



1.0Shares repurchased






(3.2
)Share capital, December 31


153.8



153.3           21.  Pensions
    and other benefits
        2008
    ANNUAL
    REPORT

89




---



##### 



Pensions


Other benefits(in millions of Canadian dollars)

2008


2007


2006


2008


2007


2006Current service cost (benefits earned by employees in the year)

$
97.6


$
97.6


$
101.9


$
16.1


$
16.8


$
15.1Interest cost on benefit obligation


445.8



420.0



400.0



27.0



26.7



26.6Actual loss (return) on fund assets


1,210.4



(275.9
)


(927.4
)


(0.3
)


(1.2
)


(0.6
)Actuarial (gain) loss


(1,176.9
)(1)


(1.4
)


35.2



(63.4
)(1)


(1.1
)


(2.9
)Plan amendments


42.0



22.5



1.3











(1.2
)Settlement gain














(4.8
)(2)


(10.7
)(2)


Elements of employee future benefit cost, before adjustments to
    recognize the long-term nature of employee future benefit costs


618.9



262.8



(389.0
)


(25.4
)


30.5



37.0Adjustments to recognize the long-term nature of employee future
    benefit costs:Amortization of transitional (asset) obligation


(16.2
)


(16.2
)


(16.2
)


12.4



12.4



12.4Difference between expected return and actual return on fund
    assets


(1,794.3
)


(278.3
)


401.2



(0.4
)


0.6



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


1,254.9



99.9



64.9



68.3



6.8



9.1Difference between amortization of prior service costs and
    actual plan amendments


(21.5
)


(5.8
)


14.5



(0.1
)


(0.2
)


1.0Net benefit cost

$
41.8


$
62.4


$
75.4


$
54.8


$
50.1


$
59.5   (1)
  (2)
  90

2008
    ANNUAL
    REPORT




---



##### 



Pensions


Other benefits(in millions of Canadian dollars)

2008


2007


2008


2007Change in benefit obligation:Benefit obligation at January 1

$
8,025.8


$
7,892.7


$
491.7


$
509.5Current service cost


97.6



97.6



16.1



16.8Interest cost


445.8



420.0



27.0



26.7Employee contributions


57.1



53.4



0.2



0.2Benefits paid


(452.8
)


(436.9
)


(35.2
)


(35.7
)Foreign currency changes


29.7



(22.1
)


8.6



(9.3
)Actuarial gain


(1,176.9
)


(1.4
)


(63.4
)


(1.1
)Plan amendments and other


42.0



22.5







Release due to settlement










(7.0
)


(15.4
)Benefit obligation at December 31

$
7,068.3


$
8,025.8


$
438.0


$
491.7Change in fund assets:Fair value of fund assets at January 1

$
7,610.5


$
7,649.2


$
12.5


$
11.9Actual (loss) return on fund assets


(1,210.4
)


275.9



0.3



1.2Employer contributions


95.4



86.4



34.2



34.9Employee contributions


57.1



53.4



0.2



0.2Benefits paid


(452.8
)


(436.9
)


(35.2
)


(35.7
)Foreign currency changes


18.7



(17.5
)


0.1



Fair value of fund assets at December 31

$
6,118.5


$
7,610.5


$
12.1


$
12.5Funded status  plan deficit

$
(949.8
)

$
(415.3
)

$
(425.9
)

$
(479.2
)Unamortized prior service cost


154.2



132.6



(0.7
)


(0.7
)Unamortized net transitional (asset) obligation


(64.1
)


(80.3
)


49.3



61.7Unamortized experience losses:Deferred investment losses due to use of market-related
    value to determine net benefit cost


1,204.0



(181.2
)






Unamortized net actuarial loss


814.8
(1)


1,647.3
(1)


33.8



101.9Accrued benefit asset (liability) on the Consolidated Balance
    Sheet

$
1,159.1


$
1,103.1


$
(343.5
)

$
(316.3
)   (1)
  2008
    ANNUAL
    REPORT

91




---



##### 



Pensions


Other benefits(in millions of Canadian dollars)

2008


2007


2008


2007Other assets and deferred charges

$
1,160.2


$
1,104.1


$



$
Accounts payable and accrued liabilities


(0.3
)


(0.2
)


(39.1
)


(38.3
)Deferred liabilities


(0.8
)


(0.8
)


(304.4
)


(278.0
)Accrued benefit asset (liability) on the Consolidated Balance
    Sheet

$
1,159.1


$
1,103.1


$
(343.5
)

$
(316.3
)       Pensions


Other benefits(in millions of Canadian dollars)

2008


2007


2008


2007Benefit obligation

$
(7,068.3
)

$
(8,025.8
)

$
(438.0
)

$
(491.7
)Fair value of fund assets


6,118.5



7,610.5



12.1



12.5$
(949.8
)

$
(415.3
)

$
(425.9
)

$
(479.2
)     (percentages)

2008


2007


2006Benefit obligation at December 31:Discount rate


7.00



5.60



5.40Projected future salary increases


3.00



3.00



3.00Health care cost trend rate


9.00
(1)


9.50
(1)


10.00
(1)Benefit cost for year ended December 31:Discount rate


5.60



5.40



5.25Expected rate of return on fund assets


8.00



8.00



8.00Projected future salary increases


3.00



3.00



3.00Health care cost trend rate


9.50
(1)


10.00
(1)


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


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

point increase


point decreaseEffect on the total of service and interest costs

$
(1.2
)

$
1.2Effect on post-retirement benefit obligation

$
(14.3
)

$
13.5   92

2008
    ANNUAL
    REPORT




---



##### 



PLAN
    ASSETS
    Percentage of planassets at December 31Asset allocation (percentage)

Current policy range


2008


2007Equity securities


45  51



41.6



49.4Debt securities


37  43



45.2



41.6Real estate and infrastructure


8  16



13.2



9.0Total






100.0



100.0         CASH
    FLOWS
    DEFINED
    CONTRIBUTION PLAN
    2008
    ANNUAL
    REPORT

93




---



##### 



POST-EMPLOYMENT
    RESTRUCTURING BENEFITS
    (in millions of Canadian dollars)

2008


2007Change in liability:Restructuring labour liability at January 1

$
115.4


$
160.8Plan adjustment


1.9



(12.8
)Interest cost


6.6



8.9Benefits paid


(30.3
)


(36.8
)Foreign currency changes


4.5



(4.7
)Restructuring labour liability at December 31


98.1



115.4Unfunded restructuring labour amount


(98.1
)


(115.4
)Unamortized net transitional amount


(1.5
)


(13.8
)Accrued restructuring labour liability on the Consolidated
    Balance Sheet

$
(99.6
)

$
(129.2
)   22.  Stock-based
    compensation
    REPLACEMENT
    OPTIONS AND SARs
        STOCK OPTION
    PLANS AND SARs
            94

2008
    ANNUAL
    REPORT




---



##### 



20072008Weighted






WeightedNumber of


average



Number of


averageoptions


exercise price



options


exercise priceOutstanding, January 1



6,981,108


$
43.97




6,807,644


$
38.50New options granted



1,376,600



71.30




1,304,500



62.60Exercised



(577,865
)


34.04




(972,281
)


31.99Forfeited



(108,700
)


51.49




(158,755
)


35.76Outstanding, December 31



7,671,143


$
49.52




6,981,108


$
43.97Options exercisable at December 31



4,558,043


$
38.48




4,035,008


$
34.12     Options outstanding


Options exercisableWeightedaverage


Weighted





WeightedNumber of


years to


average


Number of


averageRange of exercise prices

options


expiration


exercise price


options


exercise price$14.07  $18.06


169,750



1


$
14.52



169,750


$
14.52$27.62  $40.47


2,345,898



4



31.28



2,335,898



31.24$42.05  $62.56


3,777,895



5



54.42



2,041,295



48.63$63.45  $74.89


1,377,600



7



71.44



11,100



63.70Total


7,671,143



5


$
49.52



4,558,043


$
38.48   DEFERRED SHARE
    UNIT PLAN AND OTHER
          2008
    ANNUAL
    REPORT

95




---



##### 




    2008


2007


2006Expected option life (years)


4.39



4.00



4.50Risk-free interest rate


3.53
%


3.90
%


4.07
%Expected stock price volatility


23
%


22
%


22
%Expected annual dividends per share

$
0.99


$
0.90


$
0.75Weighted average fair value of options granted during the year

$
15.07


$
12.97


$
12.99   EMPLOYEE SHARE
    PURCHASE PLAN
      23.  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
    net-debt to net-debt-plus-equity ratio; ando
    interest-coverage ratio: earnings before interest and taxes
    (EBIT) to interest expense.  96

2008
    ANNUAL
    REPORT




---



##### 



Net-debt to
    net-debt-plus-equity ratio
    Interest-coverage
    ratio
      December 31,


December 31,


December 31,(in millions of Canadian dollars)

Guidelines


2008


2007


2006Long-term debt





$
4,685.8


$
4,146.2


$
2,813.5Long-term debt maturing within one year






44.0



31.0



191.3Short-term borrowing






150.1



229.7



Less:Cash and cash equivalents






(117.6
)


(378.1
)


(124.3
)Net
    Debt(1)





$
4,762.3


$
4,028.8


$
2,880.5Shareholders equity





$
5,993.4


$
5,457.9


$
4,856.5Net debt






4,762.3



4,028.8



2,880.5Net Debt plus
    Equity(1)





$
10,755.7


$
9,486.7


$
7,737.0Revenues less operating
    expenses(2)





$
1,057.4


$
1,164.2


$
1,128.6Less:Other
    charges(2)






(22.7
)


(29.6
)


(27.8
)Plus:Equity income in
    DM&E(2)






51.3



12.3



EBIT(1)(2)





$
1,086.0


$
1,146.9


$
1,100.8Net debt





$
4,762.3


$
4,028.8


$
2,880.5Net debt plus equity





$
10,755.7


$
9,486.7


$
7,737.0Net-debt to Net-debt-plus-equity
    Ratio(1)


No more than 50.0
%


44.3
%


42.5
%


37.2
%EBIT





$
1,086.0


$
1,146.9


$
1,100.8Interest expense





$
261.1


$
204.3


$
194.5Interest-Coverage
    Ratio(1)(2)


No less than 4.0



4.2



5.6



5.7   (1)

    These earnings measures have no standardized meanings prescribed
    by GAAP and, therefore, are unlikely to be comparable to similar
    measures of other companies.  (2)
    2008
    ANNUAL
    REPORT

97




---



##### 



24.  Commitments
    and contingencies
          25.  Guarantees
    o
    residual value guarantees on operating lease commitments of
    $194.6 million at December 31, 2008;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
      26.  Segmented
    information
  OPERATING
    SEGMENT
      98

2008
    ANNUAL
    REPORT




---



##### 



GEOGRAPHIC
    INFORMATION
  (in millions of Canadian dollars)

Canada


United States


Total2008Revenues

$
3,814.6


$
1,117.0


$
4,931.6Net properties

$
8,124.6


$
4,452.3


$
12,576.92007Revenues

$
3,716.4


$
991.2


$
4,707.6Net properties

$
7,745.1


$
1,548.0


$
9,293.12006Revenues

$
3,575.1


$
1,008.1


$
4,583.2Net Properties

$
7,539.3


$
1,583.6


$
9,122.9       CONSOLIDATING
    INFORMATION  2008
  Other


Consolidating(in millions of Canadian dollars)

Canada


United States


countries


entries


TotalRevenues

$
3,820.1


$
1,117.0


$



$
(5.5
)

$
4,931.6Operating expenses


3,214.2



784.7



(0.1
)


(124.6
)


3,874.2Revenues less operating expenses


605.9



332.3



0.1



119.1



1,057.4Equity income in DM&E, net interest expense, other charges
    and loss in fair value of ABCP


325.6



36.0



(74.7
)


(5.0
)


281.9Foreign exchange (gain) loss on long-term debt


285.4







(269.2
)


0.1



16.3Income taxes


38.4



83.5



1.1



17.2



140.2Net income (loss)

$
(43.5
)

$
212.8


$
342.9


$
106.8


$
619.0Current assets

$
894.1


$
664.5


$
15.2


$
(450.8
)

$
1,123.0Net properties


6,189.1



4,391.1







1,996.7



12,576.9Other long-term assets


2,828.7



342.6



1,564.6



(2,966.0
)


1,769.9Total assets

$
9,911.9


$
5,398.2


$
1,579.8


$
(1,420.1
)

$
15,469.8Current liabilities

$
1,074.7


$
260.5


$
1.2


$
(27.1
)

$
1,309.3Long-term liabilities


6,182.3



3,203.0



0.3



(1,218.5
)


8,167.1Shareholders equity


2,654.9



1,934.7



1,578.3



(174.5
)


5,993.4Total liabilities and shareholders equity

$
9,911.9


$
5,398.2


$
1,579.8


$
(1,420.1
)

$
15,469.8   2008
    ANNUAL
    REPORT

99




---



##### 



CONSOLIDATING
    INFORMATION  2007
  Other


Consolidating(in millions of Canadian dollars)

Canada


United States


countries


entries


TotalRevenues

$
3,715.9


$
991.2


$



$
0.5


$
4,707.6Operating expenses


2,949.9



688.6



0.1



(95.2
)


3,543.4Revenues less operating expenses


766.0



302.6



(0.1
)


95.7



1,164.2Equity income in DM&E, net interest expense, other charges
    and loss in fair value of ABCP


230.7



43.8



(30.9
)


(0.5
)


243.1Foreign exchange (gain) loss on long-term debt


(255.6
)






84.4



1.4



(169.8
)Income taxes


99.8



89.5



0.7



(45.3
)


144.7Net income

$
691.1


$
169.3


$
(54.3
)

$
140.1


$
946.2Current assets

$
1,014.1


$
358.0


$
20.8


$
(225.2
)

$
1,167.7Net properties


5,925.7



1,487.5







1,879.9



9,293.1Other long-term assets


2,766.7



1,559.8



515.1



(1,937.4
)


2,904.2Total assets

$
9,706.5


$
3,405.3


$
535.9


$
(282.7
)

$
13,365.0Current liabilities

$
1,158.7


$
232.1


$
0.3


$
(46.3
)

$
1,344.8Long-term liabilities


5,648.9



1,809.0







(895.6
)


6,562.3Shareholders equity


2,898.9



1,364.2



535.6



659.2



5,457.9Total liabilities and shareholders equity

$
9,706.5


$
3,405.3


$
535.9


$
(282.7
)

$
13,365.0   CONSOLIDATING
    INFORMATION  2006
  Other


Consolidating(in millions of Canadian dollars)

Canada


United States


countries


entries


TotalRevenues

$
3,571.2


$
1,008.1


$



$
3.9


$
4,583.2Operating expenses


2,833.9



736.5







(115.8
)


3,454.6Revenues less operating expenses


737.3



271.6







119.7



1,128.6Net interest expense and other charges


196.5



42.0



(25.2
)


9.0



222.3Foreign exchange (gain) loss on long-term debt


1.2







(1.3
)


0.2



0.1Income taxes


69.6



86.7



0.5



(46.9
)


109.9Net income

$
470.0


$
142.9


$
26.0


$
157.4


$
796.3   27.  Subsequent
    event
    28.  Reconciliation
    of Canadian and United States generally accepted accounting
    principles
    100

2008
    ANNUAL
    REPORT




---



##### 



(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:
      2008
    ANNUAL
    REPORT

101




---



##### 



(f) INTERNAL USE SOFTWARE:
  No. 98-1 (SOP 98-1),
  (g) CAPITALIZATION OF INTEREST:
    (h) COMPREHENSIVE INCOME:
      (i) JOINT VENTURE:
    (j) OFFSETTING CONTRACTS:
    (k) START-UP
    COSTS:
    (l) CAPITAL LEASES:
    (m) STATEMENT OF CASH FLOWS:
    (n) TRANSACTION COSTS ON LONG-TERM DEBT:
    102

2008
    ANNUAL
    REPORT




---



##### 



FUTURE ACCOUNTING
    CHANGES
  FASB Statement
    No. 141 (revised 2007)  Business
    Combinations
    FSP 157-2 
    Nonfinancial Assets and Nonfinancial Liabilities
  (FSP 157-2). FSP 157-2 FSP 157-2
  FASB Statement
    No. 160  Non-controlling Interests in
    Consolidated Financial Statements
    FASB Statement
    No. 161  Disclosures about Derivative
    Instruments and Hedging Activities
    FASB Statement
    No. 162  The Hierarchy of Generally Accepted
    Accounting Principles
    2008
    ANNUAL
    REPORT

103




---



##### 



COMPARATIVE
    INCOME STATEMENT
    (in millions of Canadian dollars,
    except per share data)

2008


2007


2006Net income  Canadian GAAP

$
619.0


$
946.2


$
796.3Increased (decreased) by:Pension costs


3.2



5.8



5.1Post-retirement benefits costs


9.6



9.4



9.1Post-employment benefits costs


11.0



7.2



6.7Termination and severance benefits


(8.7
)


(8.8
)


(8.2
)Internal use software  additions


(18.1
)


(12.0
)


(9.2
)Internal use software  depreciation


9.2



8.0



7.1Stock-based compensation


6.9



(1.7
)


(3.0
)Loss on ineffective portion of hedges


10.5



(0.4
)


(0.9
)Capitalized interest  additions


21.0



14.0



4.1Capitalized interest  depreciation


(5.3
)


(4.5
)


(3.9
)Start-up
    costs


(0.8
)


(0.8
)


(10.8
)Fair value of financial instruments










(2.3
)Capital lease  equipment rents


(1.3
)


(0.7
)


Capital lease  depreciation


0.9



0.4



Capital lease  interest


0.5



0.3



Future/deferred income tax expense related to above differences


(17.9
)


(40.7
)


(19.0
)Income before cumulative
    catch-up
    adjustment


639.7



921.7



771.1Cumulative
    catch-up
    adjustment on adoption of FASB 123R, net of tax










(2.0
)Net income  U.S. GAAP

$
639.7


$
921.7


$
769.1Other comprehensive income (loss)  Canadian
    GAAP


38.7



(40.8
)


(1.1
)Increased (decreased) by:Unrealized foreign exchange (loss) gain on designated net
    investment hedge


(10.5
)


0.4



0.6Unfunded pension and post-retirement liability adjustment


(533.4
)


(186.6
)


Minimum pension liability adjustment










783.3Change in fair value of derivative instruments










16.6Gain on derivative instruments realized in net income










(42.5
)Future/deferred income tax recovery (expense) related to other
    comprehensive loss


145.4



35.7



(210.7
)Other comprehensive (loss) income  U.S. GAAP

$
(359.8
)

$
(191.3
)

$
546.2Earnings per share  U.S. GAAPBasic earnings per share before cumulative
    catch-up
    adjustment on adoption of FASB 123R, net of tax

$
4.16


$
5.98


$
4.90Basic earnings per share after cumulative
    catch-up
    adjustment on adoption of FASB 123R, net of tax

$
4.16


$
5.98


$
4.89Diluted earnings per share before cumulative catch-up
    adjustment on adoption of FASB 123R, net of tax

$
4.11


$
5.92


$
4.86Diluted earnings per share after cumulative
    catch-up
    adjustment on adoption of FASB 123R, net of tax

$
4.11


$
5.92


$
4.84   104

2008
    ANNUAL
    REPORT




---



##### 



(in millions of Canadian dollars)

2008


2007


2006Comprehensive incomeCanadian GAAP

$
657.7


$
905.4


$
795.2U.S. GAAP

$
279.9


$
730.4


$
1,315.3     (in millions of Canadian dollars)

2008


2007


2006Revenues less operating expensesCanadian GAAP

$
1,057.4


$
1,164.2


$
1,128.6U.S. GAAP

$
1,053.8


$
1,166.5


$
1,122.3     2008
    ANNUAL
    REPORT

105




---



##### 



CONSOLIDATED
    BALANCE SHEET
    (in millions of Canadian dollars)

2008


2007AssetsCurrent assetsCashInvestment in joint ventures

$
(0.1
)

$
(0.2
)Accounts receivable and other current assets
    Investment in joint ventures






1.4Long-term assetsInvestmentsInvestment in joint ventures


51.2



48.9Start-up
    costs


(12.4
)


(11.6
)PropertiesCapitalized interest


175.7



160.0Internal use software


(64.1
)


(55.2
)Investment in joint ventures


(36.0
)


(36.1
)Capital leases


(9.6
)


(10.4
)Other assets and deferred chargesPension


(1,160.2
)


(1,103.1
)Long-term receivable (FIN 39)


201.8



190.3Transaction costs on long-term debt


43.9



36.0Investment in joint ventures


(15.7
)


(14.8
)Total assets

$
(825.5
)

$
(794.8
)   106

2008
    ANNUAL
    REPORT




---



##### 



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

2008


2007Liabilities and shareholders equityCurrent liabilitiesAccounts payable and accrued liabilitiesInvestment in joint ventures

$
(0.3
)

$
(0.4
)Income and other taxes payableInvestment in joint ventures






(0.1
)Long-term debt maturing within one yearCapital leases


(0.8
)


(0.7
)Long-term liabilitiesDeferred liabilitiesTermination and severance benefits


(1.5
)


(10.2
)Post-employment benefit liability






5.2Under funded status of defined benefit pension and other
    post-retirement plans


1,031.1



573.0Investment in joint ventures


(0.5
)


(0.5
)Stock-based compensation


(2.5
)


0.2Long-term debtBank loan (FIN 39)


201.8



190.3Capital leases


(8.9
)


(9.7
)Transaction costs on long-term debt


43.9



36.0Future/deferred income tax liability


(568.7
)


(441.2
)Total liabilities


693.6



341.9Shareholders equityShare capitalStock-based compensation


21.5



20.9Contributed surplusStock-based compensation


0.4



5.2Retained income


(136.5
)


(156.8
)Accumulated other comprehensive incomeFunding status of defined benefit pension and other
    post-retirement plans


(1,399.6
)


(1,010.2
)Unrealized foreign exchange (gain) loss on designated net
    investment hedge


(4.9
)


4.2Total liabilities and shareholders equity

$
(825.5
)

$
(794.8
)    2008
    ANNUAL
    REPORT

107




---



##### 



FIVE-YEAR
    SUMMARY
  (in millions of Canadian dollars)

2008


2007


2006


2005(1)


2004(1)Income StatementRevenuesFreightGrain

$
970.0


$
938.9


$
904.6


$
754.5


$
668.2Coal


607.5



573.6



592.0



728.8



530.3Sulphur and fertilizers


508.6



502.0



439.3



447.1



460.0Forest products


239.3



275.8



316.4



333.9



322.0Industrial and consumer
    products(2)


766.1



627.9



603.8



542.9



481.4Intermodal(2)


1,399.8



1,318.0



1,256.8



1,161.1



1,034.7Automotive


323.5



319.0



314.4



298.0



288.54,814.8



4,555.2



4,427.3



4,266.3



3,785.1Other(2)(3)(5)


116.8



152.4



155.9



125.3



117.8Total
    revenues(3)(5)


4,931.6



4,707.6



4,583.2



4,391.6



3,902.9Operating expensesCompensation and benefits


1,305.5



1,284.2



1,327.6



1,322.1



1,261.5Fuel


1,005.8



746.8



650.5



588.0



440.0Materials


217.2



215.5



212.9



203.3



178.5Equipment rents


182.2



207.5



181.2



210.0



218.5Depreciation


491.3



472.0



464.1



445.1



407.1Purchased services and other


672.2



617.4



618.3



621.6



610.7Total operating expenses, before other specified
    items(3)(5)


3,874.2



3,543.4



3,454.6



3,390.1



3,116.3Operating income, before other specified
    items(3)(5)


1,057.4



1,164.2



1,128.6



1,001.5



786.6Equity income (net of tax) in Dakota, Minnesota &
    Eastern Railroad Corporation (DM&E)


51.3



12.3











Less:Other charges, before foreign exchange gains and losses on
    long-term debt and other specified
    items(3)(4)(5)


22.7



29.6



27.8



18.1



36.1Net interest expense


261.1



204.3



194.5



204.2



218.6Income tax expense, before foreign exchange gains and losses on
    long-term debt and income tax on other specified
    items(3)(4)(5)


193.4



269.8



278.8



250.8



172.4Income, before foreign exchange gains and losses on long-term
    debt and other specified
    items(3)(4)(5)


631.5



672.8



627.5



528.4



359.5Foreign exchange gain (loss) on long-term debt (net of income
    tax)(4)


22.3



125.5



(7.2
)


22.3



94.4Other specified items (net of income
    tax)(3)


(34.8
)


147.9



176.0



(7.7
)


(42.8
)Net income

$
619.0


$
946.2


$
796.3


$
543.0


$
411.1   108

2008
    ANNUAL
    REPORT




---



##### 



(1)
  (2)
  (3)
  (4)
  (5)
  2008
    ANNUAL
    REPORT

109




---



##### 



SHAREHOLDER
    INFORMATION
  COMMON SHARE
    MARKET PRICES
  2008


2007Toronto Stock
    Exchange(Canadian
    dollars)

High


Low


High


LowFirst Quarter


74.74



57.30



66.33



60.06Second Quarter


75.00



63.98



78.48



63.75Third Quarter


68.75



53.80



91.00



67.37Fourth Quarter


57.86



34.24



73.00



59.48Year


75.00



34.24



91.00



59.48New York Stock Exchange(U.S. dollars)


High



Low



High



LowFirst Quarter


76.18



55.39



56.61



51.23Second Quarter


76.14



62.84



73.95



55.36Third Quarter


68.33



51.75



87.23



62.66Fourth Quarter


53.70



26.64



74.38



60.31Year


76.18



26.64



87.23



51.23Number of registered shareholders at year end:














17,721Market prices at year end:Toronto Stock Exchange













CDN$
40.98New York Stock Exchange













US$
33.62   SHAREHOLDER
    ADMINISTRATION
  Common Shares
    , (514) 982-7555,
  Computershare Investor Services
    Inc.
 100 University Avenue, 9th Floor
 Toronto, Ontario Canada M5J 2Y1
  4 %
    CONSOLIDATED DEBENTURE STOCK
   (212) 815-2719 e-mail
 (416) 933-8504 e-mail
  MARKET FOR
    SECURITIES
    110

2008
    ANNUAL
    REPORT




---



##### 



TRADING
    SYMBOL
  Common
    Shares  CP
  DUPLICATE ANNUAL
    REPORTS
    DIRECT DEPOSIT OF
    DIVIDENDS
    CORPORATE
    GOVERNANCE
      GOVERNANCE
    STANDARDS
    CHIEF EXECUTIVE
    OFFICER AND CHIEF FINANCIAL OFFICER CERTIFICATION
  Form 40-F. 52-109.
  2009 ANNUAL AND
    SPECIAL MEETING
    SHAREHOLDER
    SERVICES
  (403) 319-7538, e-mail
    INVESTOR
    RELATIONS
    COMMUNICATIONS
    AND PUBLIC AFFAIRS
    2008
    ANNUAL
    REPORT

111




---



##### 



DIRECTORS &
    COMMITTEES
  John E. Cleghorn, O.C.,
    F.C.A.(2)*
 Chairman
 Canadian Pacific Railway Limited
 Toronto, Ontario
  Tim W.
    Faithfull(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, President and Chief
    Executive Officer
 Xcel Energy, Inc.
 Minneapolis, Minnesota
  The Honourable John P.
    Manley(1)(2)(5)*
 Senior Counsel
 McCarthy Tétrault LLP
 Ottawa, Ontario
  Linda J.
    Morgan(3)(4)
 Partner
 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
  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)
  *
  112

2008
    ANNUAL
    REPORT




---



##### 



SENIOR OFFICERS
    OF THE COMPANY
   John E. Cleghorn, O.C.,
    F.C.A.
 Chairman of the Board
 Toronto, Ontario
  Frederic J.
    Green(1)
 President and Chief Executive
    Officer
 Calgary, Alberta
  Kathryn B.
    McQuade(1)
 Executive Vice-President and Chief
    Financial Officer
 Mesquite, Nevada
  Jane A.
    OHagan(1)
 Senior Vice-President, Strategy
    and Yield
 Calgary, Alberta
  Marcella M.
    Szel(1)
 Senior Vice-President, Sales and
    Marketing
 Calgary, Alberta
  Brock M.
    Winter(1)
 Senior Vice-President, Operations
 Calgary, Alberta
  Donald B.
    Campbell(1)
 Vice-President, Corporate Planning
 Calgary, Alberta
  Brian W. Grassby
 Vice-President and Comptroller
 Calgary, Alberta
  Paul A. Guthrie,
    Q.C.(1)
 Vice-President, Law
 Municipal District of Rocky View,
    Alberta
  Tracy A. Robinson
 Vice-President and Treasurer
 Calgary, Alberta
  R. Andrew
    Shields(1)
 Vice-President, Human Resources
    and Industrial
 Relations Calgary, Alberta
  Karen Fleming
 Corporate Secretary
 Calgary, Alberta
  (1)
  2008
    ANNUAL
    REPORT

113




---



##### 



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